Asset Management Report
For the Year Ended December 31, 2016

Japan Hotel REIT Investment Corporation

Dear Investors,
Thank you for your support and patronage to Japan Hotel REIT Investment Corporation (JHR).
Having settled the accounts for the 17th fiscal period (from January 1, 2016 to December 31, 2016)of JHR, we are pleased to present you with the asset management status and settlement of accounts
for the period.
Looking at the environment surrounding JHR, the number of foreign tourists visiting Japan (inboundtourists) increased with continued momentum, reaching 24.03 million in 2016 (a year-on-yearincrease of 21.8%), in contrast to 19.73 million counted in 2015 (up 47.1% over the previous year),renewing record highs.
JHR has established and implemented an asset management strategy aimed at proactively maximizing
revenue and asset value for each of the hotels it owns, in an effort to promote internal growth. In thefiscal period under review, many of JHR’s hotels achieved better operating performance, led by therooms department, given a favorable market environment. This resulted in an increase in the variable
rent, etc. received by JHR.
In terms of external growth, JHR conducted capital increase through public offerings of investment
units in January and July 2016 to procure approximately ¥49.3 billion in total. Utilizing the fundswith new borrowings, JHR acquired 5 properties (total acquisition price: ¥61.0 billion), including
HOTEL VISTA GRANDE OSAKA (rebranded to Holiday Inn Osaka Namba in November 2016)
located in the Namba area in Osaka, where the market is experiencing significant growth, and Hilton
Nagoya, a full-service hotel representing Nagoya. Consequently, JHR’s asset size (sum total ofacquisition price) grew significantly to ¥286.8 billion, and the quality of the portfolio was improved.
Moreover, in the capital increase through public offering in July, JHR conducted its first global
offering in an attempt to further expand its investor base.
On top of the above, JHR worked to cut its expenses, including reduction of operating expenses andfunding costs. As a result, JHR posted operating revenue of ¥22,107 million, ordinary income of¥12,220 million and net income of ¥12,123 million for the 17th fiscal period. Dividend per unit
came to ¥3,420, up 15.0% from the previous fiscal period.
We at JHR and its asset management company, Japan Hotel REIT Advisors Co., Ltd., are resolved tomake our best endeavors for JHR’s further growth in order to provide investors with attractive
opportunities to invest in hotel assets by taking advantage of the high expertise and know-how wehave fostered and accumulated to date.
We ask for your continued support.

Kaname Masuda
Executive Director
Japan Hotel REIT Investment Corporation
Hisashi Furukawa
Representative Director and President
Japan Hotel REIT Advisors Co., Ltd.

1JAPAN HOTEL REIT INVESTMENT CORPORATION
Contents:

I.

Asset Management Report3This section (P1-P44) is the translation of the Asset Management Report for the 17th Period releasedon March 22, 2017 except for the update on 6. Significant subsequent events in Outline of AssetManagement Operation. This English translation is provided for information purposes only. If any
discrepancy is identified between this translation and the Japanese original, the Japanese original
shall prevail.

II. Financial Statements
For the Years ended December 31, 2016 and 2015
Balance Sheets

45

Statements of Income

47

Statements of Changes in Net Assets

48

Statements of Cash Flows49

Notes to Financial Statements

51

Independent Auditor’s Report662

I. ASSET MANAGEMENT REPORT
Outline of Asset Management Operation
1. Operating results and financial position, etc.
Fiscal period
Account closing date (Note 1)
Operating revenue

13th period
December 2012

14th period
December 2013

15th period
December 2014

16th period
December 2015

17th period
December 2016

(Note 2)

JPY1M

7,283

11,472

12,76017,343

22,107[Real estate operating revenue]

JPY1M[7,283][11,472][12,760][17,033][22,107]

Operating expenses

JPY1M

4,688

6,105

5,214

6,354

8,221

JPY1M

[2,668][3,870][4,163][5,002][6,589]Operating income

JPY1M

2,595

5,367

7,545

10,98813,885

Ordinary income

JPY1M

1,412

3,740

5,776

9,295

12,220JPY1M

19,031

3,233

5,774

9,294

12,123

Total assets[Period-on-period change]

JPY1M

139,623[198.5]

170,727[22.3]

188,091[10.2]

240,356[27.8]

317,878[32.3]Net assets[Period-on-period change]

JPY1M
[%]

69,010[192.0]89,756[30.1]

100,342[11.8]

129,914[29.5]

181,989[40.1]

Unitholders’ capital

JPY1M

28,26048,84559,02485,470134,829

Number of investment units issued andoutstandingUnits

2,111,281

2,621,281

2,791,281

3,144,227

3,761,907

Net assets per unit

JPY

32,68634,24135,94841,31848,376

Net income per unit

JPY

9,711

1,307

2,159

3,036

3,462

Total dividends

JPY1M

3,012

5,082

6,015

9,354

12,865

Dividend per unit

[Real estate operating costs]

Net income(Note 3)

[%]

JPY

1,427

1,939

2,155

2,975

3,420

[Earnings dividend per unit]

JPY

1,427

1,939

2,155

2,975

3,420

[Dividend per unit resulted fromexcess of earnings]

JPY

–

–

–

–

–

%

1.5

2.4

3.2

4.3

4.4

[%]

[2.0]

[2.4]

[3.2]

[4.3]

[4.4]

%

41.1

4.1

6.1

8.1

7.8

[%]

[54.5]

[4.1]

[6.1]

[8.1]

[7.8]

%

49.4

52.6

53.3

54.1

57.3

Ratio of ordinary income to total assets(Note 4)

[Annualized]
Return on unitholders’ equity(Note 5)

[Annualized]
Ratio of net assets to total assets(Note 6)[Period-on-period change]
Payout ratio[%][(1.1)]

[3.2]

[0.8]

[0.7]

[3.2]

(Note 7)

%

15.8

157.2

104.2

100.6

106.1

[Additional information]
NOI(Note 8)

JPY1M

6,216

9,907

11,002

14,82918,829FFO per unit

(Note 9) (Note 10)

JPY

2,087

2,759

2,930

3,748

4,103

FFO multiple(Note 10) (Note 11)

Times

8.6

18.2

26.3

23.9

19.2

Times

3.8

4.5

5.1

9.1

14.2

JPY1M

65,22074,78481,089102,772

126,179

%

46.7

43.8

43.1

42.8

39.7

Debt service coverage ratio(Note 10) (Note 12)

Interest-bearing debt
Ratio of interest-bearing debt to total
assets(Note 13)

28

28

30

36

41

288,875.32

349,162.63

386,826.71

493,758.78

587,481.02

37

38

57

113

128

％

100.0

100.0

99.9

99.9

99.9

Depreciation

JPY1M

1,592

2,297

2,400

2,772

3,294

Capital expenditures

JPY1M

699

854

1,306

1,811

2,619

Number of operating days

Days

275

365

365

365

366

Number of investment properties
Number of tenants at end of period(Note 14)

Occupancy rate at end of period(Note 15)

(Note 1)

Properties
m2

Total leasable area

Tenants

Following the resolution to partly amend the Articles of Incorporation of Japan Hotel REIT Investment Corporation(hereinafter referred to as “JHR”) at the 5th General Meeting of Unitholders held on February 24, 2012, JHR changed
its fiscal period from six-month periods that end on March 31 and September 30 each year to 12-month periods that3

(Note 2)(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)(Note 13)end on December 31 (aligned with the calendar year). As a result of the change, and to facilitate the transition, JHR’s
13th fiscal period was the nine months from April 1, 2012 through December 31, 2012.
Operating revenue does not include consumption tax, etc.
Net income for the 13th fiscal period includes a gain on negative goodwill (¥18,578 million) from a merger, loss onsale of real estate properties (¥1,393 million) and impairment loss (¥958 million). Net income for the 14th fiscal period
includes loss on sale of real estate properties (¥1,189 million) and impairment loss (¥516 million). Net income for the
16th fiscal period includes gain on sale of real estate properties (¥305 million).
Ratio of ordinary income to total assets = Ordinary income / ((Total assets at beginning of period + Total assets at endof period) / 2) × 100
Return on unitholders’ equity = Net income / ((Net assets at beginning of period + Net assets at end of period) / 2) ×100
Ratio of net assets to total assets = Net assets at end of period / Total assets at end of period × 100
Payout ratio = Total dividends (excess of earnings exclusive) / Net income × 100
NOI = Real estate operating revenue − Real estate operating costs + Depreciation + Loss on retirement of noncurrent
assets + Asset retirement obligations expenses
FFO per unit = (Net income + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations
expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss or income (excluding loss on disaster)) /Number of investment units issued and outstanding
For the 13th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding gain on
negative goodwill (¥18,578 million), loss on sale of real estate properties (¥1,393 million) and impairment loss (¥958
million). For the 14th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated
excluding loss on sale of real estate properties (¥1,189 million) and impairment loss, etc. (¥516 million). For the 16th
fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding gain on sale of realestate properties (¥305 million).
FFO multiple = Investment unit price at end of period / Annualized FFO per unit
Debt service coverage ratio = (Net Income before income taxes + Depreciation + Loss on retirement of noncurrent
assets + Asset retirement obligations expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss
or income (excluding loss on disaster) + Amortization of investment corporation bond issuance costs + Amortization of
investment unit issuance expenses ± Gain or loss on derivative instruments + Interest expense + Interest expense on
investment corporation bonds) / (Interest expense + Interest expense on investment corporation bonds + Total ofcontracted principal repayments (excluding lump-sum principal repayments))
Ratio of interest-bearing debt to total assets = Interest-bearing debt at end of period / Total assets at end of period × 100(Note 14)

Number of tenants at end of period indicates the total number of tenants based on the lease contracts for respective realestate properties in trust (excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, forproperties with pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end
tenants as is in principle, the total number of the end tenants (excluding tenants of parking lots, etc.) is indicated.

(Note 15)

Occupancy rate at end of period indicates the percentage of leased area to leasable area of respective real estate
properties in trust as of the end of each fiscal period.

2. Asset management operation for the fiscal period under review(1) Brief history and principal activities
Japan Hotel REIT Investment Corporation (hereinafter referred to as “JHR”) was established under the Act on
Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended; hereinafter referred to as
the “Investment Trusts Act”) on November 10, 2005 and was listed on the Real Estate Investment Trust(“REIT”) section of the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006.
JHR entrusts the asset management to Japan Hotel REIT Advisors Co., Ltd. (hereinafter referred to as the“Asset Management Company”). Focusing on the importance of hotels as social infrastructure and theirprofitability as investment real estate properties, JHR has primarily invested in real estate related assets which
are in themselves real estate wholly or partially used as hotels or real estate equivalents of such real estate, or
which are backed by such real estate or real estate equivalents.
JHR, the former Nippon Hotel Fund Investment Corporation (hereinafter referred to as the “former NHF”),
merged with the former Japan Hotel and Resort, Inc. (hereinafter referred to as the “former JHR”) with aneffective date of April 1, 2012 (hereinafter referred to as the “Merger”) and changed its name to Japan Hotel
REIT Investment Corporation. Since the Merger, JHR has carried out seven public offerings for capitalincrease and continuously acquired “highly-competitive hotels” in mainly “strategic investment target areas”
where domestic and inbound leisure demand can be expected over the medium to long term.
By implementing the aforementioned growth strategy, JHR has expanded its asset size while improving the4quality of its portfolio through new property acquisitions of 21 properties amounting to ¥177,349 million (onan acquisition price basis) in total in the nearly five years since the Merger. As a result, as of the end of the
fiscal period under review, JHR had a portfolio of 41 properties with a combined acquisition price of¥286,801 million and the total number of investment units issued and outstanding stood at 3,761,907 units.
(2) Investment performance for fiscal period under review
During the fiscal period under review, the Japanese economy saw improvement in corporate earnings come toa standstill due in part to a heightened sense of uncertainty over the perspective ahead, with such factors inJapan as the yen increasingly appreciated since the beginning of 2016 and the 2016 Kumamoto Earthquake
occurring in April 2016 and such factors in overseas as slowdown in the Chinese and other emerging
economies and the UK’s decision to leave the EU. After the U.S. presidential election, however, the yen
became weaker against the higher dollar and the U.S. economy remained strong. Bolstered by thesedevelopments and given the rising expectations for the economic outlook and other factors, the Japanese
economy continued to show a moderate recovery trend, despite delay in improvement seen in some areas.
Amid such, the tourism market was in an environment in which, in addition to solid domestic leisure demand,
the government promoted its policies aimed at making Japan a tourism nation. This and other factors led tothe increase in the number of overseas (inbound) tourists visiting Japan, primarily from Asian countries,
continuing strong. The number of inbound tourists, which surpassed 10 million for the first time in history in
2013, has since marked new record highs of 13.4 million (up 29.4% year-on-year) in 2014, 19.7 million (up47.1% year-on-year) in 2015 and, although at a slower rate of increase than the previous year, 24.0 million(up 21.8% year-on-year) in 2016. Under such circumstances, the Japanese government set a goal to increase
the number of foreign tourists visiting Japan to 40 million by 2020 and 60 million by 2030, and establishedand promoted measures for realization of a tourism nation. With such expectations for growth of Japan’s
tourism industry and hotel industry continuing, many of the hotels owned by JHR achieved strong operating
performance, mainly in the rooms department, despite some impact of new hotel supply, and the investment
market for hotels remained brisk.
In such an environment, in January 2016, JHR implemented capital increase through public offering, the sixth
since the Merger, to complement a decrease in cash on hand, a decrease equivalent to the cash on hand used tofund the acquisition of ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel) in December
2015 for an acquisition price of ¥17,320 million. JHR also used the proceeds from the public offering to
newly acquire CANDEO HOTELS UENO-KOEN, located in the Ueno area in central Tokyo, for an
acquisition price of ¥6,705 million.
In addition, in July 2016, JHR implemented a global offering, the first for JHR, to complement a decrease in
cash on hand, a decrease equivalent to the cash on hand used to fund the acquisition of Hotel Centraza Hakata
in April 2016 for an acquisition price of ¥7,197 million. JHR also used the proceeds from the global offering
to acquire HOTEL VISTA GRANDE OSAKA (renamed to Holiday Inn Osaka Namba on November 1, 2016
upon completion of its rebranding; the same shall apply hereinafter) for an acquisition price of ¥27,000
million, Hilton Nagoya for an acquisition price of ¥15,250 million and HOTEL ASCENT FUKUOKA for an
acquisition price of ¥4,925 million (with a combined acquisition price of ¥47,175 million for the threeproperties).
JHR has been pursuing expansion of asset size through continuous property acquisitions by leveraging suchstrengths as high recognition as Japan’s largest REIT specializing in hotel properties and ability to propose
diverse acquisition schemes and execute transactions. In terms of portfolio, too, JHR has been striving to
improve the quality of its portfolio through such measures as making international brands, which have acompetitive advantage in attracting high-paying inbound tourists, account for a greater share of the portfolio
and further diversifying the portfolio by geographical area.
JHR has been implementing active asset management, which is the aggressive and proactive pursuit toimprove profitability and asset value of its owned hotels. JHR conducted active asset management, such asmeasures to improve ADR (average daily rate) through investing in guest room renovations and otherstrategic renovations, change of operators to those best suited to the hotel characteristics or rebranding,change of the rent structure or upward revision of rents aimed at capturing upside potential. This led to anincrease in variable rents including revenue sharing and income from management contracts through theenhancement of performance and other achievements of the hotels JHR owns.
In terms of operations of the five hotels (hereinafter referred to as the “five HMJ hotels”) (Note 1) which JHR
5leases to Hotel Management Japan Co., Ltd. (hereinafter referred to as “HMJ”) under variable rent contracts,and hotels which JHR leases to the HMJ Group companies under variable rent contracts, namely, Okinawa
Marriott Resort & Spa, ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel), Hotel
Centraza Hakata and Holiday Inn Osaka Namba, many of these hotels have produced a year-on-year increase
both in sales and GOP (gross operating profit), led by the rooms department, during the fiscal period underreview. The rooms department worked to achieve greater earnings with increase in ADR to drive growth. For
further details of sales, GOP and other management indicators for the HMJ Group hotels (Note 1), pleaserefer to “<Reference 1> Major indicators of the hotel business for the fiscal year ended December 31, 2016”
and “<Reference 2><1> Sales and GOP of HMJ group hotels” in 7. Reference information.
Moreover, inbound and domestic leisure demand were successfully attracted by the six hotels (Note 2) for
which AAPC Japan K.K. (hereinafter referred to as “Accor”), a Japanese subsidiary of Accor Hotels
headquartered in Paris, France, serves as the operator (hereinafter referred to as the “six Accor hotels”). Manyof these hotels posted a year-on-year increase both in sales and GOP, mainly led by an increase in ADR. For
further details of sales, GOP and other management indicators for the six Accor hotels, please refer to“<Reference 1> Major indicators of the hotel business for the fiscal year ended December 31, 2016” and“<Reference 2><2> Sales and GOP of the six Accor hotels” in 7. Reference information.
Furthermore, efforts were made to attract inbound tourists at the six the b hotels (Note 3), which are leased tothe subsidiaries of the Ishin Hotels Group with a variable rent structure, and consequently a year-on-yearincrease was achieved both in sales and GOP in the case of the five the b hotels for which year-on-yearcomparisons can be made. For further details of sales, GOP and other management indicators for the six the bhotels, please refer to “<Reference 1> Major indicators of the hotel business for the fiscal year ended
December 31, 2016” and “<Reference 2><3> Sales and GOP of the six the b hotels” in 7. Reference
information.
On top of increasing revenue through an increase in rents under variable rent structures etc., JHR has also
been striving to reduce costs in terms of real estate operating costs, general and administrative expenses andborrowing costs through persistent talks with relevant parties and other measures. Furthermore, JHR recorded¥95 million in repair expenses related to the 2016 Kumamoto Earthquake as extraordinary losses in the fiscal
period under review.
(Note 1) The five HMJ hotels represent the five hotels, namely, Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay,
Namba Oriental Hotel, Hotel Nikko Alivila and Oriental Hotel Hiroshima. The HMJ Group hotels represent the nine
hotels comprising the five HMJ hotels plus Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel, whichis the major facility of ACTIVE-INTER CITY HIROSHIMA, Hotel Centraza Hakata and Holiday Inn Osaka Namba.
The same shall apply hereinafter.
(Note 2) Represents the six hotels, namely, ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure
Sapporo, Mercure Okinawa Naha and Mercure Yokosuka. The same shall apply hereinafter.
(Note 3) Represents the six hotels, namely, the five hotels comprising the b akasaka-mitsuke, the b ikebukuro, the b ochanomizu,
the b hachioji and the b hakata (hereinafter referred to as “the five the b hotels”) plus the b suidobashi. The same shallapply hereinafter.

