Asset Management Report
For the Year Ended December 31, 2014

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 15th fiscal period (from January 1, 2014 to December 31, 2014) of JHR, we arepleased to present you with the asset management status and operating results for the period.

Pursuant to our recognized mission of providing investors with attractive opportunities to invest in hotel
assets, we conduct asset management by placing “simultaneous pursuit of stability and upside potential”
at the core of our strategy. JHR has carried out capital increases through public offering of new
investment units four times in the last three years, and has acquired excellent hotel assets to expand its
portfolio. In acquiring the hotel assets, we have taken initiatives that are specific to a REIT specialized in
hotels, implementing such measures as rebranding, switching hotel operators and restructuring rental
schemes that could enhance the future value of individual assets.

In the fiscal period under review, JHR acquired ibis Styles Sapporo, Mercure Hotel Sapporo andMercure Hotel Okinawa Naha. These hotels, located in Sapporo and Okinawa that are among ourstrategic investment target areas, are operated by Accor Hotels that is highly recognized globally. As
such, they are the hotel assets that exactly match JHR’s strategy of attracting leisure demand from within
and outside Japan.

In addition to the acquisition of these new properties, JHR worked to increase revenue from existing
properties in its portfolio and reduce financing costs and other expenses. As a result of these and otherendeavors, JHR posted operating revenue of ¥12,760 million, ordinary income of ¥5,776 million and net
income of ¥5,774 million for the fiscal year ended December 2014. The dividend per unit for the period
came to ¥2,155, up 11.1% from the previous fiscal period.

Entering the 16th fiscal period (from January 1, 2015 to December 31, 2015), we continue to implement
the growth strategy, as we made a resolution in January to issue up to 210,000 new investment units anduse the proceeds to acquire another six hotel properties primarily in Tokyo metropolitan area, whose1total acquisition and planned acquisition price is ¥23,105 million.

Attention is being drawn to the growth potential of the tourism industry, given the measures
implemented by the government to make Japan a major tourism nation and an increase in the number of
inbound tourists visiting Japan over recent years. Enhancement of infrastructures toward the 2020
Olympic and Paralympic Games in Tokyo also serves as another growth factor for the tourism industry.
Under such circumstances, there is a growing interest in hotel assets as investment targets in anticipationof their growth in the future.

We at JHR and Japan Hotel REIT Advisors are resolved to make our best endeavors to provide investors
with attractive opportunities to invest in hotel assets, the cornerstone of the tourism industry, by taking
advantage of the high expertise and know-how we have fostered and accumulated.

We ask for your continued support and understanding of our operations.

Yukio Isa
Executive Director
Japan Hotel REIT Investment Corporation

Hisashi Furukawa
Representative Director and President
Japan Hotel REIT Advisors Co., Ltd.

2JAPAN HOTEL REIT INVESTMENT CORPORATION

Contents:

I.

Asset Management Report

4This section (P1-P43) is the translation of the Asset Management Report for the 15th
Period released on March 20, 2015. Therefore, some information is not updated as shownin Financial Statements below dated April 20, 2015. This English translation is provided
for information purposes only. If any discrepancy is identified between this translationand the Japanese original, the Japanese original shall prevail.

II. Financial Statements
For the Years ended December 31, 2014 and December 31, 2013
Balance Sheets

44

Statements of Income46

Statements of Changes in Net Assets

47

Statements of Cash Flows48

Notes to Financial Statements

50

Independent Auditor’s Report703

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

11th period
September 2011

12th period
March 2012

Millions of yen

1,419

1,431

7,283

11,472

12,760Millions of yen[1,419][1,431][7,283][11,472][12,760]

Millions of yen

619

681

4,688

6,105

5,214

Millions of yen

[454]

[503]

[2,668][3,870][4,163]

Millions of yen

799

750

2,595

5,367

7,545

Millions of yen

494

474

1,412

3,740

5,776

Millions of yen

493

473

19,031

3,233

5,774

Total assets[Period-on-period change]

Millions of yen

46,761[17.2]

46,773[0.0]

139,623[198.5]

170,727[22.3]

188,091[10.2]Net assets[Period-on-period change]

Millions of yen[%]

23,655[18.9]

23,635[(0.1)]

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

100,342[11.8]

Unitholders’ capitalMillions of yen

23,161

23,161

28,26048,84559,024

Units

58,031

58,0312,111,281

2,621,281

2,791,281

Yen

Operating revenue(Note 2)

[Real estate operating revenue](Note 3)Operating expenses[Real estate operating costs](Note 3)Operating income
Ordinary income
Net income(Note 4)

Total number of units issued
Net assets per unit[%]

13th period
14th period
15th period
December 2012 December 2013 December 2014

407,628

33,941

32,68634,24135,948

Total dividends

Millions of yen

493

473

3,012

5,082

6,015

Dividend per unit

(Note 5)

Yen

8,502

8,166

1,427

1,939

2,155

[Earnings dividend per unit]

Yen

8,502

8,166

1,427

1,939

2,155

[Dividend per unit resulted fromexcess of earnings]

Yen

–

–

–

–

–

%

1.1

1.0

1.5

2.4

3.2

[%]

[2.3]

[2.0]

[2.0]

[2.4]

[3.2]

%

2.3

2.0

41.1

4.1

6.1

[%]

[4.5]

[4.0]

[54.5]

[4.1]

[6.1]

%

50.6

50.5

49.4

52.6

53.3

Ratio of ordinary income to total
assets(Note 6)
[Annualized]
Return on unitholders’ equity(Note 7)

[Annualized]
Ratio of net assets to total assets(Note 8)[Period-on-period change]

[%]

[0.7]

[(0.1)][(1.1)]

[3.2]

[0.8]

(Note 9)

%

99.3

100.0

15.8

157.2

104.2

(Note 10)

Millions of yen

1,231

1,191

6,216

9,907

11,002

Yen

13,081

1,059

2,087

2,759

2,930

Times

7.6

8.8

8.6

18.2

26.3

Times

3.2

3.3

3.8

4.5

8.3

Payout ratio[Additional information]
NOI
FFO per unit

(Note 5) (Note 11) (Note 12)

FFO multiple(Note 5) (Note 12) (Note 13)

Debt service coverage ratio(Note 12) (Note 14)

Interest-bearing debt

Millions of yen

21,62521,51665,22074,78481,089Ratio of interest-bearing debt tototal assets(Note 15)

%

46.2

46.0

46.7

43.8

43.1

Number of investment properties

Properties

Total leasable area
Depreciation

m2
Millions of yen

19

19

28

28

30

101,028.49

101,028.49

288,875.32

349,162.63

386,826.71

265

263

1,592

2,297

2,400

4

Fiscal period
Account closing date (Note 1)
Capital expenditures
Number of operating days

(Note 1)

(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)(Note 13)
(Note 14)

(Note 15)

