Japan Leisure Hotels

Love hotels show their resilience

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Who says love won’t pay the rent? Japanese love hotels, a refuge for space-constrained married couples and furtive philanderers, have long been a money-spinner. The country’s better-known brands might be in the doldrums – carmakers such as Toyota and gadget manufacturers such as Sony ended last year in the red – but love hotels are still hot.

Aim-listed Japan Leisure Hotels, which reported earnings on Monday, actually increased the guest count at its five Bonita-branded hotels last year, and suffered a relatively mild 7 per cent year-on-year drop in earnings before interest, tax, depreciation and amortisation. Strip out fees that accrue to JLH’s asset managers, and the hotels generated ebitda margins of almost 35 per cent, vastly superior to the (more conventional) lodging peer group average of 21 per cent. Fair enough. Love hotels specialise in “rest” stays of a few hours and, where else in the world can you get average occupancy rates of 250 per cent?

That said, their lot is not a uniformly happy one. The $40bn industry is fragmented, with perhaps 30,000-35,000 hotels, many of which are scrabbling for cash. Domestic banks, never big fans of love hotels, tightened the taps as the credit crisis evolved. Foreigners, once attracted to love hotels, pachinko gaming and consumer finance – where locals saw sleaze, they saw stable cash flows begging to be securitised – are also leaving the stage. Distressed assets are tumbling on to the market.

Of course, beauty is in the eye of the beholder; cheap assets and possible consolidation have caught the eye of some suitors. Those include JLH, now seeking to raise £50m of equity to buy more hotels. On some reckonings, every day 2 per cent of the Japanese population visit a love hotel and, at about $65 a pop, it is relatively recession-proof entertainment. Compared with the car and TV-makers at least, love looks like a safer bet.

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