Below is the transcript of a CNBC exclusive interview with Mori Trust President and CEO, Miwako Date. The interview will play out in CNBC's latest episode of Managing Asia on 6 December 2019, 6.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan. This interview was taped on the sidelines of the 2019 Forbes Global CEO Conference held in Singapore.
Christine Tan: You're the granddaughter of the late property tycoon, Taikichiro Mori, who founded the Mori group. What was it like growing up watching your grandfather and your father build up the family's real estate business?
Miwako Date: Both my grandfather and father have been in the real estate business. At the time, Japan was undergoing a period of fast economic growth. When I was attending junior and senior high school, the real estate business was booming, and it happened before my very eyes. Once I was old enough to understand, every year I would see an office or hotel project completed. That was something I experienced directly since a very young age. I've lived at the heart of the real estate industry since my childhood, and it was part of my experience.
Now, let's think about real estate. For example, when you first buy a property, there's nothing. It could have been a forest before it became a resort. In a downtown area, it could start off as a vacant lot or an old building, and after a few years, it becomes something completely different. I was able to understand since a young age that if you put effort into a place and make it look good, it will be reborn with added value. That experience is part of my early memories as a child.
Christine: Do you think real estate is in your blood?
Date: Yes, I think so.
Christine: You took over from your father Akira Mori in 2016. How does it feel like to be a woman – very rare in Japan – to head a very traditional, conservative, male-dominated real estate business?
Date: I get that question very often. I think I should be grateful to my mother in this respect. She taught me that women would be playing a greater role in society, and that I should be ready for it. My education also taught me that I shouldn't engage only in womanly pursuits. When I was in university, my father asked me what I wanted to do. He said, "If you want to join the family business, you're very welcomed. It doesn't matter if you're a man or a woman." I replied, "Yes, I definitely want to try." But I must say, I never gave any thought to what's becoming of a man or a woman. I'm often told that women are quite rare in the real estate industry, but that sounds odd to me. I'm convinced that there's nothing wrong for a woman to want to do something, and just goes for it. I made it so far, with the belief that there are no real obstacles.
Christine: Under your leadership, you grew the family's hotel business. You were one of the first to bring in foreign hotel brands like Hilton and Marriott into Japan, in an industry largely dominated by domestic brands. Did you sense the Japanese hotel industry was on the cusp of change?
Date: Well, Japan's hospitality business grew incredibly fast during the years of the economic bubble. I think it's fair to say that its investment value was on par with office projects. But when I came out of university, Japan's hospitality business was in an extremely weak position. I trusted that this industry was capable of growth in the future. I've always thought that if I did my homework, things would turn around. I came to realize that in the past, everything about the industry was geared to the domestic market. In that respect, Tokyo and Japan had to become international, that means it was necessary to bring more international brands to Japan.
By combining domestic and international aspects, then we would be able to satisfy both types of customers. That was the solution that occurred to me.
One successful experience is the Suiran Luxury Collection Hotel we built in Kyoto, which is affiliated with Marriott. That project allowed us to use our Suiran brand, make it part of the Marriott Group, to offer Western-style services and facilities while preserving Japanese tradition. This project earned us a lot of praise, both in Japan and abroad. In that sense, I feel that I was able to meet a new challenge.
Christine: You now have about 15 hotels under the Marriott brand who manages what you own. Just how profitable has the franchise been for you in terms of revenue?
Date: Basically, since we manage our own operations, and we base our forecasts based on the rate as a Marriott franchise, we're able to offer a value that matches the investment. We could even say we're exceeding the expectations we had at the beginning.
Christine: What sort of return?
Date: At the outset, before we went into the franchise, we completely revised our management style. What we did was raise our productivity, then we invested in facilities, and then we started the franchise. It was a 3-step process. In that sense, it depended on the property, but in some cases, the value has gone up five times from the initial value.
Christine: So, the Marriott franchise is very profitable for you?
Date: Well, you could say that. It has become a very good partnership.
Christine: As part of an effort to increase profitability as well, you've actually listed a hotel REIT on the Tokyo Stock Exchange in 2017. Are you happy with the REIT's capitalization rate? You think you can do better?
Date: One of our objectives was to list our hotel properties as a REIT. The reason for that was, compared with the office capitalization rate, hotels were more volatile and therefore valued at a lower level. They were also considered less profitable. Instead of focusing on that, my challenge was to show that we could turn hotels into investment-grade properties. So, I proceeded to change our strategy by investing and rebranding the hotels to optimize their full value. Listing them was a great source of joy to me, as we had achieved one of our goals.
Christine: So, you proved the naysayers wrong?
Date: Yes, we did. I was happy that we were able to prove that.
Christine: So, when you look at the REIT and the capitalization rate, are you happy where it is? You think you can do better?
Date: I don't think objectives necessarily need to end. It's all about improving, improving and improving. It's a very Japanese thing. I do believe that there are a lot of things that we can do.
