Asset Management Report
For the Year Ended December 31, 2018

Japan Hotel REIT Investment Corporation

Dear Investors,
Thank you for your support and patronage to Japan Hotel REIT Investment Corporation (JHR) and
its asset management company, Japan Hotel REIT Advisors Co., Ltd.
Having settled the accounts for the 19th fiscal period (from January 1, 2018 to December 31, 2018)of JHR, we are pleased to present you with the asset management status and settlement of accounts
for the period.
In the 19th fiscal period, natural disasters, such as typhoons and earthquakes, etc. occurred more
often than a typical year and there were some impacts of natural disasters on lodging demand insome areas such as Osaka and Sapporo, etc. However, stable domestic leisure demand and theincrease in number of inbound visitors have continued to be solid. While the performance in a part ofhotels owned by JHR became slow due to the impact of natural disasters and new supply, theperformance in many hotels owned by JHR was solid mainly in the room department. Moreover,thanks to the effect of the cost reduction, etc., the variable rent JHR received increased.
In the 19th fiscal period, JHR sold 3 hotels specialized for accommodation in Tokyo (R&B Hotel
Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu) so that JHR improved the qualityof its portfolio through asset replacement. Furthermore, JHR procured funds through public offerings
after the fiscal year end, in January 2019, and decided to acquire “Hilton Tokyo Odaiba” and “Hotel
Oriental Express Osaka Shinsaibashi.” With completing the acquisition of the two hotels (total
anticipated acquisition price: ¥65,138 million), JHR is expected to grow its asset size toapproximately ¥374.5 billion (total acquisition price).
On top of an increase in rent income and cost reduction, etc., gain on sales of real estate properties
helped JHR to post operating revenue of ¥28,253 million, ordinary income of ¥16,211 million andnet income of ¥16,210 million for the 19th fiscal period. Dividend per unit came to ¥3,890, up 5.6%
from the previous fiscal period.
JHR also focuses its efforts on ESG (Environment, Social and Governance) related initiatives fromthe standpoint of sustainability. JHR became the first J-REIT specializing in hotels that wasrecognized by GRESB and acquired “Green Star,” the highest ranking in the 19th fiscal period.
With the continued growth of Japan’s tourism industry and expansion of the hotel market, we at JHR,
and Japan Hotel REIT Advisors Co., Ltd., its asset management company, will strive for JHR’s
further growth and enhancement of its attractiveness.
We would appreciate your continued support for us.

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-P42) is the translation of the Asset Management Report for the 19th Period releasedon March 20, 2019 except for, if any, the update on 6. Significant subsequent events in Outline ofAsset Management Operation. This English translation is provided for information purposes only. If
any discrepancy is identified between this translation and the Japanese original, the Japaneseoriginal shall prevail.

II. Financial Statements
For the Years ended December 31, 2018 and 2017
Balance Sheets

43

Statements of Income

45

Statements of Changes in Net Assets

46

Statements of Cash Flows

47

Notes to Financial Statements

49

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
Operating revenue

15th period
December 2014

16th period
December 2015

17th period
December 2016

18th period
December 201719th period
December 2018

(Note 1)JPY1M

12,76017,343

22,10725,47528,253[Real estate operating revenue]

JPY1M[12,760][17,033][22,107][25,475][26,318]
10,260Operating expenses

JPY1M

5,214

6,354

8,221

9,717

JPY1M

[4,163][5,002][6,589][7,911][8,344]

JPY1M

7,545

10,98813,88515,757

17,993

JPY1M

5,776

9,295

12,22014,006

16,211

JPY1M

5,774

9,294

12,12314,005

16,210Total assets[Period-on-period change]

JPY1M

188,091[10.2]

240,356[27.8]

317,878[32.3]

352,183[10.8]

350,556[(0.5)]Net assets[Period-on-period change]

JPY1M
[%]

100,342[11.8]

129,914[29.5]

181,989[40.1]

201,963[11.0]

203,372[0.7]

Unitholders’ capital

JPY1M

59,02485,470134,829

153,516

153,516

Number of investment units issued andoutstandingUnits

2,791,281

3,144,227

3,761,907

4,010,847

4,010,847

Net assets per unit

JPY

35,94841,31848,37650,35450,705

JPY

2,159

3,036

3,462

3,606

4,041

Total dividends

JPY1M

6,015

9,354

12,865

14,771

15,602

Dividend per unit

JPY

2,155

2,975

3,420

3,683

3,890

[Earnings dividend per unit]

JPY

2,155

2,975

3,420

3,683

3,890

[Dividend per unit resulted fromexcess of earnings]

JPY

–

–

–

–

–

%

3.2

4.3

4.4

4.2

4.6

%

6.1

8.1

7.8

7.3

8.0

%

53.3

54.1

57.3

57.3

58.0

[Real estate operating costs]
Operating income
Ordinary income
Net income(Note 2)

Net income per unit

(Note 3)

Ratio of ordinary income to total assets(Note 4)Return on unitholders’ equity(Note 5)

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

[%]

[%]

[0.8]

[0.7]

[3.2]

[0.1]

[0.7]

(Note 7)

%

104.2

100.6

106.1

105.5

96.2

(Note 8)[Additional information]
NOI

JPY1M

11,002

14,82918,82921,424

22,104

FFO per unit

(Note 9) (Note 10)

JPY

2,930

3,748

4,103

4,454

4,588

FFO multiple(Note 10) (Note 11)

Times

26.3

23.9

19.2

17.0

17.1

Times

5.1

9.1

14.2

15.6

18.0

JPY1M

81,089102,772

126,179

140,399

136,671

%

43.1

42.8

39.7

39.9

39.0

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

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

30

36

41

44

41

386,826.71

493,758.78

587,481.02

687,124.54

678,714.48

Tenants

57

113

128

131

126

％

99.9

99.9

99.9

99.9

99.9

Depreciation

JPY1M

2,400

2,772

3,294

3,725

4,091

Capital expenditures

JPY1M

1,306

1,811

2,619

2,898

3,056

Number of operating days

Days

365

365

366

365

365

Number of tenants at end of period(Note 14)

Occupancy rate at end of period(Note 15)

(Note 1)
(Note 2)
(Note 3)

Properties
m2

Total leasable area

Operating revenue does not include consumption tax, etc.
Net income for the 16th fiscal period includes gain on sale of real estate properties (¥305 million). Net income for the
19th fiscal period includes gain on sale of real estate properties (¥1,934 million).
The computation of net income per unit is based on the weighted-average number of units outstanding during the year.

3

(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)(Note 13)

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 disposal of property andequipment + Asset retirement obligations expenses
FFO per unit = (Net income + Depreciation + Loss on disposal of property and equipment + 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 16th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding gain onsale of real estate properties (¥305 million). For the 19th fiscal period, FFO per unit, FFO multiple and debt service
coverage ratio are calculated excluding gain on sale of real estate properties (¥1,934 million).
FFO multiple = Investment unit price at end of period / Annualized FFO per unit
Debt service coverage ratio = (Income before income taxes + Depreciation + Loss on disposal of property andequipment + 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 ± Loss or gain on derivative instruments + Interest expense +Interest expense on investment corporation bonds) / (Interest expense + Interest expense on investment corporation
bonds + Total of contractual 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 wholly or partially used as hotels or real estate equivalents of such real estate or which arebacked by such real estate or real estate equivalents (hereinafter referred to as the “Real Estate for Hotels,etc.”).
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 by the end of the fiscal period, JHR has carried out eight
public offerings for capital increase 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 thequality of its portfolio through new property acquisitions of 24 properties amounting to ¥210,022 million (onan acquisition price basis) in total in approximately a little less than seven years since the Merger. Moreover,in the fiscal year under review, JHR sold 3 properties (R&B Hotel Higashi-nihonbashi, the b akasaka-mitsukeand the b ochanomizu) (hereinafter referred to as the “Sale”) as part of its growth strategy to improve thequality of its portfolio through asset replacement. 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 ¥309,370 million and the total
number of investment units issued and outstanding stood at 4,010,847 units.
4(2) Investment performance for the fiscal period under review
Although 2018 was a year when natural disasters hit Japan more often and harder than a typical year, such as
Typhoon Jebi that made Kansai International Airport dysfunctional and the Hokkaido Eastern Iburi
Earthquake, the accommodation market remained solid as the cumulative number of overnight guests atdomestic accommodation facilities totaled 510 million guest nights (preliminary release), a slight increaseover 2017 when the figure reached record high. Moreover, the number of foreign visitors to Japan (hereinafterreferred to as “inbound visitors”) in 2018 amounted to 31.19 million (by preliminary release, up 8.7% fromthe previous year), as the government showed strong commitment to making Japan a tourism nation. As such,the number of inbound visitors has continued to increase strongly.
The hotel investment market continued to be in a brisk state with continual attention paid to Japan’s tourism
industry and hotel industry. With the investment market for certain hotels felt overheated, JHR carried out theSale by comprehensively taking into account the relevant properties’ positions in the portfolio, theircompetitiveness over the medium to long term and prospects for upside gains and stability, among otherfactors.
The performance of the hotels owned by JHR showed some signs of impact of the above-mentioned natural
disasters to a certain degree. However, GOP (gross operating profit) of the Major 21 hotels with variable rent
contracts (Note) increased over the previous year. In particular, the rooms department worked to generate
greater earnings by implementing active asset management, which is proactive pursuit for improvement of
profitability and asset value of owned hotels. For further details of sales, GOP and other management
indicators for the Major 21 hotels with variable rent contracts, please refer to “<Reference 2> Hotel operationindexes, sales and GOP” in 7. Reference information.
In addition to measures to increase fixed and variable rent, etc. through the active asset management strategy,
JHR has endeavored to increase dividend by reducing the costs of each item such as real estate operating costs,
general and administrative expenses and borrowing costs through negotiations with relevant parties and othermeasures.
(Note)The hotel group combining the hotels which JHR leases to Hotel Management Japan Co., Ltd. (hereinafter referred toas “HMJ”) (Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila
and Oriental Hotel Hiroshima, (hereinafter referred to as the “Five HMJ hotels”)), with the hotels which JHR leases to
HMJ subsidiaries (Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel (main facility of
ACTIVE-INTER CITY HIROSHIMA), Hotel Centraza Hakata (*),Holiday Inn Osaka Namba, Hilton Tokyo Narita
Airport, International Garden Hotel Narita, and Hotel Nikko Nara) is called the Existing HMJ Group. The Major 21
hotels with variable rent contracts refers to the Existing HMJ Group excluding Hotel Centraza Hakata plus ibis Tokyo
Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha, Mercure
Yokosuka, the b suidobashi, the b ikebukuro, the b hachioji and the b hakata. The same shall apply hereinafter.
(*) Hotel Centraza Hakata was renamed to Oriental Hotel Fukuoka Hakata Station on April 9, 2019. The same shallapply hereinafter.

(3) Funding conditions
In February 2018, JHR issued investment corporation bonds of ¥10,000 million for individual investors
mainly to allocate the fund to early repayment of existing loans. In addition, JHR borrowed ¥1,700 million in
March 2018 to refinance existing loans, and ¥8,350 million in April 2018 for the refinance and partial early
repayment of existing loans. Meanwhile, in August 2018, JHR made early repayment of ¥5,000 million in
short-term loans it borrowed in April 2018 by using part of the proceeds from the sale of R&B Hotel
Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu. Upon the refinance of ¥4,400 million
conducted in September 2018, JHR newly added The Shizuoka Bank, Ltd. to its lending banks to further
diversify lenders. Moreover, in November 2018, JHR took out loans of ¥700 million, the first part of the loans
in multiple installments totaling ¥3,100 million mainly for the purpose of renovating Hotel Centraza Hakata(Note 1).
Consequently, as of the end of the fiscal year under review, balance of interest-bearing debt totaled ¥136,671
million, comprised of long-term loans payable of ¥103,071 million and investment corporation bonds of¥33,600 million, and the ratio of interest-bearing debt to total assets at end of year (Note 2) stood at 39.0%.
JHR reduced borrowing costs and extended maturity dates through the aforementioned series of fundprocurement. Along with such, JHR concluded loans with fixed interest rates as well as interest rate swap
contracts to hedge against risks of interest rates rising in the future. These actions brought the fixed rate ratio
on total interest-bearing debt at end of year to around 97%.
5

As of December 31, 2018, JHR’s issuer ratings were as follows.
Rating agency

RatingOutlookJapan Credit Rating Agency, Ltd.

A＋

StableRating and Investment Information, Inc.

A

Stable(Note 1) Hotel Centraza Hakata undertook a major renovation work that caused the hotel to suspend operations (hereinafterreferred to as the “Renovation”) for the period from October 1, 2018 to March 31, 2019.
(Note 2) 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(4) Financial results
As a result of the abovementioned asset management, operating revenue, operating income and ordinary
income were ¥28,253 million, ¥17,993 million and ¥16,211 million, respectively, for the fiscal period underreview (12-month period from January 1 to December 31, 2018). Net income was ¥16,210 million.
Furthermore, of the gain on sale of real estate properties, JHR decided to internally reserve ¥1,174 million as
reserve for special advanced depreciation.
With regard to dividends, it was decided that ¥15,602 million would be distributed, which was calculated bydeducting the above-mentioned reserve for special advanced depreciation of ¥1,174 million from and adding
a reversal of reserve for temporary difference adjustment (appropriation for dividends) of ¥563 million tounappropriated retained earnings of ¥16,213 million. Consequently, ¥15,602 million will be distributed andthe dividend per unit came to ¥3,890.
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

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

Increase(decrease)

Balance

Increase(decrease)

Balance

Note

September 9,
2014

Capital increase through public
offering of investment units

170,000

2,791,281

10,17959,024(Note 1)January 27,
2015

Capital increase through public
offering of investment units

200,000

2,991,281

14,97473,999(Note 2)February 18,
2015

Capital increase through third-party
allotment of investment units

9,041

3,000,322

676

74,676(Note 3)June 22,2015

Capital increase through public
offering of investment units

140,000

3,140,322

10,50085,177(Note 4)

July 23,2015

Capital increase through third-party
allotment of investment units

3,905

3,144,227

292

85,470(Note 5)January 20,
2016

Capital increase through public
offering of investment units

170,000

3,314,227

13,98699,456(Note 6)

February 17,
2016

Capital increase through third-party
allotment of investment units

7,680

3,321,907

631

100,088(Note 7)

July 27,
2016

Capital increase through public
offering of investment units

428,260

3,750,167

33,813

133,902(Note 8)August 23,
2016

Capital increase through third-party
allotment of investment units

11,7403,761,907

926

134,829(Note 9)July 5,2017

Capital increase through public
offering of investment units

236,000

3,997,907

17,715

152,544(Note 10)

August 2,
2017

Capital increase through third-party
allotment of investment units

12,9404,010,847

971

153,516(Note 11)6

(Note 1)(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)

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.
New investment units were issued through public offering with an issue price per unit of ¥77,518 (issue value of¥75,065) 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 ¥75,065 in order toraise funds for allocation to part of future acquisitions of specified assets, part of repayment of loans, or repair
expenses and capital expenditures to maintain or improve competitiveness of existing properties.