11th period
September 2011

12th period
March 2012

13th period
14th period
15th period
December 2012 December 2013 December 2014

Millions of yen

31

102

699

854

1,306

Days

183

183

275

365

365

Following the resolution to partly amend the Articles of Incorporation of Japan Hotel REIT Investment
Corporation (hereinafter referred to as “JHR”) at the 5th General Meeting of Unitholders held on February
24, 2012, JHR changed its fiscal period from six-month periods that end on March 31 and September 30
each year to 12-month periods that end on December 31 (aligned with the calendar year). As a result of thechange, and to facilitate the transition, JHR’s 13th business period was the nine months from April 1, 2012
through December 31, 2012.
Operating revenue does not include consumption taxes.
Revenue from the real estate leasing business was presented as “Real estate rental income” in past periods.
However, because of the introduction of management contracts in the 13th fiscal period, this presentationof the real estate leasing business is no longer appropriate. Therefore, the presentation of revenue from thisbusiness was changed to “Real estate operating revenue” for all fiscal periods including the 12th andearlier fiscal periods. The presentation of expenses for the real estate leasing business was changed from
“Real estate rental expenses” to “Real estate operating costs.”
Net income for the 13th fiscal period includes a gain on negative goodwill (¥18,578 million) from amerger, loss on sale of real estate properties (¥1,393 million) and impairment loss (¥958 million). Net
income for the 14th fiscal period includes loss on sale of real estate properties (¥1,189 million) and
impairment loss (¥516 million).
JHR carried out a 12-for-1 split of units with an effective date of April 1, 2012. Net assets per unit, FFO
per unit (defined below under Note 11) and FFO multiple (defined below under Note 13) are calculated asif the unit split had been completed at the start of the 12th fiscal period.
Ratio of ordinary income to total assets = Ordinary income / ((Total assets at beginning of period + Total
assets at end of 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
The payout ratio is calculated using the formula “Dividend per unit / Net income per unit x 100” from the11th and 12th fiscal periods, and the formula “Total dividends (excess of earnings exclusive) / Net income
x 100” from the 13th through 15th fiscal periods.
NOI = Real estate operating revenue − Real estate operating costs + Depreciation + Loss on retirement of
noncurrent assets
FFO per unit = (Net income + Depreciation + Loss on retirement of noncurrent assets ± Loss or gain onsale of real estate properties ± Extraordinary loss or income) / Number of units issued
For the 13th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated
excluding gain on negative goodwill of ¥18,578 million, loss on sale of real estate properties of ¥1,393
million and impairment loss of ¥958 million. For the 14th fiscal period, FFO per unit, FFO multiple anddebt service coverage ratio are calculated excluding loss on sale of real estate properties of ¥1,189 million
and impairment loss of ¥516 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 retirement of
noncurrent assets ± Loss or gain on sale of real estate properties ± Extraordinary losses or income +Amortization of investment corporation bond issuance costs + Amortization of investment unit issuance
expenses + Loss on derivative instruments + Interest expense +Interest expense on investment corporation
bonds) / (Interest expense + Interest expense on investment corporation bonds + Total of contracted
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

5

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 underthe Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended;hereinafter referred to as the “Investment Trusts Act”) in November 10, 2005 and was listed on theReal Estate Investment Trust (“REIT”) section of the Tokyo Stock Exchange (Securities code:8985) in June 14, 2006.
JHR entrusts the management of property assets to Japan Hotel REIT Advisors Co., Ltd.
(hereinafter referred to as the “Asset Management Company”). Focusing on hotels, which areimportant and profitable components of the social infrastructure, JHR primarily invests in realestate related assets that are wholly or partially used as hotels and that are in themselves real estateor real estate equivalents or that are backed by such real estate or real estate equivalents.
JHR, the former Nippon Hotel Fund Investment Corporation (hereinafter referred to as the “former
NHF”) merged with the former Japan Hotel and Resort, Inc. (hereinafter referred to as the “former
JHR”) with an effective date of April 1, 2012 (hereinafter referred to as the “merger”). In
conjunction with the merger, the former NHF changed its name to Japan Hotel REIT Investment
Corporation. Over approximately three years since making a new start as a REIT specializing inhotel properties, JHR carried out three capital increases through public offerings, and has
continuously acquired hotels that are “competitive enough to attract domestic and inbound leisuredemand” and located in its “strategic investment target areas.”
As such, JHR has expanded the portfolio size by steadily implementing the growth strategy, with
its portfolio growing to 30 properties with a combined acquisition price of ¥173,429 million as ofthe end of the fiscal period under review.
As of December 31, 2014, the number of units issued was 2,791,281.
(2) Investment performance
During the fiscal period under review, the Japanese economy continued to show a modest
economic recovery as a whole, despite some weakness seen in consumer spending, partly due tothe effect of the various measures aimed at ending deflation and generating sustainable economic
growth implemented by the Abe administration. Under such circumstances, the tourism industry
has seen the leisure demand among the Japanese people remain solid and the number of overseas(inbound) tourists visiting Japan, primarily from Asian countries, also increase significantly thanks
to the various measures implemented by the government aimed at making Japan a major tourism
nation as well as the depreciation of the yen and other factors. The number of such inbound tourists,
which had surpassed 10 million for the first time in 2013, reached 13 million, up around 30% overthe figure, in 2014.
Given such a strong wind behind Japan’s tourism industry and hotel industry, many of the hotels
owned by JHR achieved a rise in operating performance, mainly in the rooms department, allowing
us to feel how strong the leisure demand was both in and outside Japan. Also in the investment
market for hotels, the market size continued to expand with an increase in the number of investors
who anticipated future growth of hotel properties. In such an environment, JHR issued newinvestment units through public offering in September 2014, marking the third consecutive yearwith capital increase, and acquired three properties in Sapporo and Naha where growth had
appeared to be lagging. JHR also employed a management contract scheme for these hotels inorder to proactively pursue upside potential.

6Furthermore, JHR conducted capital increase through public offering in January 2015 and newly
acquired five hotels (Note 1) located primarily in Tokyo and operated by the Ishin Hotels Group(hereinafter referred to as the “ five “the b” hotels”). With new acquisition of another hotel plannedfor March 2015, the portfolio size is expected to grow to around approximately ¥200 billion on an
acquisition price basis.
JHR makes it a policy to aim at raising rents for its owned hotels against the backdrop of the strong
performance in the overnight stays market. For fixed rent properties held, JHR worked to introduce
upside sharing schemes in addition to conventional fixed rents upon renewal of lease contracts forhotels at which the ability to bear rent costs was enhanced through better performances. For hotels
with variable rent contracts and management contracts, JHR endeavored to expand its earnings bycontinuously discussing with the hotel operators for increased revenue, after assessing the businessenvironment and operation conditions at each hotel on a monthly basis.
With respect to capital investments in portfolio properties, JHR invested in the renewal of its
facilities in order to maintain the value of its assets and carried out strategic refurbishment toincrease profits at hotels with variable rent contracts, etc.
Furthermore, JHR leases five hotels (hereinafter referred to as the “five HMJ hotels”) (Note 2) to
Hotel Management Japan Co., Ltd. (hereinafter referred to as “HMJ”) under variable rent contracts.
Operations of those hotels during the fiscal period under review produced a year-on-year increase
both in sales and GOP (gross operating profit), led by the rooms department. Not only the guest
room occupancy rate but also the ADR (average daily rate) increased in the rooms department,
endorsing the solidity in leisure-related consumption. For further details regarding sales, GOP andother management indicators for the five HMJ hotels, please refer to “<Reference 2> Sales and
GOP for the five HMJ hotels.”Moreover, JHR entrusts operations of the 5 hotels (hereinafter referred to as the “five Accor
hotels”) (Note 3) to AAPC Japan K.K. (hereinafter referred to as “Accor”), a Japanese subsidiaryof Accor Hotels headquartered in Paris, France, and employs a management contract scheme forthem. These hotels also successfully attracted inbound guests and domestic leisure demand, andposted a year-on-year increase both in sales and GOP, mainly led by an increase in the ADR. For
further details regarding sales, GOP and other management indicators for the five Accor hotels,
please refer to “<Reference 3> Sales and GOP for the five Accor hotels.”
In addition, JHR not only increased the size of its asset portfolio by acquiring new properties, butalso made steady progress in reducing real estate management costs, general and administrative
expenses, and borrowing costs.
(Note 1) Represent five hotels, namely, the b akasaka-mitsuke, the b ikebukuro, the b ochanomizu, the b hachioji
and the b hakata.
(Note 2) Represent five hotels, namely, Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba
Oriental Hotel, Hotel Nikko Alivila and Oriental Hotel Hiroshima.
(Note 3) Represents the five hotels, namely ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo,
Mercure Hotel Sapporo and Mercure Hotel Okinawa Naha.

