Ichigo Preserves and Improves Real Estate[Provisional Translation Only]
This English translation of the original Japanese document is provided solely for information purposes.
Should there be any discrepancies between this translation and the Japanese original, the latter shall prevail.

August 24, 2018
IssuerIchigo Hotel REIT Investment Corporation (“Ichigo Hotel,” 3463)
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Representative: Osamu Miyashita, Executive Director
www.ichigo-hotel.co.jp/english
Asset Management Company
Ichigo Investment Advisors Co., Ltd.
Representative: Wataru Orii, President
Inquiries: Hiroto Tajitsu, Head of Administration
Tel: +81-3-3502-4892

Hotel Acquisition (Court Hotel Kurashiki)
Ichigo Investment Advisors (“IIA”), the asset management company of Ichigo Hotel,
decided today to acquire the Court Hotel Kurashiki in Okayama Prefecture, located along
Japan’s Inland Sea between Osaka and Hiroshima. The Court Hotel Kurashiki has strong
growth potential due to increasing inbound tourism and robust domestic business demand.
We would like to express our deepest condolences to all those affected by last month’s
heavy rainfall in western Japan and our wishes for the earliest possible recovery.
Fortunately, the city center of Kurashiki, where the Court Hotel Kurashiki is located,suffered no building or infrastructure damage, and the hotel’s occupancy is robust, withJuly occupancy at 96.4%.
1. Acquisition Summary
Hotel Name

Court Hotel Kurashiki

Hotel No.1

F-4 022

Hotel Type

Stay-Only

Date Built

March 1993

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Appraisal Value2

JPY 1,960,000,000

Acquisition Price3

JPY 1,725,000,000

SellerNishi Nihon Holdings GK(Please see “Seller Profile” in Section 4.)

Contract Date

August 24, 2018

Closing Date

August 31, 2018

Financing Method

Cash-on-handSettlement Method

Lump-sum payment
1

1

The initial letter “F” is Ichigo Hotel’s regional code for where the hotel is located, in
this case the Chugoku/Shikoku region in western Japan. Please see pp. 10 – 11 forregional code details.
2
Appraisal value is as of August 1, 2018.
3
Acquisition price excludes incidental expenses such as property, city planning, andconsumption taxes.
2. Acquisition Rationale
Through the acquisition of the Court Hotel Kurashiki, a hotel with an NOI (NetOperating Income) yield of 6.9% (appraisal basis) and strong growth potential, Ichigo
Hotel continues to execute on its strategy to grow earnings and dividends for its
shareholders. The acquisition is being financed by reinvesting part of the proceeds fromthe August sale of the Smile Hotel Asakusa.1 (JPY 690 million in profits from that salewill also be paid out as dividends to Ichigo Hotel shareholders in the current January
2019 fiscal period.)
The Court Hotel Kurashiki is conveniently located an eight-minute walk from JRKurashiki train station and just a two-minute walk from the Kurashiki Bikan Historical
Quarter, a popular tourist destination with historical Edo-period buildings. As shown inthe graph below, 3.85 million tourists visited the Kurashiki Bikan Historical Quarter in
2016, with inbound visitors growing 10% annually. In addition, Kurashiki’s Mizushima
Coastal Industrial Complex, one of the nation’s biggest industrial areas, generates
robust business demand for hotels.
The Court Hotel Kurashiki is being acquired from Ichigo Hotel’s sponsor, Ichigo(2337). The hotel’s operator, The COURT, operates 16 hotels across Japan, including
Ichigo Hotel’s Valie Hotel Tenjin, and the hotel’s variable rent lease is expected to drive
earnings upside from growing inbound tourism.
Ichigo Hotel has confirmed the appropriateness of the Court Hotel Kurashiki’s
acquisition price, which is 12% below the hotel’s third-party appraisal value despite
Japan’s strong real estate market. In particular, given that this is a related party
transaction as specified in IIA’s rules, Ichigo Hotel fully implemented its related party
transaction procedures, including getting a third-party appraisal on the hotel and crosschecking the third-party appraisal with an additional third-party second opinion
appraisal.
1For details of the sale, please refer to the April 20, 2018 release “Hotel Sale (Smile
Hotel Asakusa)” and the August 1, 2018 release “Completion of Hotel Sale (Smile
Hotel Asakusa).”2

Number of Hotel Guests in Okayama Prefecture(million)
Inbound (Right Axis)
外国人宿泊者（右軸）Japanese (Left Axis)
日本人宿泊者数（左軸）

