Tokyo winters may be chilly, but the streets are bustling with chattering tourists from Singapore, Korea, Indonesia and various other countries. It is evident that following the pandemic, tourism in Japan has rebounded stronger than ever, driven by pent-up demand and a weaker yen, making spending less restrictive.
Conversations with locals in the hospitality industry revealed that Tokyo hotels have experienced remarkably high occupancy rates since the second half of 2023, with some nearly reaching maximum capacity. Surprisingly, this surge occurred without the return of Chinese tourists in full force.
According to Japan’s National Tourism Organisation, the country welcomed 25 million tourists in 2023, the largest number since 2019, the full year before the pandemic hit in early 2020. Total spending by visitors hit a record 5.3 trillion yen ($47.8 billion) in 2023, up 10% over 2019; spending per person increased by a third to 212,000 yen, according to the Japan Tourism Agency.
Beh Siew Kim, chief financial and sustainability officer and managing director of lodging, CapitaLand Investment (CLI), says Japan has always been a steady market for The Ascott, CLI’s lodging arm. As of Dec 31, 2023, Ascott runs 22 properties in Japan under its various brands, with plans to gradually increase, though it did not provide a set goal. “Japan is a key market for Ascott. It achieved one of the highest average daily rates (ADR) post-pandemic,” says Beh.
Ascott’s properties in Japan have demonstrated remarkable resilience, thanks to their long-stay appeal. They effectively cater to residents and international guests. Even during border closures, occupancy rates have remained steady, hovering around 50%.
With relatively strong business continuity, Ascott opened three new properties in Japan during the pandemic, all remaining cash flow-neutral throughout. Beh adds that the company had no cash flow issues at that time, and ramping up business to cater to local guests was not an issue.
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In 2023, Ascott announced a brand refresh to help showcase its flex-hybrid accommodation concept, which has proven resilient through and after the pandemic. This hotel-in-residence model is designed to be more adaptable to better cater to guests with different profiles and lengths of stay.
Kevin Goh, CEO of Ascott and CLI Lodging, says that operating on such a “flex-hybrid” model helps Ascott stay agile throughout different business cycles, investing its resources in a way that generates higher returns for investors and owners. “By being responsive to shifts in demand, Ascott can quickly pivot its operations to suit the market’s needs and optimise occupancy to drive revenue growth,” he says.
According to Goh, this model can also help mitigate risks of over-reliance on a single market segment. When one segment experiences a downturn, the business can focus on other better-performing segments. This adaptability can help build a more stable income stream amid growing guest demand.
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“Third-party property owners and developers are also responding positively to this trend, contributing to our growing momentum of management contract signings, even during the pandemic,” he adds.
Booming tourism industry
Ascott runs a total of about 950 properties across over 40 countries (as at Dec 31, 2023). While the overall business is recovering from the pandemic, Beh is confident of further growth in Japan, attracting both visitors and investors alike.
Beh explains that many investors are attracted by the fact that hospitality assets have the flexibility to charge higher rates if there is stronger demand — and the rates can vary day by day. “This is unlike office or data-centre properties, where the price is fixed and locked in for a certain time. It cannot be adjusted as frequently,” she explains.
With this new flex-hybrid model in place, Beh says the company will be able to command higher ADR and higher margins with short-term stays, while still maintaining its core long-stay visitors. In 2023, ADR in Japan increased by over 20% y-o-y and higher than pre-pandemic levels. However, Beh adds that the ADR is highly dependent on several factors, such as the type of properties, location and seasonality.
Across Ascott’s global portfolio, North Asia (excluding China) saw the fastest-growing revenue per available unit (RevPAU) from 2022, driven by Japan at almost 150% y-o-y growth. Comparing 4Q2023 with the same period from the year before, Japan achieved a y-o-y RevPAU growth of 66% and performed at 101% of pre-Covid-19 levels.
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While 60% of the rooms in Ascott’s Japan properties are occupied by long-stay guests, 65% of the company’s revenue is generated from short-stay guests. Hotels generally require a higher staff-to-room ratio, thus incurring more costs. However, for long-stay properties, the staff-to-room ratio is below one, says Beh, which means better operating margins.
Ascott has been contributing positively to CLI, helping it weather a bumpy FY2023, where CLI’s earnings for the year ended December 2023 declined by 79.0% y-o-y to $181 million.