(3) Funding conditions
JHR procured a total of ¥14,618 million by way of capital increase through public offering in January 2016
and capital increase through third-party allotment in February 2016, as well as ¥2,000 million in long-termloans, to complement a decrease in cash on hand, which is a decrease equivalent to the cash on hand used tofund the acquisition of ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel) in December
2015, and to acquire CANDEO HOTELS UENO-KOEN. In addition, between February and March 2016,
JHR refinanced ¥11,214 million in existing long-term loans (with a partial reduction of ¥114 million), andalso refinanced ¥9,000 million in existing short-term loans into long-term debt by procuring ¥6,000 million in
long-term loans and ¥3,000 million in investment corporation bonds.
Moreover, after using ¥7,000 million in short-term loans and cash on hand to acquire Hotel Centraza Hakata
in April 2016, JHR procured a total of ¥34,740 million by way of capital increase through public offering inJuly 2016 and capital increase through third-party allotment in August 2016, as well as ¥14,000 million in
long-term loans. JHR used the funds to complement a decrease in cash on hand, a decrease equivalent to the
cash on hand used to fund the acquisition of Hotel Centraza Hakata, and to acquire Holiday Inn Osaka Namba,
Hilton Nagoya and HOTEL ASCENT FUKUOKA.
In November 2016, JHR issued investment corporation bonds totaling ¥10,100 million to complement a
decrease in cash on hand, which is a decrease equivalent to the cash on hand used to redeem investment
6

corporation bonds totaling ¥2,500 million due for redemption, and to fund the early prepayment of ¥7,000
million in existing short-term loans and new acquisition of real estate properties in the future. In addition, inorder to fund the repair expenses for Dormy Inn Kumamoto that had suffered damage from the 2016
Kumamoto Earthquake, JHR procured ¥100 million from The Higo Bank, Ltd., which is a bank in the
Kumamoto area and is a new lender for JHR, in December 2016.
Consequently, as of the end of the fiscal period under review, interest-bearing debt totaled ¥126,179 million,
including short-term loans payable of ¥1,800 million, current portion of long-term loans payable of ¥9,679
million, long-term loans payable of ¥92,099 million and investment corporation bonds of ¥22,600 million,
and the ratio of interest-bearing debt to total assets at end of the fiscal period (Note 4) stood at 39.7%.
Through refinancing and newly procuring funds, JHR advanced its efforts to lower funding costs and extend
and spread out maturity dates, among other endeavors, while working to further diversify funding methods.
Concurrently, JHR concluded interest rate swap contracts to fix the interest on ¥34,400 million in total onloans in March, July and August 2016 in order to benefit from the current interest rate environment and tohedge against risks of interest rates rising in the future. These actions brought the fixed rate ratio (including
the interest rate cap purchase portion) on JHR’s total interest-bearing debt at the end of the fiscal period underreview to around 98%.
(Note 4) Ratio of interest-bearing debt to total assets at end of period = Balance of interest-bearing debt at end of period / Total
assets at end of period x 100

As of December 31, 2016, JHR’s issuer ratings were as follows.
Rating and Investment Information, Inc. (hereinafter referred to as “R&I”) changed JHR’s issuer rating from“A− (Positive)” to “A (Stable)” on October 5, 2016, and Japan Credit Rating Agency, Ltd. (hereinafterreferred to as “JCR”) also changed JHR’s long-term issuer rating from “A (Positive)” to “A+ (Stable)” on
October 17, 2016.
RatingOutlook

R&I

Rating agency

A

StableJCR

A＋Stable(4) Financial results
As a result of the abovementioned asset management, operating revenue, operating income and ordinary
income were ¥22,107 million, ¥13,885 million and ¥12,220 million, respectively, for the fiscal period underreview (12-month period from January 1 to December 31, 2016). Net income was ¥12,123 million.
With regard to dividends, it was decided that ¥12,866 million, which was calculated by adding a reversal of
dividend reserve (appropriation for dividends) of ¥740 million to unappropriated retained earnings of ¥12,126
million, would all be distributed except for fractions of less than one yen of dividend per unit. Consequently,
the dividend per unit came to ¥3,420.
For details of the appropriation for dividends for the fiscal period under review, please refer to “<Reference
3> Dividend per unit and appropriation for dividends” in 7. Reference information.
3. Changes in unitholders’ capital, etc.
The table below indicates increases (decreases) in the number of investment units issued and outstanding andunitholders’ capital of JHR in the past five years.

Date

Capital transaction

April 1, 2012

Investment unit split

April 1, 2012

Merger

September 12, Capital increase through public
2012
offering of investment units

Number of units issued(Units)Unitholders’ capital(JPY1M)

Note

Increase(decrease)

Balance

Increase(decrease)

Balance638,341

696,372–

23,161(Note 1)

1,162,909

1,859,281–

23,161(Note 2)240,000

2,099,281

4,855

28,017(Note 3)7

October 11,
2012

Capital increase through third-party
allotment of investment units

12,0002,111,281

242

28,260(Note 4)

April 17,2013

Capital increase through public
offering of investment units

510,000

2,621,281

20,585

48,845(Note 5)September 9,
2014

Capital increase through public
offering of investment units

170,000

2,791,281

10,17959,024(Note 6)

January 27,
2015

Capital increase through public
offering of investment units

200,000

2,991,281

14,97473,999(Note 7)

February 18,
2015

Capital increase through third-party
allotment of investment units

9,041

3,000,322

676

74,676(Note 8)June 22,2015

Capital increase through public
offering of investment units

140,000

3,140,322

10,50085,177(Note 9)July 232015

Capital increase through third-party
allotment of investment units

3,905

3,144,227

292

85,470(Note 10)January 20
2016

Capital increase through public
offering of investment units

170,000

3,314,227

13,98699,456(Note 11)February 17
2016

Capital increase through third-party
allotment of investment units

7,680

3,321,907

631

100,088(Note 12)

July 27
2016

Capital increase through public
offering of investment units

428,260

3,750,167

33,813

133,902(Note 13)

August 23
2016

Capital increase through third-party
allotment of investment units

11,7403,761,907

926

134,829(Note 14)

(Note 1)
(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)(Note 13)
(Note 14)JHR conducted a 12-for-1 split of investment units.
JHR (the former NHF) merged with the former JHR. The merger was an absorption-type merger pursuant to Article
147 of the Investment Trusts Act where JHR is the surviving corporation and the former JHR is the absorbed
corporation. Following this merger, 11 investment units of JHR after the split of investment units were delivered byallotment for each investment unit of the former JHR.
New investment units were issued through public offering with an issue price per unit of ¥20,990 (issue value of¥20,232) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥20,232 in order torepay loans payable, etc.
New investment units were issued through public offering with an issue price per unit of ¥41,778 (issue value of¥40,363) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥61,912 (issue value of¥59,880) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥77,415 (issue value of¥74,874) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥74,874 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.
New investment units were issued through public offering with an issue price per unit of ¥77,512 (issue value of¥75,007) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥75,007 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.
New investment units were issued through public offering with an issue price per unit of ¥85,020 (issue value of¥82,273) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥82,273 in order toraise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥81,536 (issue value of¥78,956) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥78,956 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.

8[Fluctuation in market price of investment units]
The highest and lowest prices (closing price) during each fiscal period of the investment units of JHR on theTokyo Stock Exchange REIT section are as follows:(yen)
Fiscal period

13th period

14th period

15th period

16th period

17th period

Account closing month

December 2012

December 2013

December 2014

December 2015

December 2016

Highest price25,11051,50082,40093,800103,400

Lowest price

17,83023,67045,35070,60070,900Price at end of period

23,88050,40077,00089,50078,6004. Dividends, etc.
Earnings dividend for the period under the review was decided in accordance with the monetary distribution
policy stipulated in Article 34, paragraph 1 of JHR’s Articles of Incorporation to exceed 90% of JHR’s
distributable profit that is defined by Article 67-15 of the Act on Special Measures Concerning Taxation. And¥12,866 million, which was calculated by adding a reversal of dividend reserve (appropriation for dividends) of¥740 million to unappropriated retained earnings of ¥12,126 million as of end of the fiscal period under thereview, would all be distributed except for fractions of less than one yen of dividend per unit. Consequently, thedividend per unit came to ¥3,420.
(yen)
13th period

14th period

15th period

16th period

17th period(From April 1, 2012
to December 31, 2012)(From January 1, 2013
to December 31, 2013)(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)

19,031,977,302

3,235,030,032

5,776,116,820

9,296,121,922

12,126,057,948–

1,848,870,143

240,538,162

60,847,707

740,075,040

1,695,047

1,236,316

1,444,427

2,894,304

411,048

Total cash dividends

3,012,797,987

5,082,663,859

6,015,210,555

9,354,075,325

12,865,721,940[Dividend per unit][1,427][1,939][2,155][2,975][3,420]3,012,797,987

5,082,663,859

6,015,210,555

9,354,075,325

12,865,721,940[1,427][1,939][2,155][2,975][3,420]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

Classification
Unappropriated retained
earnings
Reversal of dividend reserve
Retained earnings

Of the above, total earnings
dividends[Earnings dividend per unit]
Of the above, total return ofcapital contributions[Return of capital
contributions per unit]
Of total return of capital
contributions, total distributions
from allowance for temporary
difference adjustment[Of return of capital
contributions per unit,
distributions from allowancefor temporary difference
adjustment per unit]
Of total return of capital
contributions, total distributions
from the unitholders’ capital fortax purpose[Of return of capital
contribution per unit,
distributions from theunitholders’ capital for tax
purpose per unit]

95. Investment policies and issues to be addressed
General investment outlook
In 2017, the Japanese economy is expected to be on a moderate recovery, due in part to the effects of various
government policies, while the employment and income environment continues to improve. However, withmany uncertainties over policy management under the new U.S. president, the French presidential election, etc.,
attention must be paid to the unpredictability in overseas economies and the effects of fluctuations in thefinancial and capital markets. As for the environment surrounding the tourism industry, it is expected that JHR
will benefit from a further increase in the number of domestic tourists and inbound tourists, thanks to increase inpersonal income buoyed by economic growth in the Asian region, visa waivers and relaxation of visa issuancerequirements, increase in international flight arrival and departure slots and other infrastructure developments,
among other factors, in addition to steady domestic leisure demand. On the other hand, a close watch must be
kept on the brisk investment market for hotels, increase in supply from new development of hotels following
trends of increase in inbound tourists, the state of minpaku (rentals of private homes as accommodation for a fee)and other future supply-demand balance. Under such circumstances, JHR intends to manage assets based on theapproach described below aiming to make investing in JHR more appealing.
Internal growth
JHR will work to boost sales and GOP of hotels operated under variable rent contracts, which are the HMJ
Group hotels and the six the b hotels, as well as of the six Accor hotels that are mainly operated under amanagement contract structure, with an aim to maximize variable rents and income from management contracts
receivable by JHR. To achieve this goal, JHR will focus efforts on seeking the cooperation of relevant parties inshifting from competition based on price to competition based on value in an aim to differentiate itself in themarket, in terms of both facilities and services, through active asset management. This will include requesting
lessees, operations support companies and operators of respective hotels to implement marketing initiatives toattract a wider range of demand, measures to maintain and increase room rates, etc., and implementing strategic
capital expenditures.
For hotels with fixed rent only contracts, JHR will increase its efforts to monitor operating conditions and, by
paying careful attention to each tenant’s ability to bear the rent costs, conduct negotiations with the hotels at
which the ability to bear rent costs has been enhanced through better performances so that the improvement inhotel earnings would lead to an increase in JHR’s earnings, such as revising rents upward and introducing
revenue sharing structure.
In addition, JHR will carry out an ongoing program of facility maintenance and improvement to ensure each
hotel becomes prominent in the market and to maintain and increase the value of its assets.
External growth
In terms of external growth strategy, JHR will keep its focus on acquiring highly-competitive hotels in areas
where attracting “domestic and inbound leisure demand” can be expected over the medium to long term, as JHR
has done to date. While setting the entire range of limited-service hotels, full-service hotels and resort hotels as
its investment targets, JHR will work to acquire properties with competitive advantages in terms of bothbuildings, facilities, etc. (infrastructure) and the capabilities of the hotel lessee and operator (services),
investigating on a property-by-property basis.
In the investment market for hotels, competition over acquisition will likely become increasingly fierce due tothe listing of new REITs specializing in hotels and other factors. JHR intends to leverage its first-moveradvantages to acquire properties while differentiating itself from the others, so that it can solidify its position in
the industry.
Specifically, JHR will utilize its pipelines as a major player in the investment market for hotels, its ability tocollect information on operations of hotels in general, its ability to make proposal and implement a variety ofrent structures including the management contract structure, collaboration with HMJ and excellent networks
with major hotel operators. Building on these and other strengths, JHR will acquire properties while maintaining
its superiority in the investment market for hotels.
Finance strategy
JHR implements conservative financial strategy for its operation as its basic policy. JHR maintains and enhances
the relationships of trust with financial institutions with which it does business, works to further diversify the10means of financing, and puts importance on ensuring its financial stability and strength to meet such policy. It
aims to conduct financial operations by keeping the ratio of interest-bearing debt to total assets at no larger than
50%, as it has done to date. In addition, when seeking new funding for property acquisitions or refinancing
existing debt, JHR will endeavor to reinforce its formation of lenders and further diversify funding methods
while placing a balanced emphasis on further spreading out the maturity dates of its debt as well as on borrowing
costs. Moreover, while discerning the conditions of the interest rate market, JHR aims to further improve its
financial foundation by extending maturity dates and conducting interest rate risk management such as fixing ofrates.
Policy on handling of negative goodwill
Starting from the fiscal year ending December 31, 2017 (18th period), JHR will commence paying out dividends
through reversal of dividend reserve (classified as reserve for temporary difference adjustment for the 18th
period and thereafter) in association with partial amendments to the “Ordinance on Accountings of Investment
Corporations” and the “Regulation for Real Estate Investment Trusts and Real Estate Investment Corporations”
of The Investment Trusts Association, Japan.
Specifically, JHR will transfer the remaining balance of dividend reserve (¥13,127 million) attributable to thegain on negative goodwill in the cash dividends statements for the fiscal year ended December 31, 2016 (17thperiod) to “reserve for temporary difference adjustment,” and reverse ¥262 million (hereinafter called “50-year
amortization amount of negative goodwill”), which is an amount equivalent to 2% (1/50) of the remainingbalance of the dividend reserve, to pay out as dividends, with the remaining balance of the reserve for temporary
difference adjustment set as the maximum amount, for every year from the fiscal year ending December 31,
2017 (18th period).
In addition, in cases of incurrence of losses caused by property dispositions, impairment loss of assets or on
retirement of noncurrent assets, etc. and in case of dilution of dividend per unit due to the issuance of new
investment units through public offerings, etc., JHR plans to pay extra amount in addition to the 50-year
amortization amount of negative goodwill (¥262 million) and reverse the reserve.
As for amortizations, etc. of fixed-term leasehold of land and asset retirement obligations (Note 2) of Hotel
Centraza Hakata and HOTEL ASCENT FUKUOKA, which have been subject to the previous “Policy onhandling of negative goodwill,” JHR plans to include the amortizations, etc. in the 50-year amortization amountof negative goodwill instead of adding them to the 50-year amortization amount of negative goodwill to reverse
the reserve.
In response to the above-mentioned new policy, the amount to be added to dividends by reversing negative
goodwill from the fiscal year ending December 31, 2017 (18th period) is planned to be 50-year amortization
amount of negative goodwill (¥262 million) or more, with the maximum amount set at the remaining balance ofthe reserve for temporary difference adjustment.
As for the fiscal year ending December 31, 2017 (18th period), JHR expects ¥332 million, which is the 50-year
amortization amount (¥262 million) of negative goodwill plus loss on retirement of noncurrent assets (¥70
million) as additional amounts to dividends by reversing the reserve.
(Note 1) The policy may change due to a resolution of the board of directors, and it does not guarantee the method of reversing
the reserve for temporary difference adjustment, and amounts to be reversed, etc., in the future.
(Note 2) The amount of amortizations, etc. for the fixed-term leasehold of land and asset retirement obligations of Hotel
Centraza Hakata and HOTEL ASCENT FUKUOKA acquired in the fiscal year ended December 31, 2016 (17th period)is planned to be ¥152 million for the fiscal year ending December 31, 2017 (18th period).

6. Significant subsequent events
Not applicable
7. Reference information<Reference 1>
Major indicators of the hotel business for the fiscal year ended December 31, 2016
The following tables indicate the figures related to the hotel business of the HMJ group hotels, the six
Accor hotels and the six the b hotels for the operating period from January 1, 2016 through December
31, 2016, based on the data provided by the hotel lessees, etc. Furthermore, while the indicators of thehotels are among the indicators that show the operating status of the rooms departments, they do notnecessarily represent the operating revenue and the ability to bear rent, etc. of the respective hotels, as
the daily rates of the respective rooms available for sale and profit margins, etc. are not uniform,
11among other reasons. As such, the indicators are no more than the reference figures.
(a) The HMJ group hotels(millions of yen)
Kobe Meriken Park Oriental Hotel tokyo
Oriental Hotelbay
Ratio to
total
sales

Namba Oriental
Hotel

Ratio to
total
sales

Hotel Nikko
AlivilaRatio to
total
sales

Oriental Hotel
Hiroshima

Ratio to
total
sales

The five HMJ hotels
Total/Average

Ratio to
total
sales

Ratio to
total
sales

Occupancy rate

79.1%

－

96.8%

－

94.1%

－

85.3%

－

81.5%

－

88.4%

－

ADR (Note 1)

17,691－

20,449－19,918－27,513

－

9,599

－

20,153－

RevPAR(Note 2)

13,987－

19,799－18,736－23,471

－

7,826

－

17,807－

Total sales

5,361

100.0%

7,271

100.0%

2,877

100.0%

6,155

100.0%

2,240

100.0%

23,905100.0%

Rooms department

1,799

33.6%

4,018

55.3%

1,949

67.7%

3,750

60.9%

715

31.9%

12,231

51.2%

Food & beveragedepartment

3,260

60.8%

2,785

38.3%

137

4.8%

1,903

30.9%

1,461

65.2%

9,548

39.9%

Tenant department

60

1.1%

245

3.4%

752

26.1%

2

0.0%

22

1.0%

1,081

4.5%

Other departments(Note 3)

242

4.5%

223

3.1%

39

1.4%

499

8.1%

41

1.8%

1,045

4.4%

1,131

21.1%

2,161

29.7%

1,746

60.7%

2,173

35.3%

381

17.0%

7,591

31.8%

GOP

Okinawa Marriott
Resort & Spa
Ratio to
total
sales

Sheraton Grand
Hiroshima Hotel(Note 4)

Ratio to
total
sales

Hotel Centraza
Hakata(Note 5)

Holiday Inn Osaka
Namba

Ratio to
total
sales

(Note 6)

The HMJ grouphotelsTotal/Average

Ratio toRatio tototal
(Note 7)
total
sales
sales

Occupancy rate

85.6%

－

85.2%

－

90.6%

－

95.7%

－

88.7%

－

ADR (Note 1)

19,708－17,237－

10,164－

19,711－

19,103－

RevPAR(Note 2)

16,875－

14,690

－

9,212

－

18,856－

16,947－

Total sales

3,933

100.0%

2,996

100.0%

2,421

100.0%

2,206

100.0%

35,461100.0%

Rooms department

2,459

62.5%

1,413

47.2%

721

29.8%

2,170

98.3%

18,993

53.6%

Food & beveragedepartment

1,059

26.9%

1,503

50.2%

1,447

59.8%

－

－

13,55838.2%

Tenant department

60

1.5%

－

－

232

9.6%

28

1.3%

1,401

4.0%

Other departments(Note 3)

355

9.0%

80

2.7%

21

0.9%

9

0.4%

1,509

4.3%

1,274

32.4%

845

28.2%

825

34.1%

1,474

66.8%

12,01033.9%

GOP(Note 1)
(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)

ADR: Represents average daily rate, which is calculated by dividing total rooms revenue for a certain period (excluding
service charges) by the total number of rooms sold during the period. The same shall apply hereinafter.
RevPAR: Represents revenue per available room, which is calculated by dividing total rooms revenue for a certain
period (excluding service charges) by the total number of rooms available for sale during the period. Revenue peravailable room equals the product of ADR and occupancy rate. The same shall apply hereinafter.
Figures for the Other departments include sales of the Product sales department.
The indicated figures are for Sheraton Grand Hiroshima Hotel, the main facility of ACTIVE-INTER CITYHIROSHIMA.
For Hotel Centraza Hakata, which JHR acquired on April 1, 2016, the annual figures are for throughout the year
including those prior to the acquisition.
For Holiday Inn Osaka Namba, which JHR acquired on August 1, 2016, the annual figures are for throughout the year
including those prior to the acquisition.
For Total/Average of the HMJ group hotels, figures are calculated by JHR as reference since no figures have been
provided by the hotel operators or hotel lessees.
The occupancy rate is rounded off to one decimal place, while ADR and RevPAR are rounded off to single units. Sales

12and GOP are rounded off to the nearest million yen. For the ratio to total sales, the ratio of sales in each department tototal sales is rounded off to one decimal place. The same shall apply hereinafter.

(b) The six Accor hotels(millions of yen)ibis Tokyo
Shinjuku

ibis Styles
Kyoto Station

Ratio to
total
sales

ibis Styles
SapporoRatio to
total
sales

MercureSapporoRatio to
total
sales

MercureOkinawa Naha

Ratio to
total
sales

MercureYokosuka

Ratio to
total
sales

Total/Average(Note)

Ratio to
total
sales

Ratio
to totalsales

Occupancy rate

80.2％

－

97.0%

－

89.3%

－

85.1%

－

83.6%

－

87.1%

－

87.0%

－

ADR

12,431－

11,473

－

9,858

－

11,830－11,083－

12,071－

11,344－

RevPAR

9,973－

11,124

－

8,805

－

10,069

－

9,268

－

10,509

－

9,868

－

Total sales

832 100.0%

977 100.0%

Rooms department

752

90.3%

875

89.6%

896

79.8%

1,050

83.8%

882

84.1%

615

57.5%

5,070

80.4%

Food & beveragedepartment

66

7.9%

96

9.8%

201

17.9%

192

15.3%

140

13.4%

436

40.7%

1,131

17.9%

Other departments

15

1.8%

6

0.6%

25

2.3%

12

0.9%

27

2.6%

20

1.9%

105

1.7%

GOP

445

53.5%

541

55.4%

571

50.9%

562

44.9%

475

45.3%

290

27.1%

2,885

45.8%

(Note)

1,122 100.0%

1,254 100.0%

1,049 100.0%

1,071 100.0%

6,306 100.0%

For Total/Average, figures are calculated by JHR as reference since no figures have been provided by the hotel operators or
hotel lessees.