（百万人）

60.5
4.5

44.0

3.8

4.6

4.5

4.1

0.4

0.40.30.30.2

20.2

00.10.1

2012
2012年

2013
2013年

0.10.1
2014
2014年

2015
2015年

2016
2016年

2017
2017年

Note: Data prepared by IIA based on the Japan Tourism Agency’s “StatisticalSurvey of Travelers,” 2012 – 2017.
Number of Tourists Visiting the Kurashiki Bikan Historical Quarter(thousand)

（千人）

4,000

3,500
3,845
3,534

3,000
3,069

3,065

2013
2013年

2014
2014年

2,500

2015
2015年

2016
2016年

Note: Data prepared by IIA based on Kurashiki City’s “Kurashiki City Tourism
Statistical Report 2016.”

30.0

3. Description and Location of the Court Hotel KurashikiThe Court Hotel Kurashiki caters to both business and tourism demand. It is located atwo-minute walk from the Kurashiki Bikan Historical Quarter, a popular tourist
destination, and also offers convenient access to the Mizushima Coastal Industrial Zone,
one of Japan’s biggest industrial areas.
The hotel has 104 guest rooms with double or twin beds and an average size of 23m2.
Twin-bed rooms make up about 70% of total guest rooms to flexibly accommodate thediverse needs of travelers.

Kurashiki Bikan
Historical Quarter4Legal Form of AssetTrustee
Period of Trust Contract
Location
Property Right
Area
Land
ZoningCoverage Ratio
Floor Area Ratio
Property Right
Use
Building Structure1
Total Floor Area
Date Built
Appraiser
Appraisal Value

Hotel Details
Trust beneficiary interest in real estate (juekiken)
Mizuho Trust & Banking Co., Ltd.
November 9, 2005 – August 31, 2028 (Expected)
2-2-26 Chuo, Kurashiki City, Okayama
Freehold
1,031.57m2
Commercial
80%400%Freehold
Hotel
Reinforced Concrete, 8 Floors
3,964.19m2
March 12, 1993
Tanizawa Sogo Appraisal Co., Ltd.
JPY 1,960,000,000
August 1, 2018

Appraisal DateValue by Direct Capitalization
JPY 1,970,000,000
MethodNumber of Guest Rooms
104
Kajima Corporation, Hiroshima Branch, First-Class
Architect2
Registered Architects Office2
Builder
Kajima Corporation, Hiroshima Branch
Kajima Corporation, Hiroshima Branch, First-Class
Structural Designer2
Registered Architects Office2
Inspection Agency
Kurashiki City
PML (Assessor)
6.54% (Sompo Risk Management & Health Care Inc.)
Collateral
None
Lease Details
Tenant Overview
1
Number of Tenants
Minimum Guaranteed Rent: JPY 64,679,234 p.a.
Variable Rent: Monthly GOP (Gross Operating Profit) –Rental Income(Monthly Minimum Guaranteed Rent + Percentage ofMonthly GOP)
Deposit
None
Leasable Area
3,964.19m2
Leased Area
3,964.19m2
MarchAprilMayJuneJuly
2018
2018
2018
2018
2018
Occupancy
100%100%100%100%100%
Property Management
Uniho Co., Ltd.
Company
Master Lease Company
Ichigo Hotel REIT Investment Corporation5

Master Lease TypeAppraisal NOI Yield3
Post-Depreciation NOI Yield4

Pass-through
6.9%
5.6%
Special Items

1. An engineering report indicates that the emergency exit light above the eighth floor exit
leading to the outdoor stairs is defective. The seller has agreed to rectify the issue at theseller’s expense by the Acquisition Date.
2. An inspection found problems in the automatic fire alarm system’s sensors and anemergency exit light. The seller has agreed to rectify these issues at the seller’s expense by
the Acquisition Date.
1

Building Structure refers to the structure described in the real estate registry.
Names of the architect, builder, structural designer, and inspection agency are those as ofwhen the building was built.
3Appraisal NOI Yield = Appraisal NOI (Net Operating Income) in the real estate appraisal
report divided by the Acquisition Price. This figure is independently calculated by IIA
based upon the above data and is therefore not in the real estate appraisal report itself.
4Post-Depreciation NOI Yield = Appraisal NOI in the real estate appraisal report minus
Depreciation, divided by the Acquisition Price. Depreciation is independently calculated
by IIA using the straight-line method, and the Post-Depreciation NOI Yield is calculated
by IIA based upon the above data and are therefore not in the real estate appraisal report
itself.
26Hotel Name
Appraisal Value
Appraiser
Appraisal Date

