The Journey began

Tan Sri (Sir) Francis Yeoh, Managing Director of YTL Corporation, once said, “Japan has always held a special place in my heart.” Having travelled back and forth for two decades, for work as well as pleasure, he fondly recalled a moment in 1996 when YTL became the first non-Japanese Asian company to be listed on the Tokyo Stock Exchange. "I was very touched when they stopped trading for five minutes just to clap for us as we listed. It was a very emotional moment for me and I've since learnt that Japan welcomes YTL and I've never felt otherwise since.''

Having learnt to ski in Lake Tahoe's Heavenly Valley way back in 1982, Francis Yeoh picked up the sport with gusto as "it's something the family can do together and is more inclusive than golf. Skiing is also like swimming - once you learn, you won't ever forget".  “I have been skiing here every winter for the past 15 years. Yasuo Takahashi, who owns the Japanese restaurant Yang Shu Ten in Niseko Village, is an old friend of mine. When he retired, he bought a house nearby and I'd stay with him. Together, we'd comb the whole area on our skis. I'm very familiar with this region so when my brother (Dato' Mark Yeoh, Executive Director of YTL Hotels) told me an opportunity had come up to buy over Niseko Village, I was like 'shucks', as I really wanted to keep this beautiful place secret," he said, stifling a laugh.

Niseko the Ski Resort

Sharing part of Mount Niseko Annupuri, which has a peak elevation of 1,308m, Niseko Village is part of Niseko United, a quadrumvirate of resorts that include Hanazono - owned by Richard Li, the younger son of Hong Kong tycoon Li Ka-Shing - Chuo Bus' Niseko Annupuri and Tokyu Land Corporation's Grand Hirafu. Niseko United shares a combined 2,191 acres of skiable terrain and over 47 km of groomed slopes. It is about 100km away or 2-hour drive from Hokkaido capital Sapporo.

Bolstering its reputation as the top spot in Japan for international property investors and travellers,  Niseko United won the 2014 World Ski Awards for Best Ski Resort in Japan. "In the past, travellers like me would look to the west whenever we thought of skiing or ski resorts. We'd talk of St Moritz, holidaying in Aspen or buying a ski lodge in Whistler," said Francis Yeoh. "But today, Asians are the biggest emerging group of skiers and everyone is talking about Japan, especially Niseko. And this makes sense as Japan has an old, established ski culture and runs right along a corridor of over a billion people, including some of its wealthiest. It also helps as airlines are now opening up direct routes to this part of the world."

With a staggering 18m of snowfall annually, Siberian winds and moisture from the Sea of Japan couple every winter to create snow that is dry, refined to a fault and light as powder. “The ski season here is long (from December to late March) and Niseko is really the snowiest place on earth! I mean, if you had to pick the single best spot to ski on this earth, I'd say Niseko, without hesitation. It's an incredible destination with the best snow in the world! The nature is pristine, the onsen (natural hot springs) wonderful and the cuisine marvellous, with Hokkaido's seafood being second to none. Add to that Japan's culture and people and you'd find no other place ticks all the right boxes like Niseko does. This location is also very special because of its proximity to Mount Yotei," Francis Yeoh said, referring to the majestic standalone mountain in whose shadow lies Niseko Village. "Yotei is truly majestic. When you look at it, you know immediately you are in Japan and you can feel the essence of the land."

“Enthusiasts of Japan’s famed Niseko region have long been hard-pressed to choose from a myriad of distractions. The powder snow is, after all, famous the world over — thanks to a merry dance between Siberian winds and moisture from the Sea of Japan, which results in the lightest, driest snow cover that has to be experienced to be believed.” wrote Dianna Khoo in a YTL newsletter.

“Then, of course, there is the cuisine. The thought of a bowl of piping-hot snow crab ramen far surpasses that of a pumpernickel sandwich any day, if you ask us. And then there is the call of the onsen — natural thermal springs rich in minerals that work wonders at soothing body, mind and soul, particularly after a hard day on the freezing slopes — not to mention cultural and natural distractions that include breathtaking vistas of the exceedingly photogenic Mount Yotei, a dead-ringer for Fujiyama.”

Niseko Village

With a land mass of around 615ha (1,520 acres) and a GDV of USD 5 billion to USD 8 billion, YTL is building on the area's natural attractions to holistically transform Niseko Village into the most sought-after ski resort in Asia over the next 10 to 15 years. It's a vision that is already unfolding.

