Did a Portfolio Analysis via Strategic Asset Allocation and Tactical Asset Allocation to understand the next geographical location City Development Limited should venture into. Feasibility Studies such as financial analysis and risk management was done through Monte Carlo Simulation.

1. TABLE OF CONTENTCity Development Limited
RE3105 Regional Real Estate Development
Integrated Project 2016 – Part 2
Prepared Specially for Prof David Ho Kim Hin
A0116560M Tan Pang An Leonard (Leader)
A0112135Y Chia Liu Ee
A0149341H Darius Felix Otto
A0149427X Hannah Charlotte Giebelen
A0110994A Hong Kay Yeong Daniel
A0112993B Merilyn Milyarti Wantasen
A0118861B Rebecca Lau Tuck Wai
A0112851N Tan Si Ying

2. EXECUTIVE SUMMARY 1
CHAPTER 1: INTRODUCTION 3
CHAPTER2: RATIONALE FOR HOSPITALITY VENTURE TO JAPAN 3
CHAPTER 3: JAPAN MARKET ANALYSIS 4
3.1 Real Gross Domestic Product (GDP) per Capita and Growth Rates 4
3.2 Demographics 4
3.3 Interest Rates 5
3.4 Currency Trend 5
3.5 Unemployment Rates 6
3.6 Construction Cost 6
CHAPTER 4: HOTEL MARKET ANALYSIS 7
4.1 Supply Analysis 7
4.1.1 Supply Pipelines of Tokyo Hotels 7
4.1.2 Government Policy on Home Sharing Properties 7
4.2 Demand Analysis 7
4.2.1 International Visitor Arrivals 7
4.2.2 International Sporting Events 8
4.2.3 Occupancy, Average Daily Rate (ADR) and Revenue per Available
Room (RevPAR) 8
4.3 Capitalisation Rate and Investment Transactions 9
4.4 Market Outlook 9
CHAPTER 5: SELECTION OF SITE LOCALITY 10
5.1 Rationale for Chuo-ku Ward 10
5.2 Rationale for Yaesu District 10
CHAPTER 6: SITE & LOCATIONAL ANALYSIS 11
6.1 Site Description 11
6.2 Existing Development On-site (Yaesu Mitsui Building) 12
6.2.1 Obsolescence 12
6.2.1.1 Physical Obsolescence 12
6.2.1.2 Functional Obsolescence 12
6.2.1.3 Economic Obsolescence 12
6.2.2 Under-utilized Floor to Area Ratio 13
6.3 Imposed Development Regulations 13
6.3.1 Earthquake Resistant Construction 13
6.3.2 Building Certificates and Inspections 13
6.4 Locational Analysis 13
6.5 SWOT Analysis 14
CHAPTER 7: JOINT VENTURE WITH MITSUI FUDOSAN 15
7.1 Rationale for Joint Venture 15
7.1.1 Site Procurement Strategy 15
7.1.2 Financial Position 15
7.1.3 Default Risk 15
7.1.4 Foreign Political Risk 15
TABLE OF CONTENT

3. 7.1.5 Joint Expertise 16
7.1.6 Long-term Association 16
7.2 Proposed Joint Venture Structure 16
CHAPTER 8: REDEVELOPMENT PROPOSAL 18
8.1 Design and Architect Management 18
8.2 Site Plan 18
8.2.1 Podium 18
8.2.2 Sheltered Plaza 19
8.2.3 Hotel Tower 19
8.3 Development Phase 19
CHAPTER 9: MARKETING STRATEGIES 20
9.1 Marketing Targeting 20
9.1.1 Business Travel Market 20
9.1.2 Luxury Leisure Market 20
9.2 Market Positioning 21
9.3 Marketing Mix 22
9.3.1 Product Strategies 22
9.3.1.1 Physical Aesthetics and Interior Furnishings 22
9.3.1.2 Product Branding 22
9.3.1.3 Unique Features 22
9.3.2 Pricing Strategies 22
9.3.2.1 Premium Pricing 22
9.3.2.2 Time-based Pricing 23
9.3.3 Place (Distribution) Strategies 23
9.3.4 Promotion Strategies 23
9.3.4.1 Advertising 23
9.3.4.2 Public Relations 23
CHAPTER 10: FINANCIAL ANALYSIS 24
10.1 Key Assumptions 24
10.2 Determining Weighted Average Cost of Capital (WACC) 24
10.3 Open Market Valuation (OMV) 25
10.4 Holding Period of the Project 25
10.5 Investment Analysis and Monte Carlo Simulation 26
10.5.1 Optimal Capital Structure & Equity Returns 26
10.5.1.1 80% Loan-to-Value (LTV) 26
10.6 Exit Strategy 27
CHAPTER 11: SENSITIVITY AND RISK ANALYSIS 28
11.1 Sensitivity and Correlation Analysis 28
11.2 Identification of Risk 28
11.2.1 Development Phase Risks 28
11.2.1.1 Construction Cost Risk 28
11.2.1.2 Time Risk 28
11.2.1.3 Approval and Regulatory Risk 29
11.2.2 Post-Development Phase 29
11.2.2.1 Vacancy Risk 29
11.2.2.2 Revenue Volatility Risk 29
TABLE OF CONTENT

4. 11.2.2.3 Earthquake Risk 29
11.3 Risk Mitigation Strategies 29
11.3.1 Employ Construction and Project Management Expertise 29
11.3.2 Advance Co-pitching of Redevelopment Proposal 30
11.3.3 Combined Corporate Synergies 30
11.3.4 Flexible Room Configuration and Rental Leases 30
BIBLIOGRAPHY
APPENDIX
TABLE OF CONTENT

5. Executive Summary
Project Team:
Tan Pang An Leonard
Chia Liu Ee
Darius Felix Otto
Hannah Charlotte Giebelen
Hong Kay Yeong Daniel
Merilyn Milyarti Wantasen
Rebecca Lau Tuck Wai
Tan Si Ying

6. Executive Summary
Why Hotel and Why Japan
Based on the evaluation and assessment conducted on City
Development Limited’s (CDL) overall business operation,
organizational framework and corporate structure in Part 1, the
company should continue to develop on its key strengths and stay
focused on its competencies as the pioneer in local and
international hospitality industry. As suggested by Analytical
Hierarchy Process Based Strategic Asset Allocation (SAA) and
the defensive investment strategic alternative proposed in
Markowitz Quadratic Programming Tactical Asset Allocation
(TAA), CDL should venture more into the Japanese hospitality
market given its transparent and efficient business environment,
recovering economic condition as well as the effective corporate
governance. This is further supported by the performance attribution analysis model, which suggest
that CDL has the expertise and competency in selecting opportunistic investments in Tokyo. However,
the performance attribution analysis has also revealed that CDL has placed too little weightage on
their hospitality portfolio in Tokyo relative to the proposed TAA mentioned.
Japan’s Economic Condition and REMA for Hotel
Amidst the slowdown in economic condition and the contraction in GDP growth rate, the market
sentiments towards future economic outlook still remain optimistic with the unemployment rate
remains low and stable. While the Japan’s population is expected to suffer a sizeable shrinkage in the
years ahead, Tokyo’s population is anticipated to decline at a slower rate. The low interest rate
environment, coupled with the weakening yen in recent years has been successful in stimulating the
economy and boosting foreign consumer spending. Furthermore, in the recent years, construction
market in Japan have been experiencing increasing high construction cost, thus it has prompted the
government to loosen its tight control on the construction labor market.
Looking at the supply side of Tokyo’s hospitality sector, reputable international hoteliers are
increasingly enthusiastic in entering the Japan hospitality sector, leading to a large supply pipeline
which is expected to hit the market by 2018. The large supply will be well-absorbed by the rising hotel
demand due to the increasing international visitor arrivals, the possible enactment of regulations that
illegalize home sharing properties and the fact that Tokyo is hosting several major international
sporting events in the near future. Since 2011, Tokyo’s hotel market has been achieving high
occupancy rate, Average Daily Rate (ADR) and Revenue per Available Room (RevPar).
Selection of Site and Site Assessment
The subject site that is located in Yaesu district of Chuo-ku
Ward in Tokyo was chosen due to its locational advantage,
comprehensive transportation network and proximity to
several major business districts as well as Tokyo’s most
popular luxury shopping district. As the existing office
building on the chosen site has suffered from physical, functional
and economic obsolescence, it is economically attractive to
redevelop the office building into a hotel development so that the
highest and best use for the land can be achieved.
Page. 1