[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

15th period

16th period

17th period

18th period

19th period

Account closing month

December 2014

December 2015

December 2016

December 2017

December 2018

Highest price82,40093,800103,400

81,20085,000

Lowest price

45,35070,60070,90071,10075,000Price at end of period

77,00089,50078,60075,60078,4007

4. Dividends, etc.
In accordance with the monetary distribution policy stipulated in Article 34, paragraph 1 of JHR’s Articles ofIncorporation. JHR decided to distribute the entire amount of ¥15,602,194,830, which was calculated bydeducting the reserve for special advanced depreciation of ¥1,174,860,958 from and adding a reversal of reserve
for temporary difference adjustment of ¥563,572,972 to unappropriated retained earnings of ¥16,213,482,816, as
earnings dividend. Consequently, the dividend per unit came to ¥3,890.
(yen)
15th period

16th period

17th period

18th period

19th period(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)(From January 1, 2017
to December 31, 2017)(From January 1, 2018
to December 31, 2018)

5,776,116,820

9,296,121,922

12,126,057,948

14,005,489,588

16,213,482,816

1,444,427

2,894,304

411,048

3,048,696–

Total cash dividends

6,015,210,555

9,354,075,325

12,865,721,940

14,771,949,501

15,602,194,830[Dividend per unit][2,155][2,975][3,420][3,683][3,890]6,015,210,555

9,354,075,325

12,865,721,940

14,771,949,501

15,602,194,830[2,155][2,975][3,420][3,683][3,890]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

Classification
Unappropriated retained
earnings
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 allowancefor 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 theunitholders’ capital for tax
purpose[Of return of capital
contribution per unit,
distributions from theunitholders’ capital for tax
purpose per unit]8

5. Investment policies and issues to be addressed
General investment outlook
As for the environment surrounding the tourism industry, JHR considers it to be favorable with continued
anticipation for expansion of national tourism policies, such as the budget of the Japan Tourism Agency for the
fiscal year 2019 increasing by 2.7 times year-on-year to ¥66.5 billion (except reconstruction budget). Moreover,with the number of inbound tourists continuing to increase strongly and domestic leisure demand remaining
solid, such major events as Rugby World Cup 2019 and Tokyo 2020 Olympic and Paralympic Games that willstrongly demonstrate the attractiveness of “Japan” to the world are expected to provide a further boost to thetourism industry. On the other hand, however, close attention should be paid to the changes in supply-demandbalance going forward, including an increase in supply from new development of hotels following trends ofincrease in inbound visitors, and the impact on private house lodging business by the private house lodging
business law (new minpaku law) that was enforced in June 2018. Although the hotel market remains generally
solid, the supply-demand balance appears to be loosening in certain areas and for certain asset classes, while
high-grade hotels in limited supply over demand are anticipated to continue growing strongly. As such, JHR
believes that the location and competitiveness of individual hotels and the capabilities of the operators are
essential for differentiating the hotels from others. JHR considers that in addition to aforementioned
differentiation, whether profitability including cost management can be enhanced will make a further differencein hotel performance. Under such circumstances, JHR intends to work with the Asset Management Company toimplement strategies to differentiate JHR in the market by utilizing experience which JHR has cultivated as
J-REIT specializing in hotel investment, and manage assets based on the approach described below.
Internal growth
JHR will work to secure “stability” mainly with fixed rent contracts, while at the same time aim for “upside
potential” through implementation of active asset management, which proactively pursues greater profitability
and asset value of its properties by way of a variety of measures such as expanding international brands andcoordinating with HMJ.
For properties with fixed rent contracts, JHR will focus on setting, maintaining and increasing appropriate rents
based on the rent levels s in the market where respective hotels are located or each tenant’s ability to bear therent costs, and plans to aim at raising rents (including introduction of revenue sharing structure) in accordancewith the accommodation market condition.
For hotels under variable rent contracts and under a management contract structure, JHR is working to increase
variable rent and reduce management contract fees by implementing the active asset management strategy.
A. Properties under variable rent contracts
JHR works to enhance the profitability of its properties under variable rent contracts through its active asset
management strategy. JHR has adopted world-leading international brands such as Hilton, Marriott, Sheraton,
Mercure and Holiday Inn or leading brands in Japan including Oriental Hotel and Hotel Nikko that areoperated in various areas throughout the country and, together with excellent operators, aims to increase
variable rent through improved performance of these hotels. JHR coordinates with the operators in an effort toenhance the hotel performances by requesting them to implement marketing initiatives to attract a wider range
of demand with considerations given to solid domestic leisure demand and increased leisure demand frominbound visitors, measures to maintain and increase room rates, and realization of the synergy effects like cost
reductions from owning multiple properties, among other issues. Moreover, JHR conducts strategic capital
investment such as renovating guest rooms, etc. for improving property competitiveness primarily for hotels
with high growth expectations, in an attempt to further enhance hotel earnings led by the growth in RevPAR.
B. Properties under fixed rent contracts
JHR will increase its efforts to appropriately monitor operating conditions of these hotels 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 in hotel
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 investments for the purpose of continuous maintenance and9renewal of facility and equipment to differentiate each hotel in the market and to maintain and increase thevalue of its assets.
External growth
In terms of external growth strategy, JHR will keep target to acquire highly-competitive Real Estate for Hotels,
etc. (Hotel Assets) in areas which can expect “domestic and inbound leisure demand” over the medium to longterm as JHR has done to date. In addition, JHR will build a portfolio which can secure stable revenues and with
future growth potential in mind in order to achieve upside gains.
Upon acquiring properties, JHR will focus on the infrastructure aspects of the relevant Hotel Assets such asbuildings and facilities, the services aspects such as the credibility of the hotel lessee and operator (including theability of the hotel lessee to bear rent costs) as well as operation and management capabilities, and the properties’
location superiority that serves as the base for demand stability and growth potential.
Specifically, JHR will target to invest in “full-service hotels” and “resort hotels” that pose barriers to new
opening due to such factors as operation and management know-how required for operating the hotels andlimitations in terms of invested capital and location. As for “limited-service hotels,” JHR emphasizes thecredibility and operation capabilities of the hotel lessee and operator as well as the building age, location,
guestroom composition and profitability of the properties. Moreover, JHR will take a particularly selective
approach to hotels specialized for accommodation and of a budget type (low price zone) that mainly offers single
rooms and where the source of competitiveness relies only on prices.
In the hotel investment market, harsh competition over acquisitions is ongoing due in part to an increase in
J-REITs that invests in hotels and formation of non-listed private J-REITs. JHR will aim for expansion of asset
size that accompanies an improvement in the quality of its portfolio by acquiring highly competitive properties
while leveraging its strength and advantages and also utilizing the HMJ platform in some cases.
Finance strategy
Under the basic policy of carrying out conservative financial strategy which places importance on securement offinancial stability and soundness, JHR intends to maintain and enhance the relationships of trust with existing
financial institutions with which it does business while endeavoring to diversify the means of financing. It aims
to conduct financial operations by keeping the ratio of interest-bearing debt to total assets at no larger than 50%
for the time being as in the past. In addition, when seeking new funding for property acquisitions or refinancing
existing debt, JHR will work to disperse maturity dates of its debt as well as further reinforce and expand its baseof lenders and further diversify funding methods, including issuance of investment corporation bonds, whileconsidering the balance with the borrowing costs.
Moreover, while JHR understands that no abrupt change is likely to occur to the interest rate level in the current
situation, it aims to further improve its financial foundation by managing risk of interest rates market throughextending maturity dates and fixing rates, etc., in preparation for addressing any change in the financial market
environment.
Policy on handling of negative goodwill
Starting from the fiscal year ended December 31, 2017 (18th period), JHR started appropriation for dividends
through reversal of reserve for temporary difference adjustment in connection with partial amendments to the“Ordinance on Accounting of Investment Corporations” (Cabinet Office Ordinance No. 47 of 2006, as amended)and the “Regulation for Real Estate Investment Trusts and Real Estate Investment Corporations” of The
Investment Trusts Association, Japan. For the fiscal year ended December 31, 2017 (18th period) and thereafter,
JHR stipulated a policy to reverse ¥262 million (hereinafter called the “50-year amortization amount of negative
goodwill”), which is an amount equivalent to 2% (1/50) of the balance of the reserve for temporary difference
adjustment for the fiscal year ended December 2017, to pay out as dividends, with the balance of the reserve fortemporary difference adjustment remaining at the time of reversal set as the maximum reversal amount (Note).
Furthermore, in cases of incurrence of losses caused by property dispositions, impairment loss of assets, dilutionof dividend per unit due to the issuance of new investment units through public offerings, etc., loss on disposalof property and equipment, and suspension of sales and such due to large-scale renovations with significant
10impact on revenues, JHR stipulated a policy to reverse additional portion of the negative goodwill on top of the
50-year amortization amount of negative goodwill (¥262 million) (Note).
As for the fiscal year ending December 31, 2019 (20th period), JHR expects ¥1,177 million, which is the total of
the 50-year amortization amount (¥262 million), adjustment for dilution, etc. (¥310 million), loss on disposal ofproperty and equipment (¥247 million) and the large-scale renovation at Hotel Centraza Hakata (¥357 million) as
additional amounts to dividends by reversing the negative goodwill.
(Note)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.

Initiatives for Sustainability
In recent years, there has been growing importance of the risks and opportunities of ESG (Environment, Socialand Governance) issues in the investment management industry from the standpoint of long-term sustainability.
JHR recognizes that conducting real estate investment management based on consideration for ESG is important
to enhance unitholder value and to further raise the attractiveness of JHR. In addition, JHR believes that it isindispensable to establish favorable relationships with its stakeholders including unitholders, hotel users (guests),
lessees, operators, business partners including property managers, etc., local communities, officers andemployees of the Asset Management Company and others and to fulfill our social responsibilities expected fromeach of them.
In order to put such ideas into practice, JHR, along with the Asset Management Company, established a“Sustainability Policy” as guidance to ESG initiatives. We have promoted efforts to reduce environmental impact
at our portfolio properties based on this policy, and received the Building-Housing Energy-efficiency Labeling
System (BELS) evaluation for Hotel Nikko Alivila and Mercure Okinawa Naha in February 2018 as first suchcases for J-REIT’s hotel properties (Note 1). Furthermore, in September 2018, JHR became the first J-REIT
specializing in hotels (Note 1) that was recognized by GRESB for its environmental awareness and sustainability
initiatives, acquiring “Green Star,” the highest ranking, in the GRESB Real Estate Assessment (Note 2) and “4Stars” in the GRESB Rating.
Recognizing its social responsibility towards local communities as a J- REIT specializing in hotels, JHR willproactively carry out social contribution activities capitalizing on the characteristics of the hotel sector and each
hotel.
(Note 1) Investigated by the Asset Management Company based on disclosed information(Note 2) GRESB, which stands for Global Real Estate Sustainability Benchmark, is an annual benchmarking program toevaluate Environment, Social and Governance (ESG) awareness of real estate companies and funds. It evaluates
initiatives for sustainability of real estate companies, REITs and real estate funds, not of individual properties. The
GRESB Rating makes relative assessment based on total scores, with 5 Stars being the highest ranking.

6. Significant subsequent events(1) Asset acquisition
JHR acquired two properties as follows.
Property name

Hotel Oriental Express Osaka Shinsaibashi

Asset category

Real estate beneficial interest in trust and movable assets attached tothe hotel

Asset type

Hotel

Address

3-2-13, Minamisemba, Chuo-ku, Osaka-shi, Osaka

Acquisition dateFebruary 1, 2019

SellerUndisclosed (Note 1)

Acquisition price (Note 2)¥2,738 million(Note 1) The information is not disclosed as consent for disclosure has not been obtained from the seller.
(Note 2) The acquisition price does not include expenses for acquisition, settlement of property tax and city planning tax, andconsumption tax and local consumption tax.

11

Property name

Hilton Tokyo Odaiba

Asset category

Real estate beneficial interest in trust and movable assets attached tothe hotel

Asset type

Hotel

Address

1-9-1, Daiba, Minato-ku, Tokyo

Acquisition date

April 8, 2019

SellerHulic Co., Ltd.

Acquisition price (Note)¥62,400 million(Note)

The acquisition price does not include expenses for acquisition, settlement of property tax and city planning tax, andconsumption tax and local consumption tax.

(2) Resolution on borrowing of funds
On April 8, 2019, JHR conducted new borrowings as follows, in order to partly fund the acquisition of thereal estate beneficial interest in trust of Hilton Tokyo Odaiba and movable assets attached thereon as
described above in (1) Asset acquisition.
(A) Term Loan 53
Lenders
Amount of the loan
Interest rate
Date of borrowing
Method of principal repayment
Maturity date
Collateral

The Bank of Fukuoka, Ltd. / The Chiba Bank, Ltd. / THE
NISHI-NIPPON CITY BANK, LTD. / Sompo Japan Nipponkoa
Insurance Inc.
¥2,500 million
0.375% (fixed rate)
April 8, 2019
Lump-sum payment on the maturity date
March 29, 2024
Unsecured / Unguaranteed(B) Term Loan 54
Lenders
Amount of the loan
Interest rate
Date of borrowing
Method of principal repayment
Maturity date
Collateral

Sumitomo Mitsui Banking Corporation / Shinsei Bank, Limited /Mizuho Bank, Ltd. / Sumitomo Mitsui Trust Bank, Limited /Development Bank of Japan Inc.
¥7,500 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.55%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2027
Unsecured / Unguaranteed12(C) Term Loan 55

Lenders

Amount of the loan
Interest rate
Date of borrowing
Method of principal repayment
Maturity date
Collateral

Sumitomo Mitsui Banking Corporation / Shinsei Bank, Limited /Mizuho Bank, Ltd. / Sumitomo Mitsui Trust Bank Limited / Resona
Bank, Limited. / The Nomura Trust and Banking Co., Ltd. /Development Bank of Japan Inc. / The Bank of Fukuoka, Ltd. / Aozora
Bank, Ltd. / THE NISHI-NIPPON CITY BANK, LTD.
¥18,000 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.60%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2028
Unsecured / Unguaranteed(D) Term Loan 56
LenderAmount of the loan
Interest rate
Date of borrowing
Method of principal repayment
Maturity date
Collateral

Sumitomo Mitsui Banking Corporation¥2,000 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.275%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2020
Unsecured / Unguaranteed(3) Issuance of new investment units
JHR resolved to issue new investment units at the Board of Directors meetings held on January 8, 2019
and January 16, 2019. Payment for the new investment units was completed on January 23, 2019 andFebruary 20, 2019, and the investment units were issued under the following terms and conditions. As aresult, JHR’s unitholders’ capital increased to ¥186,894,169,809, with the number of investment units
issued and outstanding totaling 4,462,347 units.
(A) Issuance of new investment units (domestic public offering and overseas offering)Number of investment units issued:

447,800 units

Of which, domestic public offering:

206,247 units

Of which, overseas offering:

241,553 units

Offering price:¥76,342 per unit

Total offering price:¥34,185,947,600

Paid-in amount (issue value):¥73,927 per unit

Total paid-in amount (total issue value):¥33,104,510,600

Payment date:

January 23, 201913

(B) Issuance of new investment units (third-party allotment)
Number of investment units issued:

3,700 units

Paid-in amount (issue value):¥73,927 per unit

Total paid-in amount (total issue value):¥273,529,900

Payment date:February 20, 2019

Allottee:

SMBC Nikko Securities Inc.

(C) Use of proceeds
JHR allocated the proceeds from the issuance of new investment units through the domestic public
offering and overseas offering of ¥33,104,510,600 to part of the funds for acquisition of Hotel Oriental
Express Osaka Shinsaibashi and Hilton Tokyo Odaiba as described above in “(1) Asset acquisition” In
addition, the proceeds from the issuance of new investment units through third-party allotment of¥273,529,900 was allocated to part of the funds for acquisition of Hilton Tokyo Odaiba.