Assuming ownership of Niseko Village in 2008, YTL Hotels has since unveiled a steady stream of upgrades, including the multi-million dollar facelift undergone by The Green Leaf Niseko Village in 2014. "We enjoyed tremendous occupancy growth last year," shared Francis Yeoh in February 2015. "Where, previously, our two resorts - the Hilton Niseko Village and The Green Leaf Niseko Village - were strongly targeted towards the Japanese market, we have made all the necessary changes and upgrades to appeal to the international jet set and powderhounds, seeing results as early as a year or two after our takeover. It's a little like Bintang Walk all over again," continued Yeoh, recalling his transformation of a once-dingy stretch of Kuala Lumpur into one of the world's top shopping destinations. "I love rehabilitating places, which is all part of life's wonderful journey."

Kasara Niseko Village Townhouse

The next feather to adorn YTL Hotels' already well-decorated cap also marked the unveiling of its Kasara brand. Part of the group's new and unique collection of luxury hotels and resorts, the first phase of the Kasara Niseko Village Townhouse in 2015 offered eight beautifully-formed ski-in, ski-out townhouses that were available for rent or immediate ownership.

(All photos and quotes are from YTL Community website)

With every privilege and convenience afforded, guests and owners of these luxurious three-bedroom homes can look forward to being pampered and cared for in every way conceivable, from dedicated concierge services that include organising chefs-on-call and in-residence sports massages to complimentary driver-on-call service around Niseko Village. "This will push Niseko Village to greater heights as, apart from the townhouses, we have also unveiled a host of exciting apres-ski options at a new purpose-built retail and F&B village, just minutes' away from the Hilton," said Yeoh.

Guests of Niseko Village can now explore and experience a wide variety of post-piste recreation and entertainment, from DIY grill dinners of the freshest Hokkaido king crabs and scallops at the Crab Shack to drinks and dancing at Two Sticks, an Asian-inspired tapas bar with nightly live entertainment, within a charming cluster of shops, each resembling machiya (traditional Japanese wooden shophouses), complete with lantern-lit walkways, wooden lattice facades and shoji screen doors. "It's a microcosm of the world's best here," Yeoh added.

"I am very pleased my people have created this so beautifully as I've always loved the architecture of Kyoto. In whichever destination Kasara is present, be it alpine, rainforest or beach, it will be an inspirational experience of luxury and authenticity. I want Kasara Niseko Village Townhouse to be the brand's flag-bearer. In this, I must also stress that YTL is not here to buy, polish or sell. We are in this for the long-term and we aim to do it well or not at all. Also, ultimately, why are we doing this? It's all about touching people's lives and giving them the very best experience."

Hinode Hills

 YTL Hotels launched in December 2019 a brand new property — its fourth in Japan, after the Hilton Niseko Village, The Green Leaf Niseko Village and the Kasara Niseko Village Townhouses — in Hokkaido. Christened Hinode Hills for the rising sun, the all-suite hotel is part of a three-phase development within the Niseko Village masterplan.

With the first block, named Ten (sky), launched to great success on Dec 5, 2019, plans were being discussed with YTL’s contracting partners to commence construction on the remaining two blocks — Yama (mountain) and Chi (earth) — once the white season, or ski season, ended. “The philosophy behind the elements used in the naming of the buildings is that any journey and experience within Hokkaido and indeed Niseko is so tied to these elements,” said Datuk Mark Yeoh Seok Kah, executive director of YTL Corporation, who flew in especially for the launch ceremony. “[For the first phase], Sky harkens to the source of the great snowfall that has driven Niseko’s renown, particularly over the past decade. Then, there is the mountain skiing and hiking and the views of Mount Yotei, and all the local produce and even the water, which comes from the earth.”

Located at the foot of Mount Niseko-Annupuri, Hinode Hills offers ski-in, ski-out access and is also strategically located adjacent to the Upper Village gondola, giving guests superb mobility around the mountain. A newly opened “magic carpet” lift ensures further accessibility to other parts of Niseko Village, including to the neighbouring Green Leaf property without having to walk or take off one’s skis. The first phase of Hinode Hills also comes complete with the Carvery restaurant, operated by the people behind Singapore’s successful Wolf Burgers chain; a small in-house onsen; and a host of ski services on-site. The other two blocks will boast similar services but with their own distinct identities.

