The stellar prospects for Japanese hospitality is the driver behind a major takeover deal in Asia, which will see Singapore’s CapitaLand Investment (CLI) acquire peer SC Capital Partners Group (SCCP) over a period of five years.
“Japan is a focus market for CapitaLand Investment,” Hideto Yamada, CEO, CapitaLand Investment Japan, told Hospitality Investor in an exclusive interview. “The acquisition of SC Capital Partners will triple our funds under management (FUM) in Japan from S$2.9 billion to about S$11 billion, raising its proportion from 3% to 10% of the S$113 billion funds under management of CLI and SCCP.”
Last month, CapitaLand Investment agreed to buy an initial 40 per cent stake in SC Capital Partners Group (SCCP) for $214 million (S$280 million). The remaining stake in SCCP will be acquired in phases over the next five years.
Private equity
Suchad Chiaranussati, chairman and founder of SCCP, has led the firm since its launch in Singapore in 2004. Today, SCCP has total FUM of $8.2 billion. The real estate private equity firm has built experience across a range of asset classes and risk strategies, working with international and local capital. The firm has been active in the Japanese real estate market since 2010 and has acquired over 120 assets in the territory to date, according to SCCP, from hotels to data centres. The firm’s various hospitality platforms in the country include the SCCP-sponsored manager of TSE-listed Japan Hotel REIT (JHR), as well as hospitality operator Hotel Management Japan. SCCP also hit the headlines in 2023 when it acquired a 27-asset portfolio of Japanese resort hotels from Daiwa House Industry for $900 million in partnership with Goldman Sachs Asset Management and the Abu Dhabi Investment Authority (ADIA).
Yet it is the stand-out performance of JHR, a vehicle with around 80 hotels, which lies at the centre of the CLI deal. Yamada noted that the takeover means that the funds under management of CLI’s listed funds will grow from S$63 billion to S$69 billion while the market capitalisation of its managed REITs and business trusts will increase from over S$30 billion to S$35 billion. He added: “This marks CLI’s maiden entry into the Japan REIT market, the largest REIT industry in Asia Pacific. With a market capitalisation of S$3 billion, JHR is the second largest hospitality REIT listed in Japan and 13th largest REIT in the country.”
As part of the partnership, CLI has also committed to invest a minimum of $400 million of strategic capital into SCCP’s fund strategies to support the growth of the platform.
Japan’s buoyant hospitality market has been a significant target for institutional capital this year. The first half of 2024 saw hotel deals in the country increase by nearly 50 per cent year on year, with the asset class accounting for 40 per cent of all trades in the second quarter of 2024, according to Savills data. Deals have included significant activity from J-REITs, including the acquisition of four properties by JHR for¥56.2 billion (€340 million).
Japanese experience
While the deal marks CLI’s entry into Japanese REITs, the group is already active in the country as a real estate investor, and indeed as a hospitality investor. Under CLI’s wholly owned lodging business unit The Ascott Limited, its lodging trust CLAS and its two lodging private funds Ascott Serviced Residence Global Fund (ASRGF) and CapitaLand Ascott Residence Asia Fund II (CLARA II), it owns and operates a significant portfolio of more than 7,500 units across 50 serviced residences, coliving properties, hotels, rental housing/multifamily and student accommodation properties across nine cities in Japan.
Taking into account its existing hospitality presence via Ascott, Yamada said that the takeover would enable CLI to “benefit from a strengthened team in Japan”. When asked if Ascott would grow further as a result of these synergies, he explained: “Ascott remains focused on its asset-light growth to expand its portfolio via management or franchise contacts. With a wider investment network, CLI’s lodging private and public funds such as CLARA II or CapitaLand Ascott Trust can identify, assess and secure more suitable investment opportunities to deliver long-term value for its investors. These investment assets may also be managed by Ascott, creating an additional avenue of asset-light growth.”
Other CLI holdings in Japan include four office buildings in Tokyo and Yokohama and two logistics assets in Greater Tokyo and Osaka, held through various investment vehicles including an office private fund, CLI’s flagship regional core-plus fund, CapitaLand Open End Real Estate Fund (COREF), and a logistics private fund, Orchid Two Godo Kaisha. CLI also has six multifamily assets in Osaka that are under COREF, and 23 rental housing properties under its lodging trust, CLAS. With the acquisition of Extra Space Asia (ESA), CLI has established a self-storage platform in Japan to capitalise on demand drivers including e-commerce growth, rising urban population, smaller dwelling spaces and increased population mobility.
Said Yamada: “Our Japan operations play a key role in contributing to CLI’s targets. We will continue with asset-light growth through our listed and private funds across different asset classes in gateway cities in Japan.
“Japan’s developed and stable market has deep capital pools and is home to several established institutional investors, capital partners and companies. CLI continues to capitalise our strengths in connecting Japanese capital partners with investment opportunities in different asset classes, domestically or across geographies.”
Yamada said that CLI was also well-positioned to work with foreign investors to source, assess and invest in suitable opportunities within Japan. “Investors are keen on real estate opportunities in Japan and are selective with high expectations. They prefer fund managers such as CLI, with proven track records and extensive local presence and expertise in key Asian markets,” he noted.
Five-year pathway
Yamada explained that the “five-year pathway” to the full ownership of SCCP would provide “a structured and measured integration process to combine the best qualities from both SCCP and CLI”. He added: “It also ensures that we do right by our stakeholders. The team at SCCP has been able to hunt for big, challenging deals and marry these deals with capital. CLI’s partnership with SCCP strengthens our capabilities in the private funds space and enhances our fiduciary duty to institutional investors as trusted stewards.”
At its recent investor day, CLI said that its diversified real estate platform was part of its strength, and that it would continue to invest in a range of asset classes including “retail, office, lodging, industrial, logistics, business parks, wellness, self-storage, data centres, private credit and special opportunities”. Themes such as demographics, disruption and data are driving these strategies globally.