Although 2020 was a year that began and ended with coronavirus, I believe that Hoshino Resorts will be able to successfully overcome this crisis and further accelerate the pace of growth starting in 2021.

I predict that 2021 will be the year in which tourism in Japan will recover from the pandemic and I hope that, after the end of the third wave, vaccinations will begin before the fourth wave arrives and that domestic travel in the large domestic market will be fully restored. The Olympics will be an opportunity for inbound travelers to start returning to Japan. While it may not return to a 2019 pace by the end of 2021, I envisage that there will be a gradual recovery and 2022 will be the year of inbound revival.

To summarize Hoshino Resorts’ response to the corona crisis, it quickly put together and steadily implemented an 18-month survival plan that included (1) thorough implementation of coronavirus countermeasures and the dissemination of information at each facility, (2) a shift to a system that attracts visitors from the micro-tourism trade zone, and (3) a change to an efficient management system when demand declined due to the spread of infection. The flat organizational culture of Hoshino Resorts contributed to the speed of change necessary to respond to the crisis and functioned well. This has once again given us great confidence.

We were also able to build a network of contacts that we would not normally have had, when dealing with the decline in tourism demand due to the pandemic. By working with craftspeople, potters, and local restaurants who had lost sales opportunities due to the cancellation of events and festivals around Japan, we were able to create new attractions that would help attract customers and delight those who cooperated by providing them with opportunities to sell and be active. We have also made many new efforts with travel businesses whose main focus had been on inbound and overseas travel and have been able to collaborate with them mainly in the development of micro tourism attractions. I believe that the experience of overcoming the pandemic together will lead to a new cooperative system post-coronavirus. It is not making fortune out of misfortune, but, in a sense, we see it as an opportunity.

Although the timing is fortuitous, I believe that the synergy between Hoshino Resorts REIT, Inc. and Hoshino Resorts will be fully realized from 2021. Since its inception in 2013, we have been striving to capitalize on this synergy. Urban hotels, resort hotels, and hot spring ryokans require a long time from the start of planning to completion and revenue generation. The level of risk at each step during this period is also different, with the highest risk at the time of land acquisition because of the unknowns of obtaining permits and approvals, constructing within budget and the construction period, and post-opening profits. However, each time you clear a step, a business risk will be reduced, and finally the risk will be reduced the most when you can confirm that the business is on track to attract customers and generate stable revenue after opening. The risk that many investors, including REIT, can tolerate is at this final level, so it is necessary for other actors to take the steps up to that point. However, by having Hoshino Resorts REIT, Inc. as a partner, Hoshino Resorts, which has specialized in operations, can now become an actor in development.

In the past, we only thought about creating optimal facilities from the standpoint of management. However, in our partnership with REIT, we have learned and understood the specifications of projects that are easier for REIT to acquire, and so we have been able to develop projects that meet those specifications. Specifications are not just about profitability but are also a mechanism to create high quality assets with a higher degree of accuracy by understanding the various conditions required by REIT, such as ownership structure, land rights, building structure, and earthquake resistance. It is true that the level of risk at the development stage is relatively high. However, if you have the operational capabilities to provide the necessary specifications, you can avoid the risk of long-term debt after development, and at the same time make it easier to obtain the necessary loans for development.

The environment that has allowed us to work on the development of new construction projects has been a major innovation in the marketing side of Hoshino Resorts. When we supported revitalization in the 2000s, we were consulted by owners or creditors and worked to improve their profitability by utilizing our operational capabilities wherever they were located. As a result, Hoshino Resorts has been able to gain economies of scale and attract more customers. However, the group has not been able to provide facilities and services where customers want them. We are expected to have locations in famous domestic tourist spots, famous hot spring resorts, and regional cities suitable for urban tourism. However, if we are only responsible for revitalization, the group facilities may not be ideally distributed from the customer's perspective. By proactively getting involved in development, Hoshino Resorts will be able to create facilities that meet the needs and locations that the market demands.

The results of this process will become fully visible in 2021. The facilities will be completed after a long process starting from land acquisition. These are a strategic group of hotels with elements that make customers want to stay where they want to travel. For example, the fact that we have been able to offer only KAI Aso (12 rooms) in the major tourist location of Kyushu is a major challenge for our brand, and we have been working on developing new projects for some time. KAI Kirishima is scheduled to open at the end of January 2021, followed by KAI Beppu in the summer. After that, we will continue on to Yufuin and Unzen. In Hokkaido, we have Tomamu, and OMO7 Asahikawa, a city tourist hotel, but the lack of hot spring ryokans has been a challenge for the KAI brand. KAI Poroto is currently under construction in Shiraoi-cho and is scheduled to open in the spring of 2022. The most significant project is OMO7 Osaka Shin-Imamiya, currently under construction in Shin-Imamiya, Osaka. Although the Osaka market is oversupplied in the short term, the project's location, accessibility, and internal appeal are competitive, and it will open on schedule in 2022 to perform well in time for the 2025 World Expo.

Thus, seven years after the establishment of Hoshino Resorts REIT, Inc., the time has finally come for us to see the full-scale synergies between each other. By proactively deploying high-quality assets to locations that the travel market demands, we aim to strengthen the competitiveness of the REIT's portfolio and, at the same time, we can enhance our ability to attract customers by leveraging the scale merits of Hoshino Resorts. We will continue to enhance such synergies that strengthen each other.

Facilities mentioned in the text

KAI Kirishima

KAI Beppu

KAI Yufuin

Tomamu

OMO7 Asahikawa

KAI Poroto

OMO7 Osaka Shin-Imamiya

Note 1: The Investment Corporation collectively considers HOSHINOYA Karuizawa and Hoshino Area as a single property.

Note 2: The property was scheduled to be opened on June 11, 2020, but due to current conditions related to the COVID-19 pandemic, the opening date has been delayed. As of the present time, the opening date has yet to be decided.

Note 3: Except for OMO7 Asahikawa, the facilities introduced in this document are not owned by Hoshino Resorts REIT, Inc.

Note 4: The contents of this page are current as of January 25, 2021.

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