(c) The six the b hotels(millions of yen)
the b suidobashi

the bakasaka-mitsuke

Ratio to
total
sales

the b ikebukuro

Ratio to
total
sales

the b
ochanomizu

Ratio to
total
sales

the b hachioji

Ratio to
total
sales

the b hakata

Ratio to
total
sales

Total/Average(Note)

Ratio to
total
Sales

Ratio to
total
sales

Occupancy rate

85.4%

－

86.9%

－

88.6%

－

90.7%

－

87.9%

－

93.8%

－

89.1%

－

ADR

11,290－11,965－

11,086－

11,075

－

7,362

－

7,898

－

9,674

－

RevPAR

9,646－

10,403

－

9,825

－

10.044

－

6,472

－

7,409

－

8,619

－

Total sales

351 100.0%

468 100.0%

635 100.0%

266 100.0%

564 100.0%

478 100.0%

2,763 100.0%

Rooms
department

350

99.5%

465

99.2%

629

99.1%

265

99.5%

464

82.3%

475

99.2%

2,647

95.8%

Food & beveragedepartment

－

－

－

－

－

－

－

－

96

17.0%

－

－

96

3.5%

Other
departments

2

0.5%

4

0.8%

6

0.9%

1

0.5%

4

0.7%

4

0.8%

20

0.7%

175

49.7%

273

58.4%

343

54.0%

126

47.3%

208

36.8%

245

51.3%

1,370

49.6%

GOP

(Note)For Total/Average, figures are calculated by JHR as reference since no figures have been provided by the hotel lessees.

<Reference 2>
Of the hotels that have adopted variable rent, the following presents sales and GOP of the HMJ Group Hotels, thesix Accor hotels and the six the b hotels. The numerical figures are based on figures obtained from hotel lessees,
etc. Please note that these numbers have not been audited or gone through other procedures. No guarantee ismade as to the accuracy or completeness of the numbers and information. Sales and GOP are rounded off to thenearest millions of yen. Comparison with the previous period is rounded off to one decimal place.
<1> Sales and GOP of the HMJ group hotels
13(1) Sales by hotel(millions of yen)
Fiscal year ended Dec. 31, 2015
Sales of the HMJ group hotels
First half
Kobe Meriken Park
Oriental Hotel

Second half
Full year
First half

Oriental Hotel tokyo bay Second half
Full year
First half
Namba Oriental Hotel

Second half
Full year
First halfHotel Nikko Alivila

Second half
Full year
First half

Oriental Hotel Hiroshima Second half
Full year
First half
Total for the five HMJ
hotelsSecond half
Full year

First half
Okinawa Marriott Resort
Second half
& Spa
Full year
First half
Sheraton Grand
Hiroshima Hotel

Second half
Full year
First halfHotel Centraza Hakata

Second half
Full year
First half

Holiday Inn Osaka
Namba

Second half
Full year
First half

Total for HMJ grouphotelsSecond half
Full year

Fiscal year ended Dec. 31, 2016

Comparison withprevious period

Actual

2,424
2,828
5,252
3,395
3,927
7,322
1,189
1,341
2,530
2,377
3,571
5,948
991
1,142
2,134
10,376
12,81023,186
1,614
2,402
4,016
1,346
1,502
2,847
1,124
1,205
2,330
832
1,133
1,965
15,291
19,05334,343(0.0)%
1.1%
0.6%
0.9%
2.2%
1.6%
19.1%
16.6%
17.8%
8.6%
8.2%
8.3%
(5.2)%(3.0)%(4.0)%
3.5%
4.4%
4.0%
0.9%
8.7%
5.4%
(1.0)%(0.6)%(0.8)%
2.0%
6.6%
4.4%
47.9%
57.6%
53.4%
4.4%
6.8%
5.7%

(Note 1)

Actual

2,465
2,896
5,361
3,454
3,817
7,271
1,386
1,491
2,877
2,421
3,734
6,155
1,025
1,216
2,240
10,751
13,15423,905
1,607
2,326
3,933
1,369
1,627
2,996
1,155
1,265
2,421
1,104
1,103
2,206
15,985
19,47635,461Comparison withprevious period

1.7%
2.4%
2.1%
1.7%
(2.8)%(0.7)%
16.6%
11.1%
13.7%
1.8%
4.6%
3.5%
3.4%
6.4%
5.0%
3.6%
2.7%
3.1%
(0.4)%(3.2)%(2.1)%
1.7%
8.3%
5.2%
2.8%
5.0%
3.9%
32.7%
(2.7)%
12.3%
4.5%
2.2%
3.3%

Although Okinawa Marriott Resort & Spa was acquired on July 10, 2015 and ACTIVE-INTER CITY HIROSHIMA(Sheraton Grand Hiroshima Hotel) was acquired on December 18, 2015, the figures for the fiscal year ended December
2015 are for the entire year including the period prior to the acquisition.
(Note 2) Hotel Centraza Hakata was acquired on April 1, 2016. The figures for the fiscal year ended December 2015 and thefiscal year ended December 2016 are for the entire year including the period prior to the acquisition.
(Note 3) Holiday Inn Osaka Namba was acquired on August 1, 2016. The figures for the fiscal year ended December 2015 and thefiscal year ended December 2016 are for the entire year including the period prior to the acquisition.
(Note 4) Renovation of Holiday Inn Osaka Namba was completed by the previous owner in March 2014 and the number of guest
rooms increased from 304 to 314. Therefore, the numbers of guest rooms available for sale in the first half or full year of2015 and the first half or full year of 2014 are different.

14(2) Hotel GOP(millions of yen)
GOP and ratio of GOP (Note 1)of the HMJ group hotels
Total for HMJ grouphotels(Note 1)
(Note 2)

(Note 3)Fiscal year ended Dec. 31, 2015

Fiscal year ended Dec. 31, 2016

Comparison withprevious period

ActualComparison withprevious period

ActualGOP

10,91215.2%

12,010

10.1%

Ratio of GOP

31.8%

2.6%

33.9%

2.1%

Ratio of GOP refers to the ratio of GOP to sales. The same shall apply hereinafter.
Although Okinawa Marriott Resort & Spa was acquired on July 10, 2015 and ACTIVE-INTER CITY HIROSHIMA(Sheraton Grand Hiroshima Hotel) was acquired on December 18, 2015, the figures for the fiscal year ended December
2015 are for the entire year including the period prior to the acquisition.
Although Hotel Centraza Hakata was acquired on April 1, 2016 and Holiday Inn Osaka Namba was acquired on August
1, 2016, the figures for the fiscal year ended December 2015 and the fiscal year ended December 2016 are for the entire
year including the period prior to the acquisition.

<2> Sales and GOP of the six Accor hotels(1) Sales by hotel(millions of yen)
Fiscal year ended Dec. 31, 2015
Sales of the six Accor hotels

Actual

453
421
873
357
457
814
429
591
1,019
499
672
1,172
407
516
923
550
512
1,062
2,696
3,168
5,863

First half
ibis Tokyo Shinjuku

Second half
Full year
First half

ibis Styles Kyoto Station Second half
Full year
First half
ibis Styles Sapporo

Second half
Full year
First half

Mercure Sapporo

Second half
Full year
First half

Mercure Okinawa Naha

Second half
Full year
First half

Mercure Yokosuka

Second half
Full year
First half

Total

Second half
Full year(Note)(2)Comparison withprevious period

Fiscal year ended Dec. 31, 2016
Comparison withprevious period

Actual6.1%(5.5)%
0.2%
17.1%
18.8%
18.0%
7.9%
13.1%
10.9%
17.5%
17.4%
17.4%
12.1%
24.5%
18.7%
1.0%
4.3%
2.6%
9.5%
12.0%
10.8%

406
426
832
464
513
977
490
633
1,122
546
708
1,254
489
560
1,049
569
502
1,071
2,965
3,341
6,306

(10.3)%
1.3%(4.7)%
30.0%
12.3%
20.1%
14.3%
7.1%
10.1%
9.3%
5.3%
7.0%
20.2%
8.6%
13.7%
3.5%
(2.0)%
0.8%
10.0%
5.5%
7.6%

Although Mercure Yokosuka was acquired on April 2, 2015, the figures for the fiscal year ended December 2015 are for theentire year including the period prior to the acquisition.

Hotel GOP
(millions of yen)
GOP and ratio of GOPof the six Accor hotels

Fiscal year ended Dec. 31, 2015
Comparison withprevious period

Actual15

Fiscal year ended Dec. 31, 2016
ActualComparison withprevious period

Total for six Accor hotels

2,512

21.0%

2,885

14.9%

Ratio of GOP

42.8%

3.6%

45.8%

2.9%

(Note)

Although Mercure Yokosuka was acquired on April 2, 2015, the figures for the fiscal year ended December 2015 are for theentire year including the period prior to the acquisition.

<3> Sales and GOP of the six the b hotels(1) Sales by hotel(millions of yen)

Fiscal year ended Dec. 31, 2015
Sales of the six the b hotels

First half
the b akasaka-mitsuke

Second half
Full year
First half

the b ikebukuro

Second half
Full year
First half

the b ochanomizu

Second half
Full year
First half

the b hachioji

Second half
Full year
First half

the b hakata

Second half
Full year
First half

Total for five the b hotels

Second half
Full year
First half

the b suidobashi

Second half
Full year
First half

Total for six the b hotels

Second half
Full year(Note 1)
(Note 2)

(Note 3)Comparison withprevious period

Actual

221
242
464
301
324
625
132
130
262
267
291
558
191
215
406
1,111
1,203
2,315
－
－
－
－
－
－

69.4%
13.8%
35.0%
7.7%
14.5%
11.1%
9.0%
4.8%
6.9%
10.4%
13.8%
12.2%
10.9%
12.8%
11.9%
17.7%
12.8%
15.1%
－
－
－
－
－
－

Fiscal year ended Dec. 31, 2016
Actual

242
226
468
323
312
635
131
135
266
291
273
564
230
249
478
1,216
1,195
2,412
177
174
351
1,394
1,369
2,763

Comparison withprevious period

9.4%(6.7)%
1.0%
7.3%(3.7)%
1.6%(0.8)%
3.5%
1.3%
9.0%
(6.1)%
1.1%
20.6%
15.5%
17.9%
9.4%
(0.7)%
4.2%
－
－
－
－
－
－

Although the five the b hotels were acquired on January 30, 2015, the figures for the fiscal year ended December 2015
are for the entire year including the period prior to the acquisition.
Renovation of the b akasaka-mitsuke was completed by the previous owner in April 2014 and the number of guest rooms
increased from 91 to 122. Therefore, the numbers of guest rooms available for sale in the first half or full year of 2015
and the first half or full year of 2014 are different.
The b suidobashi was rebranded from Dormy Inn Suidobashi on July 1, 2015. Therefore, no figures are indicated for the
fiscal year ended December 2015 and comparison with previous period for the fiscal year ended December 2016.

(2) Hotel GOP(millions of yen)
Fiscal year ended Dec. 31, 2015
GOP and ratio of GOP of the five the b hotels

Fiscal year ended Dec. 31, 2016

ActualComparison withprevious period

ActualComparison withprevious period

Total for the five the b hotels

1,079

26.4%

1,195

10.8%

Ratio of GOP

46.6%

4.2%

49.6%

3.0%

16

Fiscal year ended Dec. 31, 2015
GOP and ratio of GOP of the six the b hotels

ActualComparison withprevious period

Total for the six the b hotels－

Ratio of GOP－(Note 1)
(Note 2)

Fiscal year ended Dec. 31, 2016
ActualComparison withprevious period

－

1,370

－

－

49.6%

－

Although the five the b hotels were acquired on January 30, 2015, the figures for the fiscal year ended December 2015
are for the entire year including the period prior to the acquisition.
The b suidobashi was rebranded from Dormy Inn Suidobashi on July 1, 2015. Therefore, no figures are indicated for the
fiscal year ended December 2015 and comparison with previous period for the fiscal year ended December 2016.

17

<Reference 3>

Dividend per unit and appropriation for dividends

Dividend per unit for the fiscal year ended December 31, 2015 and December 31, 2016 was calculated based on
the assumptions described below.
(millions of yen)
Fiscal year ended
December 31, 2015
Unappropriated retained earnings

Fiscal year ended
December 31, 2016

9,296

12,126

Total appropriation for dividends (use of negative goodwill)

60

740

Loss on retirement of noncurrent assets

25

16

Financial costs in accordance with early
repayment

35-

Amortization, etc. of fixed-term leasehold ofland and asset retirement obligations (Note 1)-

112

Adjustment for dilution (Note 2)
Total dividends

-

611

9,354

12,865

Number of investment units issued and outstanding(Units)3,144,227

3,761,907

Dividend per unit

(JPY)

2,975

3,420

(Note 1) Dividend reserve (negative goodwill) will be appropriated for the amount recorded as amortizations, etc. for the
fixed-term leasehold of land and asset retirement obligations of Hotel Centraza Hakata and HOTEL ASCENTFUKUOKA.
(Note 2) This is to respond to the dilution of dividend per unit which occurred as a result of the issuance of new investment units
during the fiscal year ended December 31, 2016.

<Reference 4>Balance of dividend reserve (negative goodwill)

The balance of dividend reserve (negative goodwill) after appropriation for dividends for the fiscal year ended
December 2016 is as follows. JHR will transfer the remaining balance of dividend reserve after appropriation
for dividends (¥13,127 million) for the year ended December 2016 to “reserve for temporary difference
adjustment.”(millions of yen)
13,928(60)

Balance of dividend reserve as of December 31, 2015
Appropriation for dividends for the fiscal year ended December 31, 2015
Balance of dividend reserve after appropriation for dividends as of December 31, 2015
Appropriation for dividends for the fiscal year ended December 31, 2016

13,867(740)

Balance of dividend reserve after appropriation for dividends as of December 31, 2016

13,127

Overview of JHR
1. Unitholders’ capital
13th period

14th period

15th period

16th period

17th period

As ofDecember 31, 2012

As of
December 31, 2013

As ofDecember 31, 2014

As ofDecember 31, 2015

As ofDecember 31, 2016

Total number of authorized units(Units)

20,000,000

20,000,000

20,000,000

20,000,000

20,000,000

Number of investment units issued andoutstanding(Units)2,111,281

2,621,281

2,791,281

3,144,227

3,761,907

28,26048,84559,02485,470134,829

13,63017,073

22,86625,182

31,371

Account closing date

Unitholders’ capital(JPY1M)
Number of unitholders(Persons)18

2.

Matters regarding investment units
Major unitholders of JHR as of December 31, 2016 were as follows:
Number of units held
(Units)Name

Percentage (Note)(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

626,276

16.64%The Master Trust Bank of Japan, Ltd. (Trust Account)

398,094

10.58%

Trust & Custody Services Bank, Ltd. (Securities Investment Trust
Account)

328,425

8.73%

Nomura Bank (Luxembourg) S.A.

165,981

4.41%

The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)

145,006

3.85%

The Bank of New York, Non-Treaty JASDEC Account65,4401.73%

Shikoku Railway Company

58,311

1.55%

STATE STREET BANK AND TRUST COMPANY 505012

57,881

1.53%

NORTHERN TRUST CO. (AVFC) RE IEDU UCITS CLIENTS NONLENDING 15 PCT TREATY ACCOUNT

54,701

1.45%

STATE STREET BANK AND TRUST COMPANY
Total(Note)

54,6851.45%

1,954,800

51.96%The percentage indicates the ratio of the number of units held to the number of units issued and outstanding, rounded down
to the two decimal places.

3. Matters regarding officers, etc.
(1) Officers, etc. as of December 31, 2016 were as follows:
Position

Name

Major concurrent post outside
JHR

Total amount of remuneration foreach position during thecorresponding fiscal period(JPY1000)

Executive Director

Kaname Masuda (Note 1)

Representative Partner, Masuda &Partners Law Office

5,400Supervisory Director

Hiroshi Matsuzawa (Note 1)

–

3,000

Supervisory Director

Tetsuya Mishiku (Note 1)

Representative Attorney, Mishiku& Nagamachi Law Office

3,000Supervisory Director

Hiroto Kashii (Note1)

–

3,000

Independent auditor

KPMG AZSA LLC (Note 2)–

50,400(Note 1)

(Note 2)

(Note 3)

None of the Executive Director and the Supervisory Directors own investment units of JHR in their own name or anotherperson’s name. Moreover, although the Supervisory Directors may be officers in corporations other than those listed
above, there are no conflicts of interest between those corporations including those listed above and JHR.
Remuneration for the independent auditor includes fees for services other than those stipulated in Article 2, paragraph 1of the Certified Public Accountants Act amounting to ¥27,100 thousand, such as preparation of comfort letters andresearch reports based on agreed-upon procedures performed for the capital increase through the public offerings on
January 20, 2016 and July 27, 2016, respectively, and the issuance of investment corporation bonds on March 22, 2016
and November 29, 2016, respectively.
In case the number of Executive Director does not meet the requirement stipulated by laws and regulations, Hisashi
Furukawa, Representative Director of the Asset Management Company, was elected as Substitute Executive Director,
based on the resolution made by the 7th General Meeting of Unitholders of JHR held on November 26, 2015.

(2) Policy for decisions on dismissal or non-reappointment of independent auditor
We have a policy to determine, at a General Meeting of Unitholders, whether to dismiss the independent
auditor pursuant to provisions of the Investment Trusts Act, and to determine whether or not to reappoint theindependent auditor taking into comprehensive consideration the audit quality, audit fees and other various
matters.

19

4. Asset management company, custodian and general administrators
The asset management company, etc. as of December 31, 2016 were as follows:
Consignment classification

Name

Asset management company

Japan Hotel REIT Advisors Co., Ltd.

Custodian

Sumitomo Mitsui Trust Bank, Limited

General administrator (administration of the unitholders’registry, book keeping, tax payments, organizational operations,
Sumitomo Mitsui Trust Bank, Limited
etc., and administration of the special account management
agency)General administrator (administration regarding investment
corporation bonds)

Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited
Mizuho Bank, Ltd.
Resona Bank, Limited
Mitsubishi UFJ Trust and Banking Corporation

General administrator (tax return preparation, etc.)

PwC Tax Japan

20

Status of Investment Assets
1. Composition of assets

Type of assets

Business
category(Note 1)

16th period(As of December 31, 2015)
Prefectural
location

Total amount ofassets held
(JPY1M)

Name of property, etc.