7. Executive Summary
Joint Venture with Mitsui Fudosan
The proposed development plan is a collaborative joint venture project undertaken together with
Mitsui Fudosan, with an equity distribution of 40:60 between CDL and Mitsui Fudosan. Through a
joint venture partnership with a reputable local property developer that has a strong financial position
and an established long-term association through TID Pte Ltd, CDL could streamline and simplify the
land acquisition process, reduce its foreign political risk and default risk, as well as leverage on the
partner’s critical knowledge and industry experiences in Japan’s property market.
Proposed Development and Marketing Mix
The proposed development is a 30-storey hotel tower, which is positioned as
a 5-star luxury hotel targeting at the business traveller market and the luxury
leisure market. Kohn Pederson Fox Associates (KPF) will be appointed as the
design and architect manager for the redevelopment project given its
superiority in the knowledge and experience in the relevant sector. The
development phase is categorized into 5 basic phases, Concept phase, Pre-
Development phase, Construction phase, Marketing and Sales Launch phase,
as well as Completion and Handover phase. The whole redevelopment is
estimated to be completed in 3 years, with marketing plans which include
product strategy, pricing strategy, place strategy and promotion strategy being
executed at the Marketing and Sales Launch phase.
Financial Analysis
A comprehensive financial study was conducted to ascertain the economic and
financial viability of the redevelopment project. The acquisition cost for the
subject site was determined by employing a standard discounted cash flow
(DCF) model, at ¥ 71,500,000,000. The weighted average cost of capital
(WACC) for different Loan-To-Value (LTV) was also computed. Based on the
DCF analysis run on Monte Carlo Simulation, an 80% LTV would generate
the highest IRR and the highest NPV of 13.98% and ¥ 54,744,000,000
respectively. By obtaining an 80% debt financing, an initial equity outlay of
¥ 5,405,440,000 and total development cost of ¥ 55,042,600,000 can be
expected. By comparing the marginal rate of return for each year against the
hurdle rate, the optimal holding period of 10 years was derived. An exit
strategy through CDL’s existing fund management platform, CDLHT, is
proposed to retain indirect stakes of the operations to maintain its footprint in
the Japan hospitality market. In addition, CDL will enjoy capital recycling by
exiting through this fund management platform.
Sensitivity and Risk Analysis, Risk Mitigation Strategies
Based on the sensitivity and correlation analysis, the NPV is most sensitive to Average Daily Rate
(ADR), occupancy rate and growth rate of ADR, suggesting that attention must be provided to these
areas to reduce uncertainties in the profit. Following the identification of development risks which
include development phase risks and post-development phase risks, several risk mitigation strategies
would be employed to better manage, eliminate or reduce risks to an acceptable level.
80%
LTV
13.98%
BTIRR
¥ 54,744,000,000
NPV
Page. 2

8. Seeking New Ground
Introduction & Rationale

9. 1. Introduction
Following the examination of City Development Limited’s (CDL) overall business operations,
current practices and organizational framework in Part 1, we propose that it continues to
concentrate and develop on its key strengths. As one of the pioneers in foraying into the
hospitality markets locally and globally, CDL’s long-established achievements and expertise
have given rise to its competitive edge in generating profits from this industry. Based on AHP-
Based Strategic Asset Allocation (SAA) and Markowitz Quadratic Programming Tactical
Asset Allocation (TAA) portfolio compositions, the assessments suggest the need for CDL to
rebalance its existing portfolio by reallocating its hotel stakes from Singapore to the other
markets such as Tokyo, Japan. Thus looking ahead, our proposal for the new development aims
to enable CDL to continue benefiting the value chain of hotel real estate development as well
as to heighten the earning yield and shareholders’ equity.
The proposed development plan is a collaborative joint venture project, which is to be
undertaken together with an experienced Japanese property developer, Mitsui Fudosan. The
new development is a redevelopment project which aims to reposition Mitsui Fudosan’s current
commercial office asset located in Tokyo into a hotel asset known as, Mitsui Grand Millennium
Hotel Yaesu. In light of the upcoming 2020 Olympic Games, the new hotel development will
inject 402 hotel rooms into the supply pipeline and capture a considerable amount of
international visitors entering Japan. This feasibility proposal presents an in-depth analysis
concerning the prospects of the project as well as a recommended game plan which CDL should
assume in order to meet its corporate objective sustainably.
2. Rationale for Hospitality Venture to Japan
As part of its diversification and expansion strategy, CDL has effectively strengthened its
market presence in overseas hospitality markets such as London and China through its global
hospitality arm, M&C. While continuing to seek for key growth drivers with high and stable
revenue, CDL has recently aimed to actively pursue attractive acquisition and redevelopment
opportunities in mature markets including US, Japan and Australia. The capital market
frameworks in these countries are deemed to be comparable to Singapore’s in terms of
transparency, efficiency and effective corporate governance. This would give CDL greater
confidence in moving swiftly when securing projects and opportunities. As the local economies
in these markets experiencing recovery stage, it is also believed that CDL would be able to
reap substantial benefits from entering at an optimal timing as part of its value-added
investment strategy. Moreover, as of 2014, CDL’s hotel operation portfolio in Tokyo is found
to be highly insufficient at only approximately 5.2%, compared to 13.7% and 16.2% as
suggested by SAA and TAA respectively. Taking into account the outcomes from SAA and
TAA, CDL should increase its asset holdings in Japan by a considerable amount to meet its
core objective of maximising return with minimal risk.
Page. 3

10. Land of Rising Investment
Japan Market Analysis

11. 3. Japan Market Analysis
3.1 Real Gross Domestic Product (GDP) per Capita and Growth Rates
The GDP growth rate in
Japan has contracted by 0.3%
on the last quarter of 2015.
This is due to the private
consumption and capital
investment of businesses
remaining sluggish. China’s
slowdown in economic
growth also continues to
dampen Japanese firms’
investment appetite and
Japan’s overall export,
contributing to the
contraction in GDP growth
rate. Despite the bearish outlook in 2015, the Japanese government remains optimistic and is
expecting a 1.7% GDP growth in April 2016 (The Japan Times, 2016). This is because Japan
has been experiencing a sharp increase in inbound tourism. The economy is also expecting
fueled consumptions before the increased consumption tax scheduled in April 2017. Moreover,
GDP per Capita is expected to escalate from 2014 to 2020 as the government intends to raise
the minimum wages by 3% a year, from $6.50/hour in 2015 to $8.15/hour in 2020 (The
Guardian, 2015). Rising real wages promote heightened consumer demand and confidence.
Increased tourisms and private spendings would boost the weak current consumer spending in
Japan, resulting in a major ripple effect across the country.
3.2 Demographics
Japan is an island country
in East Asia with
approximately 128 million
inhabitants. In contrast to
other Asian countries,
population in Japan has
decreased over several
years. From 2010 to 2015,
the population in Japan has
declined by 1.14%. It is
projected to drop further by
4.32%, from year 2035 to
2040, due to Japan’s ageing
population and low birth
rates.
Tokyo accounts for 10% of Japan’s population. The population in Tokyo has climbed by 1.5%
from 2010 to 2015, showing a reverse trend than that of Japan’s population. Additionally, the
percentage change in Tokyo’s population is decreasing at a slower rate compared to the whole
of Japan, possibly due to its positive net migration from 3 adjacent prefectures including
Saitama, Chiba, and Kanagawa.
Figure 1: Real GDP Growth and GDP Per Capita
Figure 2: Japan vs. Tokyo Population Forecast
Source: National Institute of Population and Social Security Research
Page. 4
$44,455
$44,942
$45,717
$46,147
$46,606
$47,335
$48,011
0.01% 1.10%
1.72% 0.94%
1.00%
1.56% 1.43%
0.00%
0.50%
1.00%
1.50%
2.00%
$42,000
$43,000
$44,000
$45,000
$46,000
$47,000
$48,000
$49,000
2014 2015 2016 2017 2018 2019 2020
Real GDP Per Capita (U.S. dollars)
Real GDP Per Capita Growth Rate (%)
1.44%
-0.26%
-1.03%
-1.69% -2.27%
-2.80%
-1.14%
-1.97%
-2.77%
-3.35%
-3.85%
-4.32%-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
2010 2015 2020 2025 2030 2035 2040
% Change in Tokyo Population
% Change in Japan Population

12. 3
3.3 Interest Rates
As illustrated in figure 3,
Japan has recently adopted
negative interest rates,
shifting from zero interest
rates which lasted over 5
years. This was implemented
to counteract the effects of
falling oil prices as well as
the slowing down of
emerging economies. As of
January 2016, the Bank of
Japan has practiced a
negative rate of 0.1% to
encourage business lendings, which aid in spurring investments. Negative interest rates also
prompt savers to spend and force investors to shift their cash into higher-yielding assets.
3.4 Currency Trend
An aggressive monetary
easing policy administered
by the Bank of Japan has
resulted in the consecutive
weakening of Yen against
the Dollar (USD) since
2012. While the weakening
of Yen has resulted in
higher costs of imports, it
has also culminated a quiet
boom in the high-end
private real estate. Foreign
investors from the rest of
Asia have been increasing
their purchases of high-end
real estates in Tokyo
(Tokyu Land, 2013). The Yen’s decline has also boosted Japan’s tourism industry by attracting
more foreign visitors to sightsee in various Japanese cities.
Figure 3: Japan’s Interest Rates
Figure 4: Japan’s Currency Trend
Page. 5

