Red Planet making big bet on Japan
25 MARCH 2014 6:03 AM
Red Planet Hotels is setting its sights on Japan, with plans to open 20 Tune-branded hotels in the country by 2020.
BANGKOK—Red Planet Hotels is making a multibillion-yen bet on Japan’s hotel sector.
Red Planet intends to invest $10 billion Japanese yen ($977.9 million) during the next six years and has plans to open 20 hotels in Japan by 2020. The company established Red Planet Japan, a publicly traded company on the Jasdaq stock exchange in Tokyo, to make this initial investment.
Red Planet, the largest franchisee of Tune Hotels and the largest shareholder of the Tune Hotels brand, has ownership interests in nearly 40 Tune hotels, comprising 6,056 rooms, either in operation or under development, including one open hotel in Japan
CEO Tim Hansing said via email that the company finds travelers in Japan are welcoming of budget properties such as Tune. He said he is encouraged there are few global chains competing in the market at present, and the company is mostly competing with local, independent shares with no global exposure. This has presented an opportunity for Red Planet to jump into the region and grab share in Japan.
Possibly the biggest obstacle facing Red Planet, Hansing said, is finding the space for its hotels in the country. During a telephone interview, Mark Armsden, Red Planet’s senior VP of sales and marketing, said land in Japan is at a premium, so getting to the construction phase can be a time-consuming process, adding that the company is scouring greenfield, or undeveloped, sites as locations for possible development.
“In terms of expanding our presence around Asia, the biggest challenge we are finding at the moment is finding great sites in the cities we want to open in,” Hansing said. “To that end we have a team of 12 full-time employees in our acquisitions department actively searching, negotiating with land owners and completing in-depth due diligence studies.”
Hansing said Red Planet sources “conservative” levels of debt funding for all of its projects, including ground-up financing as well as for conversions.
“Sourcing of this financing is primarily based on our exceptional operating performance, financial strength and our banking relationship partners, notably CIMB (Group),” he said.
According to data from STR Global, sister company of Hotel News Now, there are a total of 47 hotels in the Japan pipeline comprising 10,352 rooms. Japan has an existing supply of 2,413 hotels representing 448,153 rooms.
The country also saw a lift in all three key performance metrics through February, according to STR Global. Occupancy grew by 2% to 81.5%; average daily rate was up 8.2% to JPY11,919.76 ($116.63); and revenue per available room increased by 10.4% to JPY9,720.01 ($95.11).
Hansing said he has no concerns about possibly entering into an oversupply situation.
“We are still seeing a lot of 4- and 5-star product opening in Southeast Asia and in North Asia that we don’t compete with nor do they chase our demographic as their businesses would not be profitable competing with our rates,” he said.
Tune Hotels’ CEO Mark Lankester agreed that Japan’s hotel sector is healthy.
“I see only good things for Japan, where the whole country is behind the new economics of its new prime minister, Shinzo Abe,” he said. “For Tune Hotels, there are opportunities for franchises there in conversions, where I think we will have an advantage in that many existing properties there were probably not sufficiently invested in in terms of capital expenditure during its lean decade.”
Red Planet, which already has the bulk of its portfolio in such Asian regions as Bali, Jakarta and Sumatra—which are all in Indonesia—is not looking solely at Japan for its growth plans. The company wants to boost its presence in Asian markets such as Indonesia, Thailand, the Philippines and South Korea, Armsden said. Additionally, Lankester said most parts of Asia are hot places for hoteliers to get a foothold.
The groundwork Red Planet has laid in Japan makes entering new markets easier, Hansing said. The company has seven properties, representing 1,463 rooms, scheduled to open by 2016 in markets such as Seoul, South Korea; Manila, Philippines; and Greater Jakarta.
“Entering new markets, as we are doing right now in South Korea, requires relationships and trust to be established, and our significant achievements in Japan to date demonstrate we have the ability to do this within accelerated timetables,” he said.
He added that he is just as optimistic about the outlook for other Asian countries as he is about Japan’s future. He noted that economies, such as those in Indonesia and the Philippines, continue to grow.
“Importantly, these governments are also investing in important infrastructure projects that allow the leisure and business travel sectors to grow,” he said. “Probably our biggest concern for the industry would relate to political stability to allow these economies to continue to grow and promote tourism.”
HNN’s Terence Baker contributed to this report.