Positioned differently from YTL’s current portfolio of properties offerings, which are hotel and luxury villa-based, Hinode Hills operates more on a serviced apartment concept, with suite configurations of one to three bedrooms, each with living, dining and kitchen facilities. “This is definitely geared towards families,” affirmed Yeoh. “Whether you prefer self-catering or hotel services, it is all up to the guest. We believe the diversity of lodgings we are adding to the existing inventory in Niseko Village meets the demands for all travellers and will achieve healthy occupancy rates year-round,” he said, alluding to Niseko’s increasing popularity during the green season, or summer, when travellers come to enjoy the great outdoors and activities such as golf, biking, hiking and fishing. Niseko is home to two courses: Niseko Golf Course, designed by Arnold Palmer, is considered challenging, while the Niseko Village Golf Course has been voted Japan’s Best Golf Course at the World Golf Awards for five consecutive years since 2015.

“The white season is very, very strong,” Yeoh said, revealing occupancy to be at about 92% for the past eight years, “but the green season is gaining traction.” The Green Leaf, for example, is now open all-year round as the market demand is there, he added. “The Niseko summer experience is very enjoyable. I have personally visited in all the seasons, with each having its own charm. But, speaking as a Malaysian, [the biggest draw] is always the food,” he laughed. “Come in May, when it’s the uni (sea urchin) season, or in autumn, when it is pumpkin and harvest time, with so many special things to eat. Hokkaido also has a short farming calendar, so they are very productive, ensuring there is always something fresh and new to enjoy.”

Rates at Hinode Hills vary according to season, and range from JPY61,000 (RM2,300) to JPY118,000 (RM4,500) per night for the studio and three-bedroom suites respectively.

The Ritz-Carlton Reserve

YTL Corp Bhd’s operating unit YTL Hotels has expanded the Ritz-Carlton Reserve portfolio with the opening of Japan's 50-room Higashiyama Niseko Village resort, which is the first Japanese Ritz-Carlton Reserve and YTL Hotels' fifth destination in Niseko Village in January 2021, according to a news report by CLAD.

The Higashiyama Niseko Village is the fifth Ritz-Carlton Reserve in the world, after those in Thailand’s Phulay Bay, Puerto Rico’s Dorado Beach, Mexico’s Los Cabos and Bali’s Ubud. Ritz-Carlton Reserves occupy the uppermost echelons of the renowned luxury hospitality brand and are accorded only to exquisite parts of the world that offer distinctive personality, uncommon luxury and a rare sense of place. “Absolutely, it will be the fifth Ritz-Carlton Reserve in the world,” said Mark Yeoh. “[As a Ritz-Carlton Reserve,] the Higashiyama Niseko Village will be the epitome [of luxury] while representing the southern border of our developments. There will only be 50 keys, each with direct and the best views of Mount Yotei.”

The Ritz-Carlton Reserve mantra is about a unique experience, so expect this to run throughout the property. The restaurant, for example, will focus on the best of Hokkaido produce. “So, say, we serve prosciutto, it will be made using only the very best meat from Makkari,” said Mark Yeoh. “Or if it’s a porterhouse steak, expect only the best A5 grade Tokuchi beef. Everything will be locally sourced and of the best quality.”

Higashiyama pays homage to the original name of the location, which was changed to Niseko Village after Citibank, from whom YTL bought the property, rebranded it. “Higashiyama, after all, refers to ‘East Mountain’ as per the direct translation,” said Mark Yeoh. “And we saw the opportunity to bring back the identity of Higashiyama as an anchor to all these experiences … that everything is about this remarkable destination — the local produce, the snow, the trails, biking and hiking these mountains, the onsen water which is pulled from the earth directly below the properties. Luxury will be the expectation, but the factors that will stay with our guests as memories for a lifetime will be intimate, unscripted and cultured, all of which are unique to Higashiyama.

“To be fair, we have to thank God for this,” Yeoh continued, referring to YTL Hotels’ decade, and counting, of success in Niseko. “The natural beauty of this place is simply unbelievable. It’s the snow, which you are witness to.”

The Investment

It was reported that YTL Hotels acquired Niseko Village for ¥6 billion (US$58 million/about RM234 million) in 2010 from PC One YK, a Japanese limited liability company. For the 1,520 acres of prime land at Niseko, YTL’s cost of acquisition was at USD0.88 psf.

CIMB Research has as early as in 2014 valued YTL’s Niseko landbank at USD26 psf, which was almost 30x the acquisition cost. I have earlier in May 2022 estimated a value of USD30 psf for the Niseko land, valuing it at USD 2.0 billion.