13. 3.5 Unemployment Rates
Based on figure 5, unemployment
rate in Japan is forecasted to
stabilise within 3.5% - 3.6% from
2016 to 2020. One of Abe
government’s key political and
corporate agenda in 2015 was to
advocate as well as enlarge the
proportion of women in
leadership positions, reaching at
least 30% by 2020. Despite the
bearish economic outlook in
Japan, its unemployment rate
remains low as short handed
employers explored the
alternative of hiring more
temporary workers to avoid
increasing base wages.
3.6 Construction Cost
Construction cost in Japan has continued
to rise since year 2011. In the Tokyo
region, it has soared by 11% due to the
demand-supply gap for skilled
construction workers. The shortage of
skilled workers has driven up labor cost,
increasing construction cost. Furthermore,
ongoing key projects such as the post-
earthquake and tsunami reconstructions,
2020 Olympic Games infrastructures and
ageing facilities have given rise to demand
for constructions and inflated costs of
building materials. In view of relieving
stress on the construction labor market, the
Japanese government had loosened its
practical training visa rules in 2015. This
has enabled more foreign nationals with
construction skills to work in Japan for a
maximum of 3 years after their training
period.
Figure 5: Japan’s Unemployment Rates
3.58%
3.51%
3.54%
3.61%
3.52%
3.53% 3.53%
3.46%
3.48%
3.50%
3.52%
3.54%
3.56%
3.58%
3.60%
3.62%
2014 2015 2016 2017 2018 2019 2020
Figure 6: Japan’s Construction Cost Trend
Page. 6

14. Strength in Unity
Hotel Market Analysis

15. 4. Hotel Market Analysis
4.1 Supply Analysis
4.1.1 Supply Pipelines of Tokyo Hotels
Many international hoteliers are planning for
new openings in Tokyo to capture the strong
growth in the hotel industry. Reputable brands
such as Andaz by Hyatt Hotels and Aman by
Aman Resorts, have recently entered the
Tokyo hotel market to tap onto the growing
demand in its hospitality sector. The total
number of hotels in Tokyo currently stands at
675. This translates to 98,644 rooms, with
approximately 4,000 of the rooms contributing
to the luxury segment as of March 2015.
According to Savills and Jones Lang Lasalle
(JLL), a total of 10,257 new additional rooms
are expected to hit the market by 2018,
reflecting an approximate compounded annual
growth rate of 3.4%. It is anticipated that the pipeline of hotel supply will be well-absorbed by
the rapidly increasing number of tourists travelling to Japan (Savills and JLL).
4.1.2 Government Policy on Home Sharing Properties
Prime Minister Shinzo Abe’s government has recently announced proposals and guidelines,
which would illegalize most Airbnb home sharing properties. Under these regulations, home
sharing rentals are obliged to impose a minimum lease duration of 7 days on guests who wish
to stay in the unit. Nevertheless, the decision for the enactment of these regulations lies within
the jurisdiction of local municipalities. It can be foreseen that the supply of home sharing
properties in Tokyo will decline substantially when a majority of municipalities adopt these
guidelines. This potentially reduces the threat of home sharing platforms while increasing the
occupancy of traditional hotels in Tokyo.
4.2 Demand Analysis
4.2.1 International Visitor Arrivals
International visitor arrivals have been
steadily increasing since 2012. It
experienced an exponential growth of 47%
in 2015 to reach 19,737,400 visitors,
almost hitting the Japanese government’s
2020 target of 20,000,000 visitors
(Cushman and Wakefield). As a result,
Goldman Sachs has given a revised
estimate that visitor arrivals will hit
35,000,000 by 2020. The significant
review in the forecast of international
visitor arrivals bodes well for hoteliers,
as the demand for accommodation and
hotel rooms are expected to rise further.
Figure 7: Pipeline of Hotel Rooms in Tokyo
Page. 7
4677
3209
1371
1000
0
1000
2000
3000
4000
5000
2015 2016 2017 2018
Pipeline of Hotel Rooms in Tokyo
2015 2016 2017 2018
19,737,400
27%
-28%
34%
24% 29%
47%
-40%
-20%
0%
20%
40%
60%
0
5000000
10000000
15000000
20000000
25000000
2010 2011 2012 2013 2014 2015
International Visitor Arrivals
International Visitor Arrivals
Percentage Change
Figure 8: International Visitor Arrivals

16. 4.2.2 International Sporting Events
Since its success on the bids to host the 2019 Rugby World Cup and 2020 Olympics, the
Japanese government has been growing its efforts in improving infrastructure and accessibility
to facilitate the anticipated boost in tourism as well as visitor arrival numbers. The government
has also set up plans to leverage on its cultural assets, encouraging tourists to visit several
regions in Japan. The synergy arising from major international events and strong government
initiatives lead to an expected rise in number of visitor arrivals as well as demand for hotels
and accommodations.
4.2.3 Occupancy, Average Daily Rate (ADR) and Revenue per Available Room (RevPAR)
Tokyo’s hotel performance has
been steadily growing since the
decline in 2011. Average Daily
Rate (ADR) and occupancy have
been increasing due to the rising
number of visitor arrivals. In 1H
2015, ADR has climbed to reach
JPY 17,640 while occupancy
rates were steadily held at 86.5%.
(Savills, Cushman & Wakefield)
According to HVS, Tokyo luxury
hotels have also shown strong
performance with registered
ADRs and occupancy rates of
JPY 52,000 and 86% respectively
in 1H 2015. These cumulate to a
RevPAR of JPY 44,720. Even
though occupancy growth is
predicted to stabilise from 2015
onwards, hoteliers are anticipated
to tap on the high levels of
occupancy by maximising ADRs.
Figure 9: ADR, RevPAR and Occupancy Rate of Average Tokyo Hotel
Figure 10: ADR, RevPAR and Occupancy Rate of Average Tokyo Hotel
17640
87%
0%
20%
40%
60%
80%
100%
0
5000
10000
15000
20000
25000
2010 2011 2012 2013 2014 1H 2015
Average Tokyo Hotel
Average Daily Rate (ADR)
Revenue Per Available Room (RevPAR)
Occupancy Rate
52000
44720
86%
65%
70%
75%
80%
85%
90%
0
20000
40000
60000
2012 2013 2014 2015
Luxury Tokyo Hotel
Average Daily Rate (ADR)
Revenue Per Available Room (RevPAR)
Occupancy Rate
Page. 8

17. 4.3 Capitalisation Rate and Investment Transactions
Capitalisation rates or expected net
operating income yield survey
conducted by CBRE shows a steady
compression from 2010 to 2016. With
the generally low global interest rate
environment and recent announcement
to implement negative interest rates, it
can be anticipated that capitalisation
rates will continue shrinking. The
declining capitalisation rate suggests the
ability to yield higher values from the
exit prices of hotel developments.
In addition, the investment market for hotels remained extremely active in 2015 despite
compressed capitalisation rate. Most of the transactions continued to be aggressively driven by
J-REITs and their sponsors. Some of the notable transactions are listed in the table 1.
.
4.4 Market Outlook
With healthy demand and supply fundamentals arising from the influx of tourists as well as a
low compounded annual growth rate of approximately 3.4% in hotel supply, the Tokyo luxury
hotel market is primed to enjoy strong levels and growth in ADR, occupancy and RevPAR in
coming years. Moreover, investment sentiments among investors remain positive and the
capital values of hotels are expected to grow steadily, as investors continue to seek asset classes
with relatively strong yields.
Hotel Price (JPY) Purchaser
Sotetsu Fresa Inn Ginza 10,000,000,000 Hulic
APA Hotel Yokohama-Kannai 8,400,000,000 Invincible Investment
the b Ikebukuro 6,520,000,000 Japan Hotel REIT
the b Akasaka 6,250,000,000 Japan Hotel REIT
the b Hachioji 2,610,000,000 Japan Hotel REIT
the b Ochanomizu 2,320,000,000 Japan Hotel REIT
Figure 11: Capitalisation Rate
Table 1: Hotel Transactions
Page. 9
4.00%
5.00%
6.00%
7.00%
8.00%
1H2010
2H2010
1H2011
2H2011
1H2012
2H2012
1H2013
2H2013
1H2014
2H2014
1H2015
2H2015
1H2016
Capitalisation Rates
Capitalisation Rates

18. Tokyo, always on the move
Selection of Site Locality
.

19. 5. Selection of Site Locality
5.1 Rationale for Chuo-ku Ward
Chuo-ku ward is one of the main commercial centres in
Tokyo, which houses numerous large multinational
corporations and corporate headquarters. In comparison to
other emerging business districts such as Shinjuku ward,
Shinagawa ward, Minato ward and Chiyoda ward, Chuo-ku
ward has the comparative advantage for establishing luxury
hotel operations due to it also being the location of Ginza. It
is internationally recognised that Ginza is Tokyo’s most
popular and prestigious shopping district. Positive spillovers
arising from the bustling economic and commercial activities
in the ward generate strong demand for accommodations from business travelers and upscale
visitors. This would enable the future hotel development, Mitsui Grand Millennium Hotel
Yaesu, to achieve high and stable occupancies both on weekends and weekdays.
Additionally, with increased accessibility and connectivity, it takes only approximately 15
minutes to travel from Chuo-ku ward to Shinkansen high speed train station via the Tokyo
expressway. The Shinkansen high speed train station connects Tokyo to most of Japan’s other
major cities including Honshu, Kyushu, Nagoya, Osaka and Hokkaido. Therefore, this would
enhance the attractiveness of Chuo-ku ward as business and leisure travellers often view
convenience as the top selection criteria for a hotel (Clarabridge, 2012).
5.2 Rationale for Yaesu District
Yaesu district is situated in the central area of Chuo-ku ward.
It is one of the major business districts in Tokyo. Towards
the north of the Yaesu district is the Nihombashi district,
which serves as the financial centre of Tokyo where the
computerised Tokyo Stock Exchange and headquarters of
major financial corporations are located at. Towards the
south of Yaesu district is Ginza district, Tokyo’s most
luxurious and upscale shopping area comprising a multitude
of department stores, international brand-name boutiques
and exclusive restaurants. Being strategically located near
major bustling commercial and retail hubs, Yaesu district
serves as a centripetal convergence point that appeals to a
large spectrum of guests in the various surrounding districts.
Furthermore, through the positioning of the future hotel development in Yaesu district, CDL
could potentially enhance its market share in the vicinity. The new addition would complement
CDL’s existing hotel development under the M&C brand, which situates in the neighbouring
Ginza district. By clustering its hotel developments within close vicinity, CDL could advantage
from agglomeration of economies and achieve a large improvement in its hotel management
as well as economic performance. This is particularly pertinent to luxury, upscale and chain-
managed hotels as the effects of agglomeration are believed to be stronger and more beneficial
relative to independent competitors (Signes, Ona and Pastor, 2014).
Figure 12: Map of Tokyo, Japan
Page. 10
Figure 13: Map of Yaesu District