(3) Funding
JHR obtained ¥10,406 million in new loans and ¥2,000 million in investment corporation bonds forrefinancing ¥12,428 million in existing loans that matured in March 2014. JHR also made partial
early repayment of ¥527 million by using the proceeds obtained through the transfer of Dormy Inn
Namba in January 2014.
Moreover, in September 2014, JHR acquired three properties in Sapporo and Naha by using the7¥10,179 million obtained by issuing new investment units through public offering and the ¥17,676
million in long-term loans (including the ¥10,249 million for early repayment and refinance ofexisting long-term loans) borrowed from a bank syndication in which Aozora Bank, Ltd. newly
participated. JHR also realized release of the security on loans, making all its loans unsecured andunguaranteed.
In addition, in December 2014, JHR procured ¥1,000 million in borrowings from Mitsubishi UFJ
Trust and Banking Corporation, with which JHR newly started business, and ¥1,500 million in
7-year investment corporation bonds to conduct early repayment of ¥2,315 million in loans fromsome existing financial institutions.
As a result of the above, as of the end of the fiscal period under review, interest-bearing debt
totaled ¥81,089 million, including current portion of long-term loans payable of ¥11,825 million,
long-term loans payable of ¥63,264 million, and investment corporation bonds of ¥6,000 million,
and the ratio of interest-bearing debt to total assets at end of period (Note 4) equaled 43.1%.
Through a series of these funding measures, JHR was able to lower its funding costs and diversify
its repayment terms.
Furthermore, JHR concluded an interest rate swap contract to fix the interest on ¥10,121 million onloans on March 31, 2014 in order to suppress the increase in interest payment resulting from futureinterest rate rises. JHR also concluded an interest rate swap contract for ¥17,676 million in loans.
These actions brought the fixed rate ratio (including the interest rate cap purchase portion) on
JHR’s total interest-bearing debt to approximately 90%.
(Note 4) Ratio of interest-bearing debt to total assets at end of period = Interest-bearing debt at end of period / Total
assets at end of period

As of December 31, 2014, JHR’s issuer ratings were as follows.
Rating agency

RatingOutlookRating and Investment Information, Inc.

A−

StableJapan Credit Rating Agency, Ltd.

A

Stable(4) Financial results
As a result of the abovementioned investments and management, operating revenue, operating
income and ordinary income were ¥12,760 million, ¥7,545 million and ¥5,776 million, respectively,
for the fiscal period under review (12-month period from January 1 to December 31, 2014). Net
income was ¥5,774 million.
With regard to dividends, it was decided that ¥6,016 million, which was calculated by adding adecrease (reversal) of reserve for dividends (appropriation for dividends) of ¥240 million tounappropriated retained earnings of ¥5,776 million, would all be distributed except for fractions ofless than one yen of dividend per unit. Consequently, the dividend per unit came to ¥2,155.
Appropriation for dividends for the fiscal period under review consists of appropriation for dilutionof dividends per unit due to the issuance of new investment units, and offsetting of financial costs
associated with early repayment, and losses on retirement of existing facilities incurred for the
replacement of equipment.
Please refer to “<Reference 4> Dividend per unit and appropriation for dividends” forappropriation for dividends.

8

3. Changes in unitholders’ capital, etc.
On September 9, 2014, JHR raised ¥10,179 million through the issuance of new investment units(170,000 units) via public offering. Changes in the number of units issued and unitholders’ capital up
to the fiscal period under review are as follows:

Date

Capital transaction

Number of units issued(Units)Unitholders’ capital(Millions of yen)

Note

Increase(decrease)

Balance

Increase(decrease)

BalanceNovember 10, Incorporation through private
2005
placement of investment units

400

400

200

200

(Note 1)

June 13, 2006

Capital increase through public
offering of investment units

41,80042,20019,361

19,561(Note 2)

April 6, 2011

Capital increase through third-party
allotment of investment units

15,831

58,031

3,599

23,161(Note 3)

April 1, 2012

Investment unit split

638,341

696,372–

23,161(Note 4)

April 1, 2012

Merger1,162,909

1,859,281–

23,161(Note 5)September 12, Capital increase through public
2012
offering of investment units

240,000

2,099,281

4,855

28,017(Note 6)

October 11,
2012

Capital increase through third-party
allotment of investment units

12,0002,111,281

242

28,260(Note 7)

April 17,2013

Capital increase through public
offering of investment units

510,000

2,621,281

20,585

48,845(Note 8)September 9,
2014

Capital increase through public
offering of investment units

170,000

2,791,281

10,17959,024(Note 9)(Note 1)
(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)At the time of incorporation of JHR, investment units were issued with an issue price per unit of¥500,000.
New investment units were issued through public offering with an issue price per unit of ¥480,000(subscription price of ¥463,200) in order to raise funds for the acquisition of new investment properties,
etc.
New investment units were issued through third-party allotment with an issue price per unit of ¥227,400
in order to raise funds for the acquisition of new investment properties.
JHR conducted a 12-for-1 split of investment units.
JHR (the former NHF) merged with the former JHR. The merger was an absorption-type merger pursuant
to Article 147 of the Investment Trusts Act where JHR is the surviving corporation and the former JHR isthe absorbed corporation. Following this merger, 11 investment units of JHR after the split of investment
units were delivered by allotment for each investment unit of the former JHR.
New investment units were issued through public offering with an issue price per unit of ¥20,990(subscription price of ¥20,232) in order to raise funds for the acquisition of new investment properties,
etc.
New investment units were issued through third-party allotment with an issue price per unit of ¥20,232 inorder to repay loans payable, etc.
New investment units were issued through public offering with an issue price per unit of ¥41,778(subscription price of ¥40,363) in order to raise funds for the acquisition of new investment properties,
etc.
New investment units were issued through public offering with an issue price per unit of ¥61,912(subscription price of ¥59,880) in order to raise funds for the acquisition of new investment properties,etc.

9[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 the Tokyo Stock Exchange REIT section are as follows:(Yen)
Fiscal period

11th period

12th period

13th period

14th period

15th period

Account closing month

September 2011

March 2012

December 2012

December 2013

December 2014

Highest price

290,000

19,550 (Note)

25,11051,50082,400

Lowest price

199,000

15,008 (Note)

17,83023,67045,350Price at end of period

199,000

18,700 (Note)

23,88050,40077,000(Note)

In line with the merger, JHR conducted a 12-for-1 split of investment units with an effective date of April 1,
2012. Consequently, figures for the 12th period have been calculated as if the unit split had been conducted at
the start of the fiscal period.

4. Dividends, etc.
For the 15th fiscal period, it was decided that ¥6,016 million, which was calculated by adding adecrease (reversal) of reserve for dividends (appropriation for dividends) of ¥240 million tounappropriated retained earnings of ¥5,776 million as of December 31, 2014, would all be distributed
except for fractions of less than one yen of dividend per unit. Consequently, the dividend per unit
came to ¥2,155. This amount exceeds 90% JHR’s distributable profit that can be paid out as dividends
pursuant to Article 67-15 of the Act on Special Measures Concerning Taxation, and in accordancewith the monetary distribution policy stipulated in Article 34, paragraph 1 of JHR’s articles ofincorporation.
(Yen)
11th period
Classification
Unappropriated retained
earnings

12th period(From April 1, 2011
to September 30,
2011)

13th period

14th period

15th period(From October 1, 2011 (From April 1, 2012 (From January 1, 2013 (From January 1, 2014
to March 31, 2012) to December 31, 2012) to December 31, 2013) to December 31, 2014)

493,382,601

473,912,203

19,031,977,302

3,235,030,032

5,776,116,820

–

–

–

1,848,870,143

240,538,162

3,039

31,057

1,695,047

1,236,316

1,444,427

Total cash dividends

493,379,562

473,881,146

3,012,797,987

5,082,663,859

6,015,210,555[Dividend per unit][8,502][8,166][1,427][1,939][2,155]493,379,562

473,881,146

3,012,797,987

5,082,663,859

6,015,210,555[8,502][8,166][1,427][1,939][2,155]Of the above, total capitalrefunds

–

–

–

–

–

[Capital refunds per unit]

[–]

[–]

[–]

[–]

[–]

Decrease (reversal) ofreserve for dividends
Retained earnings

Of the above, total earnings
dividends[Earnings dividend per
unit]

