00:00:15: Thank you so much, I apologize.

00:00:21: Good afternoon everybody.

00:00:22: how are we today?

00:00:23: A little bit of excitement there.

00:00:25: So this is my third time speaking at this event and it's really nice to see a lot of familiar faces as they look around.

00:00:45: And thank you too some people who've come up from Kansai as well.

00:00:48: So my topic today is going to be a little bit different from the other ones that I've spoken about before, you know we primarily manage a lot of STRs.

00:00:56: but today i'm gonna talk bout boutique hotel investments.

00:01:00: But Before I start there just wanted see with show hands how many people own STR in Japan?

00:01:10: We got couple.

00:01:11: How Many People Own A Boutique Hotel?

00:01:17: Alright?

00:01:17: so yeah great maybe can change it following My presentation.

00:01:22: So I'll get cracking.

00:01:25: Okay, so we are Shiki properties where eleven and a half years in operation.

00:01:29: We've got forty six staff including the lovely two-in-the-front row here And couple of officers.

00:01:36: Kyoto now Nagano?

00:01:38: So we have to different parts of the business.

00:01:41: We have the accommodation management side.

00:01:44: Shiki property is where we manage fifty STRs as three boutique hotels for a total of eighty two keys.

00:01:51: Primarily our portfolio is in Kyoto, but we also manage some properties in Osaka and now Nagano as well.

00:01:59: So we offer a fully integrated one-stop platform things such as guest operations front desk housekeeping owner reporting asset management And then we also have our real estate division.

00:02:13: so We offer buy and sell side brokerage for international clientele.

00:02:19: We do a lot of STR transactions, but lately we've been doing several hotel brokerage deals including this year and We also do a little bit of Rezi & Commercial.

00:02:30: The bulk of it is in Kyoto, Samen Osaka And now also some in Nagano.

00:02:39: So before I kick on to the hotels i just wanted To share A couple of photos Of some our most popular recent properties.

00:02:47: so up-the-top the property Is called Ichinen.

00:02:50: We opened this in the middle of December last year, and it's just come storming out at that block.

00:02:56: So we've done twelve million bookings for four months.

00:03:01: It is booking extremely well And...we have had some really nice photos on this property which has helped substantially aswell.

00:03:08: but I wanted to show you guys the vibe.

00:03:11: This kind quality works very well And we've got the lovely Rotenburo there as well.

00:03:19: If anyone remembers from last time I was talking about how much that helps with reservations and ADR, things like that.

00:03:26: Then on the bottom is a property called Korju.

00:03:29: This one has larger properties.

00:03:31: It fits eight or nine and it's in the Higashiyama area this ones booking absolute hotcakes open nine months ago.

00:03:41: We have done twenty four million in revenue since then.

00:03:45: It's one of our best, most popular properties.

00:03:48: And both these two are doing north-of nine percent yield I believe perhaps even slightly more than that All right.

00:03:56: so before i kick into the main part of the presentation... ...I just want to do a bit of market update on the accommodation market and Japan remains one of the world's hottest tourist destinations.

00:04:09: So last year we did forty two point seven million inbound visitors.

00:04:13: It was the first time we went over the forty million mark, fantastic year last year.

00:04:20: The visitors spent nine point five trillion yen in spending which is a third consecutive year.

00:04:26: that's gone up and interestingly seventy percent of that spend has been on accommodation food whereas in the past there were larger proportion of the spend going towards shopping now seeing more of this spend on experiences.

00:04:41: so what does it mean?

00:04:42: People are spending more money on their accommodation and they're looking for higher quality accommodation.

00:04:50: So, this year the JTB is projecting a slight decrease in Inbound Tourist numbers.

00:04:55: Forty-one point four million which would be minus two point eight percent.

00:04:59: And the main reason for that Is some tensions with China Which kicked off around November basically accounts For most of That.

00:05:09: The spending has actually forecast to increase from last Year.

00:05:12: So basically, what does that mean?

00:05:14: People are spending more.

00:05:16: And it's often Western guests coming in staying a bit longer with a little bit of higher budget.

00:05:22: so the takeaway at the bottom there is fewer visitors, higher spending and you know, more opportunity for boutique investments.

00:05:33: I've collected a little data on right here about our STR guest nationality profile.

00:05:40: this from twenty-twenty six And we'll see here at the top, Americans accounting for twenty-three percent of our STR guests.

00:05:48: They come up with number one.

00:05:50: Number two is my brethren from Australia coming in at fifteen percent and then UK at six per cent.