20. Centre of World Economy
Site & Locational Analysis

21. 6. Site & Locational Analysis
6.1 Site Description
Site Address 2-7-2, Yaesu, Chuo-ku
Existing Property Name Yaesu Mitsui Building
Property Owner/ Developer Mitsui Fudosan
Site Area 29,450.30 sq ft
Gross Floor Area 353,404.00 sq ft
Average Net Floor Area (NFA) Per
Floor
15,457.69 sq ft
Plot Ratio 12.0
Zone Commercial
Figure 14: Yaesu Mitsui Building
Page. 11

22. 6.2 Existing Development On-site (Yaesu Mitsui Building)
6.2.1 Obsolescence
6.2.1.1 Physical Obsolescence
Built in 1965, the 51-year-old office building might have been suffering from a substantial rise
in maintenance cost and decreasing property value over the years. As a result of general usage
and the passing of time, the interior finishings as well as the building components are believed
to have exceeded their utilities. In addition, considering the age of Yaesu Mitsui building, the
current physical aesthetics of the building is regarded to be outdated and incompatible with the
urban design of the city. Being located in one of the central business districts and surrounded
by relatively new and contemporary commercial buildings, it is likely that Yaesu Mitsui
building has lost its competitiveness and ability to generate favorable returns within the office
sector.
6.2.1.2 Functional Obsolescence
Although Yaesu Mitsui building’s function as an office tower has been quite consistent over
the 51 years, it might have been faced with several challenges in providing efficient office
spaces for its users. Compared to the other surrounding office buildings, the inefficient layouts
for Yaesu Mitsui building such as inadequate floor to ceiling heights, close-spaced structural
columns and relatively small floor plates have impaired the functionality of the building. These
shortcomings are mostly unrectifiable and thus, have shortened the functional life of the office
building. Furthermore, the inability to incorporate new information technologies and green
features due to its current inflexible layout have resulted in functional inefficiency and
uncompetitiveness.
6.2.1.3 Economic Obsolescence
The returns of the office sector in Tokyo remain positive amidst the cloudy global economic
outlook as a result of falling commodity prices and economic slowdown in emerging giants.
However, a potential oversupply of office spaces in Tokyo is expected after taking into account
the large expansion of incoming office supply and the declining working age population (Jones
Lang Lasalle, 2015). Meanwhile, Tokyo’s hospitality industry is presenting a more desirable
prospect due to the booming tourism industry, which has successfully stimulated Japan’s
economy in recent years. Therefore, it would be economically attractive to redevelop the
existing office building into a hotel development, unlocking its development potential as well
as highest and best use.
Figure 15: Yaesu Mitsui Building Figure 16: Yaesu Mitsui Building’s Entrance
Page. 12

23. 6.2.2 Under-utilized Floor to Area Ratio
The current floor to area ratio (FAR) of Yaesu Mitsui building amounts to 1200%, considerably
lower than the stated FAR of 1300% for the site. This provides an adaptive reuse opportunity
through the recycling of under-utilized site, which subsequently promotes community
revitalisation and economic development.
6.3 Imposed Development Regulations
6.3.1 Earthquake Resistant Construction
According to the Building Standards Act of Japan which was first introduced in 1924, all
buildings are required to install earthquake-resistant structures. This act has been subsequently
revised and strictly reviewed after Japan experienced several severe earthquakes. The revised
Earthquake Resistant Building Standard Amendment states that a building should only suffer
a slight amount of cracks during a mid-size earthquake which ranges from a magnitude of 5 to
7, and the building should not collapse during large earthquake with a magnitude of 7 or higher.
The proposed buildings which failed to comply to the earthquake-proof standard will not be
granted approval for the building construction.
6.3.2 Building Certificates and Inspections
Amendments on building certificates and inspections were made to be stricter in 2007.
According to Japan Property Central (n.d), buildings with heights exceeding 13 metres are
required to be stringently inspected by authorities, regarding their conformities towards the
Building Standards Act during their construction stages. Furthermore, it is also necessary for
buildings to have 10-year warranties against defects to ensure the safety of occupiers.
6.4 Locational Analysis
The subject site is located in Chuo-ku
ward, which is one of Tokyo’s Central 5
Wards business district. It is situated
more specifically, in the Yaesu 2 Chome
Central district which lies within the
National Strategic Special Zone. This
zone is designated to boost Japan’s
economy through the agglomeration of
office buildings owned by large
multinational corporations. Towards the
East and West, the site faces Kyobashi
Edogrand and Nittobo. While towards
the North and North-East, the site fronts
Pacific Century Place Marunochi and
GranTokyo South Tower. Major real
estate developers such as Mitsui Fudosan
and Tokyo Tatemono have announced
redevelopment plans valued at 5 billion
USD in Yaesu East and Yaesu North districts recently. The redevelopment plans will
strategically shift the buildings in Yaesu district from single-use to mixed-use developments to
maximise space efficiency.
Figure 17: Location of Yaesu Mitsui Building on map
Page. 13

24. Aside from office developments, hotels and retail malls can be found within Yaesu and in the
surrounding districts. One prominent development that could be a potential competitor to our
proposed development is the Four Season Hotel Tokyo at Marunouchi. It is a 5-star luxury
hotel development that sits directly opposite of the subject site. Other hotel developments in
the vicinity include Shangri-La Hotel Tokyo, Tokyo Station Hotel, Hotel Metropolitan
Marunouchi, Hotel Ryumeikan Tokyo and Courtyard Tokyo Station. These hotels range from
3-stars to 5-stars rating, catering to travellers with different profiles and needs. The vitality of
the area could also be attributed to the various malls situated in the region, such as Daimaru
Tokyo, Shopping Mall KITTE, Marunouchi Building, Printemps Ginza and Melsa Ginza 2.
Being located just a stone’s throw away from 4 different train stations, the site is served with a
total of 25 lines leading to / from various parts of Tokyo. The subject site also offers a
convenient direct access by automobiles via the Yaesu Line Expressway. Moreover, from the
site, it only takes approximately 17 minutes and 50 minutes of travelling times to reach Haneda
Airport and Narita Airport respectively.
6.5 SWOT Analysis
A SWOT analysis is conducted to examine the feasibility of the development.
Strengths
- 1. Comprehensive transportation network
- 2. National Strategic Special Zone
3. Close proximity to Tokyo Summer
Olympic site
Weaknesses
- 1. Surrounding hotel developments
- 2. Imposed development regulations
Opportunities
- 1. Future redevelopments in the vicinity
boost hotel businesses
- 2. Relaxed zoning regulations
- 3. Financial incentives to build greenery
- 4. Positive outlook for tourism
- 5. Japan’s adoption of negative interest rates
to revive economy
Threats
- 1. Prone to natural disasters such as
earthquakes
2.Volatile global financial market
e
Page. 14

25. Expand Beyond Limit
Joint Venture with Mitsui Fudosan

26. 7. Joint Venture with Mitsui Fudosan
7.1 Rationale for Joint Venture
7.1.1 Site Procurement Strategy
The key rationale for the proposed joint venture revolves around CDL’s site procurement
strategy. The site proposed is currently owned by Mitsui Fudosan. However, a direct
acquisition strategy might be unrealistic considering that Mitsui Fudosan is also a real estate
developer, whose core business involves property developments and investments. Due to the
site’s strategic location as well as land scarcity in the area, it is highly unlikely that Mitsui
Fudosan would agree to completely dispose its interests in the site. Therefore, a strategic
partnership might instead be the best alternative for CDL to acquire interest on the site. In
addition, a joint venture partnership will also allow CDL to streamline and simplify its
acquisition process in a foreign market.
7.1.2 Financial Position
The strong financial position of Mitsui Fudosan is one of the criteria which draws CDL to enter
into a joint venture with the company. According to the company’s consolidated financial
summary from 2011 to 2015, net assets have increased substantially over the 5 years, indicating
the company’s good financial health as well as strong ability to generate high income through
strategic investment and development. Over the years, the debt-to-equity (D/E) ratio has also
decreased significantly from 1.71 to 1.06, while the return on equity (ROE) has been increasing.
The relatively greater D/E ratio as compared to similar foreign industrial players is due to the
extremely low interest rate environment in Japan, which could potentially create a higher
positive leverage effect on debt financing. The rapid increase in net assets and ROE,
accompanied by decreasing D/E ratio suggests the company’s large improvement in its
financial performance, which is achieved by the strategic planning and financing of the projects
and its efficiency in securing excellent business opportunities over the year. Moreover, its
business target to achieve a debt-to-equity ratio of 1.3 in 2017 implies the company’s optimistic
view towards the current investment environment and high confidence in covering debts with
stable stream of fixed-income generating from the projects on-hand.
7.1.3 Default Risk
The joint venture allows CDL to reduce the risk of bankruptcy, which is associated with
projects that involve high total development cost. Default risk is maximised when the total
development cost for a project is larger than the firm’s market capitalisation or shareholder’s
equity. The collaboration lowers the risk by spreading the amount of equity contributed towards
the project, thereby reducing the total development cost of the project for CDL. Thus, entering
a joint venture will cushion the negative impacts which would befall upon CDL in the event
whereby the project fails.
7.1.4 Foreign Political Risk
Foreign political risks concerning tariff barriers, unstable tax regimes, license denials and
unfavorable government policies targeting foreign businesses would be mitigated through a
joint venture with a local business partner such as Mitsui Fudosan. These risks are particularly
crucial because in 2014, CDL’s and M&C’s Chairman, Kwek Leng Beng, considered Japan as
a country that is relatively difficult for foreign investment. The partnership allows CDL to
protect itself against expropriation risk and explore development initiatives in a safer way.
Page. 15

