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.

February 10, 2017
IssuerIchigo Hotel REIT Investment Corporation (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

Acquisition of Grandpark-Inn Yokohama
Ichigo Investment Advisors Co., Ltd. (“IIA”), the asset management company of Ichigo
Hotel REIT, decided today to acquire Grandpark-Inn Yokohama.
I. Acquisition Summary
Hotel NameGrandpark-Inn Yokohama

Hotel No.1

B-1 020

Hotel Type

Stay-Only

Date Built

December 1993

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Appraisal Value2

1,560,000,000 yen

Acquisition Price3

1,490,000,000 yen

SellerDomestic operating company(Please see “Seller Profile” in Section IV.)

Contract Date

February 10, 2017

Closing Date

March 27, 2017

Financing Method

Cash-on-hand and borrowings4

Settlement Method

Lump-sum payment

1

The initial letter “B” is Ichigo Hotel REIT’s regional code for where the hotel islocated, in this case the Kanto area that surrounds Tokyo.
2
Appraisal value is as of January 1, 2017.
3
Acquisition price excludes incidental expenses such as property, city planning, andconsumption taxes.
4
Financing details will be announced when determined.
1II. Acquisition Rationale
Ichigo Hotel REIT is committed to maximizing shareholder value by executing on its
growth plan and fully leveraging the value-add capabilities of its sponsor Ichigo. Taking
advantage of Ichigo Investment Advisor’s sourcing network, Ichigo Hotel REIT is
acquiring the Grandpark-Inn Yokohama hotel, financing the acquisition withcash-on-hand and borrowings.
Grandpark-Inn Yokohama is a designer capsule hotel that is a 6-minute walk from
Yokohama Station, one of the busiest stations in the Tokyo Metropolitan Area, serving
over 2 million train and subway passengers a day. Yokohama Station provides easy
access to both central Tokyo and tourist spots in Yokohama including the Red Brick
Warehouse shopping district, Yokohama Chinatown, and Minatomirai harbor area.
Located in a busy commercial district full of large retail facilities and office buildings,
Grandpark-Inn Yokohama can capture both business and leisure demand.
The hotel began operation in December 2016 after being fully renovated with a “Library
and Spa” theme that evokes the brick architecture and cruise ships that Yokohama isfamous for. The hotel offers compelling value with rates that are lower than neighboring
hotels while offering rooms that are outfitted with TVs and high-quality bedding andguest facilities that include a large communal bath, a sauna, a relaxation room, a library,
and a restaurant. To broaden the range of guests beyond Japanese capsule hotels’
traditionally male clientele, the hotel also has a female guest-only area with special
amenities.
In recent years, prime-location, high-convenience capsule hotels have been increasing in
popularity. The growing number of inbound tourists and their increasingly diversified
needs requires that hotels cater to these changing tastes. Ichigo Hotel REIT willcontinue to acquire hotels that appeal to guests and build a differentiated portfolio withhigh occupancy, profitability, and earnings stability.

2III. Hotel Details
Location and Features
Located a 6-minute walk away from Yokohama Station, this building was renovatedfrom a retail facility into a designer capsule hotel in December 2016.
Yokohama Station is surrounded by major commercial and shopping areas, and thehotel’s convenient location should cater to both business and leisure demand, as well as
servicing walk-in customers.
Equipped with a large communal bath, a sauna, and a restaurant, the hotel offers a clean,sophisticated, and comfortable experience that should appeal to a wide variety of guests.
Photos and Location Map

3

Legal Form of Asset
Trustee
Period of Trust Contract
Location
Property Right
Area
Land
ZoningCoverage Ratio
Floor Area Ratio
Property Right
Use
Building Structure
Total Floor Area
Construction Date
Appraiser
Appraisal Value
Appraisal Date
Value by Direct Capitalization
MethodNumber of Guest Rooms
Architect
Builder
Inspection Agency
PML (Assessor)
Collateral

Hotel Overview
Trust beneficiary interest in real estate (juekiken)
Mitsubishi UFJ Trust and Banking Corporation (Expected)
March 27, 2017 – March 31, 2027 (Expected)
2-1-5 Kitasaiwai, Nishi-ku, Yokohama City, Kanagawa
Freehold
516.22m2
Commercial
80%600%
Freehold
Hotel
Steel, 3 Floors
1,183.26m2
December 9, 1993
Daiwa Real Estate Appraisal Co., Ltd.
1,560,000,000 yen
January 1, 2017
1,620,000,000 yen

182
Koyama Architectural Design Office
Obayashi Corporation
Yokohama City
7.25% (Sompo Risk Management & Health Care Inc.)
None (Expected)
Lease Overview (as of January 31, 2017)

Tenant Overview
Number of Tenants
Monthly Rental Income
Deposit
Leasable Area
Leased Area
Occupancy
Property Management
Company
Master Lease Company
Master Lease TypeNOI yield
NOI yield (post-depreciation)

1
Hotel operator did not provide consent to disclose.1 Rental
payments begin from April 1, 2017.
Hotel operator did not provide consent to disclose.
1,183.26m2
1,183.26m2
Aug 2016 Sep 2016 Oct 2016 Nov 2016 Dec 2016
－
－
－
－
100%
To be determined
Ichigo Hotel REIT Investment Corporation (Expected)
Pass-through (Expected)
5.0%
4.7%
4

Special Items
None
1

Grandpark-Inn Yokohama is a fixed rent hotel.