14

7. Reference information<Reference 1>
Major indicators of the hotel business for the fiscal year ended December 31, 2018
The following tables indicate the figures related to the hotel business of the Existing HMJ Group forthe operating period from January 1, 2018 through December 31, 2018, based on the data provided by
the hotel lessees, etc. Furthermore, while the indicators of the hotels are among the indicators thatshow the operating status of the rooms departments, they do not necessarily 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, among other reasons. As such, theindicators are no more than the reference figures.
(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

The Five HMJ
hotelsTotal/Average

Oriental Hotel
Hiroshima

Ratio to
total
sales

Ratio to
total
sales

Ratio to
total
sales

Occupancy rate

84.8%

－

96.7%

－

92.8%

－

84.9%

－

87.2%

－

89.9%

－

ADR (Note 1)

17,166－

20,464－

19,469－28,738

－

9,409

－

20,112－

RevPAR (Note 2)

14,564－

19,797－

18,073－24,392

－

8,208

－

18,080－Total sales

5,442

100.0%

6,839

100.0%

2,891

100.0%

6,433

100.0%

1,904

100.0%

23,509100.0%

Rooms department

1,872

34.4%

4,019

58.8%

1,878

65.0%

3,894

60.5%

748

39.3%

12,411

52.8%

Food & beveragedepartment

3,277

60.2%

2,392

35.0%

130

4.5%

1,888

29.4%

1,095

57.5%

8,782

37.4%

Tenant department

70

1.3%

230

3.4%

834

28.8%

2

0.0%

23

1.2%

1,159

4.9%

Other departments(Note 3)

223

4.1%

198

2.9%

50

1.7%

648

10.1%

38

2.0%

1,157

4.9%

1,263

23.2%

2,172

31.8%

1,810

62.6%

2,460

38.2%

328

17.2%

8,033

34.2%

GOP

Okinawa Marriott
Resort & Spa
Ratio to
total
sales

Sheraton Grand
Hiroshima Hotel(Note 4)

Hotel Centraza
HakataRatio to
total
sales

(Note 5)

Holiday Inn Osaka
Namba

Hilton Tokyo Narita
AirportRatio to
total
sales

Ratio to
total
sales

Ratio to
total
sales

International
Garden Hotel
NaritaRatio
to totalsales

Occupancy rate

83.0%

－

91.2%

－

70.7%

－

93.8%

－

86.0%

－

85.5%

－

ADR (Note 1)

21,291－

18,381－

12,074－18,063－

10,710

－

7,526

－

RevPAR (Note 2)

17,669－16,757

－

8,534

－

16,947

－

9,216

－

6,438

－

Total sales

4,027

100.0%

3,372

100.0%

1,836

100.0%

1,991

100.0%

3,271

100.0%

1,521

100.0%

Rooms department

2,573

63.9%

1,601

47.5%

667

36.4%

1,944

97.7%

2,063

63.1%

1,197

78.7%

Food & beveragedepartment

1,009

25.1%

1,673

49.6%

951

51.8%

－

－

1,112

34.0%

311

20.5%

Tenant department

62

1.5%

－

－

206

11.2%

36

1.8%

50

1.5%

6

0.4%

Other departments(Note 3)

383

9.5%

98

2.9%

11

0.6%

10

0.5%

46

1.4%

7

0.5%

1,389

34.5%

1,016

30.1%

635

34.6%

1,232

61.9%

944

28.9%

639

42.0%

GOP

15

Hotel Nikko Nara
Ratio to
total
sales

The Existing HMJ
Group
Total/Average(Note 6)

Ratio to
total
sales

Occupancy rate

76.4%

－

86.7%

－

ADR (Note 1)

12,480－

16,481－

RevPAR (Note 2)

9,535

－

14,289－Total sales

2,893

100.0%

42,421100.0%

Rooms department

1,264

43.7%

23,72055.9%

Food & beveragedepartment

1,579

54.6%

15,416

36.3%

Tenant department

31

1.1%

1,551

3.7%

Other departments(Note 3)

20

0.7%

1,734

4.1%

GOP

699

24.2%

14,58634.4%(Note 1)

(Note 2)

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

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. Holiday Inn Osaka Namba does not request service
charges. Described in unit of yen. 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. Described in unit of yen. 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.
Hotel Centraza Hakata was under major renovation work and suspended hotel operation during the period from October
1, 2018 through April 8, 2019. The occupancy rate is calculated including the suspension period.
For Total/Average of the Existing HMJ Group, figures are calculated by JHR as reference since no figures have been
provided by the hotel lessees.
The occupancy rate is rounded off to one decimal place, while ADR and RevPAR are rounded off to single units. Sales
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.

<Reference 2>
Hotel operation indexes, sales and GOP
The numerical figures are based on figures obtained from hotel lessees, etc. Please note that these numbers havenot been audited or gone through other procedures. No guarantee is made as to the accuracy or completeness ofthe numbers and information.
ADR and RevPAR are rounded off to the nearest yen. Sales and GOP are rounded off to the nearest million yen.
Occupancy rate and comparison with the previous period are rounded off to one decimal place. ADR represents
average daily rate, which is calculated by dividing revenue for rooms in a given period by the total number ofrooms sold during the period. RevPAR represents revenue per available room, which is calculated by dividing
revenue for rooms for a given period by the total number of rooms available for sale during the period. The same
shall apply hereinafter.

16

<1> Major 21 Hotels with Variable Rent
(millions of yen)

Actual result of Fiscal year ended December 31, 2017
First half Compari- Second
son with half
previous
periodCompari- Full year
son with
previous
periodActual result of Fiscal year ended December 31, 2018

Compari- First half
son with
previous
periodCompari- Second
son with half
previous
periodCompari- Full year
son with
previous
periodComparison withprevious
periodOccupancy
rate

87.0%

1.6pt

88.6%

(0.3)pt

87.8%

0.6pt

87.3%

0.3pt

87.1%

(1.4)pt

87.2%(0.6)pt

ADR

13,4541.0%

15,761

2.3%

14,627

1.7%

13,744

2.2%

15,8680.7%

14,814

1.3%

RevPAR

11,702

2.9%

13,9592.0%

12,8402.4%

11,996

2.5%

13,828(0.9)%

12,920

0.6%

Sales

22,777

1.4%

26,5680.8%

49,345

1.1%

22,9580.8%

26,257(1.2)%

49,215(0.3)%

GOP

7,517

5.4%

10,161

1.4%

17,678

3.1%

7,715

2.6%

10,1960.3%

17,911

1.3%(Note)

The figures of the fiscal year ended December 2017 for Hilton Tokyo Narita Airport, International Garden Hotel Narita
and Hotel Nikko Nara, which are the properties acquired in the fiscal year ended December 2017, are for the full year
calculated by adding the figures prior to the acquisition by JHR. The same shall apply hereinafter.

<2> The Eleven HMJ hotels
The figures are the total amount for the 11 hotels of the Existing HMJ Group excluding Hotel Centraza Hakata inorder to exclude the impact of the Renovation that resulted in suspension of sales.
(millions of yen)

Actual result of Fiscal year ended December 31, 2017
First half Compari- Second
son with half
previous
periodCompari- Full year
son with
previous
periodActual result of Fiscal year ended December 31, 2018

Compari- First half
son with
previous
periodCompari- Second
son with half
previous
periodCompari- Full year
son with
previous
periodComparison withprevious
periodOccupancy
rate

87.4%

2.7pt

89.0%

0.0pt

88.2%

1.3pt

87.3%

(0.1)pt

87.7%(1.3)pt

87.5%(0.7)pt

ADR

14,912(0.3)%

18,013

1.9%

16,4900.8%

15,246

2.2%

18,0350.1%

16,656

1.0%

RevPAR

13,027

2.8%

16,0372.0%

14,5442.4%

13,306

2.1%

15,816(1.4)%

14,572

0.2%

Sales

18,715

1.3%

22,151

0.6%

40,8650.9%

18,7540.2%

21,831(1.4)%

40,585(0.7)%

GOP

5,683

6.3%

8,041

1.1%

13,724

3.2%

5,809

2.2%

8,141

1.2%

13,9501.7%

17

<Reference 3>

Dividend per unit and appropriation for dividends

Dividend per unit for the fiscal years ended December 31, 2017 and December 31, 2018 were calculated basedon the assumptions described below.
(millions of yen)
Fiscal year ended
December 31, 2017
Unappropriated retained earnings

Fiscal year ended
December 31, 2018

14,005

16,213-(1,174)769

563

Negative goodwill – 50-year amortization amount (Note 2)

262

262

Loss on disposal of property and equipment (Note 3)

132

35

-

265

Reserve for special advanced depreciation(Note 1)
Total of reserve for temporary difference adjustments (Note 2) (negative
goodwill) used

Large-scale renovation works (Note 4)
Adjustment for dilution (Note 5)
Total dividends

374-

14,771

15,602

Number of investment units issued and outstanding(Units)4,010,847

4,010,847

Dividend per unit

(JPY)

3,683

3,890

(Note 1) It is assumed that ¥1,174 million of the gain on sale from the Sale will be retained as reserve for special advanced
depreciation within the limit to maintain conduit status stipulated by Article 67-15 of the Act on Special Measures
Concerning Taxation (Act No. 26 of 1957; as amended; hereinafter called the Special Measures Concerning Taxation).
(Note 2) Starting from the fiscal year ended December 31, 2017 (18th period), JHR commenced paying out dividends throughreversal of reserve for temporary difference adjustment in connection with partial amendments to the “Ordinance on
Accounting of Investment Corporations” and the “Regulation for Real Estate Investment Trusts and Real Estate
Investment Corporations” of The Investment Trusts Association, Japan. Specifically, as part of the appropriation of profit
for the fiscal year ended December 31, 2016 (17th period), JHR transferred the remaining balance of dividend reserve(¥13,127 million) attributable to the gain on negative goodwill to “reserve for temporary difference adjustment” andreverses ¥262 million (hereinafter called the “50-year amortization amount of negative goodwill”), which is an amountequivalent to 2% (1/50) of the initial balance of the reserve for temporary difference adjustment, to payout as dividends,
with the remaining balance of the reserve for temporary difference adjustment remaining at the time of reversal set as the
maximum reversal amount, for every year from the fiscal year ended December 31, 2017 (18th period).
(Note 3) The amount recognized as a loss on disposal of property and equipment will be appropriated by reversing the reserve fortemporary difference adjustment (negative goodwill) and is expected to have no impact on the dividend per unit.
(Note 4) Taking into consideration the effect on dividend by the suspension of hotel operation due to the Renovation at Hotel
Centraza Hakata, an amount of ¥265 million, which is equivalent to the difference between NOI after depreciation for the
fiscal year ended December 2017 (18th period) and forecasted NOI after depreciation for the fiscal year ended December
2018 (19th period) of Hotel Centraza Hakata, will be appropriated by reversing the reserve for temporary difference
adjustment (negative goodwill).
(Note 5) Adjustment to compensate for dilution of dividend per unit due to issuance of new investment units.

<Reference 4>Balance of reserve for temporary difference adjustment (negative goodwill)

The balance of reserve for temporary difference adjustment (negative goodwill) after appropriation for dividends
for the fiscal year ended December 2018 is as follows.
Balance of reserve for temporary difference adjustment as of December 31, 2018
Appropriation for dividends for the fiscal year ended December 31, 2018
Balance of reserve for temporary difference adjustment after appropriation for dividends for the
fiscal year ended December 31, 201818

(millions of yen)
12,357(563)
11,794

Overview of JHR
1. Unitholders’ capital
15th period

16th period

17th period

18th period

19th period

As ofDecember 31, 2014

As ofDecember 31, 2015

As ofDecember 31, 2016

As ofDecember 31, 2017

As ofDecember 31, 2018

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)2,791,281

3,144,227

3,761,907

4,010,847

4,010,847

59,02485,470134,829

153,516

153,516

22,86625,182

31,37135,04631,155

Account closing date

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

2. Matters regarding investment units
Major unitholders of JHR as of December 31, 2018 were as follows:
Number of units held
(Units)Name

Percentage (Note)(%)

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

629,00715.68%

Japan Trustee Services Bank, Ltd. (Trust Account)492,388

12.27%The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)

190,271

4.74%

BNYM AS AGT/CLTS 10 PERCENT

146,423

3.65%

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

122,691

3.05%

JP Morgan Chase Bank 385628

65,1001.62%

STATE STREET BANK WEST CLIENT TREATY 505234

62,579

1.56%

Shikoku Railway Company

58,3111.45%

Mizuho Trust & Banking Co., Ltd.

55,166

1.37%

STATE STREET BANK AND TRUST COMPANY 505223
Total(Note)

52,3131.30%

1,874,249

46.72%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, 2018 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

6,400Supervisory Director

Tetsuya Mishiku (Note 1)

Representative Attorney, Mishiku& Nagamachi Law Office

3,500Supervisory Director

Hiroto Kashii (Note1)

–

3,500

Independent auditor

KPMG AZSA LLC (Note 2)–

26,950(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 ¥1,700 thousand, such as preparation of comfort letters associatedwith the issuance of investment corporation bonds on February 21, 2018.
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 8th General Meeting of Unitholders of JHR held on November 22, 2017.

19

(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.

4. Asset management company, custodian and general administrators
The asset management company, etc. as of December 31, 2018 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
MUFG Bank, Ltd. (Note)

General administrator (tax return preparation, etc.)

PwC Tax Japan(Note) As of April 16, 2018, MUFG Bank, Ltd. succeeded the position as General administrator (administration regarding investment
corporation bonds) for JHR’s eighth and ninth unsecured investment corporation bonds from Mitsubishi UFJ Trust andBanking Corporation through a company split and absorption.

20

Status of Investment Assets
1. Composition of assets

Type ofassetsBusiness
category(Note 1)18th period(As of December 31, 2017)
Prefectural
location

Name of property, etc.

Total amount of
Total amount ofRatio to total
Ratio to total
assets held
assets held
assets (%)
assets (%)(JPY1M)(JPY1M)(Note 3)(Note 3)(Note 2)

Tokyo

Limitedservice hotel

Osaka
Hokkaido

Fukuoka
Real estatein trust

7,984

2.3

7,940

2.3

CANDEO HOTELS UENO-KOEN

6,719

1.9

6,681

1.9

the b ikebukuro

6,573

1.9

6,584

1.9

the b akasaka-mitsuke (Note 4)

6,290

1.8

-

-

Hotel Sunroute Shinbashi (Note 5)

4,840

1.4

4,821

1.4

Comfort Hotel Tokyo Higashi Nihombashi

3,593

1.0

3,557

1.0

the b hachioji

2,680

0.8

2,686

0.8

the b ochanomizu (Note 4)

2,350

0.7

-

-

Smile Hotel Nihombashi Mitsukoshimae

2,041

0.6

2,030

0.6

R&B Hotel Ueno Hirokoji

1,751

0.5

1,766

0.5

R&B Hotel Higashi-nihonbashi (Note 4)

1,495

0.4

-

-

Hotel Vista Kamata Tokyo

1,464

0.4

1,465

0.4

the b suidobashi

1,204

0.3

1,198

0.3

Dormy Inn EXPRESS Asakusa

961

0.3

952

0.3

Chisun Inn Kamata

789

0.2

779

0.2

Holiday Inn Osaka Namba

27,083

7.7

27,033

7.7

Namba Oriental Hotel

14,595

4.1

14,552

4.2

ibis Styles Sapporo

6,659

1.9

6,620

1.9

Mercure Sapporo

5,895

1.7

5,853

1.7

HOTEL ASCENT FUKUOKA

5,187

1.5

5,178

1.5

the b hakata

2,335

0.7

2,340

0.7

Hakata Nakasu Washington Hotel Plaza

2,040

0.6

2,033

0.6

Toyoko Inn Hakata-guchi Ekimae

1,456

0.4

1,437

0.4

ibis Styles Kyoto Station

6,682

1.9

6,665

1.9

Okinawa

Mercure Okinawa Naha

2,889

0.8

2,860

0.8

Kumamoto Dormy Inn Kumamoto

2,185

0.6

2,165

0.6

Nara Washington Hotel Plaza

1,835

0.5

1,802

0.5

129,58836.8

119,010

33.9

Oriental Hotel tokyo bay

18,002

5.1

17,790

5.1

Hilton Tokyo Narita Airport

13,3183.8

13,253

3.8

International Garden Hotel Narita

9,222

2.6

9,195

2.6

Hotel Francs

3,155

0.9

3,187

0.9

ACTIVE-INTER CITY HIROSHIMA(Sheraton Grand Hiroshima Hotel)(Note 6)

17,6205.0

17,487

5.0

Oriental Hotel Hiroshima

4,091

1.2

4,106

1.2

Aichi

Hilton Nagoya

15,5884.4

15,605

4.5

Nara

Hotel Nikko Nara

10,5253.0

10,442

3.0

Hyogo

Kobe Meriken Park Oriental Hotel

9,893

2.8

9,772

2.8

Fukuoka

Hotel Centraza Hakata (Note 7)

7,341

2.1

7,178

2.0

Kanagawa

Mercure Yokosuka

1,636

0.5

1,642

0.5

Subtotal

Chiba

Hiroshima

Subtotal

110,397

31.3

109,661

31.3

Hotel Nikko Alivila

18,128

5.1

17,989

5.1

Okinawa Marriott Resort & Spa

14,722

4.2

14,875

4.2

The Beach Tower Okinawa

6,749

1.9

6,677

1.9

Chiba

Hilton Tokyo Bay

26,192

7.4

26,098

7.4

Osaka

Hotel Keihan Universal City

5,984

1.7

5,930

1.7

Kanagawa

Hakone Setsugetsuka

3,798

1.1

3,722

1.1

Okinawa
Resort hotel(Note 2)

ibis Tokyo Shinjuku

Kyoto

Nara

Full-service
hotel

19th period(As of December 31, 2018)21

Type ofassetsBusiness
category(Note 1)18th period(As of December 31, 2017)
Prefectural
location

Name of property, etc.