Ascott’s asset-light model means that its income is derived largely from operating its 950 properties. Any additional properties it manages under one of its brands are likely to contribute directly to its fee-related earnings, making Ascott a highly ROE-generating business.
Overall revenue declined by 3.2% y-o-y to $2.78 billion from $2.88 billion last year, mainly due to lower corporate leasing income from Synergy Global Housing, a majority-owned accommodation provider in the US that offers apartments and corporate leases, as well as lower rental revenue from properties in China in the real estate investment business segment, partially offset by higher fee income-related businesses (FRB).
FRB revenue, which has been providing strong recurring contributions to CLI’s overall returns y-o-y, gained 9% y-o-y to $1.07 billion, anchored by higher contributions from lodging management and commercial management.
Lodging management fee-related earnings increased 28% y-o-y to $331 million with nearly 9,600 units turning operational. Riding on the robust rebound of international travel, RevPAU grew 20% from a year ago to $91, driven by higher occupancy and average daily rates across most geographies.
Expanding portfolio
Given the confidence in the market, it is no surprise that Ascott is expanding its presence in Japan. In addition to the properties launched during the pandemic, Ascott plans to introduce more properties in the country. Among them is a property by lyf, Ascott’s co-living brand, which is set to open in Shibuya, Tokyo. Held under CapitaLand Ascott Residence Asia Fund II (CLARA II), CLI’s lodging private fund, this property will mark Ascott’s 23rd venture in Japan and is scheduled to open in the fourth quarter of 2024.
Moving forward, Ascott plans to expand its lyf and Oakwood brands.
lyf is CLI’s own brand created back in 2019. In January, Ascott announced that it had signed on eight new properties to carry the lyf brand, expanding into new resort and city destinations such as Bali, Penang, Sydney and Frankfurt. The brand is present in 21 cities worldwide, with over 5,500 units, both operating and in the pipeline.
Unlike its namesake Ascott brand, as well as the more established brands Citadines and Somerset, lyf caters more to a younger demographic of travellers or “the next-generation traveller”, including digital nomads, technopreneurs, creatives and self-starters. Although the units are smaller than Ascott’s serviced residential properties, lyf has several shared spaces to encourage interaction between guests.
Goh says that there is tremendous potential for Ascott to further scale lyf across more hospitality asset classes, whether as a full-service hotel or resort, especially with the growth pace seen over the year.
“With more than 30 lyf properties both in operation and under development, Ascott will bring lyf to even more destinations in the year ahead, as we work towards our target of 150 properties with over 30,000 units by 2030,” he adds.
In 2023, Ascott signed eight new lyf properties with a total of close to 1,500 units, achieving a signing pace that has almost doubled that in 2022. These will be progressively launched from 2024. Also in 2023, Ascott saw a record number of lyf property openings, doubling that of 2022.
The newly-operational properties have displayed strong results since opening, as Ascott rides on the tourism and hospitality boom. In particular, lyf Ginza Tokyo, which opened at the end of November 2023, achieved a higher-than-expected average daily rate and notably outpaced anticipated occupancy. Guest reviews received across public review portals were also at their highest, a clear signal of the brand’s relevance within the market.
As for Oakwood, it was acquired by CLI in July 2022 from Mapletree Investments. The acquisition added 81 properties and 15,000 units to CLI’s global portfolio.
Goh believes that there are “significant synergies” between Ascott and Oakwood, given the complementary footprint and product offerings. “Oakwood will continue to grow alongside Ascott’s current portfolio of global brands as we continue to build growth momentum for our lodging business. We will be able to leverage Ascott’s extensive expertise as a global lodging player to deliver greater value to our expanded network of loyal customers and property owners,” he says.
Following the acquisition, Ascott has further grown the Oakwood brand. In January, Ascott announced that it has expanded Oakwood’s presence to 48 cities, adding new markets including Busan in South Korea, Batam and Bali in Indonesia, and more.
With almost 18,000 units to date, the Oakwood portfolio has grown by more than 20% post-acquisition, making it one of the fastest-growing global brands in the Ascott portfolio with over 20 new signings since the acquisition.
Goh says Ascott’s ability to leverage pricing power and meet market demand has resulted in an uplift in revenue and improved margins, contributing to an overall enhanced financial performance of the Oakwood portfolio post-acquisition. “With more operationally ready properties coming onstream at a faster pace, we are seeing immediate contribution of the Oakwood portfolio to Ascott’s recurring fee income, which is in line with our aim to double fee earnings to more than $500 million by 2028,” he adds.