Notes:
1. Names of the architect, builder, and inspection agency are those as of when thebuilding was built.
2. NOI yield = forecast NOI (net operating income) divided by the acquisition price,where NOI is taken from the real estate appraisal report and is derived using the
Direct Capitalization Method (DCM).
3. NOI Yield (post-depreciation) = NOI plus depreciation divided by the acquisition
price. Depreciation is an estimated value calculated by IIA using the straight-line
method.
4. Building Structure refers to the structure mentioned in the real estate register. The
following abbreviations are used with regards to structure: RC stands for reinforced
concrete; and SRC for steel-reinforced concrete.

5

Appraisal Overview
Hotel NameGrandpark-Inn Yokohama

Appraisal Value

1,560,000,000 yen

Appraiser

Daiwa Real Estate Appraisal Co., Ltd.

Appraisal Date

January 1, 2017
AmountAppraisal Value
Value by Direct
Capitalization Method
IncomeMaximum
Obtainable Rental
IncomeVacancy Loss
Expenses
Administrative andMaintenanceExpensesUtility Expenses
Repair Expenses
PM FeeNote
Valuation determined via both a direct
1,560,000,000 yen
capitalization valuation and DCF valuation
1,620,000,000 yen
82,080,000 yen
82,080,000 yen–
7,691,877 yen– Borne by tenants– Borne by tenants
Based on the average of the past 12 years ofengineering reports
Based on the level of similar assets and set at
1,200,000 yen
100,000 yen per month
994,500 yen

Leasing Brokerage
Fees
Taxes
Insurance
Premiums
Other Expenses
Net Operating Income(NOI)
Income on
Investment of
Deposits Received
Capital Expenditure
Net Profit

Cap Rate

Value via DCF Method–
4,930,977 yen

Based on FY2016 actual amounts (including
depreciable asset tax)

156,000 yen Based on insurance estimates, etc.
410,400 yen 0.5% of Income calculated as variable expense
74,388,123 yen
547,200 yen Based on 1.0% investment yield
636,833 yen

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

74,298,490 yen
Based on transactions of similar assets andcomprehensive assessment of the asset’s
4.6% location, its individual characteristics, property
right, as well as recent decline of hotel cap
rates
1,540,000,000 yen

Discount Rate

Based on transactions of similar assets and the
4.4% yields of financial assets with the asset’s
individual characteristics taken into account

Terminal Cap Rate

4.9% Based upon risk-adjusted NOI

6

Value via Cost Approach

1,630,000,000 yen

Land

92.0%

Building

8.0%

Sum of building and FF&E prices divided bysum of building, FF&E, and land prices
Notes

None

IV. Seller Profile
The Seller, a domestic operating company, did not provide consent to disclose its name.
The Seller does not have any capital, personnel, or business relationship of note with
Ichigo Hotel REIT or its asset management company. In addition, the Seller is not a
related party of Ichigo Hotel REIT or its asset management company as defined in the
Act on Investment Trusts and Investment Corporations.
V. Broker Profile
N/A
VI. Forward Commitment1
Because the settlement date is March 27, 2017, one month and seventeen days fromtoday, this acquisition (the “Acquisition Agreement”) constitutes a forward commitment
by Ichigo Hotel REIT as stipulated in the “Comprehensive Guidelines for Supervisionof Financial Instruments Business Operators” by the Financial Services Agency.
In the event that either Ichigo Hotel REIT or the seller violates a provision of thisAcquisition Agreement and such violation cannot be resolved, the other party shall havethe right to terminate the Acquisition Agreement and claim indemnity equivalent to
20% of the acquisition price.
1

A forward commitment refers to a forward-dated agreement in which settlement anddelivery occurs more than one month beyond contract date.

VII. Acquisition Schedule
Contract Date
Acquisition and Settlement Date

February 10, 2017
March 27, 2017 (Expected)

VIII. Earnings Outlook
Although this acquisition is expected to increase both ongoing earnings and contributeto a higher dividend, the impact on the current July 2017 Fiscal Period is minimal.

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Appendix A: Ichigo Hotel REIT Growth Strategy Roadmap
Stage I

Stage II

Continuous Dividend Growth via External Growth, Organic Growth, and a Strong Financial Base

External
Growth• Construct a diversified portfolio to pursue both income
stability and earnings growth• Acquire prime-location full-service hotels and resort hotels in
addition to stay-only hotels• Increase portfolio size and generate scale efficiencies via
acquisitions of newly built hotels in addition to value-add ofexisting hotels• Quickly achieve JPY100B total asset size by taking fulladvantage of Ichigo’s sponsor support• Invest primarily in stay-only hotels• Acquisition of conversion-feasible assets and lodging
facilities such as serviced apartments• Asset acquisitions via SPCs

Organic
Growth••Enhance operational efficiency by monitoring operations and providing advice to partner hotel operators
Increase rents and earnings through value-add strategic Capex

Financing• Minimize expenses via collaboration with operators• Further increase earnings via more favorable lease contracts,
rebranding, etc.