Total amount of
Total amount ofRatio to total
Ratio to total
assets held
assets held
assets (%)
assets (%)(JPY1M)(JPY1M)(Note 3)(Note 3)(Note 2)

(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)19th period(As of December 31, 2018)(Note 2)

Subtotal

75,57621.5

75,295

21.5

Real estate in trust – Total

315,561

89.6

303,967

86.7

Deposits and other assets (Note 8)

36,621

10.4

46,589

13.3

Total assets

352,183

100.0

350,556

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.
JHR sold R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu on August 10, 2018.
Hotel Sunroute Shinbashi is scheduled to be renamed as Sotetsu Fresa Inn Shimbashi-Karasumoriguchi on April 23, 2019.
ACTIVE-INTER CITY HIROSHIMA is classified in accordance with the business category of Sheraton Grand Hiroshima
Hotel, its main facility.
Hotel Centraza Hakata was renamed to Oriental Hotel Fukuoka Hakata Station on April 9, 2019.
Includes machinery and equipment, tools, furniture and fixtures, construction in progress in 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, 2018 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)

9,988

32,663.90

Tenantoccupancy
ratio
(%)

Ratio of rental
revenue to total
rental revenue
(%)

Major
use

(Note 4)32,663.90

100.0

4.6

Hotel

2

Oriental Hotel tokyo bay

18,013

44,833.11

44,833.11

100.0

7.2

Hotel

3

Namba Oriental Hotel

14,69019,364.33

19,364.33

100.0

6.2

Hotel

4

Hotel Nikko Alivila (Note 6)

18,24238,024.98

38,024.98

100.0

7.8

Hotel

5

Oriental Hotel Hiroshima

4,175

13,752.22

13,752.22

100.0

1.6

Hotel

6

ibis Tokyo Shinjuku

8,061

6,801.84

6,801.84

100.0

2.5

Hotel

8

The Beach Tower Okinawa (Note 7)

6,682

20,140.01

20,140.01

100.0

1.9

Hotel

9

Hakone Setsugetsuka

3,730

10,655.03

10,655.03

100.0

1.1

Hotel

10

Dormy Inn Kumamoto

2,165

7,701.19

7,701.19

100.0

0.7

Hotel

12

the b suidobashi

1,222

3,097.25

3,097.25

100.0

0.4

Hotel

13

Dormy Inn EXPRESS Asakusa

952

2,014.90

2,014.90

100.0

0.2

Hotel

14

Hakata Nakasu Washington Hotel Plaza

2,034

5,602.04

5,602.04

100.0

0.9

Hotel

15

Nara Washington Hotel Plaza

1,805

5,271.54

5,271.54

100.0

0.6

Hotel

16

R&B Hotel Ueno Hirokoji

1,766

3,060.31

3,060.31

100.0

0.4

Hotel

18

Comfort Hotel Tokyo Higashi Nihombashi

3,557

5,765.27

5,765.27

100.0

1.0

Hotel

22

Smile Hotel Nihombashi Mitsukoshimae

2,030

3,167.82

3,167.82

100.0

0.6

Hotel

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

100.0

0.5

Hotel

24

Toyoko Inn Hakata-guchi Ekimae

1,437

25

Hotel Vista Kamata Tokyo

1,466

3,831.80

3,831.80

100.0

0.4

Hotel

26

Chisun Inn Kamata781

1,499.87

1,499.87

100.0

0.3

Hotel

29

Hotel Keihan Universal City (Note 8)

5,931

16,212.40

16,212.40

100.0

3.1

Hotel

30

Hotel Sunroute Shinbashi

4,822

5,246.66

5,246.66

100.0

1.6

Hotel

31

Hilton Tokyo Bay (Note 9)26,10264,931.94

64,931.94

100.0

7.6

Hotel

32

ibis Styles Kyoto Station

6,687

5,003.99

5,003.99

100.0

2.1

Hotel

33

ibis Styles Sapporo

6,658

14,992.49

14,735.17

98.3

2.5

Hotel

34

Mercure Sapporo

5,923

15,189.42

14,905.88

98.1

3.1

Hotel

35

Mercure Okinawa Naha

2,891

10,884.25

10,884.25

100.0

1.7

Hotel

37

the b ikebukuro (Note 10)6,609

5,650.01

5,650.01

100.0

1.4

Hotel

39

the b hachioji (Note 10)

2,698

7,847.65

7,847.65

100.0

0.8

Hotel

40

the b hakata (Note 10)2,355

3,986.09

3,986.09

100.0

1.0

Hotel

41

Hotel Francs

3,187

19,213.39

19,213.39

100.0

1.1

Hotel

42

Mercure Yokosuka (Note 11)

1,681

16,881.82

16,881.82

100.0

1.2

Hotel

43

Okinawa Marriott Resort & Spa

15,04436,430.15

36,430.15

100.0

4.4

Hotel

44

ACTIVE-INTER CITY HIROSHIMA(Note 12)

17,561

31,181.03

31,130.58

99.8

5.8

Hotel

45

CANDEO HOTELS UENO-KOEN(Note 13)

6,689

7,934.26

7,934.26

100.0

1.3

Hotel

46

Hotel Centraza Hakata

8,001

18,105.42

18,105.42

100.0

2.2

Hotel

47

Holiday Inn Osaka Namba

27,13011,501.10

11,501.10

100.0

4.2

Hotel

48

HOTEL ASCENT FUKUOKA

5,178

8,238.75

7,978.58

96.8

1.6

Hotel

49

Hilton Nagoya (Note 14)

15,60547,942.71

47,942.71

100.0

5.3

Hotel

50

Hilton Tokyo Narita Airport

13,461

56,817.28

56,817.28

100.0

3.0

Hotel

51

International Garden Hotel Narita

9,259

21,814.93

21,814.93

100.0

2.3

Hotel

52

Hotel Nikko Nara (Note 15)

10,50021,011.31

21,011.31

100.0

2.4

Hotel

306,789

678,714.48

677,863.00

99.9

98.9

Total

(Note 1)
(Note 2)

Book value includes real estate in trust, machinery and equipment, tools, furniture and fixtures, construction in progressin trust, and intangible assets.
In principle, leasable area represents leasable area of the building, which does not include leasable area of land(including parking lots on ground), based on a lease contract or plan for each real estate in trust. For properties in23

which 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)

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.

(Note 4)

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. Furthermore, the sum total of the ratio of rental revenue tototal rental revenue is 98.9% as the figure does not include the relevant ratios of R&B Hotel Higashi-nihonbashi, the bakasaka-mitsuke and the b ochanomizu that were sold during the fiscal period under review.
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).
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).
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 ikebukuro, 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 in principle. 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.
The 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 building of Hotel Nikko Nara is a compartmentalized ownership of the entire building of Redeveloped Building 1
in front of JR Nara Station, which consists of hotel building, retail space and car parking space, etc. JHR’s share of
voting right of the building is 223/353 (approximately 63.2%).
The omitted property numbers are the numbers for assets that have been transferred.

(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)

(Note 12)(Note 13)

(Note 14)

(Note 15)

(Note 16)

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, 2018 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

15,800

9,988

JR

2

Oriental Hotel tokyo bay

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

Beneficial interestin trust

34,10018,013JR

3

Namba Oriental Hotel

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

Beneficial interestin trust

32,90014,690JR

4

Hotel Nikko Alivila

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

Beneficial interestin trust

31,50018,242

JR

5

Oriental Hotel Hiroshima

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

Beneficial interestin trust

4,350

4,175

JR

6

ibis Tokyo Shinjuku

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

9,650

8,061

JR

8

The Beach Tower Okinawa

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

Beneficial interestin trust

9,810

6,682

JR

9

Hakone Setsugetsuka

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

Beneficial interestin trust

5,200

3,730

JR

10

Dormy Inn Kumamoto

3-1 Karashimacho, Kumamoto-shi,
Kumamoto

Beneficial interestin trust

3,000

2,165

JM

12

the b suidobashi

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

Beneficial interestin trust

1,940

1,222

JR

13

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

Beneficial interestin trust

1,330

952

JM

14

Hakata Nakasu Washington
Hotel Plaza

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

Beneficial interestin trust

4,440

2,034

JR

15

Nara Washington Hotel Plaza

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

Beneficial interestin trust

2,430

1,805

JR

16

R&B Hotel Ueno Hirokoji

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

Beneficial interestin trust

1,950

1,766

JM

18

Comfort Hotel Tokyo Higashi
Nihombashi

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

Beneficial interestin trust

5,680

3,557

JM

22

Smile Hotel Nihombashi
Mitsukoshimae

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

Beneficial interestin trust

3,120

2,030

JM

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

2,780

1,437

T

25

Hotel Vista Kamata Tokyo

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

Beneficial interestin trust

2,040

1,466

T

26

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

Beneficial interestin trust

1,440

781

T

29

Hotel Keihan Universal City

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

Beneficial interestin trust

13,900

5,931

R

30

Hotel Sunroute Shinbashi

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

Beneficial interestin trust

8,810

4,822

D

31

Hilton Tokyo Bay

1-33 Maihama, Urayasu-shi, Chiba

Beneficial interestin trust

39,60026,102D

32

ibis Styles Kyoto Station

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

Beneficial interestin trust

11,500

6,687

D

33

ibis Styles Sapporo

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

Beneficial interestin trust

10,800

6,658

JR

34

Mercure Sapporo

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

Beneficial interestin trust

10,700

5,923

JR

35

Mercure Okinawa Naha

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

Beneficial interestin trust

7,760

2,891

JR

37

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

Beneficial interestin trust

7,330

6,609

JR

(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)39

the b hachioji

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

Beneficial interestin trust

2,780

2,698

JR

40

the b hakata

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

Beneficial interestin trust

4,530

2,355

JR

41

Hotel Francs

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

Beneficial interestin trust

4,090

3,187

D

42

Mercure Yokosuka

27 Honcho 3-chome, Yokosuka-shi,
Kanagawa

Beneficial interestin trust

2,940

1,681

D

43

Okinawa Marriott Resort &Spa

1490-1 Kise, Nago-shi, Okinawa

Beneficial interestin trust

18,60015,044JR

44

ACTIVE-INTER CITYHIROSHIMA

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

Beneficial interestin trust

21,10017,561D

45

CANDEO HOTELS
UENO-KOEN

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

Beneficial interestin trust

7,630

6,689

D

46

Hotel Centraza Hakata

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

Beneficial interestin trust

8,500

8,001

D

47

Holiday Inn Osaka Namba

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

Beneficial interestin trust

27,20027,130

JR

48

HOTEL ASCENT FUKUOKA

3-3-14 Tenjin, Chuo-ku, Fukuoka-shi,
Fukuoka

Beneficial interestin trust

6,540

5,178

D

49

Hilton Nagoya

1-3-3 Sakae, Naka-ku, Nagoya-shi, Aichi

Beneficial interestin trust

15,70015,605D

50

Hilton Tokyo Narita Airport

456 Kosuge, Narita-shi, Chiba

Beneficial interestin trust

13,40013,461

JR

51International Garden Hotel
Narita241-1 Yoshikura, Narita-shi, Chiba

Beneficial interestin trust

9,440

9,259

JR

52

Hotel Nikko Nara

8-1 Sanjyohonmachi, Nara-shi, Nara

Beneficial interestin trust

11,20010,500D

437,510306,789

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 equipment, tools, furniture and fixtures,construction in progress in trust, and intangible assets.
The letters indicate the appraisers for the properties as follows:
JR: Japan Real Estate InstituteJM: JLL Morii Valuation &Advisory K.K.
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 property 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:
18th period(From January 1, 2017 to December 31, 2017)
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(%)

19th period(From January 1, 2018 to December 31, 2018)
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

1,195

4.7

1

100.0

1,210

4.6

2

Oriental Hotel tokyo bay

1

100.0

1,729

6.8

1

100.0

1,888

7.2

3

Namba Oriental Hotel

1

100.0

1,600

6.3

1

100.0

1,629

6.2

4

Hotel Nikko Alivila

1

100.0

1,951

7.7

1

100.0

2,048

7.8

5

Oriental Hotel Hiroshima

1

100.0

498

2.0

1

100.0

424

1.6

6

ibis Tokyo Shinjuku

4

100.0

539

2.1

4

100.0

660

2.5

8

The Beach Tower Okinawa

1

100.0

511

2.0

1

100.0

511

1.9

9

Hakone Setsugetsuka

1

100.0

294

1.2

1

100.0

294

1.1

10

Dormy Inn Kumamoto

1

100.0

194

0.8

1

100.0

194

0.7

12

the b suidobashi

1

100.0

114

0.4

1

100.0

109

0.4

13

Dormy Inn EXPRESS Asakusa

1

100.0

63

0.3

1

100.0

63

0.2

14

Hakata Nakasu Washington
Hotel Plaza

1

100.0

240

0.9

1

100.0

240

0.9

15

Nara Washington Hotel Plaza

2

100.0

151

0.6

2

100.0

150

0.6

16

R&B Hotel Ueno Hirokoji

1

100.0

97

0.4

1

100.0

97

0.4

17

R&B Hotel Higashi-nihonbashi(Note 2)

1

100.0

122

0.5

-

-

74

0.3

18

Comfort Hotel Tokyo Higashi
Nihombashi

2

100.0

270

1.1

2

100.0

270

1.0

22

Smile Hotel Nihombashi
Mitsukoshimae

1

100.0

152

0.6

1

100.0

153

0.6

24

Toyoko Inn Hakata-guchi
Ekimae

1

100.0

141

0.6

1

100.0

141

0.5

25

Hotel Vista Kamata Tokyo

1

100.0

109

0.4

1

100.0

115

0.4

26

Chisun Inn Kamata

1

100.0

78

0.3

1

100.0

82

0.3

29

Hotel Keihan Universal City

1

100.0

811

3.2

1

100.0

822

3.1

30

Hotel Sunroute Shinbashi

4

100.0

412

1.6

4

100.0

426

1.6

31

Hilton Tokyo Bay

1

100.0

1,929

7.6

1

100.0

1,992

7.6

32

ibis Styles Kyoto Station

2

100.0

597

2.3

2

100.0

548

2.1

33

ibis Styles Sapporo

5

99.4

707

2.8

4

98.3

662

2.5

34

Mercure Sapporo

14

98.1

818

3.2

14

98.1

820

3.1

35

Mercure Okinawa Naha

1

100.0

491

1.9

1

100.0

456

1.7

36

the b akasaka-mitsuke (Note 2)

2

100.0

249

1.0

-

-

146

0.6

37

the b ikebukuro

4

100.0

360

1.4

4

100.0

361

1.4

38

the b ochanomizu (Note 2)

1

100.0

108

0.4

-

-

58

0.2

39

the b hachioji

13

100.0

202

0.8

12

100.0

203

0.8

40

the b hakata

2

100.0

252

1.0

2

100.0

250

1.0

41

Hotel Francs

1

100.0

300

1.2

1

100.0

300

1.1

42

Mercure Yokosuka

1

100.0

291

1.1

1

100.0

310

1.2

43

Okinawa Marriott Resort & Spa

1

100.0

1,215

4.8

1

100.0

1,169

4.4

44

ACTIVE-INTER CITYHIROSHIMA

37

99.8

1,482

5.8

39

99.8

1,526

5.8

45

CANDEO HOTELS
UENO-KOEN

1

100.0

350

1.4

1

100.0

349

1.3

46

Hotel Centraza Hakata

1

100.0

865

3.4

1

100.0

589

2.2

47

Holiday Inn Osaka Namba

1

100.0

1,215

4.8

1

100.0

1,114

4.2

48

HOTEL ASCENT FUKUOKA

6

100.0

436

1.7

5

96.8

432

1.6

49

Hilton Nagoya

4

100.0

1,388

5.4

4

100.0

1,390

5.3

27

18th period(From January 1, 2017 to December 31, 2017)
PropertyNo.

Name of property, etc.

Number oftenants
at end ofperiod(Note 1)19th period(From January 1, 2018 to December 31, 2018)

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(%)

50

Hilton Tokyo Narita Airport

1

100.0

398

1.6

1

100.0

785

3.0

51

International Garden Hotel
Narita

1

100.0

261

1.0

1

100.0

608

2.3

52

Hotel Nikko Nara

1

100.0

272

1.1

1

100.0

629

2.4

Total

131

99.9

25,475

100.0

126

99.9

26,318100.0(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)JHR sold R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu on August 10, 2018.