(Note 2)

ibis Tokyo Shinjuku

Limitedservice hotel

Osaka
Hokkaido

Fukuoka
Real estate intrust(Note 2)

Ratio to total
assets (%)(Note 3)

3.1

7,671

2.4

-

6,751

2.1

the b ikebukuro

6,591

2.7

6,578

2.1

the b akasaka-mitsuke

6,295

2.6

6,286

2.0

Hotel Sunroute Shinbashi

4,873

2.0

4,854

1.5

Comfort Hotel Tokyo Higashi
Nihombashi

3,655

1.5

3,625

1.1

the b hachioji

2,670

1.1

2,673

0.8

the b ochanomizu

2,350

1.0

2,344

0.7

Smile Hotel Nihombashi
Mitsukoshimae

2,056

0.9

2,047

0.6

R&B Hotel Ueno Hirokoji

1,761

0.7

1,764

0.6

R&B Hotel Higashi Nihonbashi

1,528

0.6

1,512

0.5

Hotel Vista Kamata Tokyo

1,473

0.6

1,467

0.5

the b suidobashi

1,204

0.5

1,205

0.4

Dormy Inn EXPRESS Asakusa

963

0.4

951

0.3

Chisun Inn Kamata

802

0.3

797

0.3

Namba Oriental Hotel

14,6896.1

14,656

4.6

Holiday Inn Osaka Namba (Note 4)--

27,163

8.5

ibis Styles Sapporo

6,788

2.8

6,724

2.1

Mercure Sapporo

6,010

2.5

5,945

1.9

the b hakata

2,323

1.0

2,330

0.7

Hakata Nakasu Washington Hotel
Plaza

2,075

0.9

2,054

0.6

Toyoko Inn Hakata-guchi Ekimae

1,498

0.6

1,477

0.5

-

-

5,211

1.6

Kyoto

ibis Styles Kyoto Station

6,725

2.8

6,701

2.1

Okinawa

Mercure Okinawa Naha

2,953

1.2

2,916

0.9

Kumamoto Dormy Inn Kumamoto

2,232

0.9

2,199

0.7

Nara

Nara Washington Hotel Plaza

1,910

0.8

1,871

0.6

Subtotal

90,92437.8

129,78340.8

ACTIVE-INTER CITYHIROSHIMA (Sheraton Grand
Hiroshima Hotel) (Note 5)

17,934

7.5

17,778

5.6

Oriental Hotel Hiroshima

4,043

1.7

4,071

1.3

Oriental Hotel tokyo bay

18,512

7.7

18,267

5.7

Hotel Francs

3,165

1.3

3,145

1.0

-

-

15,530

4.9

9,963

4.1

9,947

3.1

-

-

7,506

2.4

Hiroshima

Chiba
Aichi

Hilton Nagoya

Hyogo

Kobe Meriken Park Oriental Hotel

Fukuoka

Hotel Centraza Hakata

Kanagawa

Mercure Yokosuka

1,659

0.7

1,643

0.5

Subtotal

55,27723.0

77,891

24.5

Hotel Nikko Alivila

18,325

7.6

18,267

5.7

Okinawa Marriott Resort & Spa

15,025

6.3

14,861

4.7

The Beach Tower Okinawa

6,882

2.9

6,831

2.1

Chiba

Hilton Tokyo Bay

26,10910.926,1808.2

Osaka

Hotel Keihan Universal City

6,019

2.5

5,982

1.9

Kanagawa

Hakone Setsugetsuka

3,788

1.6

3,747

1.2

Subtotal

76,15031.7

75,871

23.9

Okinawa
Resort hotel(Note 3)

Total amount ofassets held
(JPY1M)-

HOTEL ASCENT FUKUOKA

Full-service
hotel

Ratio to total
assets (%)

7,487

CANDEO HOTELS UENO-KOEN

Tokyo

17th period(As of December 31, 2016)21

Type of assets

Business
category(Note 1)

16th period(As of December 31, 2015)
Prefectural
location

Total amount ofassets held
(JPY1M)

Name of property, etc.

(Note 2)

Real estate in trust – Total(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)

Ratio to total
assets (%)(Note 3)17th period(As of December 31, 2016)
Total amount ofassets held
(JPY1M)(Note 2)

Ratio to total
assets (%)(Note 3)

222,352

92.5

283,546

Deposits and other assets (Note 6)

18,003

7.5

34,332

89.2
10.8

Total assets

240,356100.0

317,878

100.0

Hotels are categorized as limited-service hotels, full-service hotels or resort hotels according to the manner of operation.
For real estate in trust, “Total amount of assets held” shows the amount calculated by deducting accumulated depreciationfrom acquisition price (including expenses incidental to acquisition).
“Ratio to total assets” shows the ratio of each asset held to total assets, rounded off to one decimal place.
HOTEL VISTA GRANDE OSAKA was renamed to Holiday Inn Osaka Namba on November 1, 2016. The same shallapply hereinafter throughout this document.
ACTIVE-INTER CITY HIROSHIMA is classified in accordance with the business category of Sheraton Grand Hiroshima
Hotel, its main facility. Furthermore, ACTIVE-INTER CITY HIROSHIMA (Sheraton Hiroshima Hotel) was renamed to
ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel) on June 10, 2016. The same shall apply
hereinafter throughout this document.
Includes machinery and installation, furniture, fixtures and equipment, construction in progress, construction in progressin trust, and intangible assets (excluding leasehold rights in trust and fixed-term leasehold rights in trust).

22

2. Major portfolio assets
An overview of the portfolio assets of JHR (41 properties in total) as of December 31, 2016 was as follows.
PropertyNo.

1

Name of property, etc.

Kobe Meriken Park Oriental Hotel(Note 5)

Book value(JPY1M)

Leasable area(m2)

Leased area(m2)

(Note 1)

(Note 2)

(Note 3)

10,13732,663.90

Tenantoccupancy
ratio
(%)

Ratio of rental
revenue to total
rental revenue
(%)

Major
use

(Note 4)32,663.90

100.0

5.0

Hotel

2

Oriental Hotel tokyo bay

18,46044,833.11

44,833.11

100.0

8.5

Hotel

3

Namba Oriental Hotel

14,765

19,364.33

19,364.33

100.0

7.1

Hotel

4

Hotel Nikko Alivila (Note 6)

18,54538,024.98

38,024.98

100.0

8.2

Hotel

5

Oriental Hotel Hiroshima

4,123

13,752.22

13,752.22

100.0

2.1

Hotel

6

ibis Tokyo Shinjuku

7,778

6,801.84

6,801.84

100.0

3.3

Hotel

8

The Beach Tower Okinawa (Note 7)

6,837

20,140.01

20,140.01

100.0

2.3

Hotel

9

Hakone Setsugetsuka (Note 8)

3,756

10,655.03

10,655.03

100.0

1.3

Hotel

10

Dormy Inn Kumamoto (Note 8)

2,199

7,701.19

7,701.19

100.0

0.9

Hotel

12

the b suidobashi

1,231

3,097.25

3,097.25

100.0

0.6

Hotel

13

Dormy Inn EXPRESS Asakusa

951

2,014.90

2,014.90

100.0

0.3

Hotel

14

Hakata Nakasu Washington Hotel Plaza

2,054

5,602.04

5,602.04

100.0

1.1

Hotel

15

Nara Washington Hotel Plaza

1,876

5,271.54

5,271.54

100.0

0.7

Hotel

16

R&B Hotel Ueno Hirokoji

1,764

3,060.31

3,060.31

100.0

0.4

Hotel

17

R&B Hotel Higashi Nihonbashi

1,512

3,800.77

3,800.77

100.0

0.6

Hotel

18

Comfort Hotel Tokyo Higashi Nihombashi

3,625

5,765.27

5,765.27

100.0

1.2

Hotel

22

Smile Hotel Nihombashi Mitsukoshimae

3,167.82

3,167.82

100.0

0.7

Hotel

Main building: Main building:
3,581.66
3,581.66
Annex:
Annex:
868.36868.36

100.0

0.6

Hotel

(Note 8)

2,047

24

Toyoko Inn Hakata-guchi Ekimae

1,477

25

Hotel Vista Kamata Tokyo

1,468

3,831.80

3,831.80

100.0

0.5

Hotel

26

Chisun Inn Kamata

800

1,499.87

1,499.87

100.0

0.4

Hotel

29

Hotel Keihan Universal City (Note 9)

5,983

16,212.40

16,212.40

100.0

4.1

Hotel

30

Hotel Sunroute Shinbashi

4,854

5,246.66

5,246.66

100.0

1.8

Hotel

31

Hilton Tokyo Bay (Note 10)26,18064,931.94

64,931.94

100.0

8.9

Hotel

32

ibis Styles Kyoto Station (Note 8)

6,731

5,003.99

5,003.99

100.0

2.7

Hotel

33

ibis Styles Sapporo (Note 8)

6,754

14,992.49

14,896.40

99.4

2.9

Hotel

34

Mercure Sapporo

5,964

15,189.42

14,905.88

98.1

3.4

Hotel

35

Mercure Okinawa Naha (Note 8)

2,933

10,884.25

10,884.25

100.0

2.1

Hotel

36

the b akasaka-mitsuke (Note 11)

6,305

2,867.04

2,867.04

100.0

1.3

Hotel

37

the b ikebukuro (Note 8) (Note 11)6,586

5,650.01

5,650.01

100.0

1.7

Hotel

38

the b ochanomizu (Note 11)

2,349

1,742.23

1,742.23

100.0

0.5

Hotel

39

the b hachioji (Note 11)

2,687

7,847.65

7,847.65

100.0

1.0

Hotel

40

the b hakata (Note 11)

2,354

3,986.09

3,986.09

100.0

1.0

Hotel

41

Hotel Francs

3,145

19,213.39

19,213.39

100.0

1.4

Hotel

42

Mercure Yokosuka (Note 12)

1,658

16,881.82

16,881.82

100.0

1.2

Hotel

43

Okinawa Marriott Resort & Spa (Note 8)

14,97136,430.15

36,430.15

100.0

4.8

Hotel

44

ACTIVE-INTER CITY HIROSHIMA(Note 8) (Note 13)

17,79531,181.05

31,131.60

99.8

6.2

Hotel

45

CANDEO HOTELS UENO-KOEN(Note 14)

6,761

7,934.26

7,934.26

100.0

1.4

Hotel

46

Hotel Centraza Hakata

7,581

18,105.42

18,105.42

100.0

2.7

Hotel

47

Holiday Inn Osaka Namba

27,203

11,501.10

11,501.10

100.0

2.4

Hotel

48

HOTEL ASCENT FUKUOKA

5,211

8,238.75

8,238.75

100.0

0.7

Hotel

49

Hilton Nagoya (Note 15)

15,53447,942.71

47,942.71

100.0

1.9

Hotel

284,965

587,481.02

587,050.94

99.9

100.0

Total

(Note 1)
(Note 2)

Book value includes real estate in trust, machinery and installation, furniture, fixtures and equipment, construction inprogress, construction in progress in trust, and intangible assets.
In principle, leasable area represents leasable area of the building, which does not include leasable area of land23

(including parking lots on ground), based on a lease contract or plan for each real estate in trust. For properties inwhich the leased area is not described in the lease contract, leasable area represents the area described in theregistration of the building. Furthermore, when the leasable area in the lease contract is indicated in tsubo units, thefigure in the table has been converted to the area in metric units (3.30578 square meters per one tsubo).
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)

(Note 12)(Note 13)

(Note 14)

(Note 15)

(Note 16)

In principle, leased area represents the leased area described in the lease contract of the building. For properties inwhich the leased area is not described in the lease contract, leased area shows the area described in the registration of
the building. Furthermore, when the leased area in the lease contract is indicated in tsubo units, the figure in the tablehas been converted to the area in metric units (3.30578 square meters per one tsubo). However, for properties for whichmaster lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR
receives the same amount of rents, etc. paid by end tenants as is in principle, the total area for which lease contracts
have been concluded with end tenants and which are actually leased is indicated. The same shall apply hereinafter
throughout this document.
Represents the ratio of rental revenue to total real estate operating revenue for the fiscal period under review. In
calculating, the figures are rounded off to one decimal place.
Kobe Meriken Park Oriental Hotel is a building owned in the form of a compartmentalized ownership by two owners(JHR and Kobe City). The area in this table shows the portion owned exclusively by JHR (including an accessory
building of 764.83 square meters). With regard to the portion of the building owned exclusively by Kobe City, the area
rented by JHR from Kobe City with permission for use under Kobe City’s ordinance for harbor facilities, etc. is 694.00
square meters and excluded from the above area of 32,663.90 square meters.
Leasable area and leased area for Hotel Nikko Alivila include an accessory building of 120.10 square meters andexclude a building of 493.50 square meters rented by JHR from Kabushiki Kaisha Okinawa Umi No Sono.
Leasable area and leased area for The Beach Tower Okinawa include the floor area of a warehouse in a two-story
light-gauge steel annex building (91.20 square meters).
Leasable area and leased area for Hakone Setsugetsuka, Dormy Inn Kumamoto, Comfort Hotel Tokyo Higashi
Nihombashi, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Okinawa Naha, the b ikebukuro, Okinawa
Marriott Resort & Spa and ACTIVE-INTER CITY HIROSHIMA include accessory buildings.
The building of Hotel Keihan Universal City is a building with compartmentalized ownership for Universal CityWalk
Osaka, which comprises two hotel buildings, business facilities, commercial facilities and others, as a single building.
For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.
The building of Hilton Tokyo Bay is co-owned with other right holders, and JHR owns co-ownership interest for
64,931.94 square meters (JHR owns 9/10 of co-ownership interest).
The b akasaka-mitsuke, the b ikebukuro, the b ochanomizu, the b hachioji and the b hakata are properties with
pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end tenants as is inprinciple. The same shall apply hereinafter throughout this document.
The building of Mercure Yokosuka is a building with compartmentalized ownership for Bay Square Yokosuka
Ichibankan, which comprises a hotel, a theater, stores, apartments, office spaces and parking lots, as a single building.
For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.
The building of ACTIVE-INTER CITY HIROSHIMA is a building with compartmentalized ownership for
ACTIVE-INTER CITY HIROSHIMA, which comprises Sheraton Grand Hiroshima Hotel, office spaces, stores,
parking lots and bicycle parking lots etc., as a single building. For the leasable area and leased area of the property, theleased area under the lease contract of the hotel, office spaces and stores is indicated.
Leasable area and leased area of CANDEO HOTELS UENO-KOEN indicate the total floor area described in thecertificate of inspection, based on the building lease agreement with the hotel lessee. Furthermore, the figure includes
the floor area for the mechanical parking facilities.
Building of Hilton Nagoya is a compartmentalized ownership of AMMNAT SQUARE, which consists of a hotel
building (including retail space), office building and car parking space, etc., as a single building. Leasable area andleased area indicate the sum total of the leased area for the hotel building, the office building and the retail spacedescribed in the lease agreement.
The omitted numbers are the numbers for assets that have been transferred.

24

3. Details of property assets, etc.
(1) Details of property assets
The details of real estate properties, etc. held by JHR as of December 31, 2016 were as follows:
PropertyNo.

Name of property, etc.

Location (Displayed address)

Assessedvalue at end
Form of ownership of period(JPY1M)

Book value(JPY1M)

Appraisal
agency(Note 2)

(Note 3)(Note 1)

1

Kobe Meriken Park Oriental
Hotel

5-6 Hatobacho, Chuo-ku, Kobe-shi, Hyogo

Beneficial interestin trust

14,400

10,137

J

2

Oriental Hotel tokyo bay

8-2 Mihama 1-chome, Urayasu-shi, Chiba

Beneficial interestin trust

34,10018,460J

3Namba Oriental Hotel

8-17 Sennichimae 2-chome, Chuo-ku,
Osaka-shi, Osaka

Beneficial interestin trust

32,00014,765J

4Hotel Nikko Alivila

600 Aza Gima, Yomitan-son,
Nakagami-gun, Okinawa

Beneficial interestin trust

29,20018,545J

5

Oriental Hotel Hiroshima

6-10 Tanakamachi, Naka-ku,
Hiroshima-shi, Hiroshima

Beneficial interestin trust

4,250

4,123

J

6

ibis Tokyo Shinjuku

10-5 Nishi-Shinjuku 7-chome, Shinjuku-ku, Beneficial interestTokyoin trust

9,290

7,778

J

8

The Beach Tower Okinawa

8-6 Aza Mihama, Chatan-cho,
Nakagami-gun, Okinawa

Beneficial interestin trust

9,420

6,837

J

9

Hakone Setsugetsuka

1300 Goura, Hakone-machi,
Ashigarashimo-gun, Kanagawa

Beneficial interestin trust

5,020

3,756

J

10

Dormy Inn Kumamoto

3-1 Karashimacho, Kumamoto-shi,
Kumamoto

Beneficial interestin trust

2,950

2,199

M

12

the b suidobashi

25-27 Hongo 1-chome, Bunkyo-ku, Tokyo

Beneficial interestin trust

2,040

1,231

J

13

Dormy Inn EXPRESS Asakusa 3-4 Hanakawado 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

1,300

951

M

14

Hakata Nakasu Washington
Hotel Plaza

8-28 Nakasu 2-chome, Hakata-ku,
Fukuoka-shi, Fukuoka

Beneficial interestin trust

4,350

2,054

J

15

Nara Washington Hotel Plaza

31-1 Shimosanjo-cho, Nara-shi, Nara

Beneficial interestin trust

2,430

1,876

J

16

R&B Hotel Ueno Hirokoji

18-8 Ueno 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

1,920

1,764

M

17

R&B Hotel Higashi
Nihonbashi

15-6 Higashi-Nihonbashi 2-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

2,050

1,512

M

18

Comfort Hotel Tokyo Higashi
Nihombashi

10-11 Nihonbashi-bakurocho 1-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

5,320

3,625

M

22

Smile Hotel Nihombashi
Mitsukoshimae

4-14 Nihonbashi-Honcho 1-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

3,060

2,047

M

24

Toyoko Inn Hakata-guchi
EkimaeMain building: 15-5 Hakataekimae
1-chome, Hakata-ku, Fukuoka-shi, Fukuoka Beneficial interest
Annex: 1-15 Hakataekimae 1-chome,in trust
Hakata-ku, Fukuoka-shi, Fukuoka

2,680

1,477

T

25

Hotel Vista Kamata Tokyo

20-11 Nishikamata 8-chome, Ota-ku, Tokyo

Beneficial interestin trust

1,990

1,468

T

26

Chisun Inn Kamata23-13 Kamata 4-chome, Ota-ku, Tokyo

Beneficial interestin trust

1,410

800

T

29

Hotel Keihan Universal City

2-78 Shimaya 6-chome, Konohana-ku,
Osaka-shi, Osaka

Beneficial interestin trust

14,600

5,983

R

30

Hotel Sunroute Shinbashi

10-2 Shinbashi 4-chome, Minato-ku, Tokyo

Beneficial interestin trust

8,730

4,854

D

31

Hilton Tokyo Bay

1-33 Maihama, Urayasu-shi, Chiba

Beneficial interestin trust

36,00026,180D

32

ibis Styles Kyoto Station

47-1, 47-2 Higashikujo Kamitonodacho,
Minami-ku, Kyoto-shi, Kyoto

Beneficial interestin trust

10,900

6,731

D

33

ibis Styles Sapporo

10-10 Minami 8-jo Nishi 3 chome, Chuo-ku,
Sapporo-shi, Hokkaido

Beneficial interestin trust

10,200

6,754

J

34

Mercure Sapporo

2-4 Minami 4-jo Nishi 2-chome, Chuo-ku,
Sapporo-shi, Hokkaido

Beneficial interestin trust

10,300

5,964

J

35

Mercure Okinawa Naha

3-19 Tsubogawa 3-chome, Naha-shi,
Okinawa

Beneficial interestin trust

7,620

2,933

J

(Note 4)25

Property
No.

Name of property, etc.

Location (Displayed address)

Assessedvalue at end
Form of ownership of period(JPY1M)

Book value(JPY1M)

Appraisal
agency(Note 2)

(Note 3)(Note 1)36

the b akasaka-mitsuke

21-7 Akasaka 3-chome, Minato-ku, Tokyo

Beneficial interestin trust

6,740

6,305

J

37

the b ikebukuro39-4 Higashi-ikebukuro 1-chome,
Toshima-ku, Tokyo

Beneficial interestin trust

7,590

6,586

J

38

the b ochanomizu

7-5 Kanda-awajicho 1-chome, Chiyoda-ku, Beneficial interestTokyoin trust

2,590

2,349

J

39

the b hachioji

6-12 Myojincho 4-chome, Hachioji-shi,Tokyo

Beneficial interestin trust

3,070

2,687

J

40

the b hakata

3-9 Hakata-eki Minami 1-chome,
Hakata-ku, Fukuoka-shi, Fukuoka

Beneficial interestin trust

3,960

2,354

J

41

Hotel Francs

10-2 Hibino 2-chome, Mihama-ku,
Chiba-shi, Chiba

Beneficial interestin trust

4,090

3,145

D

42

Mercure Yokosuka

27 Honcho 3-chome, Yokosuka-shi,
Kanagawa

Beneficial interestin trust

2,040

1,658

D

43

Okinawa Marriott Resort &Spa

1490-1 Kise, Nago-shi, Okinawa

Beneficial interestin trust

17,20014,971J

44ACTIVE-INTER CITYHIROSHIMA

12-1 Wakakusa-cho, Higashi-ku,
Hiroshima-shi, Hiroshima

Beneficial interestin trust

18,70017,795D

45

CANDEO HOTELS
UENO-KOEN

2-13 Negishi 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

7,630

6,761

D

46

Hotel Centraza Hakata

4-23 Hakata-eki Chuogai, Hakata-ku,
Fukuoka-shi, Fukuoka

Beneficial interestin trust

7,690

7,581

D

5-15 Soemon-cho, Chuo-ku, Osaka-shi,
Osaka

Beneficial interestin trust

28,80027,203J

HOTEL ASCENT FUKUOKA 3-3-14 Tenjin, Chuo-ku, Fukuoka-shi,
Fukuoka

Beneficial interestin trust

5,340

5,211

D

Hilton Nagoya

Beneficial interestin trust

15,80015,534

D

398,770

284,965

47
48
49

Holiday Inn Osaka Namba

1-3-3 Sakae, Naka-ku, Nagoya-shi, Aichi
Total(Note 1)

(Note 2)
(Note 3)(Note 4)(Note 5)

Assessed value at end of period shows appraisal value as of the end of the fiscal period under review as the date ofvaluation, in accordance with JHR’s Articles of Incorporation, the Ordinance on Accounting of Investment
Corporations (Cabinet Office Ordinance No. 47 of 2006) and regulations set forth by The Investment Trusts
Association, Japan.
Book value includes amounts of real estate in trust, machinery and installation, furniture, fixtures and equipment,
construction in progress, construction in progress in trust, and intangible assets.
The letters indicate the appraisers for the properties as follows:
J:
Japan Real Estate Institute
M: Morii Appraisal & Investment Consulting, Inc.
T:
The Tanizawa Sōgō Appraisal Co., Ltd.
R:
Rich Appraisal Institute Co., Ltd.
D:DAIWA REAL ESTATE APPRAISAL CO.,LTD.
Due to the lack of a displayed address, “location” in the registration or registration record is shown.
The omitted numbers are the numbers for assets that have been transferred.