00:05:57: So interestingly enough We've got forty four percent of out STR guests Coming form these three English speaking markets.

00:06:05: The reason I wanted to show you this Is later on were going have a look At bunch of hotels that we manage where the profile is quite different.

00:06:15: Okay, so this is a graphic showing the number of inbound tourists over the last few years.

00:06:20: you can see this huge growth coming out of COVID-the peak last year and what we can call maybe a speed bump this year.

00:06:30: We've got the government target of sixty million at twenty thirty.

00:06:34: it's looking like a bit of a challenge to hit it.

00:06:41: And on this slide, I've collected the last seven months of our operation just to give you a feel for what the accommodation market's been doing during this time.

00:06:50: So October was fantastic.

00:06:52: we really banged it out at the park that month and then November was looking pretty good.

00:06:58: but During that month We had The China Tension kickoff and we already saw A little bit Of impact and December Had More Impact.

00:07:08: in January Was an absolute Disaster.

00:07:11: So it was some pretty challenging months there, December-January.

00:07:15: And then we also had the Lunar New Year shift from January to February.

00:07:19: so this is a year on year REVPA comparison.

00:07:24: that's why its pulled down January even further.

00:07:27: February looks okay but if you adjust out the lunar new year both those months were quite challenging since at time obviously have the Gulf conflict kick off and I've got nice slide about next one But that was February twenty-eight.

00:07:44: Despite that March, it's absolutely fantastic and so is April.

00:07:50: JTB says we're gonna have a down year but interestingly enough our forward bookings are quite strong.

00:07:57: So what happened since the Gulf conflict kicked off?

00:08:02: We obviously had a lot of flights shut down from the Middle East And that really affected ability of Europeans to come through Japan.

00:08:11: So I was panicking big time and checking cancellations, you know five times a day.

00:08:18: And of course we did have some cancellations.

00:08:20: But what happened?

00:08:22: Was japan has been positioned as the safe haven You know somewhere and actually it's going up in a lot of people's eyes.

00:08:30: so we had a lot Korean Southeast Asian Travelers deciding to come to Japan And that's absorbed the excess demand.

00:08:39: so surprisingly our bookings have actually gone up.

00:08:44: We've booked a hundred and fifty-five percent you on year in the last five weeks.

00:08:48: So it's funny How things turn out sometimes?

00:08:54: Okay, I'm gonna kick into the main part of the presentation now which is going to be boutique hotel investment.

00:09:02: so Investing in STRs.

00:09:05: You know That's the core part of our business.

00:09:07: It's a fantastic investment.

00:09:09: The ticket price is reasonable.

00:09:11: It's a really good way to enter the market, but it does have a few structural limits.

00:09:17: So the first one is that?

00:09:19: Is quite difficult to get leverage for the STRs.

00:09:22: its not impossible But it's pretty tough particularly if you're foreign investor.

00:09:28: and so what happens?

00:09:29: there is basically If you want I invest your seventy million will get you as seventy million asset.

00:09:36: essentially.

00:09:37: Number two, STLs have operational complexity.

00:09:40: If you're trying to operate it on your own geographically can be quite challenging if You used an experienced external operator Which would include a company like ours that can help to manage the situation.

00:09:53: They can get a little bit more efficiency in the operation.

00:09:56: But if you have a standalone hotel as you can imagine there are additional efficiencies That you can get which is quite difficult replicate with a bunch of STRs.

00:10:09: And number three, STR policy continues to develop globally not just in Japan.

00:10:16: so In Kyoto we've really focused on the machia investments because I feel like the Machia has a lot less risk around it.

00:10:24: The government really understands that these properties have cultural value and they want to protect them.

00:10:30: So for me there's less risk.

00:10:35: But globally, we've seen attitudes change of governments towards STRs.

00:10:40: So that is something.

00:10:41: there's a point of difference between the hotel and the STR there.

00:10:45: so if you want to complement your STR portfolio You can have a look at boutique hotels which will allow you to add some leverage structural efficiency And scale for the long term purchase.

00:11:07: Often they're wooden structures and the banks are hesitant to lend on these assets, particularly if their older.

00:11:15: so often you'll end up with zero percent LTV.

00:11:19: yes there's a lot of heritage value.

00:11:22: no the Japanese banks don't really see any value in that unfortunately.

00:11:26: So like I was saying seventy mil in seventy mill asset is kind of how it usually works.