10

5. Investment policies and issues to be addressed
General investment outlook
In the general election conducted in December 2014, the ruling parties achieved a victory, allowing
the Abe administration to remain in power standing on a stable foundation. However, with theendeavors to end deflation still halfway, there are concerns about the Japanese economy in 2015 thatworsened consumer sentiment might continue to push consumption downward. In addition, attention
must be paid to the risks of the downward swing in overseas economies and other factors would holddown the Japanese economy. Nevertheless, with the employment and income environment continuing
to show an improvement trend, the economy is expected to keep recovering modestly, partly due tothe impact of the drop in crude oil prices and various political measures proving effective.
In addition, the government places importance on such measures as preparing and implementing
promotion programs to encourage people to visit Japan for a further increase in the number of
inbound tourists, further relaxing visa issuance requirements, enhancing the environment for
accepting inbound tourists and inviting and promoting international events (MICE: meetings,
incentives, conferences and exhibitions). Accordingly, it is expected that a future increase in thenumber of domestic individual tourists and inbound tourists, who are the essential part of nonresident
population, will serve as a tailwind for JHR.
Under such circumstances, JHR intends to invest based on the approach described below in order tomake investing in JHR more appealing based on its mix of stability centered on fixed rent revenue
and upside potential derived from variable rent and other revenue sources.
Internal growth
To increase the earnings capability of existing properties, JHR will work to boost sales and GOP ofsuch hotels operated under variable rent contracts as the five HMJ hotels and the five “the b” hotels
acquired in January 2015, as well as of the five Accor hotels that are operated under a management
contract scheme, in order to maximize variable rent and earnings under management contracts. To
achieve this goal, JHR will request each hotel, its business support company and its operator to
implement marketing initiatives to attract more demand and measures to maintain and increase room
rates. JHR will also work with related parties to move the business focus from competition based on
price to competition based on value, aiming to create facilities and services that become prominent in
the market.
For hotels with only fixed rent contracts, JHR will increase its efforts to monitor operating conditions
and, by paying careful attention to each tenant’s ability to bear the rent costs, conduct negotiations
with the hotels at which the ability to bear rent costs has been enhanced through better performances
so that the improvement in hotel earnings would lead to an increase in JHR’s earnings, such asrevising rents upward and introducing upside sharing schemes.
In addition, JHR will carry out an ongoing program of facility maintenance and improvement toensure each hotel becomes prominent in the market and to maintain and increase the value of its
assets.
External growth
In terms of external growth strategy, JHR will focus on investing in hotels with prospects for
attracting domestic and overseas leisure demand, that is, those located in appealing or fashionable
areas, as it has done to date. Limited-service hotels, full-service hotels and resort hotels are all
investment targets, but JHR will only acquire properties with competitive advantages in terms ofbuildings and facilities (infrastructure) and the capabilities of the hotel tenant and operator (services).

11However, competition over acquisition has become fierce in the investment market for hotels inaccordance with an increase in the number of investors, with transaction yields showing a downward
trend. Under such circumstances, JHR will work to acquire properties and make them prominent in
the market, by taking advantage of its strength as a REIT specializing in hotel properties of being able
to extensively collect transaction information of real estate related assets that are used as hotels andmake selective approaches.
Specifically, JHR will build on its pipelines as a major player in the investment market for hotels,
ability to collect information on operations of hotels in general, proposal and implementation of avariety of rent schemes including the management contract scheme, and excellent networks withmajor hotel operators. By doing so, JHR will acquire properties while maintaining its superiority inthe investment market for hotels.
Following such policy, in the fiscal period under review, JHR acquired 3 properties in Sapporo andNaha under a management contract scheme, operated by Accor, which is headquartered in Paris,
France and ranked sixth in the world in terms of the number of guest rooms of hotels it operates. Bysuch an action, JHR aims to attract demand of inbound tourists visiting Japan, primarily from Asia,
which are expected to grow significantly in number going forward.
In January 2015, JHR also acquired 6 properties located mainly in Tokyo and the bay area that are
deemed to enjoy the largest benefits from an increase in inbound tourists. Of these properties, the five“the b” hotels employed a lease scheme that combines fixed rents and variable rents in order to pursue
upside potential while working to secure stability. Going forward, JHR will continuously acquire
properties by taking advantage of these strengths that are peculiar to a REIT specialized in hotels.
Finance strategy
JHR seeks to maintain and enhance the relationships of trust with financial institutions with which itdoes business, while working to ensure financial stability and strength by increasingly diversifying themeans 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. In addition, when seeking new
borrowings for property acquisitions or refinancing existing debt, JHR will work to reinforce its
existing relationships with multiple banks while seeking to spread out the maturity dates of its debt
and considering the balance with borrowing costs.
Moreover, JHR will investigate extending the maturity dates and managing interest rate risks while
discerning the interest rate market trends.

12

6. Significant subsequent events(1) Acquisition of assets
On January 30, 2015, JHR acquired five properties with a total acquisition price of ¥20,000 million
as follows.
Property namethe b akasaka-mitsuke

Asset category

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

Asset type

Hotel

Address

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

Acquisition date

January 30, 2015

SellerYosezaka TMK

Acquisition price (Note)¥6,250 million(Note) The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b ikebukuro

Asset category

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

Asset type

Hotel

Address

1-39-4 Higashi-ikebukuro, Toshima-ku, Tokyo

Acquisition date

January 30, 2015

SellerInarizaka TMK

Acquisition price (Note)¥6,520 million(Note) The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b ochanomizu

Asset category

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

Asset type

Hotel

Address

1-7-5 Kanda-awajicho, Chiyoda-ku, Tokyo

Acquisition date

January 30, 2015

SellerTenjinzaka TMK

Acquisition price (Note)¥2,320 million

13

(Note) The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b hachioji

Asset category

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

Asset type

Hotel

Address

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

Acquisition date

January 30, 2015

SellerHijirizaka TMK

Acquisition price (Note)¥2,610 million(Note) The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b hakata

Asset category

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

Asset type

Hotel

Address

1-3-9 Hakata-eki Minami, Hakata-ku, Fukuoka-shi,
FukuokaAcquisition date

January 30, 2015

SellerTenjinzaka TMK

Acquisition price (Note)¥2,300 million(Note) The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

(2) Resolution on acquisition of asset
On January 9, 2015, JHR concluded a purchase and sale agreement regarding the following asset.
Property name

Hotel Francs

Asset category

Real estate beneficial interest in trust

Asset type

Hotel

Address

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

Planned acquisition date

March 31, 2015

Planned Seller

G.K. Tourism Japan No. 1 (Note 1)

14

Planned acquisition price(Note 2)

¥3,105 million(Note 1) GK Tourism Japan No. 1 is the business operator of a silent partnership in which JHR invested ¥595 million(represented a 49.8% equity interest in the silent partnership; excluding acquisition expenses) and JHR
exercised the preferential negotiation rights that were granted to JHR upon the investment in the concerned
partnership. Furthermore, in connection with the acquisition, the invested equity interest in the silent
partnership will be redeemed to JHR by the end of the fiscal year ending December 2015.
(Note 2) The planned acquisition price does not include expenses for acquisition, settlement of fixed asset tax andcity planning tax, and national and local consumption taxes.

(3) Borrowing of funds
On January 30, 2015, JHR obtained new borrowings with the following Term Loans 9, 10 and 11
totaling ¥13,900 million in order to fund the acquisition of the real estate beneficial interest in trustof the five “the b” hotel properties and movable assets attached thereon (as described above in item
(1) Acquisition of assets) and to fund the early repayment on the same date of an existing loan(¥4,779 million outstanding balance) maturing on February 15, 2015.
Term Loan 9 (Term: 1 year)
Facility

Term Loan 9

LenderSumitomo Mitsui Banking Corporation

Amount of the loan

¥1,000 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month inJBA)+0.40%

Date of borrowing

January 30, 2015

Method of principal
repayment

Lump-sum payment on the maturity date

Maturity date

January 29, 2016

Collateral

Unsecured/Unguaranteed

Term Loan 10 (Term: 5 years)
Facility

Term Loan 10

LenderSumitomo Mitsui Banking Corporation / Mizuho Bank, Ltd. / Shinsei
Bank, Limited / Resona Bank, Limited / Sumitomo Mitsui Trust
Bank, Limited / The Chiba Bank, Ltd.

Amount of the loan

¥4,700 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month inJBA)+0.45%

15Date of borrowing

January 30, 2015

Method of principal
repayment

Lump-sum payment on the maturity date

Maturity date

January 31, 2020

Collateral

Unsecured/Unguaranteed

Term Loan 11 (Term: 7 years)
Facility

Term Loan 11

LenderSumitomo Mitsui Banking Corporation / Mizuho Bank, Ltd. /Shinsei Bank, Limited / Resona Bank, Limited / Sumitomo Mitsui
Trust Bank, Limited / The Tokyo Star Bank, Limited / Aozora Bank,
Ltd.

