Blackstone late Thursday announced a binding agreement to buy eight hotels in Japan from Kintetsu Group Holdings, in the latest case of a US fund manager teaming with a Japanese conglomerate looking to raise cash and cut costs by offloading non-core assets amid COVID-19 uncertainty.
US-based Blackstone said the portfolio it is purchasing from the railway group includes three prime assets: the 988-room Miyako Kyoto Hachijo across from Kyoto station; the 456-room Universal City, adjacent to Universal Studios Japan in Osaka; and the newly-built Miyako Hakata, with 208 rooms, next to Hakata station in Fukuoka.
“This is a unique opportunity that grants Blackstone access to a sizeable, high-quality hotel portfolio in Japan’s top hospitality markets, and we’re thrilled that Kintetsu has chosen to partner with us,” said Christopher Heady, head of real estate in Asia for the NYSE-listed firm.
The Japan deal is Blackstone’s third major hospitality acquisition to be announced this month, and the third time this year that it is working with an established Japanese conglomerate to spin off assets as the COVID-19 pandemic continues to strain finances around the region.
Blackstone Checks into Hospitality
The sale price of the eight hotels was undisclosed, however, Kintetsu said in a statement that the properties had a book value of JPY 42.3 billion ($390 million) as of 31 March 2020, with the Miyako Hakata alone accounting for JPY 14.3 billion.
In addition to the three primary assets, the remaining five properties Blackstone is purchasing from the railway operator are a mix of upscale hotels and resorts within the Greater Osaka and Nagoya regions, with the smallest being the 30-room Miyako Kobe Kitano hotel.
The entire portfolio amounts to 2,294 rooms, with Kintetsu Group to continue to operate the properties under the current staff and the hotel names to remain unchanged following the transaction, according to the statement.
Blackstone announced the deal as it proposes to take on a much larger hospitality package in Australia. Casino giant Crown Resorts announced early last week that the US fund manager had made a $6.2 billion offer to take over the firm.
Earlier this month the firm also teamed up with Starwood Capital to sign an agreement to purchase US hotel operator Extended Stay America for $6 billion after the suite-oriented hotel chain leveraged its popularity among temporary health care workers during the pandemic.
Japan Inc Slims Down
The Kintetsu deal marks the third instance in the last seven months of Blackstone buying Japanese assets from local conglomerates seeking to streamline their operations, following acquisitions of department store operator Isetan’s residential property unit and Takeda Pharmaceutical’s consumer healthcare division.
The eight properties will be Blackstone’s first direct acquisitions of hotels in Japan, although the firm formerly owned a stake in Hilton, which operates hotels in the market. The Kintetsu deal is Blackstone’s second big hospitality acquisition announced this month, after last week agreeing to buy hotel operator Extended Stay America for $6 billion with partner Starwood Capital Group.
Blackstone has been an active investor in the Japanese real estate market since 2010. The firm had a record 2020 in Japan with $7.3 billion in investments across real estate and private equity, starting with the country’s biggest property deal ever: the buyback of a portfolio of Japanese rental apartments from Chinese insurer Anbang for JPY 300 billion.
According to local press accounts, Kintetsu has seen its business performance deteriorate amid a decline in railway users over COVID concerns and the insolvency of KNT-CT Holdings, a travel giant majority-owned by the group.
“Our team has established a great relationship with the Kintetsu management team over the past few months, and we look forward to working closely with the experienced teams to further create value for the properties,” said Daisuke Kitta, Blackstone’s head of real estate in Japan.
Kintetsu isn’t the first troubled Japanese corporate to cash out of real estate assets with the help of a foreign suitor.
Late last year, North American fund manager BentallGreenOak bought the Tokyo headquarters of entertainment conglomerate Avex Group for JPY 72 billion to add to a $1.6 billion opportunistic vehicle.
One element of the Avex sale may have been the group’s financial stress, with the company led by impresario Max Matsuura having stated in November that it suffered a net loss of JPY 3.2 billion for the six months from April through the end of September.