JAPAN

Daniel Cheng*

The Olympics and IRs are meant to be the jewel in the crown of Japan’s longest-reigning prime minister, Shinzo Abe, to usher him into the sunset in a blaze of glory come next fall. Olympics Minister Seiko Hashimoto, who also happened to be an IR proponent, has kept a brave front thus far, but time is not on her side.

An Olympics cancellation entails an enormous political and economic cost for Japan.

For the real estate sector, it is a double whammy. The prospect of no summer Olympics and an IR limbo will feel like a vicious uppercut-left hook combo knockout blow. A Nikkei Asian Review article on March 14 elucidated how the local real estate companies and the Olympics are joined at the hip.

Close to a dozen Japanese real estate companies had bet substantial capital in the development of the Olympic Village with a view to flip it in the market as private condominiums for a handsome profit after the Games. With the uncertainty, investment analysts have been quick to downgrade the companies’ earnings forecasts. Lost too was the eagerly anticipated so-called “Olympics showcase effect” which would have buoyed property related equities trading.

The same real estate firms were the leading local brides-in-waiting to form a union with international casino companies for IRs in Japan. A protracted bloodbath in the equities market might put a large dent in their capital position, and unnerve them from jumping into another high-capital intensive venture.

Leading the local brigade is Orix Corporation, which is technically not a real estate company but a diversified conglomerate. An international behemoth in its own right, with over a third of its profit derived from outside Japan, Orix is no shrinking violet when it comes to big ticket investments. The company shelled out over US$10 billion in investments in the last fiscal year, of which the largest slice went to a 30 percent equity stake in Irish aircraft lessor, Avolon, for US$2.2 billion. The company dwarfs its Osaka IR partner, MGM Resorts, bringing in almost twice the top line of the Las Vegas firm. But it is also a union of large debtors, with

MGM still saddled with over US$11 billion of debt, and Orix a whopping US$42 billion of liabilities, albeit mostly in long-term securities. Collectively, both companies still have over US$5 billion of cash in their war chest, but how much that will dwindle depends on how long the coronavirus stays around.

In comparison, the professed local stalwart for Yokohama is Keikyu Corporation, a minnow relative to Orix. Transportation and real estate constituted three quarters of its US$3 billion annual revenue, segments that are among the hardest hit by the coronavirus. With only about US$500 million in pocket change, Keikyu might have to taper, or even reassess its IR aspirations.

The hardest hit local IR candidate has to be Tokyu Land, whose stockprice suffered over a more than 40 percent loss at the height of the crisis. The company may have to consider refinancing its US$12 billion debt, or dig into their under US$2 billion of cash reserves, if the repurposed and renamed Olympic Village, the Harumi Flag, gets literally flagged by the postponement of the Games. It is a scenario that might diminish Tokyu Land’s bargaining power with the casino companies eyeing Yokohama.

The travails of these Japanese Big Cs will be another under-the-belt shot out of the blue for the already much beleaguered Japan IR ambition.

Gambling is the only business known to thrive regardless of a good or bad economy, but its much vaunted immunity met its match in the coronavirus. As equities everywhere went into a tailspin, casino companies were among those that bore the greatest brunt. The various levels of lockdowns and travel restrictions around the world also meant none of their executives are visiting Japan anytime soon.

This culminating situation in Japan is shaping up to be a perfect storm to foil Prime Minister Shinzo Abe’s going-away party.

* Daniel Cheng is a hospitality industry professional, and formerly held senior executive positions with Hard Rock International and the Genting Group.

Osaka has thrown in the towel on the prefectural government’s long-cherished cherished prospect of opening its Yumeshima IR before the 2025 World Expo.

Osaka Mayor Ichiro Matsui explained, “People currently cannot travel between Japan and the United States. Opening before the World Expo was already going to be a tough climb, but with movement now stopped, we can’t avoid the conclusion that there isn’t enough time.”

Rather than selecting its IR consortium partner in June, the selection will be delayed until September. However, there is, as yet, no indication that the MGM-Orix consortium will face any challenger, even on the slightly longer timeline.

According to the revised schedule, the approval of the prefectural assembly and the city council will be sought in February or March of 2021, and if the national government approves the license, Osaka will stipulate that the Yumeshima must open before the end of March 2027.

Nagasaki Governor Hodo Nakamura told his prefectural assembly that the establishment of an IR at Huis Ten Bosch could result in the creation of 28,000- 36,000 new jobs in the local economy, a sharp revision upward from the 22,000 job estimate the prefectural government made in April 2018.

Nakamura’s new figures are based on the various proposals that the prefectural has received from IR operators and private investors. Investment amounts now expected to come in between JPY350 billion (US$3.2 billion) and JPY460 billion (US$4.3 billion), and annual visitation between 6.9 million and 9.3 million people.