(Note 3)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, 2018.
5. Contractual amounts and fair values of specified transactions
The contractual amounts and fair values of specified transactions as of December 31, 2018 were as follows:
Classification

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

Transaction

Over 1 year
Transactions other thanmarket transactions

Interest rate swap transactions
Payable fixed rate / Receivable floating rate
Total

(Note 1)
(Note 2)

Fair value(JPY1M)(Note 2)

96,74285,048(484)

96,74285,048(484)

Contractual amounts, etc. of interest rate swap 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, 2018.
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 ¥6,842 million, which consists of capital expenditures of ¥6,778 million and repair expenses of ¥64
million, for the next fiscal period.
Name of property, etc.
(Location)

PurposeEstimated construction costs(JPY1M)

Scheduled period

Total amount

Total amountpaid

R&B Hotel Ueno Hirokoji(Taito-ku, Tokyo)

Renewal of air conditioning
units

From January 2019
to March 201954-

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Renewal of disasterprevention facilities

From October 2019
to November 201953-

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Land preparation for parking
lot

From
December 2018
to May 2019

423-

Replacement of
air-conditioning facilities forguest rooms

From
February 2019
to March 2019

66-

Renovation of restaurants

From May 2019
to June 2019

233-

Hotel Centraza Hakata(Fukuoka-shi, Fukuoka)

Major renovation work forentire property

From October 2018
to March 2019

3,100

704

Holiday Inn Osaka Namba(Osaka-shi, Osaka)

Renovation of guest rooms(guestrooms on the 10th and11th floors)

From May 2019
to May 201972-

Hotel Nikko Nara
(Nara-shi, Nara)

Renewal of interior surfaces
for one floor

From May 2019
to June 2019

128-

Hilton Nagoya(Nagoya-shi, Aichi)

Renewal of water supply
pipingFrom March 2019
to November 2019

55

-

4,185

704

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

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.

2. Capital expenditures during the period (Note)
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 ¥3,056 million, and repair expenses that were accounted for as expense in the fiscal period
under review totaled ¥46 million. In aggregate, ¥3,102 million of construction work was carried out.
Name of property, etc. (Location)

Purpose

PeriodKobe Meriken Park Oriental Hotel
Renewal of telephone switchboard(Kobe-shi, Hyogo)
Oriental Hotel tokyo bay(Urayasu-shi, Chiba)

Increase in the number of guestrooms
associated with relocation of Mama Salonand renovation of front lobby

29

Construction costs(JPY1M)

From May 2018
to July 201841

From October 2018
to December 2018

144

Name of property, etc. (Location)

Construction costs(JPY1M)

Purpose

PeriodNamba Oriental Hotel(Osaka-shi, Osaka)Renewal of guest rooms on the 6th floor

From January 2018
to February 201878

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

Replacement of air-conditioning facilities
for guest rooms

From September 2018
to December 2018260

Holiday Inn Osaka Namba(Osaka-shi, Osaka)Renewal of guest rooms on the 6th and7th floors

From January 2018
to February 2018

58

Holiday Inn Osaka Namba(Osaka-shi, Osaka)Renewal of guest rooms on the 4th and12th floors

From September 2018
to September 201857

Hilton Nagoya(Nagoya-shi, Aichi)

Renewal of drainage for sewage and graywater pipes

From June 2017
to January 2018

55
696

Total
(Note)For new construction and renewal work, construction costs include those for buildings, annexed installation, etc. as wellas items classified as furniture and fixtures.

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)
15th period

16th period

17th period

18th period

19th period(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)(From January 1, 2017
to December 31, 2017)(From January 1, 2018
to December 31, 2018)

Balance at beginning of period

454

493

657

791

946

Provision during the period

46

185

133

154

15

Reversal during the period

7

20

-

-

9

Amount carried forward

493

657

791

946

951

Fiscal period

Expenses and Liabilities
1. Details of expenses related to asset management, etc.
(thousands of yen)
18th period(From January 1, 2017 to
December 31, 2017)(a) Asset management fees

(Note 1)

1,501,391

19th period(From January 1, 2018 to
December 31, 2018)(Note 2)

1,577,515(b) Asset custody and administrative service fee

111,425

110,273(c) Officers’ compensation

14,15013,400(d) Other operating expenses
Total(Note 1)
(Note 2)

179,110214,828

1,806,078

1,916,017

For asset management fees for the 18th fiscal period, besides the above amounts, there are ¥245,047 thousand of fees
included in the acquisition price of investment properties, etc. in acquiring properties.
For asset management fees for the 19th fiscal period, besides the above amounts, there are ¥60,750 thousand of fees
deducted from the gain on sale of real estate properties in selling properties.

30

2. Loans payable
The status of loans by contractual agreement and by financial institution as of December 31, 2018 was asfollows:
Category

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
1,125

－

750

－

750

－

375

－

3,000

－

－

－

July 12, 2017
Mizuho Bank, Ltd.
Sumitomo Mitsui Trust Bank,
Short-term
Limitedloans
payableSubtotal
Sumitomo Mitsui Banking
Corporation

April 26, 2018

0.33%

Subtotal－－

Short-term loans payable – Total

3,000

－

2,101

－

955

－

The Tokyo Star Bank, Limited

1,241

－

Subtotal

4,297

－

1,771

－

932

－

2,704

－

500

－

1,000

－

Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
LimitedApril 26, 2013

September 30,
2013

Subtotal
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
Limited

October 31,
2013

Mizuho Bank, Ltd.

1,000

－

Shinsei Bank, Limited

500

－

3,000

－

54

－

Resona Bank, Limited

713－

Shinsei Bank, Limited

702

－

47

－

668

－

The Chiba Bank, Ltd.

535－

Sompo Japan Nipponkoa
Insurance Inc.

601

－

3,321

－

648

648

2,516

2,516

2,516

2,516

Sumitomo Mitsui Trust Bank,
Limited

1,120

1,120

Subtotal

6,800

6,800

SubtotalLong-term
loans
Sumitomo Mitsui Banking
payable Corporation

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

0.33%

March 31,2014

31

Maturity
date

Repayment
methodJune 29,

Lump-sum
repayment

2018

December28, 2018

0.97%

April 26,
2018

0.98%
(Note 2)September
30, 2018

0.98%(Note 2)September
30, 2018

0.73%(Note 2)

March 31,
2018

1.15%
(Note 2)

March 31,
2021

Use

Remarks(Note 9)Unsecured,
unguaranteed(Note 10)

Unsecured,
unguaranteed(Note 4)Lump-sum
repayment(Note 5)

Repayment of¥11,250thousand every 3months, andUnsecured,(Note 9)lump-sumunguaranteed
repayment of theremaining
amount (Note 6)
Repayment of¥7,250 thousand
every 3 months,
Unsecured,and lump-sum(Note 10)
unguaranteed
repayment of theremaining
amountLump-sum
repayment(Note 7)(Note 9)Unsecured,
unguaranteed

Repayment of¥19,000
thousand every 3months, andUnsecured,
lump-sum(Note 10)
unguaranteed
repayment of theremaining
amount(Note 4)Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed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

－

285

285

6,817

6,055

600

600

1,200

1,200

850

850

Shinsei Bank, Limited

750

750

Sumitomo Mitsui Trust Bank,
Limited

600

600

4,000

4,000

935

935

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
loans
The Tokyo Star Bank, Limited
payableAozora Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Resona Bank, Limited

September 30,
2014

Subtotal
December 30,
2014

MUFG Bank, Ltd.
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

32

Maturity
date

Repayment
methodUse

Remarks(Note 3)September
30, 2019

Lump-sum
repayment(Note 11)

Unsecured,
unguaranteed

0.92%(Note 2)September
30, 2020

Lump-sum
repayment(Note 8)(Note 11)

Unsecured,
unguaranteed

1.04%(Note 2)September
30, 2021

Lump-sum
repayment(Note 11)

Unsecured,
unguaranteed

0.56%

December30, 2020

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

0.38% January 31,(Note 2)2020

Lump-sum
repayment(Note 11)

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－

Aozora Bank, Ltd.

150

150

8,200

7,900

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

960

960

2,880

2,880

703

703

1,744

－

Subtotal
Sumitomo Mitsui Banking
Corporation

March 31,2015

Subtotal
Aozora Bank, Ltd.
July 10, 2015
MUFG Bank, Ltd.
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

189

189

2,636

892

500

500

1,000

1,000

250

250

250

250

2,000

2,000

480

480

800

－

480

480

1,760

960

33

Maturity
date

Repayment
methodUse

Remarks

0.90% January 31,(Note 2)2022

Lump-sum
repayment(Note 8)(Note 11)

Unsecured,
unguaranteed

0.93%(Note 2)

March 31,2022

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

0.95%(Note 2)June 30,2022

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

0.51%

June 30,
2020

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

1.07%(Note 2)September
29, 2023

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

1.07%(Note 2)September
29, 2023

Lump-sum
repayment(Note 8)(Note 10)

Unsecured,
unguaranteed

0.21%

March 31,2019

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed(Note 10)

Unsecured,
unguaranteed(Note 2)0.19%
(Note 2)

March 31,2019

Lump-sum
repayment(Note 8)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.
Subtotal

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
530

530

270

270

230

230

110

110

1,140

1,140

1,050

1,050

1,750

－

0.77%

1,050

1,050

(Note 2)

3,850

2,100

1,200

1,200

600

600

550

550

300

300

2,650

2,650

Sumitomo Mitsui Banking
Corporation

1,200

1,200

Mizuho Bank, Ltd.

1,000

1,000

1,000

1,000

500

500

The Tokyo Star Bank, Limited

500－

The Nomura Trust and Banking
Co., Ltd.

500

500

4,700

4,200

800

800

Long-term Shinsei Bank, Limitedloans
payable Resona Bank, Limited

March 31,2016

Subtotal
Sumitomo Mitsui Trust Bank,
LimitedMarch 31,2016

Subtotal
Development Bank of Japan Inc.

March 31,2016

Subtotal

800

800

500

500
500

Sumitomo Mitsui Banking
Corporation

2,900

2,900

Shinsei Bank, Limited

1,700

1,700

1,700

1,700

Resona Bank, Limited

September 1,
2016(Note 2)0.77%
(Note 2)0.68%
(Note 2)0.66%
(Note 2)

0.57%
500

Mizuho Bank, Ltd.

0.19%

1,000

1,000

0.74%

The Nomura Trust and Banking
Co., Ltd.

500

500

(Note 2)The Chiba Bank, Ltd.

500

500

1,200

1,200

9,500

9,500

1,300

1,300

The Bank of Fukuoka, Ltd.
Subtotal
Sumitomo Mitsui Trust Bank,
LimitedSubtotal

September 1,
2016

1,300

1,300

34

0.56%
(Note 2)

Maturity
date

Repayment
methodUse

Remarks

March 31,2019

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed(Note 10)

Unsecured,
unguaranteed(Note 10)

Unsecured,
unguaranteed(Note 10)

Unsecured,
unguaranteed

March 31,2024

March 31,2024

March 31,2023

Lump-sum
repayment(Note 8)Lump-sum
repayment

Lump-sum
repayment(Note 8)March 31,2024

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 10)

Unsecured,
unguaranteed

September
30, 2025

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

September
30, 2024

Lump-sum
repayment(Note 9)Unsecured,
unguaranteedCategory

Borrowingdate

Lender

September 1,
2016

MUFG Bank, Ltd.
Subtotal
Development Bank of Japan Inc.

September 1,
2016

Subtotal
September 1,
2016

Aozora Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation

February 28,
2017

Subtotal
Sumitomo Mitsui Banking
Corporation

Subtotal
Sumitomo Mitsui Banking
Corporation

Mizuho Bank, Ltd.

August 1,
2017

Resona Bank, Limited
Long-term
Subtotalloans
payable Sumitomo Mitsui Trust Bank,
LimitedAugust 1,
2017

SubtotalAugust 1,
2017

MUFG Bank, Ltd.
Subtotal
Development Bank of Japan Inc.

August 1,
2017

Subtotal
The Fukuoka Bank, Ltd.

August 1,
2017

SubtotalAugust 1,
2017

Aozora Bank, Ltd.
Subtotal
THE NISHI-NIPPON CITY
BANK, LTD.

August 1,
2017

Subtotal
Shinsei Bank, Limited

August 1,
2017

Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Sumitomo Mitsui Trust Bank,
LimitedShinsei Bank, Limited
Subtotal

2,000

Maturity
date

Repayment
methodUse

Remarks

September
30, 2024

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

0.59%

September
30, 2024

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

0.71%

September
30, 2024

Lump-sum
repayment(Note 9)Unsecured,
unguaranteed

0.33%

March 30,
2018

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.46%

June 30,
2023

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2026

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

September
30, 2025

Lump-sum
repayment

Unsecured,(Note 9) unguaranteed

March 31,2025

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

2,000

0.56%

2,000

2,000

(Note 2)

700

700

700

700

500

500

500

500

1,700

－

1,700

－

1,750

1,750

500

500

2,250

2,250

1,250

1,250

1,250

1,250

1,250

1,250

500

500

4,250

4,250

1,000

1,000

0.73%

1,000

1,000

(Note 2)

700

700

0.68%

700

700

(Note 2)

500

500

July 12, 2017

The Chiba Bank, Ltd.

Shinsei Bank, Limited

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

September 19,
2017

0.85%
(Note 2)

0.75%
500

500

500

500

0.73%

500

500

(Note 2)

500

500

0.73%

500

500

(Note 2)

1,000

1,000

0.73%

1,000

1,000

(Note 2)

300

300

0.68%

300

300

(Note 2)

1,200

1,200

500

500

460

460

390

390

2,550

2,550

35

0.65%
(Note 2)Category

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
2,500

2,500

1,500

1,500

4,000

4,000

1,500

1,500

500

500

300

300

150

150

2,450

2,450

－

1,700

－

1,700

－

650

－

950

－

500

－

250

－

500

－

2,850

－

500

－

500

－

500

Subtotal－

500

Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
Limited

－

1,700

－

1,400

－

500

－

300

－

3,900

－

350

Shinsei Bank, Limited

November 15,
2017

Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited
Development Bank of Japan Inc.

November 15,
2017

The Fukuoka Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation

March 30,
2018

Subtotal
Sumitomo Mitsui Banking
Corporation
Long-term Shinsei Bank, Limitedloans
payable The Chiba Bank, Ltd.

April 26, 2018

THE NISHI-NIPPON CITY
BANK, LTD.
Sompo Japan Nipponkoa InsuranceInc.
Subtotal
The Hiroshima Bank, Ltd.

April 26, 2018

Subtotal
The Shizuoka Bank, Ltd.

Shinsei Bank, Limited

September 28,
2018

September
28, 2018

Mizuho Bank, Ltd.
Subtotal
The Bank of Fukuoka, Ltd.

November 30,
2018

Subtotal
THE NISHI-NIPPON CITY
BANK, LTD.

November 30,
2018

Repayment
methodMarch 29,2024

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

March 31,2025

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.41%

March 31,2023

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.41%

March 31,2023

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.52%

March 31,2023

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.55%

September
29, 2023

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

September
30, 2027

Lump-sum
repayment

Unsecured,(Note 10) unguaranteed

0.34%

December30, 2019

Lump-sum
repayment

Unsecured,(Note 12) unguaranteed

0.34%

December30, 2019

Lump-sum
repayment

Unsecured,(Note 12) unguaranteed

0.57%(Note 2)0.65%
(Note 2)

0.95%

－

350

－

350

－

350

Long-term loans payable – Total

113,799

103,071

Total loans payable

116,799

103,071

Subtotal

Maturity
date(Note 2)Use

Remarks(Note 1)

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

(Note 2)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 presented as the rate obtained by taking into account theeffect of interest rate swaps, rounded off to second decimal places.

(Note 3)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 in effect, fixed at
0.94875% per annum for the period from March 30, 2018 through September 30, 2019 due to the execution of an36

interest rate swap agreement on September 26, 2014.
(Note 4)JHR made early repayment for the entire amount on February 28, 2018.

(Note 5)JHR made early repayment for the entire amount on August 10, 2018.

(Note 6)JHR made partial early repayment of ¥1,400 million on February 28, 2018 and made lump-sum repayment for theremaining amount on the maturity date.

(Note 7)JHR made partial early repayment of ¥1,200 million on February 28, 2018 and made lump-sum repayment for theremaining amount on the maturity date.

(Note 8)JHR made partial early repayment of the loan on April 26, 2018.

(Note 9)The funds were appropriated for acquisition of the beneficial interest of real estate in trust and related expenses, etc.

(Note 10) The funds were appropriated for refinancing of borrowings, etc.
(Note 11) The funds were appropriated for acquisition of the beneficial interest of real estate in trust, repayment of borrowings andrelated expenses, etc.
(Note 12) The funds were appropriated for renovation of Hotel Centraza Hakata and related expenses, etc.
(Note 13) In order to list each loan payable, ¥11,117 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.
(Note 14) MUFG Bank, Ltd. succeeded the corporate lending operations of Mitsubishi UFJ Trust and Banking Corporation as ofApril 16, 2018 through a corporate split and absorption.

