Make The World
More Sustainable[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.

April 23, 2019
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: Hiroshi Iwai, President
Inquiries: Hiroto Tajitsu, Head of Administration
Tel: +81-3-3502-4892

Hotel Acquisition (Nest Hotel Kumamoto)Ichigo Hotel decided today to acquire the Nest Hotel Kumamoto in Kumamoto Prefecture.
1. Acquisition Summary
Hotel Name

Nest Hotel Kumamoto

Hotel Number1

G-3 023

Date Built

August 1984

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Appraisal Value2

JPY 2,440,000,000

Acquisition Price3

JPY 2,220,000,000

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

Contract Date

April 23, 2019

Closing Date

April 25, 2019

Financing Method

Cash-on-hand and loan4

Settlement Method

Lump-sum payment

1

The initial letter “G” is Ichigo Hotel’s region code for where the hotel is located, in
this case the Kyushu/Okinawa region in southern Japan. Please see page 10 for region
code details.
2
Appraisal Value is calculated by Tanizawa Sogo Appraisal as of March 1, 2019, and isin compliance with the appraisal guidelines of Ichigo Investment Advisors (“IIA”) as
well as the rules of the Investment Trusts Association of Japan.
3
Acquisition Price excludes incidental expenses such as fees and property, city
planning, and consumption taxes.
4
For financing details, please refer to today’s release “New Loan and Interest Rate
Swap.”
12. Acquisition Rationale
Ichigo Hotel continues to execute on its strategy to grow earnings and dividends for its
shareholders.
As part of that strategy, today Ichigo Hotel is acquiring the Nest Hotel Kumamoto withthe support of its sponsor, Ichigo. Ichigo Hotel is using cash-on-hand and a new loan tofinance the acquisition, which is forecast to increase Ichigo Hotel’s July 2019 andJanuary 2020 NOI by JPY 40 million and JPY 75 million, respectively. The forecast
post-acquisition LTV is 42.1%.1
The Nest Hotel Kumamoto is just a two-minute walk from the Nishikarashimacho
station on the Kumamoto City Tram line. It is located in central Kumamoto in an areawith government buildings, offices, and restaurants and convenient access to Kumamoto
Castle, which enables the hotel to capture stable business demand as well as leisuredemand. The hotel is a three-minute walk from the Kumamoto Bus Terminal, a major
stop for buses to Kumamoto Airport. The Sakuramachi area where the terminal islocated is currently undergoing large-scale redevelopment, and a large retail andresidential complex that will feature Japan’s largest bus terminal is set to open in
September 2019. The complex will include SAKURA MACHI Kumamoto, a retailfacility with 150 expected tenants, a large multi-purpose hall, and a movie theater, thus
driving hotel guest demand. The complex will also separately include a hotel, but due tosignificant differences in room configurations and price, it is not expected to be incompetition with the Nest Hotel Kumamoto.
The number of tourists visiting Kumamoto has been increasing, and although inbounddemand temporarily decreased after the Kumamoto Earthquake in April 2016, it hasrebounded back to pre-earthquake levels. Inbound demand is forecast to increase given
Kumamoto is easily accessible from South Asia and features popular tourist spots suchas Mount Aso and Kurokawa Onsen (hot springs).
All rooms in the hotel accommodate two or more people, and a large banquet hall andmeeting rooms on the second floor enable the hotel to capture both business and leisuredemand.
The hotel’s operator, Nest Hotel Japan, operates 13 hotels across Japan, including Ichigo
Hotel’s five hotels under the Nest Hotel brand, and the hotel’s variable rent lease isforecast to drive earnings upside from growing inbound tourism. Ichigo Hotel will also
assess the upside from value-add capex such as room renovations to drive further
earnings growth.
Ichigo Hotel has confirmed the appropriateness of the Nest Hotel Kumamoto’s
acquisition price. 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 cross-checking the third-party
appraisal with an additional third-party second opinion appraisal.
1

Post-Loan LTV = (Post-Loan Total Interest Bearing Liabilities) / (January 2019 Total
Assets – January 2019 Total Dividends + Acquisition Price of Nest Hotel Kumamoto)2

3. Description and Location of the Nest Hotel Kumamoto
The Nest Hotel Kumamoto caters to business, leisure, and inbound demand. It is locatedin an area in central Kumamoto with government offices and shopping districts, andoffers convenient access to Kumamoto Castle.
Guest demand is forecast to increase on the back of the nearby Sakuramachi area’s
large-scale redevelopment, where a large retail and residential complex andtransportation hub is set to open in September 2019.
The hotel’s double, twin-bed, and triple rooms allow it to flexibly accommodate thediverse needs of travelers.