27. 7.1.5 Joint Expertise
By forming a joint venture with Mitsui Fudosan, CDL could leverage on its critical knowledge
and industrial experiences in Japan’s property market. Mitsui Fudosan is an active and
experienced player in both Japan and foreign real estate markets across ranging sectors, from
office to hospitality industries. A highly-experienced joint venture partner would contribute to
better decision-making and project implementation. The partnership would also enable CDL
to extend its market reach internationally while gaining access to a whole new network of
contacts and other valuable resources. This would help CDL in its process of improving its
operations in a foreign property market. Moreover, the partner’s credible reputation as well as
strong corporate brand would efficiently aid in the marketing process of the project and
substantially enhance the probability of success for the redevelopment project.
7.1.6 Long-term Association
Through its multitude of collaborations with TID Pte Ltd, CDL has established an abiding
relationship with Mitsui Fudosan. TID Pte Ltd is a joint venture between Hong Leong Holdings
and Mitsui Fudosan. Hong Leong Holdings and Mitsui Fudosan have been undertaking
collaborative residential projects as well as hotel operations through this joint venture for more
than 40 years. Recently, they have successfully collaborated in developing distinguished
projects such as The Oceanfront at Sentosa Cove, St Regis Hotel and Residences. Together,
they have also ventured effectively to the Singaporean Executive Condominium market,
signified by their active participation. Some of the Executive Condominiums jointly developed
by CDL and TID Pte Ltd include The Rainforest and The Brownstone. In addition, CDL is
known to have 76% effective interest in Millennium Mitsui Garden Hotel, which involves a
collaboration with Mitsui Fudosan. The hotel represents the first flagship hotel by M&C, the
hospitality arm of CDL, in Japan. This joint venture has managed to attain excellent financial
performance within its short period of operation. CDL and Mitsui Fudosan would be able to
form a partnership which increases productivity as well as minimises conflicts by capitalising
on previous positive joint collaborations experience in addition to their long-term relationship.
7.2 Proposed Joint Venture Structure
A more realistic ownership structure with
an equity distribution of 40:60 between
CDL and Mitsui Fudosan is proposed due
to the land procurement constraint. A
higher equity stake is critical to persuade
Mitsui Fudosan into pursuing the new
development project together with CDL. It
also allows Mitsui Fudosan to retain larger
control over the project execution while
spreading out risks. In addition to a higher
stake, this joint project would remain
attractive for Mitsui Fudosan as it could
capitalise on CDL’s hotel development
and management expertise. Moreover, the
luxury branding that arises from M&C (a subsidiary of CDL) being its hotel management
company would further enhance the prospect of the proposed hotel. It is evident from the hotel
portfolios of both companies that M&C has greater international recognition in upscale and
luxury hotel markets as compared to Mitsui Fudosan, which is more specialised in budget and
40%
60%
Ownership Structure
CDL Mitsui Fudosan
Page. 16
Figure 18: Ownership Structure of Joint Venture

28. mid-scale hotels. CDL could also contribute effectively to the project by supplying new stream
of hotel customers from Europe and United States, where M&C has remarkable operations as
well as experience. This would complement with the influence of Mitsui Fudosan in Asian
markets. Therefore, this project may be regarded as an initiative to build on the success of the
previous partnership between CDL and Mitsui Fudosan in Millennium Mitsui Garden Hotel,
Tokyo.
On the other hand, CDL seems to be compelled into compromising through a lower equity
stake. Nevertheless, the proposed structure can be justified with CDL’s relative inexperience
in the Japanese market since it would be CDL’s second project in the Japan hospitality market,
after Millennium Mitsui Garden Hotel in Tokyo. Therefore, CDL might consider approaching
the project less aggressively through lower exposure. Even though the outcome of its strategic
portfolio allocation shows that CDL needs to increase its Japan assets quite substantially, it is
also against CDL’s corporate strategy of diversification to put all of its eggs into one investment
opportunity basket. Furthermore, CDL should also accommodate to its relatively high gearing
ratio, which need to be curtailed. According to the proposed joint venture structure, CDL would
only be obliged to contribute 40% towards the total development expenses, including the land
cost negotiated with Mitsui Fudosan. This would impose a lower financial burden on CDL, in
contrast to a higher interest in the project.
Page. 17

29. Dust of Foreign Streets,
Familiarity of Home
Redevelopment Proposal

30. 8. Redevelopment Proposal
8.1 Design and Architect Management
We would like to recommend commissioning Kohn Pederson Fox (KPF) to create the
development design for Mitsui Grand Millennium Hotel Yaesu. KPF is an international
architecture practice that specialises in high-rise office buildings as well as luxury residential
and hotel projects. Its extensive portfolio also includes civic and cultural spaces, as well as
master plans for cities across the world. The success of KPF’s designs are very much attributed
to the result of the collaboration of diverse talents within the organisation. This allows KPF to
create innovative and sustainable architectural designs that are both ecological as well as
environmentally responsible.
KPF has recently launched a mixed-use project in Tokyo called R which is the headquarters
for Nomura Securities (Office) and the 5-star Aman Hotel (Hospitality). The development is
situated between the Imperial Palace Park and Tokyo Station, which is in close proximity to
our proposed redevelopment site. We believe that KPF has done substantial research of the
region prior to the mixed-use project, hence is relatively familiar with the social as well as
cultural context of the city. KPF’s significant knowledge and experience would be an asset to
the materialisation of the proposed luxury hotel development.
8.2 Site Plan
The proposed development will comprise of a 4-storey podium, a sheltered plaza and a 30-
storey hotel tower.
8.2.1 Podium
A 4-storey podium will be constructed adjacent to the hotel tower, which houses various
activity-generating uses such as food and beverages spaces as well as other amenities. The 1st
and 2nd
storey hotel podium will consist of mainly restaurants, lounges, bars and fitness centre
as well as spa. The 3rd
and 4th
storey will be dedicated to functional facilities such as ballroom
and meeting rooms. The podium offers hotel occupiers easy access to various amenities,
located right below their hotel rooms.
Figure 19: Site Layout Figure 20: Design of Proposed Development
Page. 18

31. 8.2.2 Sheltered Plaza
A sheltered plaza will be built in front of the hotel tower, which aims to provide hotel users
with a spacious environment to rest and interact while slow-pacing the hectic lives amidst the
busy city. Furthermore, the proposed development of sheltered plaza shows the strong
commitment of incorporating open spaces and greenery, which aligns with the sustainable
philosophy of both CDL and the designer.
8.2.3 Hotel Tower
The proposed development is a 5-star luxury hotel project which encompasses 402 hotel rooms,
ranging from deluxe rooms to presidential suites. The hotel tower has a unique curvilinear
design and is set to become an iconic landmark in Tokyo. The curves of the building maximises
the viewing angles of all the guest rooms, giving the development a superior panoramic view
of Tokyo’s skyline as compared to other hotels.
8.3 Development Phase
The redevelopment process is categorised into 5 basic phases, illustrated in the timeline below.
The redevelopment process is expected to be completed in approximately 3 years.
Before the actual commencement of construction, CDL is scheduled to complete the Concept
phase and Pre-Development phase by April 2016. During the Concept phase, CDL will be
identifying the most feasible type of development, location and target market. Members of the
development team including architects, lawyers, engineers, development consultants and
construction managers are also engaged to initiate the redevelopment project. In the Pre-
Development phase, the members of the development team will continue to refine the
development plan, secure financing sources and conduct market analysis to determine the
overall feasibility of the project. The Construction phase will start immediately after demolition
in May 2016, and the contractors will be selected through a competitive tendering process. The
Marketing and Sales Launch phase will begin concurrently with the Construction phase.
Marketing plans and strategies will be executed in this phase. The development is scheduled
to be completed at the end of the first half of year 2019. The Completion and Handover phase
is expected to be accomplished by early 2019, ensuring that hotel operations can commence in
May 2019. This will provide Mitsui Grand Millennium Hotel Yaesu with some adjustment
period prior to the Tokyo Summer Olympics which would be held in 2020.
Figure 21: Development Timeline
Page. 19
Year
Month Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19
Concept
Pre-Development
Construction
Marketing & Sales Launch
Completion & Handover
Year 3Year 2Year 1

