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Investment Strategy

  1. Hoshino Resorts REIT, Inc.
  2. HRR's Strategy
  3. Investment Strategy

Synergies between HRR and the Hoshino Resorts Group

HRR aims for stable asset management while seeking to maintain the competitiveness of assets under management by fully utilizing the Hoshino Resorts Group’s extensive expertise on facility operations, as the Group has raised its presence in the industry by expanding business and differentiating itself from other companies with its unique operating system.
HRR believes that HRR and the Hoshino Resorts Group will be able to leverage synergies in the course of carrying out their respective roles.
HRR believes that the mutually beneficial relationship with the Hoshino Resorts Group will contribute to ongoing increases in unitholder value, gained through expansion of the asset scale and earnings of HRR.

External growth

The measures for realization of external growth are as follows:

1. Utilization of Sponsor Support Agreement
HRR utilizes the comprehensive sponsor support, such as exchange of information on properties owned by the Hoshino Resorts Group, the provision of human/material resources, knowledge, experience and know-how in the tourism industry and the resort sector, etc.
On May 27, 2013, HRR and the Asset Management Company concluded a sponsor support agreement with the Hoshino Resorts Group, based on the fundamental recognition that the hotels, ryokans and ancillary facilities owned by the Hoshino Resorts Group are expected to act as a key pipeline in contributing to HRR’s future external growth. The agreement was concluded for acquisition of hotels, ryokans and ancillary facilities owned by the Hoshino Resorts Group on a consistent and continuing basis, and also for HRR’s efficient asset acquisition using human/material resources owned by the Hoshino Resorts Group and its knowledge, experience, know-how and networks in Japan and abroad in the tourism industry and resort sector.
2. Utilization of revitalization know-how of the Hoshino Resorts Group
HRR and the Asset Management Company will be provided with information on properties that have regained attractiveness through revitalization know-how of the Hoshino Resorts Group.
Moreover, HRR may request the Hoshino Resorts Group to temporarily hold hotels, ryokans, and ancillary facilities that HRR wants to acquire in order to utilize the warehousing function. Over such period of warehousing, the Hoshino Resorts Group can be expected to further heighten the appeal of such facilities by making use of the Group’s revitalization know-how. With respect to acquisition of facilities slated for revitalization, we believe it is possible to reduce investment risk under arrangements that involve Hoshino Resorts Group initially acquiring such facilities, with HRR subsequently acquiring such facilities at the stage where cash flow of such facilities has improved and become stable, and where they are in a state of securing stable earnings from a medium- to long-term perspective. HRR believes that these initiatives will contribute to HRR’s external growth and stable earnings.
3. Utilization of the Asset Management Company’s unique information on properties operated by outside operators
The Asset Management Company is collecting information on property acquisitions by establishing networks not only with the Hoshino Resorts Group but also with the owners and operators of hotels, ryokans and ancillary facilities across the nation. HRR will endeavor to acquire highly competitive properties by leveraging the Asset Management Company’s unique ability to collect information, in addition to using information obtained from the Hoshino Resorts Group, which has been provided based on the sponsor support agreement.

Internal growth

HRR aims to realize both stable distribution and growth of distribution by maintaining and enhancing the competitiveness of facilities through expansion of either sales or profits which act as a benchmark of floating rent, and through stable and efficient operations of properties, drawing on strategies of operators and the Asset Management Company. The measures for realization of internal growth are as follows:

1．Internal growth by operators and the Asset Management Company
HRR will rigorously manage its operating cash flow and rent revenue obtained from the portfolio it holds, and will take steps to maintain and improve such cash flow and rent revenue, from a shareholder’s perspective.
i.Internal growth by operators
In the hotel and ryokan business, HRR is able to greatly separate the role of facility ownership and the role of facility operation. HRR intends to maintain/enhance the competitiveness of facilities by selecting property management operators who have a deep understanding of HRR’s property features and possess business models and know-how that are deemed to be optimum based on characteristics of the relevant properties.
ii.Internal growth by the Asset Management Company
The Asset Management Company aims to reinforce the profitability of the portfolio by conducting operation, management and renewals for maintaining/enhancing the competitiveness of facilities. HRR believes that the Hoshino Resorts Group possesses unique know-how with respect to properties operated by the Hoshino Resorts Group and adequately understands the features of the respective assets under management. Accordingly, HRR intends to fully draw out operating skills possessed by the Hoshino Resorts Group by entrusting the task of property management to the Hoshino Resorts Group when deemed appropriate. Also with respect to properties operated by outside operators, HRR will select property managers as necessary who have a deep understanding of HRR’s property features and possess property management know-how deemed to be optimum based on features of the relevant assets under management.
2. Introduction of floating rent linked to sales or profits
HRR will discuss introduction of floating rent linked to sales or profits in accordance with calculation method for floating rents set with consideration given to the facility’s brand and operating features, in addition to the fixed rent system, in the lease agreement. HRR believes this is a system that will enable HRR to benefit from the enhanced business results of hotels, ryokans and ancillary facilities operated with the know-how of operators and lessees. With respect to its asset holdings, HRR is striving to ensure both cash flow stability and growth potential by adequately striking a balance between fixed rents and floating rents In order to increase either sales or profits which act as a benchmark of floating rent, HRR will have the Asset Management Company monitor business performance, and will also execute capital expenditures in a manner that brings about improvements in the appeal and competitiveness of facilities that can generate synergies leveraging substantial facility operating skills.
3. Maintenance/enhancement of asset value and competitiveness of the assets under management through establishment/execution of capital expenditures and repair plans from a medium- to long-term perspective
HRR will aim for stable earnings from operations by reducing the future excessive risks of major repairs, and of decreased sales resulting from deterioration of facility attractiveness through careful and sufficient capital expenditures, while at the same time making efforts to maintain/enhance the asset value and competitiveness of the assets under management from a medium- to long-term perspective. The Asset Management Company aims to further increase sales or profits by adequately carrying out work to heighten the value of properties. This involves performing detailed cost-benefit analyses taking views of operators into account, and drawing up plans for large-scale repairs and other policies pertaining to capital expenditure.