Japan's secretive love hotels are opening up to European investors as one player in the sector prepares for a debut on London's stock market this month.
Japan Leisure Hotels, which owns five love hotels worth some 21 million pounds ($43.68 million) in Japan, hopes to lure investors to its IPO with an 8 percent dividend and promises of fast growth -- shedding light on a sector that is often associated with sleaze and organized crime.
Japan's 25,000 or so love hotels have long provided discreet hideaways for couples, some featuring Karaoke machines or vibrating beds. Guernsey-based Japan Leisure Hotels rents out rooms for short stays lasting only a few hours, but the company's director believes this system doesn't just appeal to thrill-seekers.
"People have busy life styles and they don't want to be tied down to 'Now, I got to check in after 12, or after three' or 'I've got to check out before midday'," director Stephen Mansfield told Reuters in a phone interview.
"It's very much like a discount airline. The required time reduces the prices to attract more people in and make it more economical for them. At busy periods, prices go up."
The industry is also seen to be shielded from economic cycles and has potential for sweet returns since rooms have a high turnover.
Japan Leisure Hotels aims to expand its assets by 14 times to 300 million pounds ($623.9 million) in 5 years.
The five hotels, which are operated under the Bonita brand, have 195 rooms. Japan Leisure Hotels plans to increase that to 1,200 rooms in two years and 3,000-3,500 rooms in five years, which would raise the value of its portfolio to 300 million pounds.
"We've been looking at the sector for over four years now, and we are quite confident that we will be able to put the money to work," Mansfield said.
He said RevPAR (revenue per available room) for his hotels currently stands at 16,700 yen per day. His firm also plans to offer a 8 percent dividend payout.
That compared with 15,500 yen of RevPAR for four city and resort hotels owned by Japan Hotel and Resort Inc, a Japanese hotel real estate investment trust (REIT). This REIT has a dividend yield of slightly above 5 percent.
"We are paying an 8 percent dividend to our investors and we think that's a compelling investment case and we see further opportunities in the market that will support that investment case," Mansfield said.
Japan's love hotels generate nearly 3 trillion yen in annual sales but investors have long shied away from the sector because it is often associated with gangs and red-light districts.
Recently, more players have ventured into the market. Global Financial Support Co, a Tokyo-based investment group, has launched 10 love hotel funds, raising a total 12.5 billion yen. MHS Capital Partners also solicited $10 million from foreign institutional investors a few years ago.
Mansfield said Japan's leisure hotel market is going through structural changes, presenting an opportunity for institutional investors. Some financial institutions are now willing to provide non-recourse loans to buy love hotels.
"An operator has been basically a family business. Providing finances is more like a personal loan than a commercial debt structure," he said. "We get a large enough portfolio. We provide the transparency and we provide the accountability. We provide that level of professionalism."
Japan Leisure Hotels plans to go public by selling up to 100 million pounds of shares on London's junior Aim market.
Asked if he is worried by the perceived influence of organized crime on the sector, Mansfield said his company is careful about which areas it invests in.
"Organized crime tends to be focused on specific geographical areas. When we do our due diligence and when we are purchasing hotels we are very careful about that. We try to avoid those areas," he said. ($1=.4808 Pound)
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