32. Great Execution is the
Ultimate Differentiator
Marketing Strategy

33. 9. Marketing Strategies
9.1 Marketing Targeting
9.1.1 Business Travel Market
According to the statistics of International
Congress and Convention Association (ICCA),
the number of international conferences held
worldwide has been growing over the years. This
rise is especially significant in the Asia region,
where increased globalisation converges with
rapid economic growth.
In 2013, Tokyo was ranked the 7th
most popular
city for international conferences in the Asia-
pacific and Middle-east regions. This indicates
the rapidly growing Meetings, Incentives,
Conferences and Exhibition (MICE) industry,
bringing about vast opportunities in the hospitality industry. Hotels are crucial stakeholders in
the MICE industry as they provide venues for conferences and accommodations for corporate
guests. By capitalising on Mitsui Grand Millennium Hotel Yaesu’s prime location in the center
of business districts, CDL would be able to target the business travellers from Tokyo’s MICE
industry.
9.1.2 Luxury Leisure Market
In 2013, Tokyo has pulled ahead of Osaka and
Kyoto as the most appealing destination for both
foreign and inbound visitors in Japan. This is partly
due to Tokyo being the most renowned
metropolitan city in Japan, as well as the presence
of its unique indigenous culture and various
appealing tourist attractions in the region.
Furthermore, with Tokyo being awarded the
honour to host the 2020 Olympic and Paralympic
Games, promotions and advertisements were
initiated by the government to further develop and
boost the tourism industry in Tokyo (Kodera,
2014). These efforts to attract inbound and
domestic tourists from both the private and public sectors have proved successful as there has
been a significant increase in the number of tourists to Tokyo in recent years.
Fueled by the strong purchasing power of domestic tourists, the sales of Tokyo retailers
especially in the luxury retail sector, experienced a significant surge of approximately 30% in
2015 (World Property Journal, 2016). This has prompted global luxury brand companies to
sharpen their focuses on Tokyo due to its reemergence as a popular shopping hub for luxury
brands. Being surrounded by several luxury shopping districts, Mitsui Grand Millennium Hotel
Yaesu would be able to attract the extravagant tourists.
Page. 21
Figure 22: Number of International Conferences held in
Asia-Pacific/Middle East Cities (2013)
Figure 23: Japan’s Real Inbound Guests/ Tourism
Spending by Prefecture (2013)
Page. 20

34. 9.2 Market Positioning
Based on the data collected from Japan Tourism Agency (JTA)
Accommodation Survey, business and city hotels achieved high
occupancy rates of 81.7% and 82.7% respectively in 2013. This
suggests that the hospitality industry in the capital city is
experiencing a strong and stable performance. Mitsui Grand
Millennium Hotel Yaesu, which targets the business travel as
well as luxury leisure market would position itself as a 5-star
luxury hotel catering to business executives and high-end
travelers. This is intended to capture the growing demand in the
high-end hospitality industry.
The new hotel development is faced
with intensive competition in the
vicinity due to the availability of
various hotels providing a range of
service levels, from world-class to
mid-range and budget. Four Seasons,
Shangri-La and The Peninsula are
amongst the five-star hotels in the
area, which hold dominant positions
in the highest-end spectrum of luxury
hospitality industry by capitalising
on their internationally-acclaimed
hotel brands that are steep in heritage.
The high-end hospitality industry is
highly competitive partly due to the
lack of product differentiation, often
leading to pricing pressure. Therefore,
CDL should reinforce its product differentiation and pricing strategies so as to acquire the
dominant position at the forefront of the five-star hotel business. With the hotel rooms being
priced at a considerably lower rate as compared to the other dominant high-end luxury hotels,
Mitsui Grand Millennium Hotel Yaesu would be able to attract a larger pool of clientele which
include travellers ranging from the high-end to the highest-end of the market. Iconic aesthetic
appeal at the tangible level in terms of architecture and interior furnishing, complemented by
the first-class ambience at intangible level, would help to further amplify the attractiveness of
Mitsui Grand Millennium Hotel Yaesu. The ability to remain fairly affordable while providing
excellent services at the same time would allow the establishment of an enduring competitive
advantage for Mitsui Grand Millennium Hotel Yaesu, by creating a unique position which
appeals to the luxury clientele more than its existing dominant competitors.
Figure 24: Japan’s Guestroom Occupancy Rates by Prefecture and
Accommodation (2013)
Location
Number of
rooms
Room price
Aesthetics
Affordability
Service and
Quality
Accessibiity
Security and
Safety
Attractiveness
Intensive
Competition
M A R K E T P O S I T I O N I N G : C D L V S F O U R
S E A S O N
CDL FOUR SEASONS
Figure 25: Market Positioning between CDL’s Hotel and Four Season
Hotel
Page. 21

35. 9.3 Marketing Mix
9.3.1 Product Strategies
9.3.1.1 Physical Aesthetics and Interior Furnishings
Located in the center of the business district and near the luxury shopping area in Tokyo, Mitsui
Grand Millennium Hotel Yaesu would be designed to reshape and enhance the city skyline by
introducing an aesthetically unique and appealing physical façade. As mentioned earlier, CDL
is encouraged to collaborate with well-known architecture firm, KPF, to design the hotel
development according to its targeted market and position. In addition, KPF would also be in
charge of Mitsui Grand Millennium Hotel Yaesu’s interior design, providing guests with
unique experiences during their stays through alluring guestroom configurations.
9.3.1.2 Product Branding
Being branded under Grand Millennium, the proposed hotel development would benefit on the
positive spillover effect of customers’ perceptions and attitudes, generated through the
exceptional image and high status the brand possessed. With Grand Millennium’s international
reputation in extending five-star as well as deluxe quality hospitality services, the hotel and
consumers could derive values through the reduction of perceived risk and providence of
quality assurance. By attaching a strong hotel brand on Mitsui Grand Millennium Hotel Yaesu,
CDL would be able to differentiate its hospitality services from competitors and establish a
distinct identity.
9.3.1.3 Unique Features
Mitsui Grand Millennium Hotel Yaesu will provide an extensive range of amenities to cater
for its business and leisure travellers. These include bars, restaurants, pool and gym facilities,
conference rooms and ballrooms. A full range of pampering services such as babysitting
services, family pool, spa and manicure services for families as well as female visitors are also
offered to bring an indulging experience. Last but not least, the hotel will also incorporate
“Onsen” - hot springs facilities which allow visitors to encounter sensual Japanese rituals of
relaxation amidst the hustle and bustle of the inner city of Tokyo
9.3.2 Pricing Strategies
9.3.2.1 Premium Pricing
Based on the framework of Pricing Strategy Matrix, hotel
businesses’ pricing system can be divided into four broad
strategies based on two variables - quality and price. Since
Mitsui Grand Millennium Hotel Yaesu targets the luxury-
market who demands for high quality services and fittings, it
can be categorised under “premium” according to the matrix.
Premium pricing strategy involves charging high rates for
superior finishes and services. Furthermore, premium pricing
subtly embodies intangible qualities such as style, uniqueness,
occasion and experience which present consumers a sense of
prestige and luxury.
Page. 22
Figure 26: Pricing Strategy Matrix

36. 9.3.2.2 Time-based Pricing
The time-based pricing is widely used in the tourism
industry, where prices are not permanently set and vary
based on the demand during the period. The reference point
of the pricing is set and controlled based on the different
seasons - peak and off-peak. During peak period, demand
exceeds the capacity, hence encouraging CDL to only sell
the limited capacity to the most profitable mix of customers.
In contrast during low demand periods, rooms should be
priced at discounted rates, making it available for everyone.
9.3.3 Place (Distribution) Strategies
Distribution strategy is an essential part of Mitsui Grand Millennium Hotel Yaesu’s revenue
management plan. Traditionally, companies will utilise tour agencies as their primary
platforms to publicise to consumers who are keen on joining a tour. However in the age of
information technology, most companies' distribution strategy has evolved to utilising internet
platforms due to its convenience and efficiency. This allows customers to make their room
reservations more efficiently. Mitsui Grand Millennium Hotel Yaesu’s official website will
serve as an effective platform for service distribution, providing a wide range of user-friendly
features as well as practical assistance to potential customers. Additionally, Mitsui Grand
Millennium Hotel Yaesu should also be present on internet distribution channels such as
Expedia, Bookings and TripAdvisor. These channels allow travellers who are in search of hotel
recommendations, to book their rooms directly. Furthermore, CDL’s Millennium & Copthorne
PLC has also an extensive network of reservation offices as well as global sales offices. These
offices are able to address bookings made by leisure travellers as well as corporate reservations
from business organisations.
9.3.4 Promotion Strategies
9.3.4.1 Advertising
In order to capture the attention of potential customers, a strong advertising strategy has to be
formulated to communicate the presence of Mitsui Grand Millennium Hotel Yaesu to the
market. The marketing message can be relayed through various forms of platforms such as
newspapers and magazines, which are popular among the senior management professionals to
capture the MICE industry. These magazines include Forbes, Fortune, The Economist and
Financial Times. Moreover, active online marketing through social media platforms and
popular search engines for tourists will enable the new hotel development to capture a larger
target audience. The social media platform provides visual and experiential sights of the hotel
as travellers often use social networking to share their travel experiences. Mitsui Grand
Millennium Hotel Yaesu can also ride on the testimonials made by its customers to improve
and broadcast future promotions.
9.3.4.2 Public Relations
Mitsui Grand Millennium Hotel Yaesu should establish and maintain goodwill with the public
as well as organisations through good public relations efforts. Public relations with the selected
target market should be sustained through issuing online and offline press release, in addition
to communicating with organisational stakeholders through newsletters. Adopting an intensive
public relations strategy is crucial in attracting the MICE industry as hotel reputation remains
a determining factor in its choice of events locations. Besides engaging a third party consultant
to manage public relations, Mitsui Grand Millennium Hotel Yaesu’s website could also serve
as an effective platform for public relations.
Peak Season Off-Peak Season
Cherry Blossom - Early April January to March
Autumn foliage - Mid-November
Golden Week - End April to early
May
Obon - Mid-August
Year-End holidays - Mid-December
to Early January
Figure 27: Peak & Off-peak Seasons
Page. 23