Amount of the loan

¥8,200 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month inJBA)+0.55%

Date of borrowing

January 30, 2015

Method of principal
repayment

Lump-sum payment on the maturity date

Maturity date

January 31, 2022

Collateral

Unsecured/Unguaranteed(4) Resolution on borrowing of funds
On January 9, 2015, JHR resolved on new borrowing to fund the acquisition of Hotel Francs
described in the above (2) Resolution on acquisition of asset, as follows.
LenderSumitomo Mitsui Banking Corporation

Amount of the loan

¥1,500 million

Interest rate

To be determined

Date of borrowing

March 31, 2015

Method of principal
repayment

To be determined

Maturity date

To be determined

Collateral

Unsecured/Unguaranteed16

(5) Issuance of new investment units
JHR resolved to issue new investment units at the Board of Directors meetings held on January 9,2015 and January 20, 2015. Payment for the new investment units was completed on January 27,
2015 and February 18, 2015, and the investment units were issued under the following terms andconditions. As a result, JHR’s unitholders’ capital stands at ¥74,676,659,234, with the number ofinvestment units issued and outstanding at 3,000,322 units.
(A) Issuance of new investment units (public offering)Number of investment units offered:

200,000 units

Issue price:¥77,415 per unit

Total issue price:¥15,483,000,000

Paid-in amount (Issue value):¥74,874 per unit

Total paid-in amount (issue value):¥14,974,800,000

Payment date:

January 27, 2015

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

9,041 units

Paid-in amount (Issue value):¥74,874 per unit

Total paid-in amount (issue value):¥676,935,834

Payment date:February 18, 2015

Allottee:

SMBC Nikko Securities Inc.

(C) Use of funds
JHR plans to use the proceeds obtained from the public offering to partly fund theacquisition of the specified assets described in the above (1) Acquisition of assets as wellas to partly fund the acquisition of the specified asset described in the above (2) Resolution
on acquisition of asset. JHR plans to use the remainder of the proceeds to partly fund thefuture acquisition of specified assets, partly fund the repayment of other borrowings orfund the capital expenditures for maintaining and enhancing the competitiveness ofexisting properties.
Furthermore, JHR plans to use the proceeds obtained from the third-party allotment to
partly fund the future acquisition of specified assets, partly fund the repayment of otherborrowings or fund the capital expenditures for maintaining and enhancing thecompetitiveness of existing properties.

177. Reference information<Reference 1>

Major indicators of the five HMJ hotels for the fiscal year ended December
31, 2014 (Note 1) (Note 2)(a) Kobe(b) Oriental
Meriken Park
Hotel tokyo
Oriental Hotel bay
Ratio to
total
sales

Indicators forrooms
department(%, Yen)Financial
indicators(Millions ofyen)(Note 2)
(Note 3)(Note 4)

Ratio to
total
sales

Ratio to
total
sales

Ratio to
total
sales

Total/Average

Ratio to
total
sales

Ratio
to totalsales

Occupancy rate

80.6%

－

98.1%

－

90.9%

－

80.0%

－

78.1%

－

86.9%

－

ADR (Note 3)

15,355－

19,306－

12,902－25,082

－

8,517

－

17,551－

RevPAR(Note 4)

12,369－18,944－

11,731－

20,072

－

6,650

－

15,245－

Total sales

5,222 100.0%

7,210 100.0%

2,149 100.0%

5,491 100.0%

Rooms
department

1,587

30.4%

3,829

53.1%

1,212

56.4%

3,200

58.3%

606

27.3%

10,43346.8%

Food &
beveragedepartment

3,285

62.9%

2,902

40.3%

150

7.0%

1,815

33.1%

1,548

69.6%

9,701

43.5%

Product sales
department

111

2.1%

－

－

－

－

368

6.7%

－

－

480

2.2%

Tenantdepartment

62

1.2%

264

3.7%

741

34.5%

2

0.0%

23

1.0%

1,091

4.9%

Other
departments

177

3.4%

214

3.0%

46

2.1%

106

1.9%

46

2.1%

590

2.6%

1,136

21.8%

1,923

26.7%

1,160

54.0%

1,735

31.6%

348

15.7%

6,302

28.3%

GOP

(Note 1)(c) Namba(d) Hotel Nikko (e) Oriental
Oriental Hotel Alivila
Hotel
Hiroshima

2,223 100.0%

22,296 100.0%

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 ofsales in each department to total sales is rounded off to one decimal place. The same shall apply
hereinafter.
Figures related to the hotel business for the operating period from January 1, 2014 through December 31,
2014 are based on figures provided by the tenants.
ADR: Represents average daily rate, which is calculated by dividing total rooms revenue for a certain
period (excluding service charges) by the total number of rooms sold during the period. The same shallapply hereinafter.
RevPAR: Represents revenue per available room, which is calculated by dividing total rooms revenue for acertain period (excluding service charges) by the total number of available rooms during the period.
Revenue per available room equals the product of ADR and occupancy rate. The same shall apply
hereinafter.

18

<Reference 2>

Sales and GOP of the five HMJ hotels(1) Sales by hotel(Millions of yen)
Fiscal year ended Dec. 31, 2013
Sales of the five HMJ hotels
Results
First half
Kobe Meriken Park
Oriental Hotel

Second half
Full year
First half

Oriental Hotel tokyo
bay

Second half
Full year
First half

Namba Oriental Hotel Second half
Full year
First halfHotel Nikko Alivila

Second half
Full year
First half

Oriental Hotel
Hiroshima

Second half
Full year
First half

Total

Second half
Full year(Note)

2,416
2,795
5,210
3,209
3,973
7,182
934
1,038
1,972
2,193
3,183
5,375
1,046
1,208
2,254
9,797
12,19721,994Year-on-yearchange(5.0)%(4.3)%(4.7)%(0.4)%
12.2%
6.2%
5.5%
6.6%
6.1%
7.5%
4.4%
5.6%
5.8%
5.2%
5.5%
1.2%
4.8%
3.2%

Fiscal year ended Dec. 31, 2014
Results

2,424
2,798
5,222
3,366
3,844
7,210
998
1,151
2,149
2,190
3,301
5,491
1,046
1,178
2,223
10,024
12,272
22,296Year-on-yearchange

0.4%
0.1%
0.2%
4.9%
(3.3)%
0.4%
6.8%
10.9%
9.0%
(0.1)%
3.7%
2.2%(0.0)%(2.5)%(1.4)%
2.3%
0.6%
1.4%

For Reference
Fiscal year ending Dec. 31, 2015
Year-on-yearchangeForecasts

2,459
2,965
5,425
3,305
3,931
7,236
1,039
1,166
2,205
2,316
3,426
5,741
1,039
1,208
2,248
10,158
12,69722,855

1.4%
6.0%
3.9%
(1.8)%
2.3%
0.4%
4.1%
1.3%
2.6%
5.7%
3.8%
4.6%
(0.6)%
2.6%
1.1%
1.3%
3.5%
2.5%

Sales are rounded off to the nearest million yen. Year-on-year change is rounded off to one decimal place.

(2) Hotel GOP(Millions of yen)
Fiscal year ended Dec. 31, 2013
GOP of the five HMJ hotels
Results

Year-on-yearchangeFiscal year ended Dec. 31, 2014
Results

Year-on-yearchangeFor Reference
Fiscal year ending Dec. 31, 2015
Forecasts

Year-on-yearchangeTotal for five HMJ hotels

6,155

9.0%

6,302

2.4%

6,366

1.0%

Ratio of GOP to sales

28.0%

1.5%

28.3%

0.3%

27.9%

(0.4)%(Note)GOP is rounded off to the nearest million yen. Ratio of GOP to sales and year-on-year change are rounded
off to one decimal place.