The Land Value

Online checks on land listing in Niseko region show the following asking prices:

Excluding the Akaigawa Alpine and Miyata Villa land (which is over 10km away from ski lifts), the average land price increases to USD22.42 psf. If I only take the average of land near golf course, at Annupuri Residences and Hinode where YTL’s land is, then the average land price is around USD34.00 psf.

Given that an average 18-hole golf course covers 150 acres of land, YTL’s 2 golf courses at Niseko should have taken up about 300 acres and I reckon that the bulk of the balance 1,520 acre landbank is close to the golf courses, which is suitable for development into golf course resort homes. The other land near Hinode  which is closer to ski lifts is more suitable for development into high end hotels and ski resorts like Hinode Hills YTL has developed.

As YTL’s landbank is at the prime location in Niseko, I would think that it should be valued close to the average land price of USD34.00 psf as calculated above. Hence, I maintain my earlier estimated value of USD30.00 psf or USD2.0 billion for YTL’s land in Niseko.

This Niseko landbank has appreciated in value from USD0.88 psf when YTL acquired it in 2010 to USD30-34 psf now. If I use linear extrapolation, this landbank value may go up to USD60 psf in 12 years time and USD75 psf in 18 years. That would value it to USD5.0 billion by 2040.

Development Value

YTL will likely continue developing the Niseko land into more hotels & resorts, and resort residences. YTL has so far developed 5 distinct resorts there (Hilton Niseko, The Green Leaf, Kasara townhouse, Hinode Hills serviced apartments & Higashiyama Ritz-Carlton Reserve). It is reasonable to expect another 5 to 10 new hotel/resort collections to be launched in next 10-15 years.

In trying to estimate the earnings potential of these Niseko hotels & resorts, I take Hinode Hills as an example. At room rates of RM2,300 per suite per night and at an average 92% occupancy rate, Hinode Hills may rake in annual revenue of RM38.6 million. With an estimated net property income rate of 60%, one Niseko resort may bring in net property income of RM23 million a year.

If I extrapolate this to more resorts, total net property income may top RM220 million a year for 10 hotels/resorts and RM330 million a year for 15 hotels/resorts at today’s money. In 15 years, total recurring income from hotels & resorts at Niseko may top RM700 million or USD150 million a year. At 5% yield, these hotels & resorts would be worth USD3.0 billion then.

For the other land near golf courses, YTL may develop it into resort homes for sale to local Japanese or investors either for own holiday home or for airbnb business. A quick online check shows that apartments and serviced suites at Niseko are selling at RM4,000 – 8,000 psf. For a typical studio suite of 300sf, the selling price may be around RM1.2 million to RM2.4 million. Assuming each studio suite may fetch in an airbnb rate of RM1,000 per night (half of what Hinode Hills is charging), it may bring in annual rental income of RM120,450 at 33% occupancy rate (compared to average 92% for YTL hotels there), giving a potential yield of 5% to 10% at the above selling price.

An acre of land can develop 20 landed homes or 25 serviced apartment rooms/suites, so YTL’s 1,520 acres of land in Niseko may be developed into a township of 30,000 houses to 38,000 apartment rooms/suites. So using the listing prices of apartments above, the gross development value for 1,520 acres of Niseko land may come to 38,000 x RM1.2m = RM45.6 billion or USD10 billion, which is above the reported GDV of USD5.0 to 8.0 billion when YTL acquired the land in 2010, given that land value has appreciated faster than YTL had expected.

(A quick check shows that there were a total of 1.5 million visitors to Niseko every year before the COVID-19 pandemic with foreign visitors making up almost 30%. To accommodate 1.5 million visitors a year, it needs 12,500 rooms at average 33% occupancy. Hence for 38,000 rooms to enjoy occupancy rate of 33%, Niseko will need roughly 4.5 million visitors a year.)

Assuming a net development profit margin of 25%, this Niseko landbank would give rise to a total development profit of USD2.5 billion over time, giving a decent return of 25% over today’s land value of USD2.0 billion. As the development may span over 12 to 18 years, the development value may appreciate along with the land value and inflation to provide a nominal development profit of USD5.0 billion to USD6.2 billion.

My Investment Case

As a small retail investor, I would not have the financial power nor opportunity to acquire such a large landbank at Niseko. Then how could I benefit from such a good investment like what YTL got a steal at Niseko? I would like to be able to ski at such a beautiful ski resort or play golf at the best golf course in Japan every year, so I am thinking of the following investment case.