Appraisal Value
Value by Direct
Capitalization Method
IncomeMaximum
Obtainable Rental
IncomeVacancy LossExpenses
AdministrativeandMaintenanceExpensesUtility Expenses
Repair Expenses
PM FeeAppraisal Details
Court Hotel Kurashiki
JPY 1,960,000,000
Tanizawa Sogo Appraisal Co., Ltd.
August 1, 2018
AmountNote
Based on a DCF valuation, and verified
JPY 1,960,000,000 using a direct capitalization valuation
and DCF valuation
JPY 1,970,000,000
JPY 135,000,000
JPY 135,000,000–
JPY 15,999,470– Borne by tenant– Borne by tenant
Based on the average of the past 12JPY 6,500,000
years of engineering reports
Based on estimates and JPY 100,000
JPY 1,200,000
per month

Leasing
Brokerage Fees
Taxes–
JPY 7,952,500

Based on FY2018 actual amounts(including depreciable asset tax)

InsurancePremiums

JPY 211,970 Based on insurance estimates

Other Expenses

JPY 135,000

Net Operating
Income (NOI)
Income on
Investment ofDeposits Received
CapitalExpenditure
Net Profit
Cap Rate
Value via DCF Method

0.1% of rental income (accounted for asa variable expense)

JPY 119,000,530–
JPY 18,620,000

Based on average renewal expense of
the past 12 years in engineering reports

JPY 100,380,530
Based on transactions of similar assets
and comprehensive assessment of the
5.1% asset’s location, its individualcharacteristics, property right, as well as
recent decline of hotel cap rates
JPY 1,950,000,000

7Based on transactions of similar assets
and the yields of financial assets with5.2%
the asset’s individual characteristics
taken into account
5.3% Based upon risk-adjusted NOI

Discount Rate
Terminal Cap Rate
Value via Cost ApproachLand

JPY 1,790,000,000
70.1%
Sum of building and Furniture,
Fixtures, & Equipment (FF&E) values
29.9%
divided by sum of building, FF&E, andland values
Notes

Building

None
4. Seller Profile
NameAddress

Nishi Nihon Holdings GK
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Ippan Shadan Hojin VSL, Representative Employee
Representative
Hiroshi Sasaki, Representative Director
Ownership and buy/sell of trust beneficiary interest in real
Principal Businesses estate (juekiken)
Ownership, management, and buy/sell of real estate
CapitalJPY 100,000
Establishment Date
October 23, 2015
Although the seller is not a related party as defined in theEnforcement Ordinance of the Investment Trust and Investment
Relationship withCorporation Law, it is a related party as defined in IIA’sIchigo Hotel or IIA1 internal rules given that Ichigo, IIA’s 100% shareholder, is asilent partner and the seller receives asset management advice
from Ichigo Estate, a related party.
1
Because Nishi Nihon Holdings GK is a related party as specified in IIA’s internal
rules, Ichigo Hotel fully implemented its related party transaction procedures,
including getting a third-party appraisal on the hotel and cross-checking the thirdparty appraisal with an additional third-party second opinion appraisal.
5. Ownership History
Asset Name
Overview
Name
Relationship toIchigo Hotel
Acquisition
Rationale
Acquisition
Price1
Acquisition Date

Court Hotel Kurashiki
Current Owner
Previous Owner
Nishi Nihon Holdings GK
Unrelated Party
Related Party as defined in
the internal rules of IRE.
―
Please see “Seller Profile” inSection 4.
Investment―

Omitted as ownershipexceeds one year
December 20168――

6. Broker Profile
N/A
7. Acquisition ScheduleContract Date
Acquisition and Settlement Date

August 24, 2018
August 31, 2018 (Expected)

8. Earnings Outlook
The acquisition of the Court Hotel Kurashiki is forecast to increase Ichigo Hotel’sJanuary 2019 NOI and EPS by JPY 37 million and JPY 66, respectively. However,Ichigo Hotel is not currently revising its existing earnings forecast announced on April
20, 2018. Should an earnings forecast revision become necessary, Ichigo Hotel willpromptly disclose the details.