3. Investment corporation bonds
Status of investment corporation bonds as of December 31, 2018 was as follows:
Name

Issuance date

Balance at
beginning of
period(JPY1M)

Balance at
end of period(JPY1M)

Interest
rate(%)

Maturity
date

Repayment
methodUse

Remarks
Unsecured,
unguaranteed(Note 4)

Third unsecured investment
corporation bonds

March 19,
2014

2,000

2,000

0.920

March 19,2019

Lump-sum
repayment(Note 1)

Fourth unsecured investment
corporation bonds

December19, 2014

1,500

1,500

0.860

December17, 2021

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

October 23,
2015

6,000

6,000

0.820

October
21, 2022

Lump-sum
repayment(Note 1)

Sixth unsecured investment
corporation bonds

March 22,
2016

3,000

3,000

0.935

March 19,2026

Lump-sum
repayment(Note 1)Seventh unsecured investment
corporation bonds

November29, 2016

9,000

9,000

0.600

November27, 2026

Lump-sum
repayment(Note 3)Eighth unsecured investment
corporation bonds

November29, 2016

1,100

1,100

0.600

November27, 2026

Lump-sum
repayment(Note 3)

Ninth unsecured investment
corporation bonds

November24, 2017

1,000

1,000

0.530

November22, 2024

Lump-sum
repayment(Note 1)Tenth unsecured investment
corporation bonds

February 21,
2018–10,0000.840

February21, 2028

Lump-sum
repayment(Note 2)

23,60033,600Total

Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 5)(Note 1)

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

(Note 2)

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

(Note 3)

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

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

37

4. Short-term investment corporation bonds
Not applicable.

5.

Subscription rights to new investment units
Not applicable.

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)(Note 1)

Book value(JPY1M)

Gain (loss) on
sale(JPY1M)(Note 2)

Beneficial interest ofreal estate in trust

R&B Hotel Higashi-nihonbashi――

August 10,
2018

3,050

1,483

1,543

Beneficial interest ofreal estate in trust

the b akasaka-mitsuke――

August 10,
2018

6,600

6,294

264

Beneficial interest ofreal estate in trust

the b ochanomizu――

August 10,
2018

2,500

2,353

127

―

―

―

12,150

10,131

1,934

Total

(Note 1)
(Note 2)The sale price indicates contracted amount of the property in the purchase and sale agreement, etc. excluding related
expenses (brokerage fees, taxes, etc.) incurred on the sale of such property.
Gain (loss) on sale indicates the amount obtained by deducting the book value and other sale-related expenses from thesale price.

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. Investigation into prices, etc. of specified assets(1) Real estate properties, etc.
Acquisition/
sale

Asset type

Name of property, etc.

Acquisition/
sale date

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

(Note 2)

Date ofappraisal

Appraisal agency

Sale

Beneficial interest of R&B Hotelreal estate in trust
Higashi-nihonbashi

August 10,
2018

3,050

2,090

June 30, 2018

JLL Morii Valuation& Advisory K.K.

Sale

Beneficial interest of
the b akasaka-mitsuke
real estate in trust

August 10,
2018

6,600

6,010

June 30, 2018

Japan Real Estate
InstituteSale

Beneficial interest of
the b ochanomizu
real estate in trust

August 10,
2018

2,500

2,360

June 30, 2018

Japan Real Estate
Institute(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.”38

(2) Transaction of securities
Not applicable.
(3) Other
Name of the party that conducted the investigation
KPMG AZSA LLC
Overview of results and method of the investigation
From the period from January 1, 2018 to December 31, 2018, JHR requested an investigation of one
interest rate swap transaction. Based on Article 201-2 of the Act on Investment Trusts and Investment
Corporations, JHR entrusted the investigation to KPMG AZSA LLC with regard to such information as thecomparable price, counterparty’s name, contract amounts and transaction period, and received a report on
the agreed upon procedures as a result of the investigation based on the “Practical Guidelines on theAgreed Upon Procedures for the Investigation into Prices, Etc. of Specified Assets for Investment Trusts
and Investment Corporations” (Professional Practice Guidelines 4460) issued by the Japanese Institute ofCertified Public Accountants.
This investigation does not constitute a part of the audit of the financial statements, nor provide any
assurance or guarantee on the appropriateness of the price or the effectiveness of the internal control
system.
4. Transactions with interested parties, etc. (Note 1)(1) Transactions(millions of yen)
Category

Price, etc. (Note 2) (Note 3)
Acquisition price, etc.

Total amountSale price, etc.
–

Real estate operating revenue
12,15026,318

Breakdown of transactions with interested parties, etc.
Hotel Management Japan Co., Ltd.

–

[–%]

–

[–%]

7,200

[27.4%]

Lagoon resort Nago Co., Ltd.

–

[–%]

–

[–%]

1,169

[4.4%]OW Hotel Operations KK

–

[–%]

–

[–%]

1,114

[4.2%]

Kyoritsu Maintenance Co., Ltd.

–

[–%]

–

[–%]

1,063

[4.0%]

K.K. A.I.C Hiroshima Management

–

[–%]

–

[–%]

996

[3.8%]KK NaritaKosuge Operations

–

[–%]

–

[–%]

784

[3.0%]

Hotel Management Co., Ltd.

–

[–%]

–

[–%]

629

[2.4%]KK NaritaYoshikura Operations

–

[–%]

–

[–%]

608

[2.3%]

Hotel Centraza Co., Ltd.

–

[–%]

–

[–%]

589

[2.2%]

–

[–%]

–

[–%]

14,156[53.8%]

Total(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. Companies with which the Asset Management Company has concluded an
asset management agreement, a discretionary investment agreement or an investment advisory agreement, 6. Entity or
persons who ceased to fall under 1. or 5. within 3 months, and 7. Entity or persons who are deemed appropriate by thecompliance officer of the Asset Management Company to be treated 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 relevant amount to the total amount, rounded off to one decimal place.

39

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

Outsourcing expenses(Note)(Note)

Total amountsof fees paid, etc.
(A)714,663

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 (%)

0.8

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

5. Transactions with the Asset Management Company in other businesses of the Asset Management
Company
The Asset Management Company does not concurrently conduct any of the class 1 financial instruments
transaction business, class 2 financial instruments transaction business, building lots and buildings transaction
business, or real estate specified joint enterprise business, and there are no applicable transactions.

40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 of beneficiary certificates of investment trusts set up by asset management company, etc.
Japan Hotel REIT Advisors Co., Ltd., the asset management company of JHR, has acquired JHR’s investment
units as indicated below.
(1) Status of acquisition, etc.
Date

Number of units acquired

Number of units disposed

Number of units held

(units)(units)(units)January 20, 2016

2,500

―

2,500

July 5, 2017

1,200

―

3,700

Accumulated total

3,700

―

3,700

(2) Status of holding units
Total investment
at end of period

Number ofunits held at
end of period(thousands ofyen)(units)(Note 1)

Ratio to total units
issued(%)(Note 2)

(Reference)
Total number of units
issued at end of period(units)17th
fiscalperiodFrom January 1, 2016 to
December 31, 2016

2,500

212,5500.06

3,761,907

18thfiscalperiodFrom January 1, 2017 to
December 31, 2017

3,700

305,5710.09

4,010,847

19th
fiscalperiodFrom January 1, 2018 to
December 31, 2018

3,700

305,5710.09

4,010,847(Note 1)
(Note 2)

Total investment at end of period indicates the acquisition price.
Ratio to total units issued is percentage of investment units held at end of period to the total investment units issued
at end of period and is rounded down to second decimal place.

41

Other(1) Announcements
There were no major conclusions, changes, etc. of the principal agreements that were approved or reported atmeetings of JHR’s Board of Directors during the fiscal period under review.
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 after the account closing date of the fiscal
period under review.
Approval date

January 16, 2019

Item

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

Summary
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. , Nomura Securities Co., Ltd., FFG
Securities Co., Ltd., Nishi-Nippon City Tokai Tokyo Securities Co., Ltd.
and Chibagin Securities Co., Ltd. Moreover, general administration foroffering the investment units overseas was entrusted to SMBC Nikko
Capital Markets Limited, Goldman Sachs International, Mizuho
International plc and Daiwa Capital Markets Europe Limited as joint
lead managers for the overseas offering.

(2) Status, etc. of corporation owning foreign real estate
Not applicable.
(3) Status, etc. of real estate owned by foreign real property holding corporations
Not applicable.
(4) Other
Unless otherwise noted, amounts and ratios in this report are rounded down and rounded off to the stated unit,
respectively.

42

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2018 and 2017
Thousands of yen
As ofDecember 31,
2018
ASSETS
Current assets:
Cash and deposits (Notes 4 and 5)
Cash and deposits in trust (Notes 4 and 5)
Operating accounts receivable (Note 5)
Prepaid expenses
Income taxes receivable
Derivative assets (Notes 5 and 17)
Other current assets
Total current assets

¥

As of
December 31,
2017

25,706,559 ¥
11,478,156
2,474,121
527,491
34
2,229
77,98740,266,582

16,179,716
11,740,634
2,411,837
573,439
32
14,20530,919,866

398,134
3,121,628
122,605,307
2,535,539
598,790
136,526
163,151,369
765,363
293,312,661(20,423,041)
272,889,620

278,899
2,438,070
122,414,147
2,493,765
580,867
137,266
171,618,110
1,512
299,962,640(16,896,044)
283,066,595

Intangible assets:
SoftwareLeasehold rights in trust (Note 18)
Fixed-term leasehold rights in trust (Note 18)
Other intangible assets (Note 18)
Total intangible assets

199,563
28,532,362
5,175,217
8,436
33,915,580

200,001
28,648,457
5,313,494
9,116
34,171,069

Other assets:
Security deposits
Leasehold and security deposits in trust
Long-term prepaid expenses
Derivative assets (Notes 5 and 17)
Reserve fund for repairs and maintenance
Investment unit issuance costs
Investment corporation bond issuance costs
Total other assets

12,520150,223
2,687,996
45,125292,508
124,220
172,390
3,484,984

12,520158,323
3,008,327
123,334
319,058
272,107132,059
4,025,731¥350,556,767¥352,183,262

Property and equipment, at cost (Notes 16 and 18):
Machinery and equipment
Tools, furniture and fixtures
Buildings in trust (Note 13)
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(Continued)

43

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2018 and 2017
Thousands of yen
As ofDecember 31,
2018

As of
December 31,
2017¥

1,941,008
2,000,000
11,117,000
530,377
1,210
496,921882,052
18,275
7,315
17,608583
9,013
17,021,368¥

Long-term liabilities:
Investment corporation bonds (Notes 5 and 7)
Long-term loans payable (Notes 5, 6 and 17)
Tenant leasehold and security deposits (Note 5)
Tenant leasehold and security deposits in trust (Note 5)
Derivative liabilities (Notes 5 and 17)
Deferred tax liabilities (Note 14)
Asset retirement obligations (Note 8)
Total long-term liabilities

31,600,000
91,954,000
1,041,016
4,593,946
514,339
14,255445,622130,163,180

23,600,000
98,777,000
1,041,016
4,653,410
504,179
38,954
443,577
129,058,138

Total liabilities

147,184,548

150,219,940

153,516,129

153,516,129

21,746,398

21,746,398

12,357,644
12,357,644
16,213,482
50,317,525
203,833,655

13,127,153
13,127,153
14,005,489
48,879,041
202,395,170(461,435)(461,435)(431,849)(431,849)

Total net assets

203,372,219

201,963,321

Total liabilities and net assets¥350,556,767¥352,183,262

LIABILITIES AND NET ASSETS
Current liabilities:
Operating accounts payable
Short-term loans payable (Notes 5 and 6)
Current portion of investment corporation bonds (Notes 5 and 7)
Current portion of long-term loans payable (Notes 5, 6 and 17)
Accrued expenses
Income taxes payable
Consumption taxes payable
Advances received
Dividends payable
Deposits received
Derivative liabilities (Notes 5 and 17)
Deferred tax liabilities (Note 14)
Other current liabilities
Total current liabilities

Net assets (Note 9):Unitholders’ equity:
Unitholders’ capital
Units authorized: 20,000,000 units
Units issued and outstanding; 4,010,847 units and 4,010,847 units asof December 31, 2018 and 2017, respectively
Surplus:Capital surplus
Voluntary reserve:
Reserve for temporary difference adjustment (Note 10)
Total voluntary reserve
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Valuation and translation adjustments:
Deferred gains (losses) on hedges (Note 17)
Total valuation and translation adjustments

See notes to financial statements.

44909,9713,000,000
15,022,750
650,568
1,210
560,170
900,259
16,40022,09823,471
54,903
21,161,802

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Income
For the years ended December 31, 2018 and 2017
Thousands of yen
For the year
For the year
ended
ended
December 31, December 31,
2018
2017
Operating revenue:
Real estate operating revenue (Note 11)
Other real estate operating revenue (Note 11)
Gain on sale of real estate properties (Note 12)
Total operating revenue¥ 25,140,735
1,178,141
1,934,974
28,253,850¥ 24,318,307
1,157,246
25,475,553

Operating expenses:
Real estate operating costs (Note 11)
Asset management fee
Asset custody and administrative service fee
Directors’ compensation
Other operating expenses
Total operating expenses

8,344,364
1,577,515
110,273
13,400214,828
10,260,381

7,911,653
1,501,391
111,425
14,150179,110
9,717,731

Operating income

17,993,469

15,757,821

225
3,583
4,627
10,354
118
12,84331,752

212
3,624
648
391
22,381
27,258Non-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

818,631
246,329525,031
27,751
147,887
39,417
8,529
1,813,577
16,211,644

904,000
169,584
522,774
20,748141,962
13,306
6,414
1,778,791
14,006,288

Income before income taxes

16,211,644

14,006,288

Income taxes (Note 14):
Current
Total income taxes

1,210
1,210

1,210
1,210

¥ 16,210,434¥ 14,005,078

Non-operating income:Interest income
Gain on forfeiture of unclaimed dividends
Gain on insurance claims
Refunded taxes on property and equipment
Interest on tax refunds
Gain on derivative instruments
Total non-operating income

Net income

See notes to financial statements.

45

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Changes in Net Assets
For the years ended December 31, 2018 and 2017

Unitholders’capitalCapital surplus¥
Balance, January 1, 2017
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Provision of reserve for temporary
difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear¥
Balance, December 31, 2017
Changes of items during the year:
Reversal of reserve for temporary
difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear

134,829,448¥¥

153,516,129

Balance, December 31, 2018

Dividend
reserve

21,746,398¥

13,867,228 ¥-¥

13,867,228

Unappropriatedretained earnings¥

12,126,057

Total unitholders’equityTotal surplus¥

47,739,684¥

182,569,132

18,686,681--(13,867,228)-(13,867,228)

13,867,228-

18,686,681
-

-

-

-

13,127,153-

13,127,153-(13,127,153)(12,865,721)
14,005,078(12,865,721)
14,005,078(12,865,721)
14,005,078

-

-

-

-

-

-

-

-

18,686,681
153,516,129¥

21,746,398¥(13,867,228)
13,127,153- ¥ 13,127,153¥(740,075)
13,127,153¥

1,879,431
14,005,489¥

1,139,356
48,879,041¥

19,826,037
202,395,170

-

-

-

(769,508)-(769,508)-

769,508(14,771,949)
16,210,434(14,771,949)
16,210,434(14,771,949)
16,210,434

-

-

-

-

-

-

-

-

-

-

-

(769,508)(769,508)

2,207,993

1,438,484

1,438,484¥

21,746,398¥-

Thousands of yen
Valuation and translation adjustments
Deferred gains
Total valuation(losses) on
and translation
hedgesadjustments¥
Balance, January 1, 2017
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Provision of reserve for temporary
difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear¥
Balance, December 31, 2017
Changes of items during the year:
Reversal of reserve for temporary
difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear¥
Balance, December 31, 2018

Thousands of yen
Unitholders’ equity
Surplus
Voluntary reserve
Reserve fortemporarydifference
Total voluntary
adjustment
reserve(580,019)¥(580,019)¥

12,357,644

Total net assets¥

181,989,112--

18,686,681---(12,865,721)
14,005,078

148,170

148,170

148,170

148,170(431,849)¥

148,170(431,849)¥

19,974,208
201,963,321--(14,771,949)
16,210,434(29,586)(29,586)(29,586)(29,586)(461,435)¥(29,586)(461,435)¥

1,408,897
203,372,219

See notes to financial statements.