37. Investing for Growth
Financial Analysis

38. The cost of equity, cost of debt and project’s beta will vary based on the percentage of debts
used. Figure 28 summarises the traditional weighted average cost of capital for different
gearing ratios. The resulting WACC for different LTV values shall serve as an input for
scenario analysis for discounted cash flow later.
10. Financial Analysis
10.1 Key Assumptions
This redevelopment project is predicated on several key assumptions. Firstly, it hinges on the
fact that Mitsui Fudosan would have to be willing to enter into a conditional joint venture
agreement with CDL on a 40:60 basis. Furthermore, it is essential that Mitsui Fudosan agrees
to divests the Yaesu Mitsui Building to the joint venture Special Purpose Vehicle at a fair and
open market value. Lastly, CDL Hospitality Trust will have to be given the first right of refusal
to acquire the completed hotel asset at the end of a 10-year investment period as part of the exit
strategy elaborated later on in the report.
10.2 Determining Weighted Average Cost of Capital (WACC)
WACC of the project can be determined by computing the weighted average cost of equity and
debt. The average cost of equity is derived through the use of Capital Asset Pricing Model
(CAPM) and the average cost of debt can be determine using the weighted average cost of debt
reported in CDL annual report 2014.
CAPM equation is as follows: KM = Rf + βM(Rm – Rf)
Where, KM = Project’s cost of equity
Rf = Risk-Free Rate of Japan 3-Month Bond Yield
βM = Project’s Beta
RM = Average Market Return based on 3 listed real estate company* in Nikkei 225
*Companies include Mitsui Fudosan, Mitsubishi Estate and Sumitomo Realty & Development Co.
Rf of Japan 3-Month Bond Yield RM of ΒM LTVM D/E RatioM
0.09% 10.15% 0.93 81% 416%
D/E
Ratio LTV Beta
205% 40% 0.55
257% 50% 0.64
308% 60% 0.74
359% 70% 0.83
410% 80% 0.92
416% 81% 0.93
462% 90% 1.01
0.54% 0.54% 0.54% 0.80%
1.23%
1.88%
5.63%
6.56%
7.49%
8.42%
9.35%
10.28%
3.59% 3.55% 3.32% 3.09% 2.85% 2.72%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
40% 50% 60% 70% 80% 90% 100%
CostofCapital
Loan to Value
Cost of Debt Cost of Equity WACC
Figure 28: WACC of different gearing ratios
Page. 24

39. 10.3 Open Market Valuation (OMV)
A standard discounted cash flow (DCF) model was created and the income approach was used
to determine the open market valuation of the Yaesu Mitsui Building as seen in Appendix I.
Based on the DCF analysis the Yaesu Mitsui Building is valued at ¥ 65,600,000,000. This fair
value will be the assumed acquisition price paid by the CDL and Mitsui Fudosan joint venture
consortium.
10.4 Holding Period of the Project
At the end of the year 3, the period where the hotel development is expected to be completed,
an investor will be in the position to consider the whether to hold or divest the stakes of the
development. Divesting 100% stakes of the hotel development is expected to generate a before
tax equity reversion (BTER) of ¥ 37,336,000,000.
In order to determine the optimal holding period, the opportunity cost of tying down this equity
sum to the hotel investment needs to be considered for an additional 10 years first. The
opportunity cost of holding the investment for 10 years is calculated to be 16.0%. This will
serve as a hurdle rate to evaluate the minimum before tax internal rate of return (BTIRR) that
would have to be earned for an alternative investment to be deemed as financially viable. As
holding the hotel development for another year is considered an alternative investment decision,
the Marginal Rate of Return (MRR) is calculated for each additional year the development is
held. The below graph displays the MRR from year 4 to year 13 of the hotel development,
compared against the hurdle rate.
Considering the opportunity cost utilising this equity to upkeep the investment for an
additional 10 more years, one will have forgo the opportunity to use the equity on other
investment. The opportunity cost of holding the investment for 10 more years is 16.0%. This
will serve as a hurdle rate to evaluate the minimum before tax internal rate of return (BTIRR)
that would have to be earned for an alternative investment. The alternative form of
investment in this case shall be the return on investment for holding one more additional
year, or Marginal Rate of Return (MRR). The below graph displays the MRR from year 4 to
year year 13 of the hotel development, compared against the hurdle rate.
Base on figure 29, the MRR from year 4 to year
10 remains higher than the hurdle rate while the
MRR from year 11 onwards is lower than the
hurdle rate. This suggest that the investor should
hold the investment for additional 7 years upon
the completion of the development, or a total
period of 10 years. Therefore, our DCF model is
based on the derived optimal 10-year holding
period.
0.00%
10.00%
20.00%
30.00%
40.00%
4 6 8 10 12
MarginalRateofReturn
Holding Period
MRR Hurdle Rate
Figure 29: Marginal Rate of Return from year 4 to 12
Figure 30: Investment Timeline
Page. 25

40. 10.5 Investment Analysis and Monte Carlo Simulation
In order to determine the financial feasibility of the redevelopment project, an investment
analysis of the proposed project using a DCF model was conducted. The DCF analysis for this
project is illustrated in Appendix III. To create a more rigorous analysis, a Monte Carlo
Simulation was run on the standard DCF model to establish the worst and best scenarios. This
ensures that the whole spectrum of possible outcomes have been duly considered. This process
also helps developers to validate or correct any preconceived notion that they may have
previously hypothesised with regards to how each critical input variable may impact the
analysis. The assumptions for the DCF model and Monte Carlo Simulation annexed in
Appendix II and IV are determined by the market analysis.
10.5.1 Optimal Capital Structure & Equity Returns
Developers might be interested to use debt financing in exchange for being able to raise the
tender price without undermining profit margins when undertaking a real estate development
project. The following scenarios provide an analysis on the level of debt a developer should
use to finance the site development. As mentioned earlier, 100,000 simulations of the DCF
model was performed for the following scenarios through the Monte Carlo Simulation. A list
of probable outcomes (certainty) for return (IRR) and net present value (NPV) is generated
under each scenarios.
10.5.1.1 80% Loan-to-Value (LTV)
Based on the Monte Carlo Simulation, an 80% LTV would generate the lowest risk reward
ratio, the highest IRR and the highest NPV.
Initial Land Cost (20% of Land Value) ¥ 13,120,000,000.00
Stamp Duty and Legal Fees ¥ 393,600,000.00
Initial Equity Outlay ¥ 13,513,600,000.00
Construction Cost ¥ 7,657,079,040.00
Professional Fees ¥ 765,707,904.00
Financing Cost ¥ 115,670,149,786.75
Total Development Cost ¥ 137,607,000,000.00
Figure 31: Distribution of Simulated Development Net
Present Value
Figure 32: Distribution of Simulated Development
Annualised Equity Internal Rate of Return
Page. 26

41. Based on these 3 different LTV scenarios, we recommend CDL undertake an 80% LTV
financing structure, to generate the highest IRR of 13.98% and NPV of ¥ 54,744,000,000. Based
on the proposed 40:60 joint venture structure with Mitsui Fudosan, CDL is expected to fork out
an initial equity outlay of ¥ 5,405,440,000 and the total development cost for CDL is estimated
to reach ¥ 55,042,614,692.30.
10.6 Exit Strategy
It recommended that CDL adopts an exit strategy for this project via its existing fund
management platform, CDLHT. This is aligned with CDLHT’s predominant strategy of
investing in a portfolio of hospitality-related income-generating properties. Although
envisaging global investments, its priority remained in the Asia Pacific region. This is further
supported by the recent acquisitions of 2 Japanese hotel properties by CDLHT on 19 December
2014. Therefore, the % stake in the project can be divested to CDLHT Hospitality Real Estate
Investment Trust (H-REIT) as an acquisition property when the opportunity surfaced. As of
March 2016, CDL owns 36.43% of the issued stapled securities in CDLHT. The exit strategy
thus allows CDL to functionally retain an indirect stake, maintaining its footprint in the Japan
hospitality market. It additionally complements the corporate objective of CDL to recycle
capital for maximised return and sustainable growth.
Page. 27

