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Balancing Long-Term Perspectives and Investment Results

Introduction

In 2024, a total of 36.87 million foreign visitors traveled to Japan, driving consumption of 8.1257 trillion yen, both of which are significantly higher than previous years “Source: Japan National Tourism Organization Number of foreign visitors to Japan (annual estimate for 2024)”. In 2025, the momentum has continued unabated, with records continuing to be broken almost every month. Hotel occupancy rates have increased mainly in major cities, and business performance has shifted from a recovery phase to a growth phase. In particular, the unit cost of a room (average daily rate, or ADR) has risen, especially at hotels with high unit costs; the entire industry seems to have a strong tailwind at its back.

But at the same time, growing pains accompanying this rapid growth have become apparent in various places. Examples include friction with local residents due to overtourism, excessive expectations due to skyrocketing hotel prices, and a shortage of human resources and declining service quality. It is unlikely that the current boom will be sustainable if these issues are left unaddressed. In order for hotels to maintain their long-term competitiveness, they need to seriously address the issues behind their growth and implement strategic and balanced initiatives.

Steps to Solve Issues

Given these circumstances, Hoshino Resorts has been actively investing in its employees and work environments. The accommodation industry currently faces a chronic labor shortage, and the workloads of individual employees is increasing. While it is becoming increasingly difficult to secure and retain talented personnel, Hoshino Resorts is working to improve working conditions, such as by raising the starting salary for new graduates, and is also approaching the issue from the perspective of working styles, such as by establishing facilities that introduce a four-day work week system on a trial basis.

At first glance, a four-day work week may seem like an employee-first policy, with concerns that the number of staff required to operate facilities will increase and total personnel costs will rise. However, there are clear benefits for the company as well. Especially in rural areas, the hotel industry competes with local government offices and local factories of major manufacturers for human resources; providing easy working conditions and flexible work systems is a major differentiating factor in the course of recruiting personnel. In addition, a good work-life balance for employees has the potential to reduce turnover rates and lead to higher retention rates, reducing recruitment and training costs in the medium to long term. And by using their leisure time for self-improvement and community activities, employees can contribute diverse perspectives and experiences to their work. We expect this to have the secondary benefit of improving the quality of service we offer.

Separation of Ownership and Operation

In recent years, the hotel industry has seen the separation of ownership and operation. This is becoming the norm, with hotel operators focusing on planning and operating the hotel, while the ownership of the hotel real estate is managed by players specializing in asset management, such as real estate investment corporations and real estate funds. However, given this structure, there are cases where the viewpoints of the owner and the operator do not always agree. For short-term owners who want to limit the period of ownership and lock in profits by selling properties while their value is high, short-term profit maximization is more important than the sustainability and medium- to long-term profitability of the hotel.

While monetization through short-term real estate sales is possible, it is very difficult to generate profits on a continual basis through short-term sales; that it is like the idea of continuing to win through short-term stock trading. HRR therefore is committed to real estate management with a long-term perspective, and we manage our properties with the aim of determining whether property sales and attractive investments through CAPEX will contribute to maintaining and improving our competitiveness from a long-term perspective.

Immediate Action

Investing in employees and work environments is a crucial step in maintaining and improving the competitiveness of our facilities in the future. But at the same time, this investment was accompanied by a decline in immediate profitability, and rents paid also decreased compared to before the investment was made. The measures disclosed on March 18, April 18, and June 16 in 2025 were implemented after extensive discussions with sponsors in order to find ways to increase the income of HRR while incurring the necessary costs for the facilities.

The most important thing to note about these measures is that they aim to improve HRR's profitability without sacrificing measures that are necessary in the long term. For example, forcibly cutting other costs in response to rising labor costs (such as reducing the quality of amenities and furnishings) may improve profits in the short term, but doing so may lead to a decline in customer satisfaction and, ultimately, risk undermining facilities’ competitiveness. Instead, we have improved yields and rent levels by reviewing lease agreements and through asset replacement.

Finally

HRR has established a sustainable, long-term structure with Hoshino Resorts in a relationship that is built on coexistence and prosperity. Today’s talk was from the perspective of investing in human resources to prepare for immediate market risks. We will continue to strive to manage our investments in a way that balances a long-term perspective with investment results.