The calculation of rent for five HMJ hotels for the fiscal year ended December 31, 2014 is asfollows:
Annual rent (¥5,625 million) = Fixed rent (¥3,221 million) + Variable rent (¥2,404 million)
Variable rent = [Total GOP of the five HMJ hotels (¥6,302 million) − GOP base amount(¥3,351 million)] × 81.5%

19

<Reference 3>

Sales and GOP of the five Accor hotels(1) Sales by hotel(Millions of yen)
Fiscal year ended Dec. 31, 2013
Sales of the five Accor hotels
Results

ibis Styles Kyoto
Stationibis Styles Sapporo

Total(Note 1)

(Note 2)Year-on-yearchangeForecasts

Year-on-yearchangeFull year

21.9%
31.0%
26.5%

427
445
872

12.0%
7.5%
9.6%

443
456
899

3.8%
2.5%
3.1%

First half

－

－

305

－

348

14.2%

Second half

－

－

384

－

401

4.3%

Full year

－

－

690

－

749

8.7%

First half

－

－

－

－

421

－

Second half

－

－

－

－

534

－

Full year

－

－

－

－

955

－

First half

－

－

－

－

454

－

－

－

－

－

623

－

Full year

－

－

－

－

1,077

－

First half

－

－

－

－

388

－

Second half

－

－

－

－

429

－

Full year

－

－

－

－

817

－

First half

－

－

－

－

2,054

－

Second half

－

－

－

－

2,443

－

Full year

－

－

－

－

4,497

－

Second half

Mercure Hotel Sapporo Second half

Mercure Hotel
Okinawa Naha

Results

381
414
795

First half
ibis Tokyo Shinjuku

Year-on-yearchangeFiscal year ended Dec. 31, 2014

For Reference
Fiscal year ending Dec. 31, 2015

Figures of the results in fiscal year ended December 31, 2013, results in fiscal year ended December 31,
2014 and year-on-year change are not available for ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure
Hotel Sapporo and Mercure Hotel Okinawa Naha as no consent to disclosure of operating figures has beenobtained from the previous lessees, etc.
Sales are rounded off to the nearest million yen. Year-on-year change is rounded off to one decimal place.

20

(2) Hotel GOP(Millions of yen)
Fiscal year ended Dec. 31, 2013
GOP of the five Accor hotels

Year-on-yearchangeResults

Fiscal year ended Dec. 31, 2014
Year-on-yearchangeResults

For Reference
Fiscal year ending Dec. 31, 2015
Forecasts

Year-on-yearchangeTotal for five Accor hotels

-

-

-

-

2,006

-

Ratio of GOP to sales

-

-

-

-

44.6%

-

(Note 1)

(Note 2)

Figures of the results in fiscal year ended December 31, 2013, results in fiscal year ended December 31,
2014 and year-on-year change are not available for ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure
Hotel Sapporo and Mercure Hotel Okinawa Naha as no consent to disclosure of operating figures has beenobtained from the previous lessees, etc.
GOP is rounded off to the nearest million yen. Ratio of GOP to sales and year-on-year change are rounded
off to one decimal place.

<Reference 4>

Dividend per unit and appropriation for dividends

Dividend per unit for the fiscal periods ended December 31, 2013 and December 31, 2014 wascalculated based on the assumptions described below.
(Millions of yen)
Fiscal year ended
December 31, 2013
Unappropriated retained earnings

Fiscal year ended
December 31, 2014

3,235

5,776

Use of negative goodwill (Impairment loss)

516-

Use of negative goodwill (Loss on retirementof noncurrent assets)

8

4

1,189

-

-

71

135

164

Appropriation Use of negative goodwill (Loss on sale)for dividends Use of negative goodwill (Financial costs inaccordance with early repayment)
Use of negative goodwill (Adjustment for
dilution) (Note)
Total dividends

5,082

6,015

Number of units issued(Units)2,621,281

2,791,281

Dividend per unit

(Yen)

1,939

2,155

(Note)

This is to respond to the dilution of dividend per unit which occurred as a result of the issuance of new
investment units during the fiscal periods ended December 31, 2013 and December 31, 2014.

<Reference 5>

Balance of reserve for dividends (negative goodwill)

The following shows the balance of reserve for dividends (negative goodwill) after the appropriation
for dividends as of December 31, 2014.
Balance of reserve for dividends as of December 31, 2013
Appropriation for dividends for the fiscal year ended December 31, 2013

(Millions of yen)
16,017(1,848)

Balance of reserve for dividends after appropriation for dividends as of December 31, 2013
Appropriation for dividends for the fiscal year ended December 31, 2014

14,168(240)

Balance of reserve for dividends after appropriation for dividends as of December 31, 2014

13,92821

Overview of JHR
1. Unitholders’ capital
Account closing date

11th period

12th period

As ofSeptember 30,
2011

As of
March 31, 2012

2,000,000

2,000,000

20,000,000

20,000,000

20,000,000

58,031

58,0312,111,281

2,621,281

2,791,281

23,161

23,161

28,26048,84559,024

5,279

5,728

13,63017,073

22,866

Total number of authorized units(Units)Total number of units issued(Units)Unitholders’ capital(Millions of yen)
Number of unitholders(Note)(Persons)

13th period

14th period

15th period

As of
As of
As of
December 31, 2012 December 31, 2013 December 31, 2014

The total number of authorized units changed from 2 million units to 20 million units on the effective date of
the merger based on a resolution of the 5th General Meeting of Unitholders of JHR held on February 24,
2012.

2. Matters regarding investment units
Major unitholders of JHR as of December 31, 2014 were as follows:
Number of units held
(Units)Percentage (Note)(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

524,068

18.77

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

287,523

10.30

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

252,508

9.04

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

118,089

4.23

Nomura Bank (Luxembourg) S.A.

97,755

3.50

Shikoku Railway Company

58,311

2.08

Goldman Sachs International

41,638

1.49

NOMURA PB NOMINEES TK1 LIMITED

38,269

1.37

NOMURA PB NOMINEES LIMITEDOMINIBUS-MARGIN(CASHPB)

36,314

1.30

The Bank of New York Mellon SA/NV 10

29,695

1.06

1,484,170

53.17

Name

Total
(Note)The percentage indicates the ratio of the number of units held to the total number of units issued.

223. Matters regarding officers, etc.
(1) Officers, etc. as of December 31, 2014 were as follows:

Position

Major concurrent postoutside JHR

Name

Total amount of
remuneration for eachposition during thecorresponding fiscal period(Thousands of yen)

Executive Director

Yukio Isa (Note 1) (Note 2)

–

4,800

Supervisory Director

Hiroshi Matsuzawa (Note 1) (Note 3) –2,400

Supervisory Director

Tetsuya Mishiku (Note 1) (Note 3)

Representative Attorney,
Mishiku Nagamachi Law
OfficeIndependent auditor

KPMG AZSA LLC (Note 4)–(Note 1)
(Note 2)
(Note 3)(Note 4)2,400
27,024

Executive Director and two Supervisory Directors of JHR were all elected at its 6th General Meeting ofUnitholders held on November 28, 2013.
Yukio Isa owns 72 investment units of JHR in his own name.
No Supervisory Directors own investment units of JHR in their own name or another person’s name.
Although 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 1 of the Certified Public Accountants Act amounting to ¥7,500 thousand, such as preparation of
comfort letters and research reports based on agreed-upon procedures performed for the capital increase
through the public offering on September 9, 2014 and the issuance of investment corporation bonds on
March 19, 2014 and December 19, 2014.

(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 theindependent auditor pursuant to provisions of the Investment Trusts Act, and to determine whether
or not to reappoint the independent 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, 2014 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 and special account)
General administrator (administration regarding investment
corporation bonds)

Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited

General administrator (tax return preparation, etc.)