Christine: Like many developers, you're also gearing up for the 2020 Summer Games. Your latest project in Toranomon – housing Marriott's luxury lifestyle hotel brand "Edition" is scheduled for completion in March next year. How much of an impact do you think the Olympics... how much of an estimate do you think it will have on your revenue?
Date: At this point, I'm told that it's nearly impossible to make hotel reservations during the 2020 Olympics. So, the room rates are extremely high. But the Olympics only lasts for less than one month, so we only see it as one point on the way. Right now, in the run-up to the Olympics, there's a lot of demand for conferences. But our focus is on what happens next? How do we maintain inbound demand after the Olympics? That is what's important to me.
Christine: What's next? What new hotel projects would you like to roll out in the next couple of years?
Date: At this point, we're working on two in Tokyo - the "Toranomon Edition" and the "Ginza Edition". And we're planning two more hotels in Tokyo. Besides that, we're also selecting other special locations in Japan where inbound and domestic travelers feel like going. We intend to build resort-type hotels there. At this point, we have 19 new hotel projects that we're dealing with. On the other hand, outside Japan, we're expanding on the office front. If possible, I'd also like to invest in hotel properties abroad.
Christine: How much more would you have to invest in terms of hotels for your hospitality business to actually catch up with your more mature office leasing business?
Date: When I first became President, I launched a 12-year growth strategy and investment program. I had forecast investments of around 800 billion yen over 12 years. This has grown to between 1 and 1.2 trillion yen. This includes offices, hotels and investments abroad. And in terms of share, that would be 50, 30 and 20 percent. In terms of our business pillars, we aim to bring offices and hotels to the same level.
Christine: So, for your hospitality business to catch up to your office leasing business. How long will it take? What sort of timeframe are you looking at?
Date: We have a plan called "Advance 2027", which sets that by 2027, turnover from hotels should be between 80 percent to on par with offices.
Christine: You're facing a lot of competition because you have local players like Nomura Real Estate Development and Mitsui Fudosan also now entering the branded hotel business. How will you compete?
Date: Well, hotels are all about location, so the point is to secure a great spot in a great location. I've identified places with high growth potential, even before developers moved in. So, we've managed to secure a few promising locations.
Christine: So, you think you have the first mover advantage?
Date: I certainly hope so. I think we've got an advantage. You know, if you start looking for a property after you decide you want it, first there's competition and it's hard to find, then the other challenge is it becomes extremely expensive. Now, hotels are intrinsically volatile compared with offices. That's why from the very beginning, you want to secure the land within a certain range. It's part of the business strategy. When the timing is right, you build. It depends on the timing of the market. Not too early, not too late. Once we've secured the land, we look carefully at the timing to build the hotel. In that sense, our strategy is to invest in advance, before the market moves.
Christine: In the last few years, foreign companies have been investing in real estate in Japan in a big way, spurring a rise in land prices the first time in more than 20 years. As one of Japan's real estate giants, where do you see property prices in Japan?
Date: Over the last 5 years, demand from Japanese and foreign real estate developers has been high, leading to a price hike of land. There's a negative consequence to that - it's more difficult to purchase land to develop new projects. But on the other hand, as a real estate developer, the value of our portfolio is rising, and so has our revenue. So, we see it as a positive trend. However, when you look at how prices are rising, we need to consider the value of real estate in 1990. We always keep that in mind. The truth is, the value of real estate is still far from those levels. And if you look from at it from an international perspective, office rentals in Japan have not reached the levels of New York or Hong Kong or even Singapore. It is possible Singapore is still higher. So, I think there's still potential.
Christine: Where do you see property prices heading in Japan?
Date: Well, if interest rates stay where they are and if the current cap rate is maintained - and right now rentals are in the middle of a surge - I expect prices to keep rising for several years. In addition to that, right now there are many problems, including political ones on the international stage. When you consider investment criteria like currencies and liquidity, the value of real estate and the stability of the market, I think Japan is in a position of being an investment destination for holding assets. In that perspective, cash flow is good, the value of assets is high. That's the state of real estate in Japan, so I believe that this high value will remain for quite a while.
Christine: You made some investments overseas in the U.S. Earlier this year, you bought three office buildings in San Jose, California, in Silicon Valley. This is right after you bought two office buildings in Boston, Massachusetts. Do you see better returns in real estate overseas?
Date: Investing in the United States, compared to Japan, offers a higher capitalization rate. So, it can become a source of revenue. In particular, interest rates are low in Japan, and we're really reinforcing our financial strength. So, our ability to raise funds in Japan is extremely high. So, leveraging on this fund-raising ability – and the opportunity to get better returns abroad – is a good investment style.
Christine: Are you looking to make more investments in the US?
Date: We're still looking in the U.S. Our projects so far involve buildings that have already been constructed. I would also like our investments to include early participation in development projects. Another point is the ASEAN region, where the demographics are expanding. That's a different kind of evolution compared with the U.S. or Japan. If possible, I would also like to invest there.