9Appendix A: Engineering Report Summary
Inspector Name
Inspection Date
Short-Term Repair Expenses1
Long-Term Repair Expenses2
Current Replacement Cost

Tokio Marine & Nichido Risk Consulting Co., Ltd.
July 2018–
JPY 207,553,000
JPY 999,200,000

1

Short-Term Repair Expenses are defined as repair expenses considered necessary
beyond the scope of ordinary maintenance within a year from the time of inspection.
2
Long-Term Repair Expenses are defined as cumulative repair expenses considerednecessary for the maintenance of the hotel within twelve years from the time ofinspection.

10Appendix B: Post-Acquisition Portfolio
HotelNo.1

C-3 016
D-1 006
D-2 003
D-3 011
D-4 019E-1 001E-2 002
E-3 005
E-4 007
E-5 010F-1 017
F-2 015
F-3 021F-4 022
G-1 009G-2 013
1% ofPortfolio3

Variable Rent

2,160

4.3

Variable Rent
Fixed Rent
Fixed Rent
Variable Rent

1,450
300
1,490
3,910

2.9
0.6
2.9
7.7

Fixed Rent

1,360

2.7

Fixed Rent

1,550

3.1

Variable Rent

2,670

5.3

Fixed Rent

5,308

10.5

Fixed Rent
Variable Rent
Variable Rent

300
4,480
3,600

0.6
8.8
7.1

Variable Rent

1,630

3.2

Fixed Rent4

1,490

2.9

Variable Rent7,600

15.0

Fixed Rent
Variable Rent

1,200
1,610

2.4
3.2

Fixed Rent

1,800

3.5

Variable Rent
Variable Rent
Variable Rent

1,725
1,380
3,750
50,763

3.4
2.7
7.4
100.0

Lease
Terms

Hokkaido

Hokkaido
Nest Hotel Sapporo Odori
Hokkaido
Comfort Hotel Kushiro
Kanagawa
Grandpark-Inn Yokohama
Tokyo
Smile Hotel Tokyo Asagaya
Hotel Livemax
Tokyo
Nihombashi- Hakozaki
Shizuoka
Comfort Hotel Hamamatsu
Hotel Wing International
Aichi
NagoyaComfort Hotel Central
Aichi
International Airport
Mie
Comfort Hotel Suzuka
Kyoto
Smile Hotel Kyoto Shijo
Kyoto
Hotel Vista Premio Kyoto
Chisun Inn Osaka
Osaka
Hommachi
Hyogo
Hotel Suave Kobe Asuta
Nest Hotel Osaka
Osaka
Shinsaibashi
Okayama
Comfort Hotel Okayama
Ehime
Nest Hotel Matsuyama
Urbain Hiroshima
Hiroshima
Executive
OkayamaCourt Hotel Kurashiki
Fukuoka
Valie Hotel Tenjin
Okinawa
Nest Hotel Naha
Total 21 Hotels

A-1 004 Nest Hotel Sapporo Ekimae
A-2 008
A-3 018B-1 020
C-1 012Acquisition
Price2(JPY million)

Prefecture

Hotel Name

The initial letter (A, B, etc.) is a regional code which identifies the area in which the hotel is located.
CodeARegion
Hokkaido/Tohoku

BKanto

CDE
F

Tokyo
Hokuriku/TokaiKinki
Chugoku/Shikoku

G

Kyushu/Okinawa

Prefectures
Hokkaido, Aomori, Iwate, Miyagi, Akita, Yamagata, Fukushima
Ibaraki, Tochigi, Gunma, Saitama, Chiba, Kanagawa, Yamanashi,
Nagano, Niigata
TokyoToyama, Ishikawa, Fukui, Gifu, Shizuoka, Aichi, Mie
Osaka, Hyogo, Kyoto, Shiga, Nara, Wakayama
Tottori, Shimane, Okayama, Hiroshima, Yamaguchi, Kagawa,Tokushima, Kochi, Ehime
Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki, Kagoshima,Okinawa

112Acquisition Price is the price as indicated in the purchase and sales agreement for the hotel(excluding fees and incidental expenses such as property, city planning, and consumption taxes).
3% of Portfolio is the Acquisition Price of each hotel as a percentage of the Total Acquisition Price forthe portfolio, rounded to the nearest tenth.
4
While the Hotel Suave Kobe Asuta’s lease contract includes a variable rent clause, it has never been
triggered. Because Ichigo Hotel does not anticipate receiving variable rent at this hotel, it has beenclassified as a fixed rent hotel.

12