00:11:33: And If You Compare That To Boutique Hotels You know, it's seen as commercial real estate.

00:11:38: It is a going concern.

00:11:40: The banks will lend against the cash flow there But also the asset value so you can use the properties security.

00:11:47: So I don't-you should expect at least fifty percent LTV for hotel investment.

00:11:53: Maybe sixty percent and if your an experienced Hotel investor you Can perhaps extract seventy percent or even more.

00:12:03: So under this kind of scenario, a hundred and seventy-five million might get you three hundred fifty million asset.

00:12:10: The one thing to note is You do need a hundred seven five million To Get involved.

00:12:19: so there's just an example of what that looks like on the screen.

00:12:23: Let's say you've got that one seventy million.

00:12:25: if you Purchased some STR much years they'll probably get your two very nice much years Hundred and seventy million in for a hundred and seventy million equity.

00:12:37: If you went for the hotel investment, and got fifty percent LTV that would get you three hundred forty million of asset.

00:12:45: And if were able to negotiate seventy per cent LTV You could get almost five hundred and seven billion worth assets.

00:12:56: Okay, so why is there an opportunity in boutique hotels?

00:13:00: So the guest demands have changed a little bit.

00:13:03: like I was saying The spend of the guests has going up a little bits.

00:13:07: They want larger rooms You know a little better quality and service.

00:13:13: A lot of these old budget hotels and basic STRs.

00:13:18: they're not really aligned with what the guests are looking for.

00:13:21: right now people will have this nightly spent thirty thousand yen.

00:13:27: There's a bit of lack of demand there, so it is an opportunity to purchase some these older properties and jazz them up with add value.

00:13:37: The second one construction costs are extremely high at the moment thanks to devaluation of the Yen and inflation.

00:13:44: So its made investing in new boutique hotels quite uneconomical.

00:13:50: Therefore theres not that many small hotels popping around.

00:13:55: And the third one is a lot of the capital that's coming into Japan, which there still are a lot coming in.

00:14:00: It really targeting this institutional size of hundred plus rooms and therefore these smaller assets.

00:14:07: they're still an opportunity for investors to jump in their.

00:14:11: but as we all know opportunities don't last forever so We should expect the same here.

00:14:20: So next I've got a bit of case study on three our hotels.

00:14:26: I have changed a couple of the numbers just for privacy reasons, but basically The story is unchanged.

00:14:34: So i'm just going to go through each of the three hotels we manage.

00:14:37: Uh...the first one Is our flagship Shiki Suites hotel And this one's got ten rooms.

00:14:44: It has got the Kanshuku license.

00:14:46: Last year We did eighty two point three percent occupancy Which was fantastic Um.

00:14:51: and This One Has an ADR Of Just over twenty thousand yen ADR being average daily rate.

00:14:59: So we did approximately forty seven million is the example, GOP for this hotel last year.

00:15:07: so what is GOP?

00:15:08: I've got it down at bottom there.

00:15:09: its gross operating profit.

00:15:12: It's basically your revenue minus all of the operating costs.

00:15:16: Operating costs are cleaning OTA fees payment processing utility linen staff internet all the operating costs, but it's before you take away the management fee and their interest.

00:15:33: So forty seven million for this property takes away the Management Fee estimate.

00:15:40: that leaves with a cap rate of eight point nine percent.

00:15:43: That is the unlevered yield.

00:15:45: And then once we remove the interest We're looking at A levered return Of fourteen point two five percent For This Property.

00:15:55: So just want to touch on the guest nationality here, which is I think interesting.

00:16:01: so at this twenty thousand yen ADR and For a room size of twenty eight square meters.

00:16:08: You can see actually that domestic Guests are number one here.

00:16:13: So sixteen percent That's it.

00:16:14: It's a bit of a different profile to what we had for the STRs And we're going to see that change as their room size in the ADR fluctuates.

00:16:22: so interestingly We have forty-eight percent Western and European guests at this property.

00:16:30: Okay, so we're going to the second property.

00:16:32: This one is Riverside Tofuguji.

00:16:35: This is a management property.

00:16:37: We got eleven rooms.

00:16:38: Rooms are little bit smaller.

00:16:40: So twenty two twenty three square meters occupancy Fantastic again.

00:16:44: eighty-two point six percent last year but the ADRs a bit lower.

00:16:49: twelve point six thousand yen.

00:16:51: It's uh it's a one rank lower quality of hotel And the room size is a little bit smaller.

00:16:59: The location is one station away, so it all means that the ADR is lower.