Christine: You're not interested in anything in Europe?
Date: Well, Europe presents some difficulties. I'm always following the situation in London, and one fundamental thing real estate investment needs is stability. Another is potential for growth. Another is liquidity. We invest in places where all 3 conditions are met. Now, beyond real estate, we're also looking for places where the value of the currency is stable. From that perspective, Europe now is an extremely difficult place to invest.
Christine: So, you stay away from the U.K. and Europe for now?
Date: Only watching.
Christine: As you diversify out of Japan, do you think you can be as successful overseas?
Date: First of all, we're already on the move when it comes to overseas investments, and now we know that we can use the knowhow we've gained in Japan to operate abroad. The next step will be to embark on development projects abroad, I want to do it. I'm always working with the conviction that it's within our power at any time.
Christine: You joined the family business in 1998 while you were in your 20s, after a stint at a Japanese consulting firm. Did you ever think you would one day take over from your Father to head Mori Trust?
Date: At first, I really enjoyed working in real estate for the company, so I was happy to take that job. I wasn't thinking about the prospect of taking over my father's company. My father taught me that whenever I embark on a project, I should manage it seriously. So, I worked with the mindset of managing, and not just executing, a project. At the time, I didn't foresee things would become like this. But even if they did, it's possible that I was already preparing myself to be able to handle it.
Christine: So, your father secretly was trying to groom you to take over from him?
Date: I don't know if it was a secret, but in my family, we always have a choice. I was asked, "Would you like to give a shot at being President?" I was never ordered to do it. I was given a choice, and I said, "Yes, I'd like to do it." I did it of my own accord. As for whether I'm groomed, well, I don't know. Maybe I was being groomed.
Christine: So, your father gave you a choice?
Christine: Do you think he would have taken no for an answer?
Date: I don't know, maybe I should ask him next time.
Christine: Your father is Akira Mori, one of Japan's wealthiest real estate billionaires. What's the most valuable piece of advice he's given you about running the family business?
Date: What I've been told since I was a child is that I have to find the answer to things. And what that means is - you can look at all kinds of data, but it's all in the past so the answer isn't there. You have to think for yourself based on the data, and from there, make a judgement. In addition, management is a crystal ball. Data is important, but depending on the angle you look from, the color of the light is different. The question is - what angle do you choose to make a decision? That's something you have to decide on your own. That's what I learned. So, each decision is different depending on the timing and perspective. It's important to constantly think about that. That's what running a business is all about. And that's what I learned from my father.
Christine: As a third generation, how much weight is there on your shoulders to carry on the family legacy? Do you worry about the third-generation curse?
Date: According to a novel I read, the third-generation is the one that brings down the whole business. The idea is that as the third generation, if you stay idle and take things for granted, you're setting yourself up for failure. That is why I think we constantly need to evolve, learn from the good sides of past experiences, leverage that base and respond to social change. I put a lot of effort into maintaining such a stance, because we need to remain flexible in order to keep growing.
So, do I feel the pressure? I do feel a responsibility for taking this over, but I'm very happy right now that I'm able to devise and execute what I would like to do. In that sense, I really enjoy my work - even though I'm third-generation. I think that's also because my father handed me over the baton when he knew it was the best possible time.
Christine: You are in your 40s. You graduated with a degree in urban planning from Keio University in Japan. You took over from your father, to head up Mori Trust in 2016. As a woman CEO, how do you describe your leadership and your management style?
Date: To me, the style of management I aim for as much as possible is a combination of both bottom-up and top-down. When a company reaches a certain size, I believe that the best approach to boost productivity is when all kinds of ideas emerge from the bottom - and that also drives the motivation of employees. However, when it comes to making decisions, then I'm the one who has to make the call. So, my leadership style is a hybrid one.
Christine: What advice would you give other women in Japan who want to follow in your footsteps and just be as successful?
Date: If you look at the past, I think that women tended to think that they absolutely had to become the same as men. But we're not the same. There's personality, regardless of whether you're a man or a woman. In that sense, I think the most important thing to make a breakthrough is to believe in yourself. In my case, I spent more than 10 years holding on to the thought of getting involved in the hotel business. Given the trend of inbound tourism, I made a quick judgement call and snapped up 10 properties in just one year. I thought this was it and went for it. Timing is everything when dealing with fluctuating things. In order not to miss out on opportunities, you need to raise your own value, polish your skills and keep trusting yourself each step of the way.
Christine: And finally, where do you want to take Mori Trust under your leadership? What is your ultimate vision for the family business? What impact do you want to make?
Date: My biggest hope for the next 5 years is to keep investing to ensure that Japan's tourism industry reaches a high status in the world. For many years I have watched my father and my grandfather develop their business, and I've seen with my own eyes that real estate development can change a whole city and make it better. So, I too want to witness how investment in a region or city can invite more investment, and then lead to the birth of new industries, which will ultimately change the city or region as a whole.
Christine: Date-san, thank you so much for talking to me.
Date: You're welcome.
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