26

(2) Transition of real estate leasing business, etc.
An overview of leasing business of real estate, etc. owned by JHR is as follows:
16th period(From January 1, 2015 to December 31, 2015)
PropertyNo.

Name of property, etc.

Number oftenants
at end ofperiod(Note 1)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

17th period(From January 1, 2016 to December 31, 2016)
Number oftenants
at end ofperiod(Note 1)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

1

Kobe Meriken Park Oriental
Hotel

1

100.0

1,110

6.5

1

100.0

1,103

5.0

2

Oriental Hotel tokyo bay

1

100.0

1,732

10.2

1

100.0

1,879

8.5

3

Namba Oriental Hotel

1

100.0

1,279

7.5

1

100.0

1,574

7.1

4

Hotel Nikko Alivila

1

100.0

1,604

9.4

1

100.0

1,804

8.2

5

Oriental Hotel Hiroshima

1

100.0

421

2.5

1

100.0

469

2.1

6

ibis Tokyo Shinjuku

4

100.0

645

3.8

4

100.0

722

3.3

8

The Beach Tower Okinawa

1

100.0

511

3.0

1

100.0

511

2.3

9

Hakone Setsugetsuka

1

100.0

294

1.7

1

100.0

294

1.3

10

Dormy Inn Kumamoto

1

100.0

194

1.1

1

100.0

194

0.9

12

the b suidobashi

1

100.0

95

0.6

1

100.0

121

0.6

13

Dormy Inn EXPRESS Asakusa

1

100.0

63

0.4

1

100.0

63

0.3

14

Hakata Nakasu Washington
Hotel Plaza

1

100.0

240

1.4

1

100.0

240

1.1

15

Nara Washington Hotel Plaza

2

100.0

151

0.9

2

100.0

151

0.7

16

R&B Hotel Ueno Hirokoji

1

100.0

99

0.6

1

100.0

98

0.4

17

R&B Hotel Higashi
Nihonbashi

1

100.0

122

0.7

1

100.0

122

0.6

18

Comfort Hotel Tokyo Higashi
Nihombashi

2

100.0

270

1.6

2

100.0

270

1.2

19

Comfort Hotel
Shin-Yamaguchi

―

―

50

0.3

―

―

―

―

―

―

114

0.7

―

―

―

―

21

(Note 2)

Daiwa Roynet Hotel Akita(Note 2)22

Smile Hotel Nihombashi
Mitsukoshimae

1

100.0

150

0.9

1

100.0

152

0.7

23

Hotel Sunroute Niigata (Note 2)

―

―

129

0.8

―

―

―

―

24

Toyoko Inn Hakata-guchi
Ekimae

1

100.0

141

0.8

1

100.0

141

0.6

25

Hotel Vista Kamata Tokyo

1

100.0

113

0.7

1

100.0

115

0.5

26

Chisun Inn Kamata

1

100.0

70

0.4

1

100.0

79

0.4

29

Hotel Keihan Universal City

1

100.0

796

4.7

1

100.0

914

4.1

30

Hotel Sunroute Shinbashi

4

100.0

379

2.2

4

100.0

403

1.8

31

Hilton Tokyo Bay

1

100.0

1,953

11.5

1

100.0

1,959

8.9

32

ibis Styles Kyoto Station

2

100.0

483

2.8

2

100.0

587

2.7

33

ibis Styles Sapporo

5

99.4

573

3.4

5

99.4

635

2.9

34

Mercure Sapporo

13

97.5

651

3.8

14

98.1

745

3.4

35

Mercure Okinawa Naha

1

100.0

392

2.3

1

100.0

475

2.1

36

the b akasaka-mitsuke

2

100.0

262

1.5

2

100.0

285

1.3

37

the b ikebukuro

4

100.0

330

1.9

4

100.0

369

1.7

38

the b ochanomizu

1

100.0

105

0.6

1

100.0

115

0.5

39

the b hachioji

13

100.0

200

1.2

13

100.0

221

1.0

40

the b hakata

1

96.5

154

0.9

2

100.0

230

1.0

41

Hotel Francs

1

100.0

229

1.3

1

100.0

300

1.4

42

Mercure Yokosuka

1

100.0

154

0.9

1

100.0

271

1.2

43

Okinawa Marriott Resort &
Spa

1

100.0

722

4.2

1

100.0

1,066

4.8

44

ACTIVE-INTER CITYHIROSHIMA

37

100.0

34

0.2

37

99.8

1,378

6.2

45

CANDEO HOTELS

―

―

―

―

1

100.0

309

1.4

27

16th period(From January 1, 2015 to December 31, 2015)
PropertyNo.

Number oftenants
at end ofperiodName of property, etc.

(Note 1)

17th period(From January 1, 2016 to December 31, 2016)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

Number oftenants
at end ofperiod(Note 1)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

UENO-KOEN (Note 3)
46

Hotel Centraza Hakata(Note 4)

―

―

―

―

1

100.0

599

2.7

47

Holiday Inn Osaka Namba(Note 5)

―

―

―

―

1

100.0

539

2.4

48

HOTEL ASCENT FUKUOKA(Note 6)

―

―

―

―

6

100.0

158

0.7

49

Hilton Nagoya (Note 7)
Total

―

―

―

―

4

100.0

430

1.9

113

99.9

17,033

100.0

128

99.9

22,107100.0(Note 1)

Number of tenants indicates the total number of tenants based on the lease contracts for respective real estate in trust(excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, for properties for which master
lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR receives
the same amount of rents, etc. paid by end tenants as is in principle, the number of end tenants is indicated. For
properties with sub-lease-type master lease contracts in which JHR receives predetermined rents despite fluctuations inrents from end tenants, the number of the master lease companies is indicated as tenants.

(Note 2)

Comfort Hotel Shin-Yamaguchi, Daiwa Roynet Hotel Akita and Hotel Sunroute Niigata were transferred as of October30, 2015.

(Note 3)CANDEO HOTELS UENO-KOEN was acquired on February 1, 2016.

(Note 4)

Hotel Centraza Hakata was acquired on April 1, 2016.

(Note 5)

Holiday Inn Osaka Namba was acquired on August 1, 2016.

(Note 6)

HOTEL ASCENT FUKUOKA was acquired on August 19, 2016.

(Note 7)

Hilton Nagoya was acquired on September 1, 2016.

(Note 8)The property numbers of assets that were transferred before the previous fiscal period are intentionally omitted.

4. Details of securities assets
There are no applicable securities held by JHR as of December 31, 2016.
5. Contractual amounts and fair values of specified transactions
The contractual amounts and fair values of specified transactions as of December 31, 2016 were as follows:
Classification

Amounts of contract, etc.
(JPY1M) (Note 1)

Transaction

Over 1 year
Transactions other thanmarket transactions(Note 2)

(Note 2)

Interest rate swap transactions
Payable fixed rate / Receivable floating rate

99,22289,602(554)

Interest rate cap transactions

5,134

4,286

0

104,357

93,889

(554)

Total
(Note 1)

Fair value(JPY1M)

Contractual amounts, etc. of interest rate swap transactions and interest rate cap transactions are based on notional
principal amounts, etc.
Fair value is based on the price, etc. provided by counterparty financial institutions.

6. Other assets
All of the beneficial interest in trust mainly invested in real estate held by JHR is included in “3. Details ofproperty assets, etc.” presented above. There were no other major specified assets that are considered to be
JHR’s main investments in the portfolio of JHR as of December 31, 2016.
7. Asset holdings by country and region
There is nothing to be reported on countries and regions other than Japan.
28

Capital Expenditures for Portfolio Properties
1. Planned capital expenditures (Note)
The following table shows major estimated capital expenditures for renovation work planned as of the end of the
fiscal period under review for investment real estate properties (in trust) held by JHR. Expenditures are expected
to total ¥2,928 million, which consists of capital expenditures of ¥2,864 million and repair expenses of ¥63
million, for the following fiscal period.

Name of property, etc.
(Location)

PurposeScheduled period

Estimated construction costs(JPY1M)
Total amountPayment forthe period

Total amount
paid

Kobe Meriken Park Oriental
Hotel(Kobe-shi, Hyogo)

Renewal of disasterprevention switchboard

From May 2017
to December 2017

50

-

-

Kobe Meriken Park Oriental
Hotel(Kobe-shi, Hyogo)

Relocation of bridal salon

From April 2017
to December 2017

95

-

-

Oriental Hotel tokyo bay(Urayasu-shi, Chiba)

Renewal of automatic fire
alarm equipment

From January 2017
to June 2017

50

-

-

Namba Oriental Hotel(Osaka-shi, Osaka)Renewal of guest rooms on
the 7th floor, etc.

From February
2017 to March 2017

77

-

-

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of piping

From May 2017
to August 2017

65

-

-

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of interior
fittings and furniture in guest
rooms on the 4th through10th floors

From May 2017
to August 2017

249

-

-

Replacement of
air-conditioning facilities
within the building

From June 2017
to June 2017

99

-

-

Renewal of disasterprevention facilities

From May 2017
to July 2017

72

-

-

758

-

-

Hakone Setsugetsuka(Ashigarashimogun, Kanagawa)

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Total(Note)For new construction and renewal work, estimated construction costs include those for buildings, annexed installation, etc.
as well as items classified as furniture and fixtures. The scheduled period of the above planned repair work and whether or
not the repair work will be performed may change.

29

2. Capital expenditures during the period (Note 1)
For investment real estate properties (in trust) held by JHR, major construction work conducted during the fiscal
period under review that represents capital expenditures is as below. Capital expenditures for the fiscal period
under review totaled ¥2,619 million, and repair expenses that were accounted for as expense in the fiscal period
under review totaled ¥68 million (Note 2). In aggregate, ¥2,688 million of construction work was carried out.
Name of property, etc. (Location)

Purpose

PeriodConstruction costs(JPY1M)

Kobe Meriken Park Oriental Hotel
Renewal of guest rooms on the 7th floor(Kobe-shi, Hyogo)

From January 2016
to March 2016

50

Kobe Meriken Park Oriental Hotel
Renovation of guest room balconies(Kobe-shi, Hyogo)

From January 2016
to April 2016

62

Kobe Meriken Park Oriental Hotel Renewal of sky lounge “Kou’s” andrenovation of elevator halls and pathways(Kobe-shi, Hyogo)
on the 14th floor

From June 2016
to December 201685

Oriental Hotel tokyo bay(Urayasu-shi, Chiba)

Renewal of guest rooms on the 4th floor

From January 2016
to March 2016

101

Namba Oriental Hotel(Osaka-shi, Osaka)Renewal of guest rooms on the 9th floor

From January 2016
to February 2016

91

Hotel Nikko Alivila(Yomitan-son, Nakagami-gun,
Okinawa)

Renewal of guest rooms on the 9th floor

From May 2016
to July 2016

55

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of piping

From May 2016
to July 2016

62

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of interior fittings andfurniture and prefabricated bathrooms inguest rooms on the 3rd through 10th
floorsFrom May 2016
to July 2016

192

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Replacement of emergency power
generator

From February 2016
to April 201660

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Renewal of disaster prevention facilities

From January 2016
to August 201692

Okinawa Marriott Resort & Spa(Nago-shi, Okinawa)

Renewal of hotel operation systems

From November 2015
to May 2016

55
908

Total

(Note 1) For new construction and renewal work, construction costs include those for buildings, annexed installation, etc. as wellas items classified as furniture and fixtures.
(Note 2) Excludes the repair expenses related to the 2016 Kumamoto Earthquake (¥95 million), which was recorded as
extraordinary losses for the fiscal period under review.

30

3. Cash reserves for the long-term repairs and maintenance plan (reserve for repairs and maintenance)
JHR accumulates cash reserves from cash flows for each fiscal period as detailed below to utilize for medium- tolong-term future expenditures on large-scale repairs and maintenance projects based on long-term repairs andmaintenance plans prepared for each property.
(millions of yen)
13th period

14th period

15th period

16th period

17th period(From April 1, 2012
to December 31, 2012)(From January 1, 2013
to December 31, 2013)(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)

409

307

454

493

657

Provision during the period(Note) 286

184

46

185

133

Reversal during the period

388

37

7

20

-

Amount carried forward

307

454

493

657

791

Fiscal period
Balance at beginning of period(Note)

Figures in the above table include amounts assumed from the former JHR as a result of the merger.

31

Expenses and Liabilities
1. Details of expenses related to asset management, etc.
(thousands of yen)
16th period(From January 1, 2015 to
December 31, 2015)(a) Asset management fees

(Note 1)

1,045,925

17th period(From January 1, 2016 to
December 31, 2016)(Note 2)

1,307,381(b) Asset custody fees

17,63321,029(c) Administrative service fees

89,541

91,782(d) Officers’ compensation

10,80014,400(e) Other operating expenses
Total(Note 1)

(Note 2)

188,480

197,443

1,352,381

1,632,036

For asset management fees for the 16th fiscal period, besides the above amounts, there are ¥427,690 thousand of fees
included in the acquisition price of investment properties, etc. in acquiring the properties and ¥24,450 thousand included
in gain or loss on sale of real estate from property transfer.
For asset management fees for the 17th fiscal period, besides the above amounts, there are ¥458,079 thousand of fees
included in the acquisition price of investment properties, etc. in acquiring properties.

32

2. Loans Payable
The status of loans by contractual agreement and by financial institution as of December 31, 2016 was asfollows:
Category

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited
Mizuho Bank, Ltd.

December 18,
2015

The Hiroshima Bank, Ltd.
Subtotal
Short-term
loans
Sumitomo Mitsui Banking
payableCorporation

February 29,
2016

Subtotal
December 2,
2016

The Higo Bank, Ltd.
Subtotal

Short-term loans payable – Total (Note 2)
The Tokyo Star Bank, Limited

March 24,2011

Subtotal
Sumitomo Mitsui Banking
Corporation

March 26,
2012

Subtotal
Sumitomo Mitsui Banking
Corporation
March 26,
2012

Mizuho Bank, Ltd.
The Norinchukin Bank
Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited
Long-term
loans
payableSeptember 19,
2012

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
4,000

－

2,250

－

2,250

－

500

－

9,000

－

－

1,700

－

1,700

－

100

－

100

9,000

1,800

2,576

－

2,576

－

1,081

－

1,081

－

－

－

7

－

－

－

7

－

1,200

1,200

390

390

The Tokyo Star Bank, Limited

960

960

Subtotal

2,550

2,550

－

－

1,538

－

The Norinchukin Bank
November 15,
2012

Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation
Subtotal
Shinsei Bank, Limited
The Tokyo Star Bank, Limited

November 15,
2012

Sumitomo Mitsui Banking
Corporation
Subtotal
Sumitomo Mitsui Banking
Corporation
Subtotal

February 28,
2013

453

－

1,991

－

2,000

2,000

500

500

4,000

4,000

6,500

6,500

1,742

－

－

1,742

33

Maturity
date

Repayment
methodUse

Remarks

0.41%

November30, 2016

Lump-sum
repayment(Note 5)(Note 7)

Unsecured,
unguaranteed

0.34%

February 28 Lump-sum
2017
repayment(Note 8)

Unsecured,
unguaranteed

0.35%

November 30 Lump-sum
2017
repayment(Note 9)Unsecured,
unguaranteed

2.01%(Note 3)

March 28,
2016

Lump-sum
repayment(Note 6)(Note 10)

Unsecured,
unguaranteed

1.97%

March 28,
2016

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

1.52%

March 28,
2016

Repayment of¥50,000
thousand every 3months, andUnsecured,(Note 10)lump-sumunguaranteed
repayment of theremaining
amount1.47%(Note 3)September
19, 2017

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

1.29%(Note 3)

March 28,
2016

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

1.38%(Note 3)

November15, 2017

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

0.93%

Repayment of¥1,625 thousand
February 29, every month, and2016
lump-sum
repayment of theremaining amount(Note 8)

Unsecured,
unguaranteedCategory

Borrowingdate

LenderSumitomo Mitsui Trust Bank,
LimitedMarch 29,2013

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)

488

Remarks(Note 8)

Unsecured,
unguaranteed

April 26,
2016

Repayment of¥11,000
thousand every 3months, andlump-sum
repayment of theremaining
amount (Note 5)(Note 7)

Unsecured,
unguaranteed

April 26,
2018

Repayment of¥11,250thousand every 3months, andlump-sum
repayment of theremaining
amount(Note 7)

Unsecured,
unguaranteed

0.98%(Note 3)September
30, 2018

Repayment of¥7,250 thousand
every 3 months,
and lump-sum
repayment of theremaining
amount(Note 8)

Unsecured,
unguaranteed

0.98%(Note 3)September
30, 2018

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

0.73%(Note 3)

March 31,
2018

Repayment of¥19,000
thousand every 3months, andlump-sum
repayment of theremaining
amount(Note 8)

Unsecured,
unguaranteed

1.15%(Note 3)

March 31,2021

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

479

488

479

1,744

－

883

－

Development Bank of Japan Inc.

788－

The Bank of Fukuoka, Ltd.

418

－

3,835

－

2,145

2,123

975

965

The Tokyo Star Bank, Limited

1,267

1,254

Subtotal

4,387

4,342

1,809

1,790

952

942

2,762

2,733

500

500

1,000

1,000

1,000

1,000

500

500

The Nomura Trust and Banking
Co., Ltd.
The Chiba Bank, Ltd.
April 26, 2013

Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

April 26, 2013

0.87%

1.00%

Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
LimitedSubtotalLong-term
Sumitomo Mitsui Banking
loans
payable Corporation
Sumitomo Mitsui Trust Bank,
LimitedMizuho Bank, Ltd.

September 30,
2013

October 31,
2013

Shinsei Bank, Limited

3,000

3,000

Sumitomo Mitsui Banking
Corporation

Subtotal

70

62

Resona Bank, Limited

753

733

Shinsei Bank, Limited

718

710

75

61

688

678

The Chiba Bank, Ltd.

551

543

Sompo Japan Nipponkoa
Insurance Inc.

617

609

3,473

3,397

648

648

2,516

2,516

2,516

2,516

Sumitomo Mitsui Trust Bank,
Limited

1,120

1,120

Subtotal

6,800

6,800

Sumitomo Mitsui Trust Bank,
LimitedThe Nomura Trust and Banking
Co., Ltd.

March 31,2014

Subtotal
Sumitomo Mitsui Banking
Corporation
Resona Bank, Limited
Shinsei Bank, Limited

March 31,
2014

34

Repayment
methodUse

0.90%
Subtotal

MaturitydateMarch 31,2017

Repayment of¥2,250 thousand
every 3 months,
and lump-sum
repayment of theremaining
amountCategory

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
600

600

Mizuho Bank, Ltd.

1,200

1,200

Resona Bank, Limited

434

434

Shinsei Bank, Limited

720

720

600

600

1,000

1,000

The Nomura Trust and Banking
Co., Ltd.

500

500

The Hiroshima Bank, Ltd.

435

435

Sompo Japan Nipponkoa
Insurance Inc.

328

328

Development Bank of Japan Inc.

500

500

6,317

6,317

800

800

Mizuho Bank, Ltd.

1,600

1,600

Resona Bank, Limited

1,100

1,100

970

970

800

800

500

500

762

762

285

285

6,817

6,817

600

600

1,200

1,200

850

850

Shinsei Bank, Limited

750

750

Sumitomo Mitsui Trust Bank,
Limited600

600

Sumitomo Mitsui Trust Bank,
LimitedThe Bank of Fukuoka, Ltd.

