Friday, August 5, 2011

Alchemy's Japan Leisure Hotel's Strong Performance even after Earthquake and Recession

Despite the earthquake and nuclear crisis and recession - Japanese leisure hotels are still showing excellent cash growth showing counter cyclical tendencies - 

Alchemy Japan KK Japanese Leisure Hotels’ Post Strong earnings Growth for First Half 2011
Tokyo, Japan August 1st 2011 – Alchemy Japan’s Japanese Leisure Hotels reported H1 2011 EBITDA of ¥302 million, a 7% improvement on H1 2010, from a Net Operating Income of ¥432 million, a 4% growth on previous year. H1 revenues grew to ¥1,005 billion, a 4% increase on H1 2010 as customer numbers grew by 9% to reach a 265% occupancy rate.

Despite Japan returning to recession in the January-March Quarter, on the back of supply chain disruptions caused by the nation's biggest recorded earthquake and tsunami, with a GDP fall of 0.9 percent in Q1 (3.7% annualized), Alchemy’s Leisure Hotels posted 13% EBIDTA growth in Q1 driven by 6% revenue growth.

Many analysts saw the downturn worsening in April-June, as nationwide supply chain problems continued to disrupt production and consumer confidence was impacted by the aftereffects of the quake. Notwithstanding the difficult post 3/11 conditions, Alchemy’s Leisure Hotels Q2 revenue exceeded Q1 by 2.3% and was 3% above previous year, while Q2 EBITDA was 6.8% ahead of Q1 and +3% on PY.
Two strong quarters of growth combined to post H1 4% revenue Growth - led by a 9% increase in customer numbers as H1 2011 Occupancy rate (OCR) reached 265%.

“Our hotels have shown strong counter cyclical performance achieving sales and earnings growth despite recessionary and deflationary pressures. In the face of challenging consumer demand conditions resulting from defensive consumer spending we have been able to grow market share and strengthen our market leading revenue growth performance. We have outperformed both the greater hotel sector, which has seen revenue declines reaching as high as -32.4% on PY -according to STR Global- and also the general leisure hotel industry which has shown year on year contractions of around -4.6% post earthquake -according to Leisure Hotel Magazine-” said Alchemy Japan CEO Miro Mijatovic.
“While our rate of revenue and earnings growth has slowed in Q2 post 3/11, our revenue and earnings outlook for the rest of 2011 is positive. In June, industrial production had returned to pre-quake levels and there are signs that various other economic indicators (consumption and employment) had also recovered and so we anticipate the second half of 2011 to outperform H1 and also previous year” continued Mijatovic.

“The outstanding performance of the LH sector, during unprecedented conditions following the 3/11 earthquake and its after effects, confirms the attractiveness of this high yielding sector of the Japanese real estate market as a defensive investment.

Furthermore, while the broader Japan real estate sector has seen improved liquidity and contracting caprates, this trend has not yet trickled down to operational assets like Leisure Hotels where debt and equity are still scarce.

However we foresee a contraction of caprates in the future as we believe that the Japan Leisure Hotels Ltd transaction which closed in June 2011 at historically high caprates, has set a low point for valuations in this caprate cycle. This deal has also set a benchmark for buyer bids which has stimulated interest from new potential investors looking for defensive investment, due to the high cash yields and the counter-cyclical nature of the demand, both specific to the LH asset class” said Mijatovic.

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