Cerberus is out at Kyo-ya

Kokusai Kogyo Co., the parent of Kyo-ya Hotels & Resorts LLC, bought out Cerberus Capital Management LP’s controlling interest in the company in a transaction that closed today in Japan, according to sources close to the deal.

The transaction coincided with an announcement in Honolulu that Greg Dickhens, president of Kyo-ya Hotels & Resorts LLC, is stepping down to pursue other business interests after more than eight years with the company.

Both of these announcements are of special interest to Hawaii because five of the six hotels owned by the company are in the isles, and Dickhens, who represented Cerberus’ interests, has been credited with the financial and physical transformation of Kyo-ya and its core Waikiki assets.

Kyo-ya, which employs more than 3,500 workers, owns the Sheraton Waikiki Resort; the Moana Surfrider Hotel, A Westin Resort and Spa; the Royal Hawaiian, A Luxury Collection Resort; the Sheraton Princess Kaiulani; the Sheraton Maui Resort and Spa; as well as the San Francisco-based The Palace Hotel, A Luxury Collection Hotel.

The change returns control of Kyo-ya’s assets in the isles to a longtime owner Kokusai Holdings K.K., an entity owned and controlled by Takamasa Osano and his family members and affiliates. Prior to the sale, Cerberus owned 55 percent of Kokusai Kogyo, and the founding family owned 45 percent. After the transaction, Kokusai owns 100 percent of the company.

The Wall Street Journal reported Cerberus sold its stake for $1.37 billion.

"Our entire organization can be tremendously proud of the accomplishments we’ve achieved in the past eight years," said Dickhens. "This is a great company, and it has been an honor to help advance Kyo-ya’s vision for its hotel portfolio. Kyo-ya has made and will continue to make a measurable positive impact in Hawaii."

Ernie Nishizaki, executive vice president of Kyo-ya Hotels & Resorts, stated, "Greg’s done a remarkable job reinvigorating our hotels, putting in place the building blocks for further reinvestment and delivering strong financial performance."

The announcement that Kyo-ya’s founding family had resumed ownership interest was generally well received by Hawaii union workers and other visitor industry members Thursday; however, they question how the company’s increased debt load will play out and whether it would affect pending projects such as the planned more-than-$500 million transformation of the Sheraton Princess Kaiulani or future Moana Surfrider expansion.

Harris Chan, vice president of operations for Starwood Hawaii & French Polynesia, which manages the Kyo-ya assets in Hawaii, said Starwood and Kyo-ya have built a strong partnership over the past 50 years.

"Our guests will see no changes, and there will be no impact on daily hotel operations as a result of the leadership transition," Chan said. "We look forward to continuing to work closely with Kyo-ya to manage its five hotel and resort properties in Hawaii and one in San Francisco. At this time it’s premature to comment on any impact to redevelopment and renovation plans for the Sheraton Princess Kaiulani."

Kyo-ya first entered the Hawaii market in 1962 with the opening of the Kyo-ya Japanese Restaurant, which closed in 2006 following softening in the Japanese market to Hawaii. The company added the Sheraton Princess Kaiulani and the Westin Moana Surfrider in 1963 and expanded in 1974 and beyond with the acquisition of the Royal Hawaiian, the Sheraton Waikiki and the Sheraton Maui. The company spent less than $200 million to buy all of its Hawaii properties well before the bubble began to form. As Hawaii properties soared in value, Kyo-ya put money back into its properties, including $15 million into renovation of the Waikiki restaurant complex.

While Kyo-ya’s Hawaii investments were insulated from the bubble days, by the mid-2000s creditor banks in Japan were pressuring Tokyo-based owner Kokusai Kogyo to sell its assets. In 2004 Cerberus Partners LP — which has a history of acquiring assets, improving them and selling them — bought a controlling stake in Kokusai Kogyo.