September 30,
2014

Subtotal
Sumitomo Mitsui Banking
Corporation

Shinsei Bank, Limited
Sumitomo Mitsui Trust Bank,
Limited

September 30,
2014

Development Bank of Japan Inc.
Long-term
The Tokyo Star Bank, Limitedloans
payable Aozora Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Resona Bank, Limited

September 30,
2014

Subtotal

4,000

4,000

Mitsubishi UFJ Trust and Banking December 30,
Corporation
2014

935

935

Subtotal935

935

Sumitomo Mitsui Banking
Corporation

1,400

1,400

Mizuho Bank, Ltd.

1,500

1,500

500

500

500

500

Sumitomo Mitsui Trust Bank,
Limited500

500

The Chiba Bank, Ltd.

300

300

4,700

4,700

Shinsei Bank, Limited
Resona Bank, Limited

SubtotalJanuary 30,
2015

35

Maturity
date

Repayment
methodUse

Remarks

0.60%(Note 4)September
30, 2019

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

0.92%(Note 3)September
30, 2020

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

1.04%(Note 3)September
30, 2021

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

0.55%

December30, 2020

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

0.38% January 31, Lump-sum(Note 3)2020
repayment(Note 10)

Unsecured,
unguaranteedCategory

Borrowingdate

LenderBalance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)

Sumitomo Mitsui Banking
Corporation

1,700

1,700

Mizuho Bank, Ltd.

3,000

3,000

Shinsei Bank, Limited

1,050

1,050

1,000

1,000

Resona Bank, Limited

January 30,
2015

Sumitomo Mitsui Trust Bank,
Limited

1,000

1,000

The Tokyo Star Bank, Limited

300

300

Aozora Bank, Ltd.

150

150

8,200

8,200

1,500

1,500

1,500

1,500

1,000

1,000

500

500

1,500

1,500

100

100

992

992

Subtotal

1,092

1,092

Sumitomo Mitsui Trust Bank,
Limited

960

960

960

960

Subtotal
Sumitomo Mitsui Banking
Corporation

March 31,2015

Subtotal
Aozora Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation

July 10, 2015

Subtotal
Sumitomo Mitsui Banking
Corporation
The Hiroshima Bank, Ltd.

Long-termloans
Resona Bank, Limited
payableThe Nomura Trust and Banking
Co., Ltd.

September 30,
2015

September 24,
2015

Subtotal
Sumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited

September 30,
2015

Shinsei Bank, Limited
Subtotal
Sumitomo Mitsui Banking
Corporation
The Hiroshima Bank, Ltd.
Shinsei Bank, Limited

February 29,
2016

Mizuho Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited
Mizuho Bank, Ltd.
SubtotalMarch 28,
2016

960

960

2,880

2,880

703

703

1,744

1,744

189

189

2,636

2,636

－

500

－

1,000

－

250

－

250

－

2,000

－

480

－

800

－

480

－

1,760

36

Maturity
date

Repayment
methodUse

Remarks

0.90% January 31, Lump-sum(Note 3)2022
repayment(Note 10)

Unsecured,
unguaranteed

0.93%(Note 3)

March 31,2022

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

0.95%(Note 3)June 30,2022

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

0.50%

June 30,
2020

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

1.07%(Note 3)September
29, 2023

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

1.07%(Note 3)September
29, 2023

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

0.21%

March 31,2019

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

March 31,2019

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed(Note 3)0.19%
(Note 3)

Category

Borrowingdate

Lender

The Nomura Trust and Banking
Co., Ltd.
The Chiba Bank, Ltd.
Development Bank of Japan Inc.

March 31,2016

The Bank of Fukuoka, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited

March 28,
2016

Mizuho Bank, Ltd.
Subtotal
The Nomura Trust and Banking
Co., Ltd.
The Chiba Bank, Ltd.
Development Bank of Japan Inc.

March 31,2016

The Bank of Fukuoka, Ltd.

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
－

530

－

270

－

230

－

110

－

1,140

－

1,050

－

1,750

0.77%

－

1,050

(Note 3)

－

3,850

－

1,200

－

600

－

550

－

300

－

2,650

Sumitomo Mitsui Banking
Corporation

－

1,200

Mizuho Bank, Ltd.

－

1,000

－

1,000

－

500

－

500

－

500

－

4,700

－

800

Subtotal

Shinsei Bank, Limited
Long-term Resona Bank, Limitedloans
payable The Tokyo Star Bank, Limited

March 31,2016

The Nomura Trust and Banking
Co., Ltd.
Subtotal
Sumitomo Mitsui Trust Bank,
LimitedMarch 31,2016

Subtotal
Development Bank of Japan Inc.

March 31,
2016

－

800

－

500
500

Sumitomo Mitsui Banking
Corporation

－

2,900

Shinsei Bank, Limited

－

1,700

－

1,700

Mizuho Bank, Ltd.
September 1,
2016(Note 3)0.77%
(Note 3)0.68%
(Note 3)0.66%
(Note 3)0.57%－

Subtotal

0.19%

－

1,000

0.74%

The Nomura Trust and Banking
Co., Ltd.

－

500(Note 3)

The Chiba Bank, Ltd.

－500

The Bank of Fukuoka, Ltd.

－

1,200

－

9,500

－

1,300

Resona Bank, Limited

Subtotal
Sumitomo Mitsui Trust Bank,
LimitedSubtotal

September 1,
2016

－

1,300

37

0.56%
(Note 3)Maturity
date

Repayment
methodUse

Remarks

March 31,2019

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

March 31,2023

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

September
30, 2025

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

September
30, 2024

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteedCategory

Borrowingdate

LenderBalance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)

Mitsubishi UFJ Trust and Banking September 1,
Corporation
2016－

Subtotal
Development Bank of Japan Inc.
Long-term
loans
payableSeptember 1,
2016

2,000

0.56%

－

2,000

(Note 3)

－

700

－

700

－

500

－

500

Long-term loans payable – Total

81,772

101,779

Total loans payable

90,772

103,579

Subtotal
September 1,
2016

Aozora Bank, Ltd.
Subtotal

Maturity
date

Repayment
methodUse

Remarks

September
30, 2024

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

0.59%

September
30, 2024

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

0.71%

September
30, 2024

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed(Note 1)

The average interest rate is a weighted average of interest rates during the period, rounded off to two decimal places.

(Note 2)

Short-term loans payable include ¥7,000 million which JHR borrowed on April 1, 2016 and made early repayment of thefull amount on November 30, 2016.

(Note 3)As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, the interest
rate of loans subject to such interest rate swap transactions is the rate obtained by taking into account the effect ofinterest rate swaps, rounded off to two decimal places.

(Note 4)Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225% per annum
for the period from September 30, 2014 through September 30, 2019 due to the execution of an interest rate swap
agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000 million is projected to be,in effect, fixed at around 0.95% per annum for the period from March 30, 2018 through September 30, 2019 due to the
execution of an interest rate swap agreement on September 26, 2014.

(Note 5)JHR made early repayment of the full amount of these loans payable on March 31, 2016.

(Note 6)JHR extended the repayment date of the loan to March 28, 2016 and repaid the full amount on the day.

(Note 7)

The funds were appropriated for acquisition of the beneficial interest of real estate in trust and related expenses, etc.

(Note 8)The funds were appropriated for refinancing of borrowings, etc.

(Note 9)JHR borrowed funds from the bank in an effort to diversify its lenders. The funds were appropriated for repairs andmaintenance.

(Note 10) The funds were appropriated for acquisition of the beneficial interest of real estate in trust, repayment of borrowings andrelated expenses, etc.
(Note 11) In order to list each loan payable, ¥9,679 million of the current portion of long-term loans payable in the balance sheets
is included in long-term loans payable in the above table.

3. Investment corporation bonds
Status of investment corporation bonds as of December 31, 2016 was as follows:
Name

Issuance date

Balance at
beginning of
period(JPY1M)

Balance at
end of period(JPY1M)

Interest
rate(%)

Maturity
date

Repayment
methodUse

Second unsecured investment
corporation bonds

November26, 2013

2,500

–

0.89

November25, 2016

Lump-sum
repayment(Note 1)

Third unsecured investment
corporation bonds

March 19,
2014

2,000

2,000

0.92

March 19,2019

Lump-sum
repayment(Note 2)

Fourth unsecured investment
corporation bonds

December19, 2014

1,500

1,500

0.86

December17, 2021

Lump-sum
repayment(Note 3)

Fifth unsecured investment
corporation bonds

October 23,
2015

6,000

6,000

0.82

October
21, 2022

Lump-sum
repayment(Note 2)Sixth unsecured investment
corporation bonds

March 22,
2016

–

3,000

0.935

March 19,2026

Lump-sum
repayment(Note 2)

38

Remarks
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 6)
Unsecured,
unguaranteed(Note 5)Seventh unsecured investment
corporation bonds

November29, 2016

–

9,000

0.60

November27, 2026

Lump-sum
repayment(Note 4)Eighth unsecured investment
corporation bonds

November29, 2016

–

1,100

0.60

November27, 2026

Lump-sum
repayment(Note 4)12,00022,600Total(Note 1)

The funds were appropriated for redemption of the first unsecured investment corporation bonds and future acquisitionof specified assets, etc.

(Note 2)

The funds were appropriated to partly fund the repayment of existing borrowings.

(Note 3)

The funds were appropriated for repayment of existing borrowings and future acquisition of specified assets, etc.

(Note 4)

The funds were appropriated for redemption of the second unsecured investment corporation bonds, repayment ofexisting borrowings and future acquisition of real estate properties, etc.

(Note 5)A special pari passu clause among specified investment corporation bonds is attached to the bonds.

(Note 6)

A special pari passu clause among investment corporation bonds is attached to the bonds.

4. Short-term investment corporation bonds
Not applicable.

5.

Unsecured,
unguaranteed(Note 6)
Unsecured,
unguaranteed(Note 5)

Subscription rights to new investment units
Not applicable.

39

Purchase and Sale during the Period
1. Purchase and sale, etc. of real estate, etc., asset-backed securities, etc. and infrastructure assets, etc., andinfrastructure-related assets
Acquisition
Asset type

Name of property, etc.

Acquisition
date

Sale

Acquisition
price(JPY1M)

Sale date

Sale price(JPY1M)

Book value(JPY1M)

Gain (loss) on
sale(JPY1M)(Note)

Beneficial interest ofreal estate in trust

CANDEO HOTELS
UENO-KOEN

February 1,
2016

6,705

―

―

―

―

Beneficial interest ofreal estate in trust

Hotel Centraza Hakata

April 1,
2016

7,197

―

―

―

―

Beneficial interest ofreal estate in trust

Holiday Inn Osaka Namba

August 1,
2016

27,000――――Beneficial interest ofreal estate in trust

HOTEL ASCENT FUKUOKA

August 19,
2016

4,925

―

―

―

―

Beneficial interest ofreal estate in trust

Hilton Nagoya

September
1, 2016

15,250

―

―

―

―

–

61,077

―

―

―

―

Total

(Note)

Acquisition price indicates contracted amount of the property in the purchase and sale agreement, etc. excluding related
expenses (brokerage fees, taxes, etc.) incurred on the acquisition of such property.

2. Purchase and sale of other assets, etc.
Assets other than real estate, etc., asset-backed securities, etc., and infrastructure assets, etc. and infrastructurerelated assets are mostly bank deposits and bank deposits in trust.
3. Survey of prices, etc. of specified assets(1) Real estate properties, etc.

Acquisition/
sale

Asset type

Acquisition

Beneficial interest ofreal estate in trust

Name of property, etc.

Acquisition/
sale date

Acquisition/
sale priceAppraisalvalue(JPY1M)(JPY1M)(Note 1)

(Note 2)

Date ofappraisal

Appraisal agency

6,820

November 1,
2015

DAIWA REALESTATEAPPRAISAL
CO.,LTD.
DAIWA REALESTATEAPPRAISAL
CO.,LTD.

CANDEO HOTELS
UENO-KOEN

February 1,
2016

Acquisition

Beneficial interest ofreal estate in trust

Hotel Centraza Hakata

April 1,
2016

7,197

7,240

February 1,
2016

Acquisition

Beneficial interest ofreal estate in trust

Holiday Inn Osaka Namba

August 1,
2016

27,00028,500June 1, 2016

Japan Real Estate
Institute

Acquisition

Beneficial interest ofreal estate in trust

HOTEL ASCENTFUKUOKA

August 19,
2016

5,220

January 1,
2016

DAIWA REALESTATEAPPRAISAL
CO.,LTD.

Acquisition

Beneficial interest ofreal estate in trust

Hilton Nagoya

September
1, 2016

March 1, 2016

DAIWA REALESTATEAPPRAISAL
CO.,LTD.

40

6,705

4,925

15,25015,900(Note 1)

Acquisition price and sale price indicate contracted amount of the property in the purchase and sale agreement, etc.
excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of such property.

(Note 2)

The above appraisals were valuated by applying the “Real Estate Appraisal Standards, Chapter 3: Valuation for price ofreal estate for securitization.”(2) Transaction of securities
Not applicable.
(3) Other
For transactions made by JHR that require research on price, etc. pursuant to the provisions of Article 201 of
the Investment Trusts Act, except for transactions described in “(1) Real estate properties, etc.” above, theresearch activities were entrusted to KPMG AZSA LLC.
JHR has received from KPMG AZSA LLC a research report on eight interest rate swap transactions executedduring the period from January 1, 2016 to December 31, 2016.
4. Transactions with interested parties, etc. (Note 1)(1) Transactions(millions of yen)Price, etc. (Note 2) (Note 3)

Category

Acquisition price, etc.

Sale price, etc.

Real estate operating revenue

61,077–

22,107

Amount of purchase frominterested parties, etc.

Amount of sales to interested
parties, etc.

–

[–%]

–

[–%]

Amount of real estate
operating revenue frominterested parties, etc.
10,922[49.4%]

Hotel Management Japan Co., Ltd.

–

[–%]

–

[–%]

6,825

[30.9%]

Lagoon resort Nago Co., Ltd.

–

[–%]

–

[–%]

1,066

[4.8%]

Kyoritsu Maintenance Co., Ltd.

–

[–%]

–

[–%]

1,063

[4.8%]

K.K. A.I.C Hiroshima Management

–

[–%]

–

[–%]

833

[3.8%]

Hotel Centraza Co., Ltd.

–

[–%]

–

[–%]

594

[2.7%]OW Hotel Operations KK

–

[–%]

–

[–%]

539

[2.4%]

Total

–

[–%]

–

[–%]

10,922[49.4%]

Total amount

Breakdown of transactions with interested parties, etc.

(Note 1)

(Note 2)

(Note 3)

Interested parties, etc. are the Asset Management Company’s interested parties, etc. stipulated in Article 201, paragraph
1 of the Investment Trust Act (hereinafter referred to as “interested parties, etc.”). The amounts in “(1) Transactions”
above and “(2) Amounts of fees paid, etc.” below include transactions with those interested parties, etc. as well as
major transactions with sponsor-related parties stipulated in the Asset Management Company’s company code fortransactions with sponsor-related parties, which include 1. Interested parties, etc., 2. The Asset Management
Company’s shareholders, 3. Companies, etc. that take a 50% or more stake in a shareholder that holds 50% or more of
the shares in the Asset Management Company, 4. Companies in which a shareholder of the Asset Management
Company have a 50% or more stake, 5. Entity or persons who ceased to fall under 1. or 4. within 3 months, and 6.
Entity or persons who are deemed appropriate by the compliance officer of the Asset Management Company to betreated as sponsor-related parties in light of the company code for transactions with sponsor-related parties and the
purpose of these rules.
Acquisition price, etc. and sale price, etc. indicate contracted amounts of the property in the purchase and saleagreement, etc. excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of suchproperty.
The figures in brackets show the ratio of the amount etc. to the total amount of purchase and sale amount, etc. rounded
off to one decimal place.

41

(2) Amount of fees paid, etc.
(thousands of yen)Classification

Outsourcing expenses(Note)(Note)

Total amountsof fees paid, etc.
(A)291,236

Breakdown of transactions withinterested parties, etc.
Counter party
Hotel Management Japan Co., Ltd.

Amount of payment
(B)
5,760

Ratio to total amount
B/A (%)

2.0

Includes basic fees under the property management agreement as well as outsourcing expenses related to routine
maintenance and management of buildings and facilities.

5. Transactions with the Asset Management Company in other businesses of the Asset Management
Company
The Asset Management Company only engages in asset management and does not engage in any businesses
related to the financial instruments trading business, building lots and buildings transactions, or real estate
specified joint enterprise business. There are no applicable transactions.

42II. Financial Information
1. Assets, liabilities, equity, and profit and loss
For the status of assets, liabilities, equity (contribution), and profit and loss, please refer to “Balance Sheets”,“Statements of Income”, “Statements of Changes in Net Assets”, “Statements of Cash Flows” and “Notes toFinancial Statements”.

2. Changes in calculation method of depreciation
Not applicable.

3．Changes in evaluation method of real estate, etc. and infrastructure assets, etc.
Not applicable.

Status, etc. of beneficiary certificates of investment trusts set up by JHR
Not applicable

Status, etc. of corporation owning foreign real estate
Not applicable.
Status, etc. of real estate owned by corporation owning foreign real estate
Not applicable.

43

Other(1) Announcements
The following shows the summary of major conclusions, changes, etc. of the principal agreements that wereapproved or reported at meetings of JHR’s Board of Directors.
Approval date

Item

Summary

January 4, 2016

Conclusion of an underwriting
agreement for new investment
units in association with theissuance of new investment
units

Due to the issuance of new investment units, general administration foroffering the investment units was entrusted to SMBC Nikko Securities
Inc., Daiwa Securities Co. Ltd. and Mizuho Securities Co., Ltd.

July 7, 2016

Conclusion of an underwriting
agreement for new investment
units in association with theissuance of new investment
units

Due to the issuance of new investment units, general administration foroffering the investment units in Japan was entrusted to SMBC Nikko
Securities Inc., Daiwa Securities Co. Ltd., Mizuho Securities Co., Ltd.,
Goldman Sachs Japan Co., Ltd. and Nomura Securities Co., Ltd. In
addition, general administration for global offering of the investment
units was entrusted to SMBC Nikko Capital Markets Limited, Goldman
Sachs International, Daiwa Capital Markets Europe Limited and Mizuho
International plc as international joint lead managers of the global
offering.

(2) Other
Unless otherwise noted, amounts and ratios in this report are rounded down and rounded off to the stated unit,
respectively.