00:17:06: So for this one I've put the example purchase price at three fifty million and last was four hundred.

00:17:15: We got GOP of twenty nine point five million on this one Remove interest and basically cap rate eight point four percent.

00:17:25: But once you lever it up, its thirteen point four percent.

00:17:29: And actually I think the owners are doing a lot better than this because they developed seven or eight years ago.

00:17:36: but this is approximately what it might cost to go in and invest that sort of asset.

00:17:43: So at twelve point six thousand yen ADR we can see that the guest profile Is very different.

00:17:50: This time Japan clearly on top twenty-four percent Number two actually and overall it's heavily weighted towards the asian traveler with this sort of profile.

00:18:06: Okay, so last one is The toji suites.

00:18:09: This is our newest hotel.

00:18:11: Actually we opened that in february.

00:18:13: twenty-twenty six mid-feb eleven rooms on this one And the location is a little bit less central.

00:18:22: It's down toward the toji pagoda And this one's doing forty nine million GOP projected for a cap rate of ten point one percent and levered up.

00:18:35: That's sixteen point eight percent cash yield on equity, which is fantastic.

00:18:42: This is a projection so you know.

00:18:43: we'll see where it goes.

00:18:45: But the bookings here have been fantastic.

00:18:48: We've done twenty four million in bookings in the first two months.

00:18:52: an very pleasingly.

00:18:53: We've actually beat the budget for May, which is a third-year budget.

00:18:58: we have done it in the first year within three months.

00:19:00: so that's going fantastically well.

00:19:03: The room size is forty two to forty four square meters.

00:19:07: I think thats really helping and interestingly you'll see there profile quite similar to the STRs here.

00:19:13: So now we got Americans coming looking at larger rooms with more budget.

00:19:22: Okay, so I'll just quickly go through last few slides.

00:19:26: But should you build or should buy?

00:19:29: Well at the moment building is extremely expensive.

00:19:31: we're looking at o point five million per square meter and also on top of that it can take two to four years for a new bill.

00:19:40: there's labor shortages And this means that lenders are nervous because they have some risk around.

00:19:46: So if compare them with buying below replacement cost.

00:19:51: You can buy a boutique hotel for somewhere between three thirty million, up to say a billion and then obviously you can lever that up.

00:20:01: the other good benefit is you can get your revenue faster.

00:20:03: so I've got six to nine months there but we started getting revenue for Torji in four-and-a-half months.

00:20:16: This next slide is just showing what kind of benefits you can get from having more rooms in your hotel.

00:20:21: So I've just compared ten-room hotel, fifteen room hotel, twenty room hotel.

00:20:26: A lot of the revenues and costs are linear.

00:20:29: so particularly for this example... ...so it goes up straight line.

00:20:34: And things like revenue, OTA cost, cleaning, linen The utilities these roughly move into a straight line But what doesn't move to a straightline front desk cost.

00:20:47: You can see that the front desk costs is the same whether it's ten rooms or twenty rooms.

00:20:51: and also you get some efficiencies on the management fee, which I'll explain in a next slide.

00:20:56: but basically at ten rooms your net GOP percentage of fifty percent goes up to sixty one per cent for example with the twenty rooms.

00:21:06: so the GOP per room moving higher.

00:21:12: On top of that, efficiencies you can get are... You could use a management company.

00:21:16: So if your trying to run your ten room boutique hotel yourself.. ..you've got to hire manager and have a lot stuff.

00:21:24: If user operating company they can assume the GM function And you can run this kind small hotel without any GM.

00:21:32: They can handle things like recruitment training marketing systems all those kinds of thing.

00:21:38: The owner would just Mainstay is the owner of the asset, possibly give some strategy.

00:21:47: No need to do that either.

00:21:49: but also they would not have go on site manage their property themselves and trust it with management company.

00:21:57: usually as hotel increases in size the management fee goes down.

00:22:03: so you get more efficiencies there.

00:22:09: And the third way you can get efficiencies is by using a cluster.

00:22:13: So if you have a ten room hotel, it's just pretty small operation.

00:22:17: If you have some SDRs position around the hotel You can dilute your staffing costs Your marketing Backoffice things like that.

00:22:27: now That is still quite challenging for an individual investor to do.

00:22:31: But if you use a company who's employing that strategy and obviously we do employ this kind of strategy you can extract some of the efficiencies that they're developing and reduce your cost-of management.

00:22:47: So, STR's great investment is a great entry point.