46¥

12,357,644¥

16,213,482¥

50,317,525¥

203,833,655

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2018 and 2017
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2018
2017
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on disposal of property and equipment(Gain) Loss on derivative instruments
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Decrease of property and equipment due to sale
Decrease of property and equipment in trust due to sale
Decrease of intangible assets due to saleInterest income
Interest expense
Interest on tax refunds(Increase) decrease in operating accounts 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¥ 16,211,644
4,091,929
35,972
26,57427,751
147,887
19,104
9,995,677
117,138(225)
1,064,961(118)(62,284)
44,621
320,330
286,480(139,228)(63,249)(18,206)(14,782)(106,639)
31,985,341
170(1,045,923)
118(1,211)30,938,494¥ 14,006,288
3,725,775
132,908(9,074)
20,748141,962(212)
1,073,584(391)(340,685)
13,261
82,178(6,949)43,44963,796969(95,850)(11,075)
18,840,684
166(1,076,810)
391
(947)
17,763,484

Cash flows from investing activities:
Purchase of property and equipment
Purchase of property and equipment in trust
Purchase of intangible assets
Payments of reserve fund for repairs and maintenance
Refunds of leasehold and security deposits in trust
Repayment of tenant leasehold and security deposits
Proceeds from tenant leasehold and security deposits in trust
Repayment of tenant leasehold and security deposits in trust
Net cash used in investing activities(536,481)(2,399,742)(87,074)(40,330)
8,100
59,743(115,020)¥ (3,110,806)(557,756)(35,256,102)(46,379)(258,870)(16)
70,297(35,130)¥ (36,083,958)(Continued)

47

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2018 and 2017
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2018
2017
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
Proceeds from issuance of investment units
Payments for investment corporation bond issuance costs
Dividends paid
Net cash provided by (used in) financing activities¥

5,000,000(8,000,000)
10,150,000(20,878,750)
10,000,000(68,082)(14,766,490)(18,563,322)¥

4,000,000(2,800,000)
21,700,000(9,679,250)
1,000,000
18,516,225(9,218)(12,860,798)
19,866,959

Net increase (decrease) in cash and cash equivalents

9,264,365

1,546,484

Cash and cash equivalents at beginning of year

27,920,350

26,373,866

Cash and cash equivalents at end of year (Note 4)¥ 37,184,716¥ 27,920,350

See notes to financial statements.

48

JAPAN HOTEL REIT INVESTMENT CORPORATION
Notes to Financial Statements
For the years ended December 31, 2018 and 2017
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 Trust 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 externally managed by a licensed
asset management company, Japan Hotel REIT Advisors Co., Ltd. (hereinafter referred to as the “Asset Management
Company”).
Focusing on the importance of hotels as social infrastructure and their profitability as investment real estate properties,
JHR has primarily invested in real estate related assets which are in themselves wholly or partially used as hotels orreal estate equivalents of such real estate or which 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 Hotel andResort, 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 the effective
date of the Merger, JHR’s property portfolio expanded to 28 properties.
During the fiscal year ended December 31, 2018, JHR sold 3 properties (R&B Hotel Higashi-nihonbashi, the bakasaka-mitsuke and the b ochanomizu) as part of its growth strategy to improve the quality of its portfolio throughasset replacement. As of December 31, 2018, 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 Law and their related accounting regulations, and in conformity with accounting
principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to theapplication 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 Law. Certain supplementary information included in the statutory Japanese
language financial statements, but not necessarily required for fair presentation, is not presented in the accompanying
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 Law 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 in value.
b. Property and equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line
method over their estimated useful lives. The useful lives of major property and equipment components are as
follows:

49

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

c. Intangible assets
Intangible assets are stated at cost and 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 in trust: 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 capitalized and 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 offering
executed during the year ended December 31, 2017 due to the reason below;
The issuance of new investment units through a public offering on July 5, 2017 was consummated under anunderwriting agreement in which underwriting securities companies committed to purchase all of the investment
units being offered at an issue value and selling them at an offering price different from such issue value to generalinvestors (the “spread method”). No underwriting fees were paid by JHR under the spread method since theunderwriters were compensated by the underwriting spread, which amounted to ¥578,908 thousand, representing thedifference between the offering price and the issue value of all new investment units issued.
e. Investment corporation bond issuance costs
Investment corporation bond issuance costs are capitalized and amortized using the effective interest rate method
over the respective 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 allocated to
the respective reporting period and expensed as “Real estate operating costs.” Cash paid for those properties related
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 the acquisition cost ofreal properties was not applicable for the year ended December 31, 2018 and ¥75,557 thousand for the year ended
December 31, 2017.
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 on loans 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 case the unrealized gainor loss is deferred as a component of net assets.
JHR evaluates hedge effectiveness by comparing the cumulative changes in cash flow of hedging instruments and thehedged items and assessing the ratio between the changes.
h. Beneficial interests of real estate in trust
For beneficial interests of real estate 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 statement ofincome accounts.
i. Consumption taxes
Consumption taxes are excluded from the transaction amounts.

50

3. Accounting Standards Issued but Not Yet Applied・“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29
issued on March 30, 2018)
・“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30 issued on
March 30, 2018)(1) Overview
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in
the United States have jointly developed comprehensive accounting standards for revenue recognition and issued“Revenue from Contracts with Customers” (IFRS 15 by IASB and Topic 606 by FASB) in May 2014. Given thesituation where IFRS 15 is applied from fiscal years beginning on or after January 1, 2018 and that Topic 606 is
applied from fiscal years beginning after December 15, 2017, the ASBJ has developed comprehensive accounting
standards for revenue recognition and issued them together with the implementation guidance.
The basic policy for the ASBJ when it developed the accounting standards for revenue recognition was toestablish the standards by incorporating the basic principles of IFRS 15 as a starting point, from the perspective ofcomparability between financial statements, which is one of the benefits of maintaining consistency with IFRS 15.
The basic policy also allowed to add alternative treatments to the extent that comparability is not impaired, if
consideration should be given to current practices that have been used thus far in Japan.
(2) Scheduled date of application
The above standards will be applied from the beginning of the fiscal year ending December 31, 2022.
(3) Impact of applying the accounting standards
The impact on the financial statements of applying the standards is currently under review.
4. Cash Flow Information
Cash and cash equivalents as of December 31, 2018 and 2017 in the statements of cash flows consisted of thefollowing:Thousands of yen
As of December
As of December
31, 2018
31, 2017
Cash and deposits¥
25,706,559¥
16,179,716
11,478,156
11,740,634
Cash and deposits in trust¥
37,184,716¥
27,920,350
Cash and cash equivalents
5. 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 Trust Act, managing
investments mainly in specified assets as prescribed in the Investment Trust Act. As a policy, JHR procures funds
through issuance of investment units, etc. and loans from financial institutions in order to make investments inspecified 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 derivative transactions in orderto hedge against interest rate risk, but not for speculative trading purposes.
(2) Details of financial instruments, their risks, and risk management system
Operating accounts receivable are exposed to credit risks of customers. To address the risks, JHR monitors
payment dates and balances by customers in order to detect and mitigate any suspicious accounts in a timely
manner.
The floating rate loans payable are exposed to risks of interest rate fluctuations. In order to mitigate interest raterisks, JHR may enter into derivative transactions, if necessary.
Derivative transactions are conducted principally in accordance with rules prescribed by JHR and risk

51

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 throughapproval 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 by managing
the ratio of short-term and long-term loans payable considering the current financial environment throughapproval 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 of December
31, 2018 and 2017 were as follows. Financial instruments whose fair values are difficult to estimate are not includedin the table. See Note (2) below.

(i) Cash and deposits(ii) Cash and deposits in trust(iii) Operating accounts receivable
Total

Thousands of yen
As of December 31, 2018
Carrying amount
Fair value¥
25,706,559¥
25,706,559 ¥
11,478,156
11,478,156
2,474,121
2,474,121¥
39,658,838¥
39,658,838 ¥(iv) Short-term loans payable(v) Current portion of investment corporation
bonds(vi) Current portion of long-term loans payable(vii) Investment corporation bonds(viii) Long-term loans payable
Total

¥

-

-

¥

2,000,000
11,117,000
31,600,000
91,954,000
136,671,000¥

2,002,200
11,117,000
31,785,870
91,954,000
136,859,070

¥

2,200
185,870
188,070(ix) Derivative transactions (*)¥(484,593) ¥(484,593)¥-(i) Cash and deposits(ii) Cash and deposits in trust(iii) Operating accounts receivable
Total

Thousands of yen
As of December 31, 2017
Carrying amount
Fair value¥
16,179,716¥
16,179,716 ¥
11,740,634
11,740,634
2,411,837
2,411,837¥
30,332,188¥
30,332,188 ¥¥3,000,000¥

15,022,750
23,600,000
98,777,000
140,399,750(ix) Derivative transactions (*)

¥

-

-

¥

(iv) Short-term loans payable(v) Current portion of investment corporation
bonds(vi) Current portion of long-term loans payable(vii) Investment corporation bonds(viii) Long-term loans payable
Total

¥

Difference¥

3,000,000

Difference
-

¥

-

¥

15,022,750
23,621,270
98,777,000
140,421,020¥

21,27021,270(404,316) ¥(404,316)¥-(*) Receivables and payables arising from derivative transactions are presented on a net basis and amounts in parenthesis denote net payables.

52

Notes:(1) Methods to measure fair value of financial instruments(i) Cash and deposits, (ii) Cash and deposits in trust, (iii) Operating accounts receivable, (iv) Short-term loans
payableThe carrying value is deemed to approximate the fair value since the instruments are scheduled to be settled in ashort period of time.
(v) Current portion of investment corporation bonds, (vii) Investment corporation bonds
The fair value of these instruments is measured based on the market price.
(vi) Current portion of long-term loans payable, (viii) Long-term loans payable
The carrying value is deemed to approximate the fair value since the interest rate on long-term loans payable arefloating interest rates which are adjusted periodically to reflect market interest rates.
(ix) Derivative transactions
The information on the fair value of derivative transactions is presented in Note 17.
(2) Information on financial instruments whose fair values are difficult to estimate as of December 31, 2018 and 2017
was as follows:
Thousands of yen
As of December
As of December
31, 2018
31, 2017
Carrying amount
Tenant leasehold and security deposits¥
1,041,016¥
1,041,016
Tenant leasehold and security deposits in trust
4,593,946
4,653,410¥
5,634,962¥
5,694,426
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 disclosure 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, 2018 and 2017:

As of December 31, 2018
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
Total

As of December 31, 2017
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
Total

Due within
one year¥25,706,559
11,478,156
2,474,121¥39,658,838

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¥16,179,716
11,740,634
2,411,837¥30,332,188

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,
2018 and 2017.

53

As of December 31, 2018
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, 2017
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¥-

Due after
one to two
years
¥
-

Due after
four to five
years
¥
-

Due after
five years¥-

2,000,000

-

-

-

-

-

11,117,000¥13,117,000

12,782,000¥12,782,000

1,500,000
10,800,000¥12,300,000

6,000,000
10,900,000¥16,900,000

15,772,000¥15,772,000

24,100,000
41,700,000¥65,800,000

Due within
one year¥3,000,000

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
¥
-

-

-

-

-

-

-

15,022,750¥18,022,750

2,000,000
11,217,000¥13,217,000

13,544,000¥13,544,000

1,500,000
10,800,000¥12,300,000

6,000,000
11,200,000¥17,200,000

14,100,000
52,016,000¥66,116,000

6. Short-Term and Long-Term Loans Payable
Short-term and long-term loans payable as of December 31, 2018 and 2017 consisted of the following:54

Maturity date
Short-term loans payable:
0.33% Unsecured loan, payable in a lump-sum at maturity (*3)
0.33% Unsecured loan, payable in a lump-sum at maturity (*4)
Sub-total
Long-term loans payable:
0.97% Unsecured loan, payable ¥11,250 thousand quarterly andthe remaining balance in a lump-sum at maturity (*5)
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 (*1,6)
0.73% Unsecured loan, payable ¥19,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*1,3)
1.15% Unsecured loan, payable in a lump-sum at maturity (*1)
Unsecured loan, payable in a lump-sum at maturity (*2)
0.92% Unsecured loan, payable in a lump-sum at maturity (*1,7)
1.04% Unsecured loan, payable in a lump-sum at maturity (*1)
0.56% 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 (*1,7)
0.93% Unsecured loan, payable in a lump-sum at maturity (*1)
0.95% Unsecured loan, payable in a lump-sum at maturity (*1)
0.51% 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 (*1,7)
0.21% Unsecured loan, payable in a lump-sum at maturity (*1)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1,7)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1,7)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1,7)
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
0.71% Unsecured loan, payable in a lump-sum at maturity
0.33% Unsecured loan, payable in a lump-sum at maturity
0.46% Unsecured loan, payable in a lump-sum at maturity
0.85% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.75% Unsecured loan, payable in a lump-sum at maturity
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.65% Unsecured loan, payable in a lump-sum at maturity (*1)
0.57% Unsecured loan, payable in a lump-sum at maturity (*1)
0.65% Unsecured loan, payable in a lump-sum at maturity (*1)
0.41% Unsecured loan, payable in a lump-sum at maturity
0.41% Unsecured loan, payable in a lump-sum at maturity
0.52% Unsecured loan, payable in a lump-sum at maturity
0.55% Unsecured loan, payable in a lump-sum at maturity
0.95% Unsecured loan, payable in a lump-sum at maturity (*1)
0.34% Unsecured loan, payable in a lump-sum at maturity
0.34% Unsecured loan, payable in a lump-sum at maturity
Sub-total
Total of short-term and long-term loans payable

June 29, 2018
December 28, 2018

Millions of yen
As of December
As of December
31, 2018
31, 2017
Amount
¥

-

¥

3,000
3,000

April 26, 2018

-

4,297

September 30, 2018

-

2,704

September 30, 2018

-

3,000

March 31, 2018

-

3,321

6,800
6,317
6,055
4,000
935
4,700
7,900
1,500
1,500
1,092
2,880
892
2,000
960
1,140
2,100
2,650
4,200
800
500
9,500
1,300
2,000
700
500
2,250
4,250
1,000
700
500
500
500
1,000
300
2,550
4,000
2,450
1,700
2,850
500
500
3,900
350
350
103,071
103,071

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
500
1,700
2,250
4,250
1,000
700
500
500
500
1,000
300
2,550
4,000
2,450
113,799
116,799

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
September 30, 2024
March 30, 2018
June 30, 2023
September 30, 2026
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
March 31, 2025
March 29, 2024
March 31, 2025
March 31, 2023
March 31, 2023
March 31, 2023
September 29, 2023
September 30, 2027
December 30, 2019
December 30, 2019¥¥

Stated interest rate, which is a rate per annum, represents the weighted average rate during the year ended December 31, 2018, or the most recent year, basedon the number of days and outstanding balance of the loans payable. The interest rate is rounded off to the nearest second decimal place.

55

Notes:(*1) As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, theinterest rate of loans subject to such interest rate swap transactions is presented as the rate obtained by taking
into account the effect of interest rate swaps (interest rate fixation), rounded off to second 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, in effect, fixed at 0.94875% for the period from March 30, 2018 through September 30, 2019 due tothe 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 February 28, 2018.
(*4) JHR borrowed ¥5,000 million loan payable on April 26, 2018 with scheduled maturity date on December 28,
2018. However, JHR made early repayment of the full amount of the loan payable on August 10, 2018.
(*5) JHR made partial early repayment of ¥1,400 million on February 28, 2018 and made lump-sum repayment for
the remaining amount on the maturity date.
(*6) JHR made partial early repayment of ¥1,200 million on February 28, 2018 and made lump-sum repayment for
the remaining amount on the maturity date.
(*7) JHR made partial early repayment of these loans payable on April 26, 2018.

7. Investment Corporation Bonds
Investment corporation bonds as of December 31, 2018 and 2017 consisted of the following:
Millions of yen
As of
As of
December 31,
December 31,
2018
2017
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
Unsecured 9th investment corporation bond at interest rate of 0.53%, dueon November 22, 2024
Unsecured 10th investment corporation bond at interest rate of 0.84%, due
on February 21, 2028

¥

¥

Total

2,000

¥

2,000

1,500

1,500

6,000

6,000

3,000

3,000

9,000

9,000

1,100

1,100

1,000

1,000

10,000-33,600¥23,6008. 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, acquired on
April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August 19, 2016, to the original state in accordancewith each of the fixed-term land leasehold agreements.
b. Calculation method of the asset retirement obligations
The amount of asset retirement obligations for Hotel Centraza Hakata and HOTEL ASCENT FUKUOKA wascalculated 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 related buildings (34 years and 48 years, respectively).