44

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2016 and 2015
Thousands of yen
As ofDecember 31,
2016

As of
December 31,
2015¥

15,141,393
11,232,472
2,071,152
586,700
294
18,33929,050,353¥

220,174
1,983,010
3,240
104,284,116
2,100,930
534,100
137,266
154,841,633
4,085
264,108,558(13,417,931)
250,690,627

184,717
1,428,232
2,676
88,642,547
2,006,145
456,282
125,266
120,918,641
606
213,765,117(10,276,615)
203,488,501

Intangible assets:
SoftwareLeasehold rights in trust (Note 17)
Fixed-term leasehold rights in trust (Note 17)
Other intangible assets (Note 17)
Total intangible assets

168,345
28,648,457
5,451,770
9,796
34,278,369

100,333
19,774,039
10,476
19,884,849

Other assets:
Security deposits
Leasehold and security deposits in trust
Long-term prepaid expenses
Derivative assets (Notes 4 and 16)
Reserve fund for repairs and maintenance
Investment unit issuance costs
Investment corporation bond issuance costs
Total other assets

12,520158,323
3,090,505
146,585
64,130243,615
143,5893,859,270

12,520158,323
993,340
1,272
49,21966,92868,381
1,349,986¥317,878,620¥240,356,489

ASSETS
Current assets:
Cash and deposits (Notes 3 and 4)
Cash and deposits in trust (Notes 3 and 4)
Operating accounts receivable
Prepaid expenses
Consumption taxes receivable
Income taxes receivable
Other current assets
Total current assets
Property and equipment, at cost (Notes 15 and 17):
Machinery and equipment
Tools, furniture and fixtures
Construction in progress
Buildings in trust (Note 11)
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Land in trust
Construction in progress in trust
Less: Accumulated depreciation
Net property and equipment

Total assets

5,450,696
8,247,600
1,269,572
410,241
245,509
3,057
6,473
15,633,151(Continued)

45

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2016 and 2015
Thousands of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Operating accounts payable
Short-term loans payable (Notes 4 and 5)
Current portion of investment corporation bonds (Notes 4 and 6)
Current portion of long-term loans payable (Notes 4, 5 and 16)
Accrued expenses
Income taxes payable
Consumption taxes payable
Advances received
Dividends payable
Deposits received
Derivative liabilities (Notes 4 and 16)
Other current liabilities
Total current liabilities

As ofDecember 31,
2016

As of
December 31,
2015

¥

¥

666,3151,800,000
9,679,250
610,3441,210
496,373
899,290
15,101
117,949
24,37954,50314,364,717

875,465
9,000,000
2,500,000
11,393,603
500,859
1,210
692,794
12,381
71,44225,45225,073,210

Long-term liabilities:
Investment corporation bonds (Notes 4 and 6)
Long-term loans payable (Notes 4, 5 and 16)
Tenant leasehold and security deposits (Note 4)
Tenant leasehold and security deposits in trust (Note 4)
Derivative liabilities (Notes 4 and 16)
Deferred tax liabilities (Note 13)
Asset retirement obligations (Note 7)
Total long-term liabilities

22,600,000
92,099,750
1,041,032
4,619,744
676,488
46,233
441,542
121,524,790

9,500,000
70,379,000
2,041,032
2,914,912
533,856
85,368,801

Total liabilities

135,889,508

110,442,012

134,829,448

85,470,541

21,746,398

21,746,398

13,867,228
13,867,228
12,126,057
47,739,684
182,569,132

13,928,075
13,928,075
9,296,121
44,970,596
130,441,137(580,019)(580,019)(526,660)(526,660)

Total net assets

181,989,112

129,914,477

Total liabilities and net assets¥317,878,620¥240,356,489

Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital
Units authorized: 20,000,000 units
Units issued and outstanding; 3,761,907 units and 3,144,227 units asof December 31, 2016 and 2015, respectively
Surplus:Capital surplus
Voluntary reserve:
Dividend reserve
Total voluntary reserve
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Valuation and translation adjustments:
Deferred gains (losses) on hedges (Note 16)
Total valuation and translation adjustments

See notes to financial statements.
46

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Income
For the years ended December 31, 2016 and 2015
Thousands of yen
For the year
For the year
ended
ended
December 31, December 31,
2016
2015
Operating revenue:
Real estate operating revenue (Note 9)
Other real estate operating revenue (Note 9)
Gain on sale of real estate properties (Note 10)
Gain on investment in silent partnership
Total operating revenue¥ 21,165,085
942,384
22,107,470¥ 16,632,526
401,349
305,668
4,288
17,343,833

Operating expenses:
Real estate operating costs (Note 9)
Asset management fee
Asset custody fee
Administrative service fee
Directors’ compensation
Other operating expenses
Total operating expenses

6,589,908
1,307,381
21,02991,782
14,400
197,443
8,221,945

5,002,501
1,045,925
17,63389,541
10,800188,480
6,354,882

Operating income

13,885,524

10,988,950

1,924
2,296
472
610
1,872
7,176

2,977
1,186
4,644
292
9,411
18,512862,943
128,071
561,927
19,04381,361
16,4452,673
1,672,466

918,051
62,850632,240
12,50051,84633,99690
1,711,575

12,220,234

9,295,887

95,86095,860-

Income before income taxes

12,124,373

9,295,887

Income taxes (Note 13):
Current
Deferred
Total income taxes

1,210
1,210

1,210
1,210

Non-operating income:Interest income
Gain on forfeiture of unclaimed dividends
Gain on insurance claims
Interest on tax refunds
Gain on derivative instruments
Total non-operating income
Non-operating expenses:
Interest expense
Interest expense on investment corporation bonds
Borrowing costs
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Loss on derivative instruments
Other
Total non-operating expenses
Ordinary income
Extraordinary losses
Loss on disaster (Note 12)
Total extraordinary losses¥ 12,123,163

Net income

See notes to financial statements.
47¥

9,294,677

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Changes in Net Assets
For the years ended December 31, 2016 and 2015

Unitholders’capitalBalance, January 1, 2015
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear
Balance, December 31, 2015
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear¥

Balance, December 31, 2016¥¥

Thousands of yen
Unitholders’ equity
Surplus
Voluntary reserve
Dividend
Total voluntary Unappropriatedreserve
reserveretained earnings

Capital surplus

59,024,923¥

21,746,398¥

14,168,614 ¥

14,168,614¥¥

100,716,052(240,538)-

240,538(6,015,210)
9,294,677(6,015,210)
9,294,677

26,445,618(6,015,210)
9,294,677

-

-

-

-

-

-

-

26,445,618
85,470,541¥

21,746,398¥(240,538)
13,928,075 ¥(240,538)
13,928,075¥

3,520,005
9,296,121¥

3,279,466
44,970,596¥

29,725,085
130,441,137

49,358,906--(60,847)-(60,847)-

60,847(9,354,075)
12,123,163(9,354,075)
12,123,163

49,358,906(9,354,075)
12,123,163

-

-

-

-

-

-

-

Total net assets

Balance, December 31, 2016

41,691,129(240,538)-

Thousands of yen
Valuation and translation adjustments
Deferred gains
Total valuation(losses) on
and translation
hedgesadjustments

¥

¥

-

(60,847)
13,867,228 ¥¥

5,776,116

26,445,618-¥

Balance, January 1, 2015
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear
Balance, December 31, 2015
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear¥

Total unitholders’equityTotal surplus

49,358,906
134,829,448(373,144)¥¥

21,746,398(373,144)¥(60,847)
13,867,228 ¥

100,342,908--

26,445,618(6,015,210)
9,294,677(153,516)(153,516)(153,516)(153,516)(526,660)¥(153,516)(526,660)¥

29,571,568
129,914,477--

49,358,906(9,354,075)
12,123,163(53,359)(53,359)(53,359)(53,359)(580,019)¥(53,359)(580,019)¥

52,074,635
181,989,112

See notes to financial statements.

48

2,829,936
12,126,057¥

2,769,088
47,739,684¥

52,127,994
182,569,132

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2016 and 2015
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2016
2015
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on disposal of property and equipment
Loss on derivative instruments
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Decrease in properties in trust due to sale
Gain on investment in silent partnership
Interest income
Interest expense
Interest on tax refunds(Increase) decrease in operating accounts receivable(Increase) decrease in consumption taxes receivable(Increase) decrease in prepaid expenses(Increase) decrease in long-term prepaid expenses
Increase (decrease) in operating accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in consumption taxes payable
Increase (decrease) in advances received
Increase (decrease) in deposits received
Other
SubtotalInterest received
Interest paid
Interest received on tax refunds
Income taxes – refunded (paid)
Net cash provided by operating activities¥ 12,124,373
3,294,081
16,662
14,572
19,04381,361(1,924)
991,014(610)(801,580)
245,509(176,458)(2,095,775)
102,258
112,854496,373
206,495
46,506
4,862
14,679,620
1,862(994,383)
610
1,553
13,689,262¥

Cash flows from investing activities:
Proceeds from redemption of investment securities
Purchase of property and equipment in trust
Purchase of property and equipment
Purchase of intangible assets
Payments of reserve fund for repairs and maintenance
Proceeds from tenant leasehold and security deposits in trust
Repayment of tenant leasehold and security deposits in trust
Proceeds from tenant leasehold and security deposits
Repayment of tenant leasehold and security deposits
Net cash used in investing activities(49,582,657)(659,879)(14,535,928)(14,911)
1,756,161(43,325)
7,000(1,001,800)¥ (64,075,340)

607,013(59,092,222)(299,812)(81,347)(49,219)
641,553(324,585)
16¥ (58,598,604)

9,295,887
2,772,440
25,79024,584
12,50051,8464,400,042(4,288)(2,977)980,901(292)(240,193)(245,509)(28,602)(189,593)
69,222
103,627(290,174)
41,14162,058
7,996
16,846,409
2,977(983,493)
292(3,838)15,862,346(Continued)

49

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2016 and 2015
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2016
2015
Cash flows from financing activities:
Proceeds from short-term loans payable
Repayments of short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from investment corporation bonds
Repayments of investment corporation bondProceeds from issuance of investment units
Payments for investment corporation bond issuance costs
Dividends paid
Net cash provided by financing activities¥

8,800,000(16,000,000)
31,400,000(11,393,603)
13,100,000(2,500,000)
49,100,858(94,251)(9,351,356)
63,061,647¥

15,000,000(6,000,000)
22,508,000(15,825,132)
6,000,000
26,382,471(41,959)(6,013,599)
42,009,780

Net increase (decrease) in cash and cash equivalents

12,675,569(726,477)

Cash and cash equivalents at beginning of year

13,698,296

14,424,774

26,373,866¥ 13,698,296¥

Cash and cash equivalents at end of year (Note 3)

See notes to financial statements.

50

JAPAN HOTEL REIT INVESTMENT CORPORATION
Notes to Financial Statements
For the years ended December 31, 2016 and 2015
1. Organization and Basis of Presentationa. Organization
Japan Hotel REIT Investment Corporation (“JHR”), formerly known as Nippon Hotel Fund Investment
Corporation (the “Former NHF”), was established under the Act on Investment Trusts and Investment
Corporations (the “Investment Trusts Act”) on November 10, 2005 and was listed on the Real Estate Investment
Trust (“REIT”) Section on the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006. JHR is externallymanaged by a licensed asset management company, Japan Hotel REIT Advisors Co., Ltd.
Focusing on hotels, which are important components of the social infrastructure, and their profitability, JHR
primarily invests in real estate related assets that are in themselves real estate which are wholly or partially used as
hotels or real estate equivalents of such real estate or that are backed by such real estate or real estate equivalents.
In the fiscal period ended December 31, 2012, the Former NHF, as the surviving entity, merged with Japan Hoteland Resort, Inc. (the “Former JHR”), as the dissolved entity, with an effective date of April 1, 2012 (the “Merger”).
In conjunction with the Merger, the Former NHF changed its name to Japan Hotel REIT Investment Corporation.
Through the Merger, nine properties held by the Former JHR were succeeded by JHR. As a result, as of theeffective date of the Merger, JHR’s property portfolio expanded to 28 properties. As of December 31, 2016, JHR
has ownership interests in 41 properties.
b. Basis of presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the
Financial Instruments and Exchange Act and their related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as tothe application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been reformatted and translated into English (with certain
reclassifications and expanded descriptions) from the financial statements of JHR prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Act. Certain supplementary information included in the statutory Japanese
language financial statements, but not necessarily required for fair presentation, is not presented in theaccompanying financial statements. JHR has not prepared consolidated financial statements, as JHR has no
consolidating subsidiaries or entities.
As permitted by the regulations under the Financial Instruments and Exchange Act of Japan, the amounts arerounded down to the nearest thousands or millions. As a result, the totals shown in the accompanying financial
statements do not necessarily agree with the sums of the individual amounts.
2. Summary of Significant Accounting Policies
a. Cash and cash equivalents
Cash and cash equivalents in the statements of cash flows consist of cash on hand, cash in trust accounts, bankdeposit and trust deposit, which can be withdrawn at any time, and short-term investments with a maturity of threemonths or less when purchased, which can easily be converted to cash and subject to minimal risk of change invalue.
b. Property and equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using thestraight-line method over their estimated useful lives. The useful lives of major property and equipment
components are as follows:
Machinery and equipment
Tools, furniture and fixtures
Buildings in trust
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust

2 to 17 years
2 to 20 years
2 to 62 years
2 to 62 years
4 to 32 years
2 to 27 years
51

c. Intangible assets
Intangible assets are amortized using the straight-line method. The amortization period of major intangible assets
is as follows.
Software (internal use)
5 years
Fixed-term leasehold rights: 41 or 49 years (remaining contractual period at the time of acquisition)
Leasehold rights in trust are intangible assets with indefinite useful lives.
d. Investment unit issuance costs
Investment unit issuance costs are amortized using the straight-line method over three years.
Underwriting fees, which usually form a part of investment unit issuance costs, have not incurred in the offerings
executed during both years ended December 31, 2016 and 2015 due to the reason below;
The issuance of new investment units through public offerings on January 27, 2015, June 22, 2015, January 20,
2016 and July 27, 2016 was consummated under underwriting agreements in which underwriting securities
companies committed to purchase all of the investment units being offered at an issue value and selling them at anoffering price different from such issue value to general investors (the “spread method”). No underwriting fees
were paid by JHR under the spread method since the underwriters were compensated by the underwriting spread,which amounted to ¥1,571,900 thousand for the year ended December 31, 2016 and ¥858,900 thousand for theyear ended December 31, 2015 respectively, representing the difference between the issue price and the issue
value of all new investment units issued.
e. Investment corporation bond issuance costs
Investment corporation bond issuance costs are amortized using the effective interest rate method over therespective term of the bond.
f. Taxes on property and equipment
Taxes imposed on properties such as property taxes, city planning taxes, and depreciable asset taxes are allocatedto the respective reporting period and expensed as “Real estate operating costs.” Cash paid for property taxes andcity planning taxes to the transferor of real properties at acquisition is not recorded as “Real estate operating costs”
but capitalized as part of the acquisition cost of the relevant property. The amount of such taxes capitalized in theacquisition cost of real properties was ¥101,229 thousand for the year ended December 31, 2016 and ¥180,668
thousand for the year ended December 31, 2015.
g. Derivatives and hedging activities
JHR enters into certain derivative transactions in accordance with its financial policy in order to manage risks,
which are defined in the Articles of Incorporation, mainly arising from adverse fluctuations in interest rates onloans payable. Derivative financial instruments are carried at fair value with changes in the unrealized gain or loss
charged or credited to operations, except for those which meet the criteria for hedge accounting in which theunrealized gain or loss is deferred as a component of net assets.
JHR evaluates hedge effectiveness by comparing the cumulative changes in cash flow of hedging instruments andthe hedged items and assessing the ratio between the changes.
h. Accounting treatment of beneficiary interests in trust assets including real estate
For real estate beneficial interest in trust, all assets and liabilities held in trust accounts as well as all income
generated and expenses incurred from assets in trust are presented in the relevant balance sheet and income
statement accounts.
i. Consumption taxes
Consumption taxes are excluded from the transaction amounts.

52

3.

Cash Flow Informationa.

Cash and cash equivalents as of December 31, 2016 and 2015 in the statements of cash flows consistedof the following:Thousands of yen
As of December
As of December
31, 2016
31, 2015¥
15,141,393¥
5,450,696
11,232,472
8,247,600¥
26,373,866¥
13,698,296

Cash and deposits
Cash and deposits in trust
Cash and cash equivalents

b. Significant non-cash transactions
For the year ended December 31, 2016, JHR recognized asset retirement obligations as it is obliged to restore theland of Hotel Centraza Hakata, acquired on April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August19, 2016, to the original state in accordance with each of the fixed-term land leasehold agreements. As a result,each balance of the buildings in trust and the asset retirement obligations increased by ¥440,168 thousand.
There was no significant transaction for the year ended December 31, 2015.
4. Financial Instruments
a. Status of financial instruments(1) Policy for financial instruments
JHR is an investment corporation set forth in Article 2, paragraph 12 of the Investment Trusts Act, managing
investments mainly in specified assets as prescribed in the Investment Trusts Act. As a policy, JHR procures
funds through issuance of investment units, etc. and loans from financial institutions in order to make selective
investments in specified assets. JHR does not utilize surplus funds to invest in financial instruments except for
short-term deposits and other equivalent short-term financial instruments. JHR may enter into derivativetransactions in order to hedge against interest rate risk, but not for speculative trading purposes.
(2) Details of financial instruments, their risks, and risk management system
The floating rate loans payable are exposed to risks of interest rate fluctuations. In order to mitigate interest
rate risk, JHR may enter into derivative transactions, if necessary.
Derivative transactions are conducted principally in accordance with rules prescribed by JHR and risk
management rules applied by the asset management company. Derivative transactions are arranged by thefinance section of the asset management company by using financial institutions with high credit ratings
through approval and resolution by authorized personnel and a meeting committee structure set forth in its
decision-making standards and resolution of JHR’s board of directors.
Loans payable expose JHR to liquidity risks. The finance section of the asset management company preparesand updates projections and actual cash flows on a monthly basis to manage liquidity risks and monitors
compliance with restrictive covenants set forth in the loan agreements. JHR manages liquidity risks bymanaging the ratio of short-term and long-term loans payable considering the current financial environment
through approval and resolution by authorized personnel and meeting committee structure in the asset
management company and resolution of JHR’s board of directors.
b. Fair Value of Financial Instruments
Carrying amounts of financial instruments on the balance sheets, their fair values, and the differences as ofDecember 31, 2016 and 2015 were as follows. Financial instruments whose fair values are considered extremely
difficult to measure are not included in the table. See Note (2) below.

53

(i) Cash and deposits(ii) Cash and deposits in trust
Total

Thousands of yen
As of December 31, 2016
Carrying amount
Fair value¥
15,141,393¥
15,141,393 ¥
11,232,472
11,232,472¥
26,373,866¥
26,373,866 ¥(iii) Short-term loans payable(iv) Current portion of investment corporation
bonds(v) Current portion of long-term loans payable(vi) Investment corporation bonds(vii) Long-term loans payable
Total

¥

1,800,000-¥

9,679,250
22,600,000
92,099,750
126,179,000¥

9,679,250
22,629,640
92,099,750
126,208,640¥

29,64029,640(viii) Derivative transactions (*)¥(554,282) ¥(554,282)¥-(i) Cash and deposits(ii) Cash and deposits in trust
Total

Thousands of yen
As of December 31, 2015
Carrying amount
Fair value¥
5,450,696¥
5,450,696 ¥
8,247,600
8,247,600¥
13,698,296¥
13,698,296 ¥¥9,000,000¥

2,500,000
11,393,603
9,500,000
70,379,000
102,772,603(viii) Derivative transactions (*)¥

1,800,000-¥(iii) Short-term loans payable(iv) Current portion of investment corporation
bonds(v) Current portion of long-term loans payable(vi) Investment corporation bonds(vii) Long-term loans payable
Total

¥

Difference¥

9,000,000

Difference
-

¥

-

¥

2,507,000
11,393,603
9,544,450
70,379,000
102,824,053

¥

7,000
44,45051,450(532,584) ¥(532,584)¥-(*) Receivables and payables arising from derivative transactions are presented on a net basis and amounts in parenthesis denote net payables.

Notes:(1) Methods to measure fair value of financial instruments(i) Cash and deposits, (ii) Cash and deposits in trust, (iii) Short-term loans payable
The carrying value is deemed to approximate the fair value since the instruments are scheduled to be settled ina short period of time.
(iv) Current portion of investment corporation bonds, (vi) Investment corporation bonds
The fair value of these instruments is measured based on the market price.
(v) Current portion of long-term loans payable, (vii) Long-term loans payable
The carrying value is deemed to approximate the fair value since the interest rate on long-term loans payable
are floating interest rates which are adjusted periodically to reflect market interest rates.
(viii) Derivative transactions
The information on the fair value of derivative transactions is presented in Note 16.
(2) Information on financial instruments whose fair values are considered extremely difficult to measure as ofDecember 31, 2016 and 2015 was as follows:54Thousands of yen
As of December
As of December
31, 2016
31, 2015
Carrying amount¥
1,041,032¥
2,041,032
4,619,744
2,914,912¥
5,660,776¥
4,955,944

Tenant leasehold and security deposits
Tenant leasehold and security deposits in trust
Total

Tenant leasehold and security deposits / Tenant leasehold and security deposits in trust
Tenant leasehold and security deposits (in trust) are not subject to fair value measurement because they have nomarket price and their actual deposit periods from a tenant’s move-in to move-out are not estimable, thus
making a reasonable estimate of future cash flows difficult.
(3) Redemption schedule for monetary claims as of December 31, 2016 and 2015:

As of December 31, 2016
Cash and deposits
Cash and deposits in trust
Total

As of December 31, 2015
Cash and deposits
Cash and deposits in trust
Total

Due within
one year¥15,141,393
11,232,472¥26,373,866

Due after
one to two
years
¥
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
¥
- ¥
-

Due after
four to five
years
¥
¥
-

Due after
five years¥¥-

Due within
one year¥ 5,450,696
8,247,600¥13,698,296

Due after
one to two
years
¥
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
¥
- ¥
-

Due after
four to five
years
¥
¥
-

Due after
five years¥¥-(4) Schedule for repayment of loans payable and redemption of investment corporation bonds as of December 31,
2016 and 2015.