I would buy some 200,000 shares in YTL Corp at a share price close to 50 sen. Due to various external factors, YTL’s share price has been sliding down to 55 sen now. Due to weak holding power of local investors and exit of foreign funds, YTL share price may drift towards 50 sen in next few months. I see 50 sen as a very strong support level as I expect YTL earnings to improve from this FY2023 onwards and YTL should be able to declare higher dividends than 3.0 sen given out in FY2022. Even with annual dividend of 3.0 sen, YTL at 50 sen will yield 6.0% which is very attractive to local funds like EPF. If YTL can declare higher dividends like 5.0 sen from FY2023, it would yield 10% p.a. and it will provide strong support to its share price.

From analysis above, YTL’s Niseko Village hotels & resorts collection would eventually be able to generate annual profits of RM330-700 million a year say in 15-18 year time. When YTL gradually develops the large landbank there, development profits may total USD2.5 billion to USD6.2 billion over next 15-18 years, or an average of USD250 million every year. That would give a total recurring profit of RM330-700m + USD250m = RM1,480-1,850 million every year or 13 – 17 sen per share.

Hence from its investment in Niseko Village alone, YTL would be able to generate cashflows of 13-17 sen per share every year for next 15-18 years. Assuming it declared half of this as dividends to shareholders, we could expect at least 6.0 sen dividends every year.

From my investment of 200,000 shares in YTL, I would collect annual dividends of 200,000 x RM0.06 = RM12,000 every year. That would be sufficient for me to have a holiday trip to Niseko every year. (A quick online check shows that a return air ticket from KL to Sapporo costs around RM4,000 per pax on AirAsia X or Thai Airways or Scoot, accommodation may cost RM500-1,000 per night per pax on twin sharing).

The cost of my investment would be around RM100,000 if I could get YTL shares at 50 sen. As I analysed before (as in link below), YTL could be worth RM6.35 per share on the bluesky case.

https://klse.i3investor.com/web/blog/detail/dragon328/2022-08-29-story-h1628813084-YTL_Corp_4QFY2022_Continuous_Improvements_in_Utilities_Hospitality_and_

If YTL share indeed went up to RM6.00 in a bluesky scenario, my investment in YTL shares would jump up to RM1.2 million. I would be able to buy a serviced suite in Niseko for investment as airbnb and for own holidays there twice a year (one in winter for skiing and another in summer for golf).

The Journey Begins

A masterstroke by Francis and Mark Yeoh at a rare encounter has resulted in a fantastic investment that will benefit YTL shareholders and the Yeoh family for generations to come. YTL could take a more gradual and sustainable approach in developing this large landbank at Niseko, eg. each generation to develop a collection of 3 to 5 distinctive hotels & resorts to their style and taste, and to roll out the mass resort homes (potential 38,000 units for sale) in a controlled manner, keeping 20%-30% for recurring income along the way (annual recurring income may top RM1.0 billion p.a.).

YTL could take a more aggressive approach by selling off parcels of excess land or partnering other developers to faster monetise the landbank at Niseko. Options are aplenty as YTL is arguably the largest land owner there by very far (online land listing for sale only shows largest tracts of 1-2 acres only near golf course or HInode). As Niseko gains more popularity (it will likely so as Japanese yen depreciates and more Asian tourists get acquainted with the finest quality of snow at Niseko), the land value there will definitely appreciate over time to potentially USD5.0 billion. Therefore, YTL could take its own sweet pace to roll out a sustainable development plan. It could keep the collection of hotels & resorts for generations and retain part of the mass resort homes to enjoy recurring income of potentially RM1.8 billion every year (or 17 sen per share).

I could just ride along YTL’s investment at Niseko by investing in 200,000 shares of YTL at a cost of RM100,000 today. I would potentially enjoy dividend payouts of RM12,000 (when YTL pays out 6.0 sen dividend a year) to RM30,000 (when YTL could achieve RM1.8 billion of recurring income from Niseko) every year. When YTL’s Niseko land value would appreciate from USD2.0 billion today to USD5.0 billion, then the service suite that I would own there would also appreciate in value to RM3.0 million. The dividend payouts from YTL would enable me to have a holiday trip to Niseko every year, or should I decide to sell off the shares to buy a service suite in Niseko then I would still be able to enjoy holidays there while keeping that suite for my children and generations to come.

As Japan re-opens its border later this month, slowly but surely my dream will come through with the investment case above. But for now,

THINK BIG     DREAM WILD

And let the journey begin…