Zeirishi-Hojin PricewaterhouseCoopers

23

Status of Investment Assets
1. Composition of assets
14th period(As of December 31, 2013)
Type of assets

Business
category(Note 1)

Prefectural
location

Property name15th period(As of December 31, 2014)

Total amount ofassets held
Ratio to total(Millions ofassets (%)(Note 3)yen)
(Note 2)

7,414

4.3

7,386

3.9

4,914

2.9

4,893

2.6

Comfort Hotel Tokyo
Higashi-Nihombashi

3,719

2.2

3,689

2.0

Smile Hotel
Nihombashi-Mitsukoshimae

2,054

1.2

2,056

1.1

R&B Hotel Ueno-Hirokoji

1,741

1.0

1,760

0.9

R&B Hotel Higashi-Nihombashi

1,496

0.9

1,516

0.8

Hotel Vista Kamata Tokyo

1,464

0.9

1,467

0.8

Dormy Inn Suidobashi

1,065

0.6

1,065

0.6

Dormy Inn EXPRESS Asakusa

984

0.6

974

0.5

Chisan Inn Kamata

817

0.5

810

0.4

Namba Oriental Hotel

14,8008.7

14,746

7.8

Dormy Inn Namba (Note 4)

684

0.4

-

-

ibis Styles Sapporo (Note 5)

-

-

6,849

3.6

Mercure Hotel Sapporo

-

-

6,079

3.2

Kyoto

ibis Styles Kyoto Station

6,762

4.0

6,743

3.6

Fukuoka

Hakata Nakasu Washington Hotel
Plaza

2,093

1.2

2,072

1.1

Toyoko Inn Hakataguchi Ekimae

1,541

0.9

1,520

0.8

-

-

2,994

1.6

Kumamoto Dormy Inn Kumamoto

2,307

1.4

2,268

1.2

Nara

Nara Washington Hotel Plaza

1,986

1.2

1,949

1.0

Niigata

Hotel Sunroute Niigata

1,956

1.1

1,967

1.0

Akita

Daiwa Roynet Hotel Akita

1,706

1.0

1,672

0.9

813

0.5

799

0.4

Subtotal

60,32835.3

75,284

40.0

Chiba

Oriental Hotel tokyo bay

19,173

11.2

18,800

10.0

Hyogo

Kobe Meriken Park Oriental Hotel

10,415

6.1

10,171

5.4

Hiroshima

Oriental Hotel Hiroshima

4,031

2.4

4,026

2.1

Subtotal

33,621

19.7

32,99917.5

Hilton Tokyo Bay

26,26415.4

26,18913.9

Hotel Nikko Alivila

18,42310.8

18,475

9.8

The Beach Tower Okinawa

7,053

4.1

6,953

3.7

Osaka

Hotel Keihan Universal City

6,124

3.6

6,085

3.2

Kanagawa

Hakone Setsugetsuka

3,927

2.3

3,848

2.0

Subtotal

61,79336.2

61,553

32.7

Real estate in trust – Total

155,74291.2

169,837

90.3
0.3

Osaka

Okinawa

Mercure Hotel Okinawa Naha

Yamaguchi Comfort Hotel Shin-Yamaguchi

Full-service
hotel

Chiba
Resort hotel(Note 3)(Note 2)

Hotel Sunroute Shimbashi

Hokkaido

Real estate intrust

Ratio to total
assets (%)

ibis Tokyo Shinjuku

Tokyo

Limitedservice hotel

Total amountof assets held
(Millions ofyen)

Okinawa

Equity interest in silent partnership (Note 6)

-

-

602

Deposits and other assets (Note 7)

14,9858.8

17,651

9.4

Total assets

170,727100.0

188,091100.0

24

(Note 1)(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)

Hotels are categorized as limited-service hotels, full-service hotels or resort hotels according to the manner ofoperation.
For real estate in trust, “Total amount of assets held” shows the amount calculated by deducting accumulated
depreciation from 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.
Dormy Inn Namba was transferred as of January 24, 2014.
Changed name from Best Western Hotel Nakajima Koen to ibis Styles Sapporo as of December 27, 2014. In
this report, the same name shall apply hereinafter.
Represents the equity interest in silent partnership with G.K. Tourism Japan No. 1 as business operator.
Includes machinery and installation, furniture, fixtures and equipment, construction in progress in trust, andintangible assets (excluding leasehold rights in trust).

2. Major portfolio assets
An overview of the portfolio assets of JHR (30 properties in total) as of December 31, 2014 was asfollows.

Property
No.

Property nameBook value
Leasable area Leased area
(Millions of
(m2)
(m2)
yen)
(Note 2)
(Note 3)(Note 1)

Tenantoccupancy
ratio
(%)

Ratio ofrental revenue
to total rental Major
use
revenue(%)(Note 4)

1

Kobe Meriken Park Oriental Hotel2

10,28932,663.90

32,663.90

100.0

8.5

Hotel

Oriental Hotel tokyo bay

18,982

44,833.11

44,833.11

100.0

12.8

Hotel

3

Namba Oriental Hotel

14,797

19,364.33

19,364.33

100.0

8.3

Hotel

4

Hotel Nikko Alivila (Note 6)

18,68838,024.98

38,024.98

100.0

11.0

Hotel

5

Oriental Hotel Hiroshima

4,061

13,752.22

13,752.22

100.0

3.4

Hotel

6

ibis Tokyo Shinjuku

7,448

6,801.84

6,801.84

100.0

4.9

Hotel

8

The Beach Tower Okinawa (Note 7)

6,953

20,140.01

20,140.01

100.0

4.0

Hotel

9

Hakone Setsugetsuka (Note 8)

3,859

10,655.03

10,655.03

100.0

2.3

Hotel

10

Dormy Inn Kumamoto (Note 8)

2,268

7,701.19

7,701.19

100.0

1.5

Hotel

12

Dormy Inn Suidobashi

1,065

3,097.25

3,097.25

100.0

0.7

Hotel

13

Dormy Inn EXPRESS Asakusa

974

2,014.90

2,014.90

100.0

0.5

Hotel

14

Hakata Nakasu Washington Hotel Plaza

2,074

5,602.04

5,602.04

100.0

1.9

Hotel

15

Nara Washington Hotel Plaza

1,950

5,271.54

5,271.54

100.0

1.2

Hotel

16

R&B Hotel Ueno-Hirokoji

1,760

3,060.31

3,060.31

100.0

0.8

Hotel

17

R&B Hotel Higashi-Nihombashi

1,516

3,800.77

3,800.77

100.0

1.0

Hotel

18

Comfort Hotel Tokyo
Higashi-Nihombashi (Note 8)

3,689

5,765.27

5,765.27

100.0

2.1

Hotel

19

Comfort Hotel Shin-Yamaguchi

799

2,999.00

2,999.00

100.0

0.5

Hotel

21

Daiwa Roynet Hotel Akita (Note 8)

1,672

7,539.52

7,539.52

100.0

1.1

Hotel

22

Smile Hotel Nihombashi-Mitsukoshimae

2,056

3,167.82

3,167.82

100.0

1.1

Hotel

23

Hotel Sunroute Niigata (Note 8)

1,967

8,328.84

8,328.84

100.0

1.2

Hotel

Main
building:
3,581.66
Annex:
868.36

100.0

1.1

Hotel

(Note 5)24

Toyoko Inn Hakataguchi Ekimae

1,520

Main
building:
3,581.66
Annex:
868.3625

Hotel Vista Kamata Tokyo

1,467

3,831.80

3,831.80

100.0

0.8

Hotel

26

Chisan Inn Kamata814

1,499.87

1,499.87

100.0

0.5

Hotel

25

Property
No.