00:22:51: it's reasonable ticket price but as you go along on an investment journey boutique hotels are certainly worth consideration.

00:23:00: You'll be able to use leverage, scale up operations.

00:23:04: look at these cluster models And at the moment, there's still some good opportunities in the market.

00:23:11: But of course the market doesn't stay the same forever.

00:23:15: So thank you very much for your interest today.

00:23:19: I just wanted to summarize.

00:23:21: i'm here with our other staff Ben and Yi from the Naganoa and Kyoto offices.

00:23:28: Tomorrow they're going be speaking about ski field investments and also managing complex Kyoto regulations at three thirty tomorrow, so please show them some love in the breakout room.

00:23:41: These are our socials up there.

00:23:42: you can also get from the QR code and I'm happy to take questions if they're any.

00:23:47: thank-you very much.

00:23:49: Thank you Chai.

00:23:53: Tracy's got a question hang on.

00:23:55: we started with Tracy?

00:24:00: My question is about building acquisition of these already Hotels or have these been apartment blocks that I've done conversion.

00:24:09: That's the first question.

00:24:11: second question Is it simple lodging?

00:24:13: Hope like we all can't lake and then room by room-by-room, or is it Lake Regular?

00:24:19: your car licensing for For the building okay.

00:24:23: so for the first one actually It's good question.

00:24:26: in Kyoto you can really do its very difficult to do conversions for fire reasons.

00:24:34: I think nothing's impossible, but it's very difficult.

00:24:38: So these are all custom hotel build.

00:24:41: they've been designed to be hotels.

00:24:45: so that probably covers That question.

00:24:48: and the other one is Kanshuku license.

00:24:51: It's the business hotels license or the OneLicense.

00:24:56: Again Kyoto found in place The regulations are super strict individual licenses and then have these corridors of public space.

00:25:09: So you've got to go the whole building, but it's gotta be a custom hotel.

00:25:17: Any more hands?

00:25:18: Questions... Yes!

00:25:19: Of course there had been the other side in that room didn't

00:25:21: they?!

00:25:29: You talked about the hub model for your presentation.

00:25:32: I just wasn't clear.

00:25:32: is this something your company offers or does its outsource to another company?

00:25:37: Yeah so thats just an operational.

00:25:40: So as an individual investor, you could replicate that.

00:25:44: You can buy a hotel or you could buy a bunch of short-term rentals and make it cluster.

00:25:49: As management company we also employ the model.

00:25:53: We have some hotels that we rent then we manage.

00:25:56: Then there's a whole bunch of shorter rentals around them.

00:26:00: There is regulation in Kyoto where facilities are within certain distance.

00:26:05: so you kill few birds with one stone and you can get some efficiencies out of the front desk, all this kind stuff.

00:26:15: So if you cannot do it as an investor then use a company who does that.

00:26:19: so they are getting some efficiency and hopefully that should come through in your fees.

00:26:33: Can you explain the difference between con check license?

00:26:43: So it's like simple lodging.

00:26:45: It is under the same scheme as some of the Hotel Business Act, but different to the Minpaku license for example.

00:26:55: The next step up are hotel licenses and they're just more strict.

00:26:59: You have first floor you can't have any rooms or a lot more strict in terms of personnel.

00:27:07: so the Kanshukha is just a bit more relaxed than the hotel license.

00:27:12: So if you have something that's more simple It's just the easier license and the fire code is a little bit less.

00:27:19: I think so, yeah Anymore questions from the room.

00:27:25: any more hands?

00:27:26: Yes off on this ring.

00:27:28: okay give me a sec.

00:27:36: So we've got a question in the chat which is are you offering these as investments for individuals or for a group investment?

00:27:45: If somebody wanted to do it as a group they probably have to arrange that themselves.

00:27:49: We don't really do that scheme on our side.

00:27:52: But yeah, so I would say mainly individual or our clients.

00:27:57: but obviously if somebody wanted to make a company and have a bunch of investors they'd be free to do so on their site.

00:28:05: I can tell you portfolio managers like ourselves are sure Chai's Company as well.

00:28:12: we panic when people say Can You Help Me Find Other Investors?

00:28:15: And you organize us together.

00:28:18: We have everybody has a different opinion on what to do when the air con breaks and it's bit of nightmare.

00:28:22: So, people come in together as group is lot easier.

00:28:25: Alright any more questions?

00:28:27: If not then we will take ten minute break.

00:28:30: Thank you Chai!