3

Legal Form of Asset
Trustee
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)
Mitsubishi UFJ Trust and Banking Corporation
November 9, 2005 – April 30, 2029 (Expected)
4-39 Karashimacho, Chuo-ku, Kumamoto
Freehold
1,074.39m2
Commercial
80%600%
Freehold
Hotel
Reinforced Concrete, Steel Reinforced Concrete 11 Floors
6,404.36m2
August 30, 1984
Tanizawa Sogo Appraisal Co., Ltd.
JPY 2,440,000,000
March 1, 2019

Appraisal Date
Value by Direct Capitalization
JPY 2,470,000,000
MethodNumber of Guest Rooms
201
Nikken Sekkei Ltd., Tokyo Branch, First-Class Registered
Architect2
Architects Office2
Builder
Obayashi Corporation, Fukuoka Branch
Nikken Sekkei Ltd., Tokyo Branch, First-Class Registered
Structural Designer2
Architects Office2
Inspection Agency
Kumamoto City
PML (Assessor)
1.82% (Sompo Risk Management & Health Care Inc.)
Collateral
None
Lease Details
Tenant Overview
2
Number of Tenants
Minimum Guaranteed Rent: JPY 64,679,234 p.a.
Variable Rent: Monthly GOP (Gross Operating Profit) –Rental Income3(Monthly Minimum Guaranteed Rent + Percentage ofMonthly GOP)
Deposit
Lease deposit: JPY 19,525,140; No guarantee deposit
Leasable Area
6,404.36m2
Leased Area
6,404.36m2
November December
January
February
March
2018
2018
2019
2019
2019
Occupancy
100%
100%
100%
100%
100%

4

Property Management
Company
Master Lease Company
Master Lease TypeAppraisal NOI Yield4
Post-Depreciation NOI Yield5

Uniho Co., Ltd.

Ichigo Hotel REIT Investment Corporation
Pass-through
6.8%
5.3%
Special Items
1. An engineering report indicates that there is insufficient smoke ventilation in the second
floor men’s room. The seller has agreed to rectify the issue at the seller’s expense.
2. A cleaning report found water tank leakage, which the seller has agreed to rectify at theseller’s expense.
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.
3
Rental Income includes all rent from hotel facilities. For the Nest Hotel Kumamoto,Ichigo Hotel has entered a lease agreement for the banquet hall inside the hotel.
4
Appraisal 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.
5
Post-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.
2

5

Hotel Name
Appraisal Value
Appraiser
Appraisal Date

Appraisal Value
Value by Direct
Capitalization Method
IncomeMaximum
Obtainable Rental
IncomeVacancy Loss
Expenses
Administrative &MaintenanceExpensesUtility Expenses
Repair Expenses
PM FeeLeasing
Brokerage Fees
Taxes

Appraisal Details
Nest Hotel Kumamoto
JPY 2,440,000,000
Tanizawa Sogo Appraisal Co., Ltd.
March 1, 2019
AmountNote
Based on a DCF valuation, and verified
JPY 2,440,000,000 using a direct capitalization valuation
and DCF valuation
JPY 2,470,000,000
JPY 168,878,052
JPY 168,968,052
JPY 90,000
JPY 17,993,374– Borne by tenant– Borne by tenant
Based on the average of the past 12
JPY 6,195,000
years of engineering reports
JPY 1,560,000 Based on estimates–
JPY 9,371,500

Based on FY2018 actual amounts(including depreciable asset tax)

Insurance
Premiums

JPY 360,240 Based on insurance estimates

Other Expenses

JPY 506,634

Net Operating
Income (NOI)
Income on
Investment of
Deposits Received
CapitalExpenditure
Net Profit

0.3% of rental income (accounted for asa variable expense)

JPY 150,884,678
JPY 195,884
Based on the average upgrade expense
over the past 12 years in engineering
JPY 20,190,000 reports with Furniture, Fixtures, &Equipment (FF&E) reserves taken into
account
JPY 130,890,562
Based on transactions of similar assets
and comprehensive assessment of the
5.3%
asset’s location, its individual
characteristics, and property rights

Cap Rate

6

Value via DCF Method

JPY 2,420,000,000

Discount Rate

Based on transactions of similar assets
and the yields of financial assets with
5.4%
the asset’s individual characteristics
taken into account

Terminal Cap Rate

5.5% Based upon risk-adjusted NOI

Value via Cost ApproachLand

JPY 2,430,000,000
58.2%
Sum of building and FF&E values
41.8% divided by sum of building, FF&E, andland values

Building

Notes
None
4. Seller Profile
Name
Address
Representative
Principal Businesses
CapitalEstablishment Date
Relationship with
Ichigo Hotel or IIA1Net Assets

Nishi Nihon Holdings GK
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Ippan Shadan Hojin VSL, Representative Employee
Hiroshi Sasaki, Representative Director
Ownership and buying/selling of trust beneficiary interests inreal estate (juekiken)
Ownership, management, and buying/selling of real estate
JPY 100,000
October 23, 2015
Although the seller is not a related party as defined in the
Enforcement Ordinance of the Investment Trust and Investment
Corporation Law, it is a related party as defined in IIA’s internal
rules given that Ichigo, IIA’s 100% shareholder, is a silent
partner and the seller receives asset management advice from
Ichigo Estate, an Ichigo subsidiary and related party.
The seller has not given consent to disclose the information.