42. Safeguarding Your Tomorrow
Sensitivity and Risk Analysis

43. 11. Sensitivity and Risk Analysis
11.1 Sensitivity and Correlation Analysis
The correlations between the variables required for the Monte Carlo Simulation are shown in
the figure 33. These correlations are based on observed historical values that have been adjusted
according to their estimated behavior and interaction in the future.
From the figure 33, it can be observed that the ADR, occupancy rate and growth rate of ADR
are highly correlate to the NPV of the project. For every 1% increase in the standard deviation
of ADR, occupancy rate as well as growth rate of ADR, this leads to a 0.87%, 0.54% and 0.65%
increase in standard deviation for NPV respectively. Therefore, in order to achieve the
forecasted levels of NPV for this project, it is imperative that ADR, occupancy rates and growth
rates of ADR are maximised throughout the whole investment period.
11.2 Identification of Risk
11.2.1 Development Phase Risks
11.2.1.1 Construction Cost Risk
Japan has been facing rapidly rising construction cost due to increasing demand coupled with
a shortage in skilled labour. As this project is a redevelopment, there will be significant
construction cost incurred and this cost of construction may continue to increase during the
construction period. Such a situation would increase total development cost and thus reduce
the actualised profit margin of CDL.
11.2.1.2 Time Risk
Another pivotal risk that should be analysed is time risk. The redevelopment of this hotel
project is scheduled to be completed within 3 years. This construction time period is crucial as
the hotel has to be ready for the 2020 Olympic games where the surge in tourists and ADR is
expected to be significant. Potential delays during the construction period may lead to a later
completion and opening date for the hotel, thereby failing to capitalise on the tourism boom.
-0.18
-0.13
-0.08
-0.07
-0.05
-0.02
0.00
0.03
0.07
0.54
0.65
0.87
-0.40 -0.20 0.00 0.20 0.40 0.60 0.80 1.00
Termination Capitalisation Rate
Hotel Room Expenses
Borrowing Rate
F&B Expense
Discount Rate
Other Income Expense
Efficiency Ratio
Growth Rate of Other Income
Growth Rate of F&B Income
Occupany Rate
Growth Rate of ADR
ADR
Figure 33: Correlations between the variables required for Monte Carlo Simulation
Page. 28

44. 11.2.1.3 Approval and Regulatory Risk
As this redevelopment proposal involves converting an office to a hotel development,
necessary planning approvals will need to be secured from the Bureau of Urban Development
of the Tokyo Metropolitan Government. As such, there is a risk of the redevelopment proposal
being rejected by the urban planners. A rejection of the proposal would mean that a complete
overhaul of the proposal would need to be done in order to salvage the project and minimise
losses.
11.2.2 Post-Development Phase
11.2.2.1 Vacancy Risk
Upon completion of the redevelopment, there is a potential risk of high vacancy levels as the
hotel has a total of 402 rooms. This number of hotels rooms is significant and it may be difficult
for the market to absorb this influx of supply. A high vacancy rate will lead to low RevPAR
which would affect the overall cash flow and IRR of the development.
11.2.2.2 Revenue Volatility Risk
As the proposed hotel is a full service luxury hotel, the risk of revenue volatility is naturally
higher compared to a budget hotel or serviced apartment. This is because luxury hotel guest
tend to be more sensitive to macroeconomic changes thus affecting the ADR, RevPAR and
occupancy of the hotel. The short term nature of hotel room bookings makes it difficult for
hotels to maintain high levels of occupancy unlike serviced apartments which usually rent out
their rooms for 1 week or longer. These volatilities may lead to lower than expected annual
cash flows which would in turn affect the projected IRR.
11.2.2.3 Earthquake Risk
Tokyo, Japan is located near the boundaries of several tectonic plates making it highly prone
to earthquakes. As established by JLL, natural disasters such as an earthquakes have several
negative repercussions on the hotel industry. Firstly, inbound tourism is expected to decline
due to tourists’ fears of secondary tremors and other dangers. Expatriates were also being
evacuated out of Japan by their corporations due to safety concerns. Finally, corporations also
started executing their business continuity plans and transferred their operations to regions
outside Tokyo. The combination of these 3 factors, have all lead to poor performance of ADR,
occupancy rate and RevPAR for full service luxury hotels in Tokyo.
11.3 Risk Mitigation Strategies
11.3.1 Employ Construction and Project Management Expertise
In order to mitigate the construction cost and time risk, CDL should call for a competitive
tender bid and secure a construction company once the development proposal has been
finalised. This would enable CDL to negotiate and agree on the construction cost needed for
this development, and also allow CDL to sieve through the potential bidders and select a
capable contractor who would be able to deliver the project on time. CDL can also reduce the
chance of delays in construction by seconding their experience project managers from
Singapore and co-manage the site with Mitsui Fudosan’s project managers.
Page. 29

45. 11.3.2 Advance Co-pitching of Redevelopment Proposal
CDL should leverage on Mitsui Fudosan’s experience in dealing and negotiating with the
Tokyo urban planners in order to neutralise the risk of the redevelopment proposal being
rejected. CDL and Mitsui Fudosan should conduct an advance co-pitch to the Bureau of Urban
Development and secure the necessary planning approvals before the acquisition of the Yaesu
Mitsui Building. This ensures that the actions spelt out in the proposal can be achieved.
11.3.3 Combined Corporate Synergies
A strategy to dampen the risk of high vacancies in the newly built hotel would be to depend on
the global sales and reservation offices of both CDL and Mitsui Fudosan. This would allow the
Mitsui Grand Millennium Hotel Yaesu to tap on the corporate clientele, thereby boosting the
demand amongst corporate travellers. With a combined guest list database, the hotel will be
able to appeal to the loyal guests of both hotel brands thereby increasing the demand for hotel
accommodation among leisure tourists.
11.3.4 Flexible Room Configuration and Rental Leases
The Mitsui Grand Millennium Hotel Yaesu has a significant portion of suites that can be
converted into long term serviced apartments to capture the demand in the long term
accommodation market. This flexibility allows the CDL to reap stable income from long term
service apartment customers during a difficult market while also enabling CDL to enjoy high
ADRs from short term guest during a tourism boom. CDL could also lease out the restaurant
spaces in the hotel to food and beverage tenants thereby allowing CDL to receive consistent
rental income and thus stabilise the hotel’s cash flow.
Page. 30

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48. APPENDIX I: YAESU MITSUI BUILDING VALUATION

49. APPENDIX II: HOTEL DISCOUNTED CASHFLOW (DCF) ASSUMPTIONS
Property Summary
Site Area 29,450 sq ft
Plot Ratio 13
GFA 382,854 sq ft
Efficiency Ratio 80%
Net Lettable Area 306,283 sq ft
Professional Fees (% of Construction) Land Cost Fees (% of Land)
Architect 4.5% Stamp Duty and Legal Fees 3%
Structural Engineer 1.15%
M&E Engineer 1.15%
Quantity Surveyor 1.15%
Landscape
Architect 0.55%
Project Manager 1.5%
Total 10%
Hotel Information
Type of Hotel Rooms No of Rooms GFA (Sq Ft) Total GFA for Rooms (Sq Ft)
Deluxe Rooms 200 500 100000
Premier Rooms 125 700 87500
Junior Suites 50 860 43000
Executive Suites 25 1290 32250
Presidential Suites 2 1720 3440
Total 402 266190
Club Lounge 1 2000 2000
Ballroom 1 10000 10000
Meeting Rooms 8 400 3200
Lobby Lounge 1 2000 2000
All Day Dining
Restaurant 1 6000 6000
Specialty Restaurants 3 3500 10500
Bar 1 1800 1800
Fitness Centre 1 3500 3500
Spa 1 1000 1000
Total 40000
Grand Total 306190

50. Hotel Income and Occupancy Variables
Average Daily Rate ¥ 50,000.00
Occupany Rate 85%
RevPAR ¥ 42,500.00
Revenue
Hotel Room 65%
Food and Beverages 25%
Other Income 10%
Operating Expenses (% of Revenue)
Hotel Room 15%
Food and Beverages 60%
Other Income 30%
Administrative & General 8.00%
Sales & Marketing 5.00%
Repairs & Maintenance 4.00%
Utilities 5.00%
Management Fees 2%
Fixed Expenses
Property Tax 3.00%
Property Insurance 0.50%
Furniture, Fixtures & Equipment
Reserve 3.00%
Incentive Management Fee 3.30%

51. APPENDIX III: HOTEL DISCOUNTED CASHFLOW

52. APPENDIX IV: MONTE CARLO ASSUMPTIONS
Variables Mean Minimum Maximum
ADR ¥ 45,000 ¥ 40,000 ¥ 50,000
Growth Rate of ADR 5.00% 4.00% 6.00%
Occupancy Rate 85.00% 80.00% 90.00%
Growth Rate of F&B Income 1.00% 0.50% 1.50%
Growth Rate of Other
Income
1.00% 0.50% 1.50%
Other Income Expense 27.50% 25.00% 30.00%
F&B Expense 60.00% 55.00% 65.00%
Hotel Room Expenses 15.00% 10.00% 20.00%
Discount Rate 3.15% 3.00% 3.30%
Interest Rate 1.21% 0.54% 1.88%
Efficiency Ratio 0.80 0.75 0.85
Terminal Capitalisation Rate 4.00% 3.80% 4.20%