As of December 31, 2016
Short-term loan payable
Current portion of investment
corporation bonds
Current portion of long-termloans payable
Investment corporation bonds
Long-term loans payable
Total

As of December 31, 2015
Short-term loan payable
Current portion of investment
corporation bonds
Current portion of long-termloans payable
Investment corporation bonds
Long-term loans payable
Total

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
-

Due within
one year¥ 1,800,000

Due after
one to two
years
¥
-

-

-

-

9,679,250¥11,479,250

13,322,750¥13,322,750

2,000,000
11,217,000¥13,217,000

Due within
one year¥ 9,000,000

Due after
one to two
years
¥
-

2,500,000--

11,393,603¥22,893,603

9,679,250¥9,679,250

13,322,750¥13,322,75055

Due after
four to five
years
¥
-

Due after
five years
¥
-

-

-

-

13,544,000¥13,544,000

1,500,000
10,800,000¥12,300,000

19,100,000
43,216,000¥62,316,000

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
-

Due after
four to five
years
¥
-

Due after
five years
¥
-

-

-

-

2,000,000
6,317,000¥8,317,000

13,544,000¥13,544,000

7,500,000
27,516,000¥35,016,000

5. Short-Term and Long-Term Loans Payable
Short-term and long-term loans payable as of December 31, 2016 and 2015 consisted of the following:
Millions of yen
As of December
As of December
31, 2016
31, 2015
AmountMaturity date
Short-term loans payable:
0.41% Unsecured loan, payable in a lump-sum at maturity (*3)
0.34% Unsecured loan, payable in a lump-sum at maturity
0.35% Unsecured loan, payable in a lump-sum at maturity
Sub-total
Long-term loans payable:
2.01% Unsecured loan, payable in a lump-sum at maturity(*1, 4)
1.97% Unsecured loan, payable in a lump-sum at maturity
1.52% Unsecured loan, payable ¥50,000 thousand quarterly andthe remaining balance in a lump-sum at maturity
1.47% Unsecured loan, payable in a lump-sum at maturity (*1)
1.29% Unsecured loan, payable in a lump-sum at maturity (*1)
1.38% Unsecured loan, payable in a lump-sum at maturity (*1)
0.93% Unsecured loan, payable ¥1,625 thousand monthly andthe remaining balance in a lump-sum at maturity
0.90% Unsecured loan, payable ¥2,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
0.87% Unsecured loan, payable ¥11,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*3)
1.00% Unsecured loan, payable ¥11,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
0.98% Unsecured loan, payable ¥7,250 thousand quarterly andthe remaining balance in a lump-sum at maturity (*1)
0.98% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable ¥19,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*1)
1.15% Unsecured loan, payable in a lump-sum at maturity (*1)
0.60% Unsecured loan, payable in a lump-sum at maturity (*2)
0.92% Unsecured loan, payable in a lump-sum at maturity (*1)
1.04% Unsecured loan, payable in a lump-sum at maturity (*1)
0.55% Unsecured loan, payable in a lump-sum at maturity
0.38% Unsecured loan, payable in a lump-sum at maturity (*1)
0.90% Unsecured loan, payable in a lump-sum at maturity (*1)
0.93% Unsecured loan, payable in a lump-sum at maturity (*1)
0.95% Unsecured loan, payable in a lump-sum at maturity (*1)
0.50% Unsecured loan, payable in a lump-sum at maturity
1.07% Unsecured loan, payable in a lump-sum at maturity (*1)
1.07% Unsecured loan, payable in a lump-sum at maturity (*1)
0.21% Unsecured loan, payable in a lump-sum at maturity (*1)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.66% Unsecured loan, payable in a lump-sum at maturity (*1)
0.57% Unsecured loan, payable in a lump-sum at maturity
0.74% Unsecured loan, payable in a lump-sum at maturity (*1)
0.56% Unsecured loan, payable in a lump-sum at maturity (*1)
0.56% Unsecured loan, payable in a lump-sum at maturity (*1)
0.59% Unsecured loan, payable in a lump-sum at maturity

November 30, 2016
February 28, 2017
November 30, 2017¥

March 28, 2016
March 28, 2016
March 28, 2016
September 19, 2017
March 28, 2016
November 15, 2017

2,550
6,500

7
2,550
1,991
6,500

February 29, 2016

-

1,742

March 31, 2017

479

488

April 26, 2016

-

3,835

April 26, 2018

4,342

4,387

September 30, 2018
September 30, 2018

2,733
3,000

2,762
3,000

March 31, 2018
March 31, 2021
September 30, 2019
September 30, 2020
September 30, 2021
December 30, 2020
January 31, 2020
January 31, 2022
March 31, 2022
June 30, 2022
June 30, 2020
September 29, 2023
September 29, 2023
March 31, 2019
March 31, 2019
March 31, 2019
March 31, 2024
March 31, 2024
March 31, 2023
March 31, 2024
March 31, 2024
September 30, 2025
September 30, 2024
September 30, 2024
September 30, 2024

3,397
6,800
6,317
6,817
4,000
935
4,700
8,200
1,500
1,500
1,092
2,880
2,636
2,000
1,760
1,140
3,850
2,650
4,700
800
500
9,500
1,300
2,000
700

3,473
6,800
6,317
6,817
4,000
935
4,700
8,200
1,500
1,500
1,092
2,880
2,636
-

¥

56

9,000
9,000

2,576
1,081

Sub-total
Total of short-term and long-term loans payable¥-

September 30, 2024

0.71% Unsecured loan, payable in a lump-sum at maturity

1,700
100
1,800

500

-

101,779
103,579

81,772
90,772¥

Stated interest rate, which is a rate per annum, represents the weighted average rate during the year ended December 31, 2016, or the most recent year,
based on the number of days and outstanding balance of the loans payable. The interest rate is rounded to the nearest second decimal place.

Notes:(*1) As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks,
the interest rate of loans subject to such interest rate swap transactions is the rate obtained by taking into
account the effect of interest rate swaps (interest rate fixation), rounded off to two decimal places.
(*2) Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225%
per annum for the period from September 30, 2014 through September 30, 2019 due to the execution of aninterest rate swap agreement on September 26, 2014. Moreover, the interest rate on the portion totaling¥5,000 million is projected to be, in effect, fixed at around 0.95% for the period from March 30, 2018
through September 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014.
(*3) JHR made early repayment of the full amount of these loans payable on March 31, 2016.
(*4) JHR extended the repayment date of the loan from March 24, 2016 to March 28, 2016, and repaid the fullamount.

6. Investment Corporation Bonds
Investment corporation bonds as of December 31, 2016 and 2015 consisted of the following:
Millions of yen
As of
As of
December 31,
December 31,
2016
2015
Unsecured 2nd investment corporation bond at interest rate of 0.89%, dueon November 25, 2016
Unsecured 3rd investment corporation bond at interest rate of 0.92%, dueon March 19, 2019
Unsecured 4th investment corporation bond at interest rate of 0.86%, dueon December 17, 2021
Unsecured 5th investment corporation bond at interest rate of 0.82%, dueon October 21, 2022
Unsecured 6th investment corporation bond at interest rate of 0.935%, dueon March 19, 2026
Unsecured 7th investment corporation bond at interest rate of 0.60%, dueon November 27, 2026
Unsecured 8th investment corporation bond at interest rate of 0.60%, dueon November 27, 2026

¥

¥

Total

-

¥

2,500

2,000

2,000

1,500

1,500

6,000

6,000

3,000

-

9,000

-

1,100

-

22,600¥12,000

7. Asset Retirement Obligations
a. Outline of the asset retirement obligations
JHR recognized asset retirement obligations as it is obliged to restore the land of Hotel Centraza Hakata, acquiredon April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August 19, 2016, to the original state inaccordance with each of the fixed-term land leasehold agreements.
b. Calculation method of the asset retirement obligations
The amount of each asset retirement obligation was calculated by using the discount rates of 0.484% and 0.394%,
respectively, and estimating the expected periods of use based on the remaining useful lives of the relatedbuildings (34 years and 48 years, respectively).

57

c.

Changes in the total amount of the asset retirement obligations
Thousands of yen
For the year ended
For the year ended
December 31, 2016
December 31, 2015

Balance at beginning of year
Increase due to acquisition of property and equipment
Adjustment due to accretion expense
Balance at end of year¥¥

440,168
1,373
441,542¥-¥

8. Net Assets
JHR maintains at least ¥50,000 thousand as the minimum net assets as required by the Investment Trusts Act.
Dividends related to each period but declared and paid after the balance sheet date are summarized as follows:yen
For the year ended
For the year ended
December 31, 2016
December 31, 2015
Total
I Unappropriated retained earnings
II Reversal of voluntary reserve
Reversal of dividend reserve
III Dividends
IV Voluntary reserve
Reserve for temporary difference
adjustment (*)¥

V Retained earnings carried forward¥

Per unit

12,126,057,948

Total
¥

Per unit

9,296,121,922

13,867,228,256
12,865,721,940

¥
¥

3,686
3,420

60,847,707
9,354,075,325

¥
¥

19
2,975

13,127,153,216

¥

3,489

-

¥

-

411,048¥

2,894,304(*) JHR applied the transitional measures of Paragraph 3 of the Supplementary Provisions of the “Ordinance on
Accounting of Investment Corporations” (Cabinet Office Ordinance No. 27 of 2015) from this year. As aresult, ¥13,127,153,216 of the dividend reserve, representing the remaining balance of the gain on negative
goodwill recorded in a prior fiscal period, was transferred to the “reserve for temporary difference
adjustment” account through the appropriation of profit. Starting from the next fiscal year, JHR plans toreverse the reserve every fiscal year in an amount that shall be at least 2% of the transferred amount but notexceeding the remaining amount of the reserve at that point.

58

9. Real Estate Operating Revenue and Costs
The components of “Real estate operating revenue” and “Real estate operating costs” for the years ended
December 31, 2016 and 2015 were as follows:
Thousands of yen
For the year
For the year
ended December
ended December
31, 2016
31, 2015
Operating revenue:
Real estate operating revenue:
Fixed rent
Variable rent
Income from management contract (*1)
Sub-total
Other real estate operating revenue:
Parking lots
Other incidental revenue
Utilities
Other
Sub-total
Total operating revenue
Real estate operating costs:
Land lease and other rent expenses
Property taxes
Outsourcing expenses (*2)
Nonlife insurance
Depreciation and amortization
Loss on disposal of property and equipment
Repairs
Utilities
Trust fees
Other
Total real estate operating costs
Net real estate operating income¥¥

11,772,386
6,808,433
2,584,265
21,165,085¥

9,909,942
4,460,082
2,262,502
16,632,526

158,750
40,775545,754
197,104
942,384
22,107,470

87,10041,191
261,412
11,644
401,349
17,033,876

710,456
1,216,710
609,823
41,944
3,294,081
16,662
68,632541,127
41,764
48,706
6,589,908
15,517,561

463,289
940,806
387,958
32,334
2,772,440
25,79065,240259,741
42,674
12,224
5,002,501
12,031,375¥

Notes:(*1) Pursuant to our management contracts with a certain hotel operator, we receive revenue in the amountequivalent to the properties’ gross operating profit, or GOP, while we pay management contract fees to theoperator. In the event a property’s GOP for the relevant period is a negative number, then we are required to
pay an amount equal to such negative number to the operator. Even though some of the revenue we receive
under management contracts is variable, we recognize such revenue as income from management contracts
and not as variable rent.
(*2) Outsourcing expenses include management contract fees of ¥318,587 thousand for the year ended December
31, 2016 and ¥239,507 thousand for the year ended December 31, 2015.

59

10. Gain on Sale of Real Estate Properties
There was no significant transaction for the year ended December 31, 2016.
The components of “Gain on sale of real estate properties” for the year ended December 31, 2015 were as follows:

Proceeds from sale of properties
Costs of sale of properties
Other selling expenses
Gain on sale of real estate properties

Thousands of yen
For the year ended December 31, 2015
Comfort Hotel
Daiwa Roynet
Hotel SunrouteShin-Yamaguchi
Hotel Akita
Niigata¥*¥*¥*
787,727
1,644,598
1,967,716
33,684
72,401
78,203
¥
¥
¥
-

Total
4,890,000
4,400,042
184,288¥
305,668¥* The sale prices for each property have not been disclosed as consent on disclosure has not been obtained from thepurchaser.

11. Advanced Depreciation of Property and Equipment
The accumulated advanced depreciation of property and equipment deducted from acquisition costs due togovernment subsidies received as of December 31, 2016 and 2015 were as follows:
Thousands of yen
As ofDecember 31, 2016¥
24,921

Buildings in trust

As ofDecember 31, 2015¥
24,921

12. Loss on disaster
Restoration costs for assets damaged by the 2016 Kumamoto Earthquake were recorded as an extraordinary losses
for the year ended December 31, 2016.

13. Income Taxes
Significant components of deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:
Thousands of yen
As of December
As of December
31, 2016
31, 2015
Deferred tax assets
Valuation difference on assets acquired by merger
Amortization of fixed-term leasehold rights
Asset retirement obligations
Deferred losses on hedges
Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets¥

1,775,942¥
32,5893,087
221,352
2,032,972(2,032,972)- ¥Deferred tax liabilities
Deferred gains on hedges
Total deferred tax liabilities¥

46,233
46,233¥60¥

1,833,861
179,626
2,013,488(2,013,488)--

Reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in theaccompanying statements of income for the years ended December 31, 2016 and 2015 was as follows:
For the year
ended December
31, 2016
32.31%(32.37)(0.21)
0.28
0.01%

Effective statutory tax rate
Deduction for dividends paid
Change in valuation allowance
Other – net
Actual effective tax rate

For the year
ended December
31, 2015
34.15%(32.59)(2.72)
1.17
0.01%

14. Amounts per Unit
Net income per unit for the years ended December 31, 2016 and 2015 was as follows:
Thousandsof yenNet
incomeNumber ofunits
Weightedaverage units¥

12,123,163

3,501,175

¥

3,462

¥

9,294,677

3,060,647

¥

3,036

For the year ended December 31, 2016
Basic net income per unit - Net income attributable tocommon unitholders

Yen
Net income
per unit

For the year ended December 31, 2015
Basic net income per unit - Net income attributable tocommon unitholders

Notes:(1) The computation of net income per unit is based on the weighted-average number of units outstanding during
the period.
(2) Diluted net income per unit is not presented since there are no potentially dilutive units for the years ended
December 31, 2016 and 2015.
Net assets per unit as of December 31, 2016 and 2015 were as follows:
Yen
As of December
As of December
31, 2016
31, 2015¥
48,376 ¥41,318

Net assets per unit

15. Leases
As Lessor:
JHR leases its real estate properties to third parties under non-cancellable operating leases. Minimum rental
revenue under the non-cancellable operating leases as of December 31, 2016 and 2015 were as follows:
Thousands of yen
As of December
As of December
31, 2016
31, 2015¥
1,709,333¥
1,788,631
5,889,179
7,565,169¥
7,598,512¥
9,353,800

Due within one year
Due after one year
Total

61

16. Derivatives and Hedging Activities
a. Derivative transactions to which hedge accounting is not applied
Derivative transactions to which hedge accounting is not applied as of December 31, 2016 and 2015 were as
follows:

As of December 31, 2016
Interest rate swaps(fixed rate payment,
floating rate receipt)

Interest rate caps

As of December 31, 2015
Interest rate swaps(fixed rate payment,
floating rate receipt)

Interest rate caps

Classification
Transactions
other thanmarkettransactions
Transactions
other thanmarkettransactions

Classification
Transactions
other thanmarkettransactions
Transactions
other thanmarkettransactions

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year¥ 6,794,000¥ 6,794,000¥(38,033)

¥

¥

¥

-

848,250-

Fair value(*2)

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year¥ 6,794,000¥ 6,794,000¥(38,598)

¥

¥

¥

34

848,250

848,250

Fair value(*2)

b. Derivative transactions to which hedge accounting is applied
Derivative transactions to which hedge accounting is applied as of December 31, 2016 and 2015 were as follows:

As of December 31, 2016
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method ofhedge
accounting

Hedged item

DeferralmethodLong-termloans payable¥ 92,428,750¥ 82,808,750 ¥DeferralmethodLong-termloans payable

4,286,250

4,286,250

62

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
Fair value
year
(*2)
(516,439)
190

As of December 31, 2015
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method ofaccounting

Hedged item

DeferralmethodLong-termloans payable

DeferralmethodLong-termloans payable

Contract
amount(*1)

Thousands of yen
Contract
amountdue after One
Fair value
year
(*2)

¥63,581,950¥ 58,028,750

8,565,250

4,286,250¥(495,258)

1,238

Notes:(*1) The contract amounts of the interest rate swap and interest rate cap are presented based on the notional
principal amounts. Also, the contract amounts of derivative transactions do not indicate market risk exposure
related to derivative transactions.
(*2) The fair value is measured at the quoted price obtained from the counterparty financial institutions.

17. Investment and Rental PropertiesJHR owns rental properties for hotels to earn lease income and income from management contracts. The carrying
amounts, changes in such balances, and fair values of such properties were as follows:

HotelsJanuary 1,
2016¥
222,362,750

Thousands of yen
Carrying amount
December 31,
Net increase (*1)
2016¥
62,602,797¥
284,965,547

Fair value (*2)
December 31,
2016¥398,770,000

Notes:(*1) Increase during 2016 principally represents the acquisition of CANDEO HOTELS UENO-KOEN for ¥6,784
million, Hotel Centraza Hakata for ¥7,614 million, Holiday Inn Osaka Namba (HOTEL VISTA GRANDEOSAKA) for ¥27,245 million, HOTEL ASCENT FUKUOKA for ¥5,222 million and Hilton Nagoya for¥15,488 million.
(*2) Fair value of properties as of December 31, 2016 is generally the appraisal value determined by licensed realestate appraisers.

HotelsJanuary 1,
2015¥
169,847,788

Thousands of yen
Carrying amount
December 31,
Net increase (*1)
2015¥
52,514,962¥
222,362,750

Fair value (*2)
December 31,
2015¥
302,110,000

Notes:(*1) Increase during 2015 principally represents the acquisition of the five the b hotels for ¥20,230 million, Hotel
Francs for ¥3,181 million, Mercure Yokosuka for ¥1,649 million, Okinawa Marriott Resort & Spa for¥15,094 million and ACTIVE-INTER CITY HIROSHIMA for ¥17,949 million. Decrease during the year
ended December 31, 2015 principally represents the sale of Comfort Hotel Shin-Yamaguchi (book value of¥787 million), Daiwa Roynet Hotel Akita (book value of ¥1,644 million) and Hotel Sunroute Niigata (bookvalue of ¥1,967 million).
(*2) Fair value of properties as of December 31, 2015 is generally the appraisal value determined by licensed realestate appraisers.

Real estate operating revenue and costs for the years ended December 31, 2016 and 2015 related to the rental
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properties were as follows:

HotelsThousands of yen
For the year ended December 31, 2016
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income¥
22,107,470¥
6,589,908¥
15,517,561

HotelsThousands of yen
For the year ended December 31, 2015
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income¥
17,033,876¥
5,002,501¥
12,031,375

Note:(*) “Real estate operating revenue” and “Real estate operating costs” are income from real estate operation(including other real estate operating revenue) and corresponding expenses (such as depreciation, property
taxes, trust fees, and repairs and maintenance expenses), and are included in “Operating revenue” and “Realestate operating costs,” respectively.

18. Segment Informationa. Segment information
The segment information has been omitted because JHR has only one segment, which is the investment andmanagement business of hotel real estate.
b. Related information(1) Information about products and services for the years ended December 31, 2016 and 2015
Information about products and services has been omitted because operating revenue from external customers
in a single product/service category accounted for more than 90% of total operating revenue.
(2) Information about geographical areas for the years ended December 31, 2016 and 2015(i) Operating revenue
Information about geographical areas has been omitted because operating revenue in Japan accounted for morethan 90% of total operating revenue.
(ii) Property and equipment
Information about property and equipment has been omitted because the amount of property and equipment
located in Japan accounted for more than 90% of net property and equipment.
(3) Information about major customers<For the year ended December 31, 2016>

Name of customer

Segment
Hotel real estate
investment and management
Hotel real estate
investment and management

Hotel Management Japan Co., Ltd.
AAPC Japan K.K.

<For the year ended December 31, 2015>

64

Thousands of yen
Operating revenue¥

6,825,199¥

2,980,712

Thousands of yen
Segment
Operating revenue
Hotel real estate
Hotel Management Japan Co., Ltd.
¥6,147,639
investment and management
Hotel real estate
AAPC Japan K.K.
¥
2,546,023
investment and management
Hotel real estate
The DAI-ICHI BUILDING CO., LTD.
(*)
investment and management(*) The operating revenue is not disclosed as consent on disclosure has not been obtained from the hotel lessee.
Name of customer

19. Subsequent Events
There were no material subsequent events.

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