Total Assets
The seller has not given consent to disclose the information.
Major Shareholder
The seller has not given consent to disclose the information.
and Shareholding
Ratio
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.

75. Ownership History
Asset Name
Overview
Name
Relationship to
Ichigo Hotel
Acquisition
Rationale
Acquisition Price
Acquisition Date

Nest Hotel Kumamoto
Current Owner
Previous Owner
Nishi Nihon Holdings GK
Unrelated Party
Related Party as defined in
the internal rules of IIA.
–
Please see “Seller Profile” inSection 4.
Investment–

Omitted as ownershipexceeds one year
December 2015––

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

April 23, 2019
April 25, 2019 (Expected)

8. Earnings Outlook
The acquisition of the Nest Hotel Kumamoto is forecast to increase Ichigo Hotel’s July
2019 and January 2020 NOI by JPY 40 million and JPY 75 million, respectively. While
Ichigo Hotel is not currently revising its existing earnings forecast announced on March
14, 2019, should an earnings forecast revision become necessary, Ichigo Hotel willpromptly disclose the details.

8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.
March 2019–
JPY 214,871,000
JPY 1,764,100,000

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.

9

Appendix B: Post-Acquisition Portfolio
Hotel Name

Prefecture

Nest Hotel Sapporo Ekimae
Nest Hotel Sapporo Odori
Comfort Hotel Kushiro
Grandpark-Inn Yokohama
Smile Hotel Tokyo Asagaya
Hotel Livemax NihombashiHakozaki
Comfort Hotel Hamamatsu
Hotel Wing International
NagoyaComfort Hotel Central
International Airport
Comfort Hotel Suzuka
Smile Hotel Kyoto Shijo
Hotel Vista Premio Kyoto
Chisun Inn Osaka
HommachiHotel Wing International
Kobe Shin Nagata Ekimae4
Nest Hotel Osaka
Shinsaibashi
Comfort Hotel Okayama
Nest Hotel Matsuyama
Urbain Hiroshima Executive

Hokkaido
Hokkaido
Hokkaido
Kanagawa
Tokyo

Variable Rent
Variable Rent
Fixed Rent
Fixed Rent
Variable Rent

Acquisition
Price2(JPY million)
2,160
1,450
300
1,490
3,910

Tokyo

Fixed Rent

1,360

2.6

Shizuoka

Fixed Rent

1,550

2.9

Aichi

Variable Rent

2,670

5.0

Aichi

Fixed Rent

5,308

10.0

Mie
Kyoto
Kyoto

Fixed Rent
Variable Rent
Variable Rent

300
4,480
3,600

0.6
8.5
6.8

Osaka

Variable Rent

1,630

3.1

Hyogo

Variable Rent

1,490

2.8

Osaka

Variable Rent

7,600

14.3

Okayama
Ehime
Hiroshima
Okayama
Fukuoka
Okinawa
Kumamoto

Fixed Rent
Variable Rent
Fixed Rent
Variable Rent
Variable Rent
Variable Rent
Variable Rent

1,200
1,610
1,800
1,725
1,380
3,750
2,220
52,983

2.3
3.0
3.4
3.3
2.6
7.1
4.2
100.0

Hotel
No.1
A-1 004
A-2 008
A-3 018B-1 020
C-1 012
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
G-3 023
1

Court Hotel Kurashiki
Valie Hotel Tenjin
Nest Hotel Naha
Nest Hotel Kumamoto
Total 22 Hotels

Lease
Terms

% of
Portfolio3
4.1
2.7
0.6
2.8
7.4

The initial letter (A, B, etc.) is a region code which identifies the area in which the hotel is located.

Code
A

RegionHokkaido/Tohoku

B

Kanto

C
D
E
F

Tokyo
Hokuriku/Tokai
Kinki
Chugoku/Shikoku

G

Kyushu/Okinawa

Prefectures
Hokkaido, Aomori, Iwate, Miyagi, Akita, Yamagata, Fukushima
Ibaraki, Tochigi, Gunma, Saitama, Chiba, Kanagawa, Yamanashi,
Nagano, Niigata
Tokyo
Toyama, 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,
Okinawa10

2

Acquisition 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
On March 1, 2019, Hotel Suave Kobe Asuta was renamed Hotel Wing International Kobe Shin
Nagata Ekimae and changed to a variable rent lease.

11

Reference: Annual Hotel Guests in Kumamoto Prefecture
Japanese (Left Axis)

7.0

6.5

Inbound (Right Axis)

6.8
6.4

6.8

(million)
6.9

1.0

6.4

0.8

6.0

1.1

0.9

0.7

0.7
5.5

0.5
0.5

0.5

5.0

0.3
2014

2015

2016

2017

2018

Note: Data prepared by IIA based on the Japan Tourism Agency’s “Statistical Survey ofTravelers,” 2014 – 2018.

12