56

c. Changes in the total amount of the asset retirement obligations
Thousands of yen
For the year ended
For the year ended
December 31, 2018
December 31, 2017
Balance at beginning of year
Adjustment due to accretion expense
Balance at end of year¥¥

443,577
2,045
445,622¥441,5422,035
443,577¥

9. Net Assets
JHR maintains at least ¥50,000 thousand as the minimum net assets as required by the Investment Trust Act.
Dividends and other movements in unappropriated retained earnings related to each period that were decided after thebalance sheet date are summarized as follows:Yen
For the year ended
For the year ended
December 31, 2018
December 31, 2017
Total
Unappropriated retained
earnings
II Reversal of voluntary reserve
Reversal of reserve fortemporary difference adjustment(*1)
III Dividends
IV Provision of voluntary reserve
Reserve for special advanced
depreciation (*2)
V Retained earnings carriedforward (I+II-III-IV)

Per unit

Total

Per unitI¥

16,213,482,816

563,572,972
15,602,194,830

¥

¥
¥

140
3,890

769,508,609
14,771,949,501

1,174,860,958¥-

14,005,489,588

¥
¥

191
3,683

¥

3,048,696

Notes:(*1) 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 2016. As a result,¥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” accountthrough the appropriation of profit for the year ended December 31, 2016. Starting from the year ended
December 31, 2017, JHR plans to reverse the reserve every fiscal year in an amount that shall be at least 2% of
the transferred amount (¥262,543,065) but not exceeding the remaining amount of the reserve at that point inconformity with applicable rules and regulations.
For the year ended December 31, 2017, reversal of reserve for temporary difference adjustment of¥769,508,609 was decided, which was calculated as ¥262,600,000 of the basic reversal plus ¥374,000,000 as acompensation for dilution of dividend per unit due to capital increase through public offerings and¥132,908,609 corresponding to loss on disposal of property and equipment during the year.
For the year ended December 31, 2018, reversal of reserve for temporary difference adjustment of¥563,572,972 was decided, which was calculated as ¥262,600,000 of the basic reversal plus ¥35,972,972
equivalent to loss on disposal of property and equipment and ¥265,000,000 for the large-scale renovation at
Hotel Centraza Hakata.
(*2) For the year ended December 31, 2018, based on Article 65-8 of the Special Taxation Measures Act of Japan,
JHR decided to provide for the “Reserve for special advanced depreciation” in the amount of ¥1,174,860,958
in relation to the gain on sale of real estate properties recorded during the year.

5710. Provision and Reversal of Reserve for Temporary Difference Adjustment
Changes in the balance of reserve for temporary difference adjustment during the years ended December 31, 2018and 2017 consisted of the following (yen in thousand):
Balance as
Provision
Reversal
Balance as ofRationale for provision orOriginal
Sourceof January
during theduring theDecemberreversalamount1, 2018
year
year
31, 2018
Dividend
13,127,153 13,127,153
769,508
12,357,644 Allocation for dividend
reserve

SourceDividend
reserve

Original
amount13,127,153

Balance asof January
1, 2017-

Provision
during theyear

Reversalduring theyear

13,127,153-

Balance as ofDecember31, 2017

Rationale for provision orreversalApplication of the transitional
measures of Paragraph 3 of the
Supplementary Provisions of the
13,127,153 “Ordinance on Accounting ofInvestment Corporations”(Cabinet Office Ordinance No. 27
of 2015)(Note) See (*1) of Note 9 above for further descriptions.
11. Real Estate Operating Revenue and Costs
The components of “Real estate operating revenue” and “Real estate operating costs” for the years ended December
31, 2018 and 2017 were as follows:
Thousands of yen
For the year ended For the year ended
December 31,
December 31,
2018
2017
Operating revenue:
Real estate operating revenue:
Fixed rent¥
13,610,785¥
13,064,351
Variable rent
8,851,482
8,572,121
2,678,467
2,681,834
Income from management contract (*1)
Sub-total
25,140,735
24,318,307
Other real estate operating revenue:
Parking lots
173,453
179,054
Other incidental revenue
62,69362,597
Utilities
804,915
781,934
137,078
133,660
Other
1,178,141
1,157,246
Sub-total
26,318,876
25,475,553
Total operating revenue
Real estate operating costs:
Land lease and other rent expenses
907,621922,891
Property taxes
1,630,178
1,476,156
Outsourcing expenses (*2)
714,663
703,933
Nonlife insurance
47,79847,030Depreciation and amortization
4,091,929
3,725,775
Loss on disposal of property and equipment
35,972
132,908
Repairs
46,40549,747
Utilities
813,911
790,728
Trust fees
42,53743,655
13,345
18,825
Other
8,344,364
7,911,653
Total real estate operating costs¥
17,974,512¥
17,563,899
Net real estate operating income

58Notes:(*1) Pursuant to management contracts with a certain hotel operator, JHR receives revenue in the amount equivalent
to the properties’ gross operating profit, or GOP, while it pays management contract fees to the operator. In theevent a property’s GOP for the relevant period is a negative number, then JHR is required to pay an amountequal to such negative number to the operator. Even though some of the revenue JHR receives undermanagement contracts is variable, it recognizes such revenue as income from management contracts and not as
variable rent.
(*2) Outsourcing expenses include management contract fees of ¥337,442 thousand for the year ended December 31,
2018 and ¥343,712 thousand for the year ended December 31, 2017.
12. Gain on Sale of Real Estate Properties
The components of “Gain on sale of real estate properties” for the year ended December 31, 2018 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, 2018
R&B Hotel
the b
the b
Higashi-nihonbashi
akasaka-mitsuke
ochanomizu¥
3,050,000¥
6,600,000¥
2,500,000
1,483,749
6,294,221
2,353,951
22,95541,50818,639
¥1,543,295¥
264,270¥
127,408

There was no gain or loss on sale of real estate properties for the year ended December 31, 2017.
13. 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, 2018 and 2017 were as follows:
Thousands of yen
As of
As of
December 31, 2018
December 31, 2017¥24,921¥
24,921

Buildings in trust
14. Income Taxes

Significant components of deferred tax assets and liabilities as of December 31, 2018 and 2017 were as follows:
Thousands of yen
As of December
As of December
31, 2018
31, 2017
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
Deferred tax liabilities
Deferred gains on hedges
Total deferred tax liabilities

¥

59

¥

1,728,216¥
119,491
11,259156,2032,015,170(2,015,170)- ¥1,756,833
76,475
7,603
165,776
2,006,688(2,006,688)-¥

14,838
14,83838,95438,954¥

Reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in the accompanying
statements of income for the years ended December 31, 2018 and 2017 was as follows:
For the year
ended December
31, 2018
31.74%(29.63)(2.30)
0.10
0.09
0.01%

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

For the year
ended December
31, 2017
31.74%(31.92)
0.18
0.01
0.01%

15. Amounts per Unit
Net income per unit for the years ended December 31, 2018 and 2017 was as follows:
Thousandsof yenNet
incomeNumber ofunits
Weightedaverage units¥

16,210,434

4,010,847

¥

4,041

¥

14,005,078

3,883,679

¥

3,606

For the year ended December 31, 2018
Basic net income per unit - Net income attributable tocommon unitholders

Yen
Net income
per unit

For the year ended December 31, 2017
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 theyear.
(2) Diluted net income per unit is not presented since there are no potentially dilutive units for the years ended
December 31, 2018 and 2017.
Net assets per unit as of December 31, 2018 and 2017 were as follows:
Yen
As of December
As of December
31, 2018
31, 2017¥
50,705 ¥50,354

Net assets per unit
16. 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, 2018 and 2017 were as follows:
Thousands of yen
As of December
As of December
31, 2018
31, 2017¥
1,666,631¥
1,520,073
3,562,086
4,685,123¥
5,228,717¥
6,205,197

Due within one year
Due after one year
Total

60

17. Derivatives and Hedging Activities
a. Derivative transactions to which hedge accounting is not applied
Derivative transactions to which hedge accounting was not applied as of December 31, 2018 and 2017 were as
follows:

As of December 31, 2018
Interest rate swaps(fixed rate payment,
floating rate receipt)

As of December 31, 2017
Interest rate swaps(fixed rate payment,
floating rate receipt)

Classification
Transactions
other thanmarkettransactions

Classification
Transactions
other thanmarkettransactions

Contract
amount(*1)¥ 6,088,000

Contract
amount(*1)¥ 6,794,000

Thousands of yen
Contract
amountdue after one
Fair value
year
(*2)
¥ 3,494,000¥(37,996)

Thousands of yen
Contract
amountdue after one
Fair value
year
(*2)
¥ 1,794,000¥(15,651)b. Derivative transactions to which hedge accounting is applied
Derivative transactions to which hedge accounting was applied as of December 31, 2018 and 2017 were as follows:
Thousands of yen
Contract
Contract
amount
Method of hedge
amountdue after one
Fair value
As of December 31, 2018accounting
Hedged item
(*1)
year
(*2)
Interest rate swaps
Long-term(fixed rate payment,
Deferral method¥ 90,654,000¥ 81,554,000 ¥(446,597)
loans payable
floating rate receipt)

As of December 31, 2017
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method of hedge
accounting

Hedged item

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year

Deferral method

Long-termloans payable¥ 100,058,750¥ 91,048,000

Deferral method

Long-termloans payable

4,286,250-

Fair value(*2)¥(388,665)

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 toderivative transactions.
(*2) The fair value is measured at the quoted price obtained from the counterparty financial institutions.

61-18. 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,
2018¥317,229,208

Thousands of yen
Carrying amount
December 31,
Net decrease (*1)
2018¥
(10,439,828) ¥306,789,379

Fair value (*2)
December 31,
2018¥437,510,000

Notes:(*1) Decrease during 2018 principally represents the sale of R&B Hotel Higashi-nihonbashi for ¥1,483 million, the bakasaka-mitsuke for ¥6,294 million and the b ochanomizu for ¥2,353 million.
(*2) Fair value of properties as of December 31, 2018 is generally the appraisal value determined by outside licensed
real estate appraisers.
Thousands of yen
Carrying amount
Fair value (*2)
January 1,
December 31,
December 31,
2017
Net increase (*1)
2017
2017
Hotels¥284,965,547¥
32,263,660¥
317,229,208¥
439,390,000
Notes:(*1) Increase during 2017 principally represents the acquisition of Hilton Tokyo Narita Airport for ¥13,376 million,
International Garden Hotel Narita for ¥9,237 million and Hotel Nikko Nara for ¥10,589 million.
(*2) Fair value of properties as of December 31, 2017 is generally the appraisal value determined by outside
licensed real estate appraisers.
Real estate operating revenue and costs for the years ended December 31, 2018 and 2017 related to the rental
properties were as follows:
Thousands of yen
For the year ended December 31, 2018
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income
Hotels¥26,318,876¥
8,344,364¥
17,974,512

HotelsThousands of yen
For the year ended December 31, 2017
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income¥
25,475,553¥
7,911,653¥
17,563,899

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 “Real estate operating
costs,” respectively.
19. 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, 2018 and 2017
Information about products and services has been omitted because operating revenue from external customers in asingle product/service category accounted for more than 90% of total operating revenue.

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(2) Information about geographical areas for the years ended December 31, 2018 and 2017(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, 2018>
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.

Thousands of yen
Operating revenue¥

7,200,325¥

3,121,263<For the year ended December 31, 2017>
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.

Thousands of yen
Operating revenue¥

6,973,259¥

3,098,069

20. Subsequent Events
1. Acquisition of assets
JHR acquired two properties as follows.
Property name

Hotel Oriental Express Osaka Shinsaibashi

Asset category

Real estate beneficial interest in trust and movable assets attached to the hotel

Asset type

Hotel

Address

3-2-13, Minamisemba, Chuo-ku, Osaka-shi, Osaka

Acquisition dateFebruary 1, 2019

SellerUndisclosed (*1)

Acquisition price (*2)¥2,738 million(*1) The information is not disclosed as consent for disclosure has not been obtained from the seller.
(*2) The acquisition price does not include expenses for acquisition, settlement of property tax and city planning tax, and consumption tax and local
consumption tax.

Property name

Hilton Tokyo Odaiba

Asset category

Real estate beneficial interest in trust and movable assets attached to the hotel

Asset type

Hotel

Address

1-9-1, Daiba, Minato-ku, Tokyo

Acquisition date

April 8, 2019

SellerHulic Co., Ltd.

Acquisition price (*)¥62,400 million(*) The acquisition price does not include expenses for acquisition, settlement of property tax and city planning tax, and consumption tax and local
consumption tax.

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2. Borrowing of funds
On April 8, 2019, JHR conducted new borrowings as follows, in order to partly fund the acquisition of the realestate beneficial interest in trust of Hilton Tokyo Odaiba and movable assets attached thereon as described abovein 1. Acquisition of assets.
(1) Term Loan 53
Lenders
Amount of the loan
Interest rate
Date of borrowing
Method of principal
repayment
Maturity date
Collateral

The Bank of Fukuoka, Ltd. / The Chiba Bank, Ltd. / THE NISHI-NIPPON CITY
BANK, LTD / Sompo Japan Nipponkoa Insurance Inc.
¥2,500 million
0.375% (fixed rate)
April 8, 2019
Lump-sum payment on the maturity date
March 29, 2024
Unsecured / Unguaranteed(2) Term Loan 54
Lenders
Amount of the loan
Interest rate
Date of borrowing
Method of principal
repayment
Maturity date
Collateral

Sumitomo Mitsui Banking Corporation / Shinsei Bank, Limited / Mizuho Bank,
Ltd. / Sumitomo Mitsui Trust Bank, Limited. / Development Bank of Japan Inc.
¥7,500 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.55%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2027
Unsecured / Unguaranteed(3) Term Loan 55

Lenders

Amount of the loan
Interest rate
Date of borrowing
Method of principal
repayment
Maturity date
Collateral(4) Term Loan 56
LenderAmount of the loan
Interest rate
Date of borrowing
Method of principal
repayment
Maturity date
Collateral

Sumitomo Mitsui Banking Corporation / Shinsei Bank, Limited. / Mizuho Bank,
Ltd. / Sumitomo Mitsui Trust Bank Limited / Resona Bank, Limited. / The
Nomura Trust and Banking Co., Ltd. / Development Bank of Japan Inc. / The
Bank of Fukuoka, Ltd. / Aozora Bank, Ltd. / THE NISHI-NIPPON CITY BANK,
LTD.
¥18,000 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.60%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2028
Unsecured / Unguaranteed

Sumitomo Mitsui Banking Corporation¥2,000 million
Base interest rate (JBA Japanese Yen TIBOR for one month) + 0.275%
April 8, 2019
Lump-sum payment on the maturity date
March 31, 2020
Unsecured / Unguaranteed64

3. Issuance of new investment units
JHR resolved to issue new investment units at the Board of Directors meetings held on January 8, 2019 andJanuary 16, 2019. Payment for the new investment units was completed on January 23, 2019 and February 20,
2019, and the investment units were issued under the following terms and conditions. As a result, JHR’s
unitholders’ capital increased to ¥186,894,169,809, with the number of investment units issued and outstanding
totaling 4,462,347 units.
(1) Issuance of new investment units (domestic public offering and overseas offering)Number of investment units issued:

447,800 units

Of which, domestic public offering:

206,247 units

Of which, overseas offering:

241,553 units

Offering price:¥76,342 per unit

Total offering price:¥34,185,947,600

Paid-in amount (issue value):¥73,927 per unit

Total paid-in amount (total issue value):¥33,104,510,600

Payment date:

January 23, 2019(2) Issuance of new investment units (third-party allotment)
Number of investment units issued:

3,700 units

Paid-in amount (issue value):¥73,927 per unit

Total paid-in amount (total issue value):¥273,529,900

Payment date:February 20, 2019

Allottee:

SMBC Nikko Securities Inc.

(3) Use of proceeds
JHR will allocate the proceeds from the issuance of new investment units through the domestic public offeringand overseas offering of ¥33,104,510,600 to part of the funds for acquisition of Hotel Oriental Express Osaka
Shinsaibashi and Hilton Tokyo Odaiba as described above in “1. Acquisition of assets.” In addition, theproceeds from the issuance of new investment units through third-party allotment of ¥273,529,900 will beallocated to part of the funds for acquisition of Hilton Tokyo Odaiba. The residual funds of the proceeds, if any,
will be retained as cash on hand to be allocated to part of the funds for future acquisition of specified assets,part of the funds for repayment of loans, or repair expenses and capital expenditures to maintain or improve
competitiveness of existing properties.

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