TOKYO—A megadeal involving a U.S. private equity firm and a Japanese hotel chain found its footing this month after more than nine months in negotiations, according to sources.
On 2 April, Lone Star reached an agreement to purchase Unizo Holdings for $1.9 billion, outbidding SoftBank Group affiliate Fortress Investment Group and Blackstone. Lone Star, along with a group of Unizo employees, agreed to pay 6,000 yen ($55.70) per share with 86.6% of outstanding shares secured.
Unizo owns 27 hotels—including four in development—across three brands: Hotel Unizo, Unizo Inn and Unizo Inn Express. All of the company’s assets are in Japan. Unizo also operates a residential business that comprises almost 50 buildings, with most in Japan and six in Washington, D.C.
There is no suggestion of distress in the deal, sources added, even though it is expected that distress will be a significant factor in hotel mergers and acquisitions in the next 18 months as the hotel industry suffers massive revenue declines as travelers stay at home during the coronavirus crisis.
The deal comes during a difficult time for growth, Unizo President and CEO Tetsuji Kosaki acknowledged on a call to discuss the company’s full-year earnings on 31 March.
In the company’s earnings news release, Kosaki stated “in the first half of 2020, in addition to exports and capital expenditure being sluggish, consumer spending also appears to be recovering poorly, and additionally based on the influence of COVID-19, it seems that growth will be weak.”
Unizo expected to hold off on growth during the current crisis, Kosaki added.
“In the current business environment, it has become difficult to expand assets via new investments, thus the company will manage its portfolio for the time being mainly through capital recycling,” he said.
Interest first rose in Unizo on 10 July, when Japanese travel agency H.I.S.—which had an approximately 5% stake in Unizo—attempted a hostile-takeover bid later rejected by Unizo shareholders.
When that bid was revealed, more potential buyers came into the arena, including Lone Star, Blackstone and Fortress Investment Group. The price per share rose from H.I.S.’s initial 3,100 yen ($28.78) to Fortress’ 4,000 yen ($37.14) to Blackstone’s 5,000 yen ($46.42) and finally to Lone Star’s winning bid.
At press time, Lone Star had not replied to Hotel News Now’s request for comment.
Implications for the future
Ryuji Sawada, partner in PwC’s Tokyo office, said the Japanese hotel market was one of the global superstars before COVID-19.
“The (Japanese) real estate sector is attracting more and more money from the market, and investors are waiting for their chances to invest in real properties or a company which owns many real properties,” he said. “People see that Unizo is one of those real estate companies (that) owns many undervalued assets.”
The Lone Star-Unizo deal is also notable in that Japanese companies usually see stockholders keeping faith with their Japanese owners, Sawada said.
“Hostile takeovers are still rare in the Japanese market, and I think they will be (going forward), but I believe the number of non-hostile M&As will increase this year and the next because of COVID-19,” Sawada said.
“That means all Japanese hotels are suffering from the crisis, and it could lead to liquidity problems in the industry. The investors in Japan are seeking opportunities to buy operators and/or hotel properties, and we may see a spate of turnaround deals in the near future,” he said.
Japan was forecast to have a stellar 2020 with Tokyo as the host city of the 2020 Summer Olympics. On 30 March, the International Olympic Committee announced the Games would be delayed a year until 23 July to 8 August 2021. STR, the parent company of Hotel News Now, is projecting the 2021 Olympics will drive less absolute demand, rate and revenue per available room.
According to data from STR, Japan hotels posted a 61.6% year-over-year decrease in occupancy to 32.5% for March. Also during the month, the country’s average daily rate decreased 28.5% to 10,597.48 Japanese yen ($98.36) and revenue per available room decreased 72.6% to 3,443.77 yen ($31.96).