• Maintain a strong lender base
• Control LTV• Manage interest rate risk
• Prepare to acquire credit rating• Prepare to enter global REIT indices• Acquire credit rating• Diversify financing• Continue to control LTV and manage interest rate risk
• Enter global REIT indices

Lay Foundation for Growth via Increased
Asset Scale
July 2016

Pursue Portfolio Diversification,
Stability, and Growth
July 2017

January 2019

Note: Ichigo Hotel REIT seeks to be strategic and cost-effective in its capex (capital
expenditures), and its capex generally expected to be less than or equal todepreciation in each period.
Appendix B: Engineering Report Summary
Inspector Name
Inspection Date
Short-Term Repair Expense1
Long-Term Repair Expense2
Current Replacement Cost

Shimizu Corporation
January 2017–19,576,000 yen
312,000,000 yen

1

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

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Appendix C: Post-Acquisition Portfolio
Hotel
No.1

Rent
Terms

Hokkaido

Variable

2,160

4.4

Hokkaido
Nest Hotel Sapporo Odori
Hokkaido
Comfort Hotel Kushiro
Kanagawa
Grandpark-Inn Yokohama
Tokyo
Smile Hotel Tokyo Asagaya
Tokyo
Smile Hotel Asakusa
Hotel Livemax NihombashiTokyo
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
Osaka
Chisun Inn Osaka Hommachi
Hyogo
Hotel Suave Kobe Asuta
Nest Hotel Osaka
Osaka
Shinsaibashi
Okayama
Comfort Hotel Okayama
Ehime
Nest Hotel Matsuyama
Fukuoka
Valie Hotel Tenjin
Okinawa
Nest Hotel Naha
Total 20 Hotels

Variable
Fixed
Fixed
Variable
Variable

1,450
300
1,490
3,910
1,920

3.0
0.6
2.9
8.0
3.9

Fixed

1,360

2.8

Fixed

1,550

3.2

Variable

2,670

5.4

Fixed

5,308

10.8

Fixed
Variable
Variable
Variable
Fixed4

300
4,480
3,600
1,630
1,490

0.6
9.1
7.3
3.3
3.0

Variable

7,600

15.5

Fixed
Variable
Variable
Variable

1,200
1,610
1,380
3,750
49,158

2.4
3.3
2.8
7.6
100.0

A-1 004 Nest Hotel Sapporo Ekimae
A-2 008
A-3 018B-1 020
C-1 012
C-2 014
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
G-1 009G-2 0131

Acquisition
Price2(million yen)Prefecture

Name

% of
Portfolio3

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

RegionHokkaido/Tohoku

Prefectures
Hokkaido, Aomori, Iwate, Miyagi, Akita, Yamagata, Fukushima
Ibaraki, Tochigi, Gunma, Saitama, Chiba, Kanagawa, Yamanashi,
B
Kanto
Nagano, Niigata
C
Tokyo
Tokyo
D
Hokuriku/Tokai
Toyama, Ishikawa, Fukui, Gifu, Shizuoka, Aichi, Mie
E
Kinki
Osaka, Hyogo, Kyoto, Shiga, Nara, Wakayama
Tottori, Shimane, Okayama, Hiroshima, Yamaguchi, Kagawa,F
Chugoku/Shikoku
Tokushima, Kochi, Ehime
Fukuoka, Saga, Nagasaki, Kumamoto, Ooita, Miyazaki, Kagoshima,
G
Kyushu/Okinawa
Okinawa2
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).

9

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 Hotel Suave Kobe Asuta’s lease contract includes a variable rent clause, it has never been
triggered. Because Ichigo Hotel REIT does not anticipate receiving variable rent at this hotel, it has
been classified as a fixed rent hotel.
Appendix D: Number of Guests Staying in Kanagawa
Japanese Guests (Left Axis)

Inbound Guests (Right Axis)(Million)

3

20
16.4

16.1
15

14.7

14.0

13.3

2

2.1
10
1.4

1

1.0

5
0.8
0.6
0

0
2011

2012

2013

2014

2015

Appendix E: Inbound Tourist Share by Prefecture
25%
20.6
20%

15%

13.5
9.9

10%
7.1
5.5

5.2

5%

4.2

4.1

3.8

3.7

0%
Tokyo

Osaka

Hokkaido

Chiba

Kyoto

Okinawa

Aichi

Fukuoka Kanagawa Shizuoka

Notes:
1. Data prepared by IIA based on Japan Tourism Agency’s “Statistical Survey ofTravelers.”
2. The inbound tourist share in the above graph shows the percentage of inboundtourists staying at hotels in each prefecture divided by the total number of inboundtourists staying in Japan. Hotels include budget hotels.

10