Property nameBook value
Leasable area Leased area
(Millions of
(m2)
(m2)
yen)
(Note 2)
(Note 3)(Note 1)

Tenantoccupancy
ratio
(%)

Ratio ofrental revenue
to total rental Major
use
revenue(%)(Note 4)29

Hotel Keihan Universal City

6,086

16,212.40

16,212.40

100.0

4.4

Hotel

30

Hotel Sunroute Shimbashi

4,893

5,246.66

5,246.66

100.0

2.9

Hotel

31

Hilton Tokyo Bay (Note 9)26,18964,931.94

64,931.94

100.0

14.9

Hotel

32

ibis Styles Kyoto Station (Note 8)

6,763

5,003.99

5,003.99

100.0

3.2

Hotel

33

ibis Styles Sapporo (Note 8)

6,859

14,992.49

14,896.40

99.4

1.9

Hotel

34

Mercure Hotel Sapporo

6,091

15,189.42

14,905.88

98.1

1.0

Hotel

35

Mercure Hotel Okinawa Naha (Note 8)

3,014

10,884.25

10,884.25

100.0

0.6

Hotel

170,576

386,826.71

386,447.08

99.9

100.0

Total (Note 14)(Note 1)
(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)

Book value includes real estate in trust, machinery and installation, furniture, fixtures and equipment,
construction in progress in trust, and intangible assets.
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 in which the leased area is not described in the lease contract, leasable area represents the area
described in the registration of the building. Furthermore, when the leasable area in the lease contract isindicated in tsubo units, the figure in the table has been converted to the area in metric units (3.30578
square meters per one tsubo).
In principle, leased area represents the leased area described in the lease contract of the building. For
properties in which 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 isindicated in tsubo units, the figure in the table has been converted to the area in metric units (3.30578
square meters per one tsubo).
Represents the ratio of rental revenue to total real estate operating revenue for the fiscal period underreview, rounded off to one decimal place. Furthermore, although the ratio of rental revenue to total rental
revenue for Dormy Inn Namba, which was transferred in the fiscal year ended December 2014, is notincluded, the sum total of the ratio of rental revenue to total rental revenue is indicated as 100.0% as thetransfer has minimum impact.
Kobe Meriken Park Oriental Hotel is a building owned in the form of a condominium ownership by two
owners (JHR and Kobe City). The area in this table shows the portion owned exclusively by JHR(including an accessory building of 764.83 square meters). With regard to the portion of the building
owned exclusively by Kobe City, the area rented by JHR from Kobe City with permission for use under
Kobe City’s ordinance for harbor facilities, etc. is 694.00 square meters and excluded from the above areaof 32,663.90 square meters.
Leasable area and leased area for Hotel Nikko Alivila include an accessory building of 120.10 square
meters and exclude a building of 493.50 square meters rented by JHR from Kabushiki Kaisha Okinawa
Umi No Sono.
Leasable area and leased area for The Beach Tower Okinawa include the floor area of a warehouse in a
two-story light-gauge steel annex building (91.20 square meters).
Leasable area and leased area for Hakone Setsugetsuka, Dormy Inn Kumamoto, Comfort Hotel Tokyo
Higashi-Nihombashi, Daiwa Roynet Hotel Akita, Hotel Sunroute Niigata, ibis Styles Kyoto Station, ibis
Styles Sapporo and Mercure Hotel Okinawa Naha include accessory buildings.
The building of Hilton Tokyo Bay is co-owned with other right holders, and JHR owns co-ownershipinterest for 64,931.94 square meters (with co-ownership interest of 9/10 for common areas).
No. 7, No. 11, No. 20, No. 27 and No. 28 are intentionally omitted, as they represent transferred assets.

26

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, 2014 were as follows:

PropertyNo.

Assessedvalue at end Book value
Appraisalof period (Millions ofagency(Millions ofyen)(Note 3)(Note 2)yen)

Location (Displayed address)

Form ofownership

1

Kobe Meriken Park
Oriental Hotel

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

Beneficial
interest in trust

12,50010,289J

2

Oriental Hotel tokyo bay

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

Beneficial
interest in trust

27,70018,982

J

3

Namba Oriental Hotel

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

Beneficial
interest in trust

19,20014,797

J

4

Hotel Nikko Alivila

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

Beneficial
interest in trust

21,30018,688J

5

Oriental Hotel Hiroshima

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

Beneficial
interest in trust

4,150

4,061

J

6

ibis Tokyo Shinjuku

10-5 Nishi-Shinjuku 7-chome,
Shinjuku-ku, Tokyo

Beneficial
interest in trust

7,740

7,448

J

8

The Beach Tower Okinawa 8-6 Aza Mihama, Chatan-cho,(Note 4)
Nakagami-gun, Okinawa

Beneficial
interest in trust

8,400

6,953

J

9

Hakone Setsugetsuka

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

Beneficial
interest in trust

4,480

3,859

J

10

Dormy Inn Kumamoto

3-1 Karashimacho, Kumamoto-shi,
Kumamoto

Beneficial
interest in trust

2,790

2,268

M

12

Dormy Inn Suidobashi

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

Beneficial
interest in trust

1,620

1,065

J

13

Dormy Inn EXPRESS
Asakusa

3-4 Hanakawado 1-chome, Taito-ku,
Tokyo

Beneficial
interest in trust

1,080

974

M

14

Hakata Nakasu Washington 8-28 Nakasu 2-chome, Hakata-ku,
Hotel Plaza
Fukuoka-shi, Fukuoka

Beneficial
interest in trust

2,780

2,074

J

15

Nara Washington HotelPlaza

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

Beneficial
interest in trust

2,160

1,950

J

16

R&B Hotel Ueno-Hirokoji

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

Beneficial
interest in trust

1,670

1,760

M

17

R&B Hotel
Higashi-Nihombashi

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

Beneficial
interest in trust

1,850

1,516

M

18

Comfort Hotel Tokyo
Higashi-Nihombashi

10-11 Nihonbashi-bakurocho 1-chome, Beneficial
Chuo-ku, Tokyo
interest in trust

4,740

3,689

M

19

Comfort Hotel
Shin-Yamaguchi (Note 4)1255-1 Aza Watari Kamiichi,
Ogori-shimogo, Yamaguchi-shi,
Yamaguchi

Beneficial
interest in trust

822

799

M

21

Daiwa Roynet Hotel Akita

2-41 Omachi 2-chome, Akita-shi, Akita

Beneficial
interest in trust

1,820

1,672

J

22

Smile Hotel
4-14 Nihonbashi-Honcho 1-chome,
Nihombashi-Mitsukoshimae Chuo-ku, Tokyo

Beneficial
interest in trust

2,550

2,056

M

23

Hotel Sunroute Niigata

11-25 Higashi-oodori 1-chome,
Chuo-ku, Niigata-shi, Niigata

Beneficial
interest in trust

1,900

1,967

M

24

Toyoko Inn Hakataguchi
EkimaeMain building: 15-5 Hakataekimae
1-chome, Hakata-ku, Fukuoka-shi,
Fukuoka
Annex: 1-15 Hakataekimae 1-chome,
Hakata-ku, Fukuoka-shi, Fukuoka

Beneficial
interest in trust

2,280

1,520

T

Property name(Note 1)27

Property
No.

Assessedvalue at end Book value
Appraisalof period (Millions ofagency(Millions ofyen)(Note 3)(Note 2)yen)

Property nameLocation (Displayed address)

Form ofownership

25

Hotel Vista Kamata Tokyo

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

Beneficial
interest in trust

1,520

1,467

T

26

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

Beneficial
interest in trust

886

814

T

29

Hotel Keihan Universal
City

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

Beneficial
interest in trust

8,920

6,086

R

30

Hotel Sunroute Shimbashi

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

Beneficial
interest in trust

6,360

4,893

D

31

Hilton Tokyo Bay

1-33 Maihama, Urayasu-shi, Chiba

Beneficial
interest in trust

30,70026,189D

32

ibis Styles Kyoto Station

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

Beneficial
interest in trust

7,020

6,763

D

33

ibis Styles Sapporo

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

Beneficial
interest in trust

7,080

6,859

J

34

Mercure Hotel Sapporo

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

Beneficial
interest in trust

6,170

6,091

J

35

Mercure Hotel Okinawa
Naha

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

Beneficial
interest in trust

3,220

3,014

J

205,408

170,576(Note 1)

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 thedate of value estimate, in accordance with JHR’s Articles of Incorporation, the Ordinance on Accounting ofInvestment Corporations (Cabinet Office Ordinance No. 47 of 2006) and regulations set forth by The
Investment Trusts Association, Japan.
Book value includes amounts of real estate in trust, machinery and installation, furniture, fixtures andequipment, construction in progress in trust, and intangible assets.
The letters indicate the appraisers for the properties as follows:
M: Morii Appraisal & Investment Consulting, Inc.
T:
The Tanizawa Sōgō Appraisal Co., Ltd.
J:Japan Real Estate Institute
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.
No. 7, No.11, No. 20, No. 27 and No. 28 are intentionally omitted, as they represent transferred assets.

28

(2) Transition of real estate leasing business, etc.
An overview of JHR’s real estate leasing business, etc. is as follows:
14th period(From January 1, 2013 to December 31, 2013)
Property
No.

Property name15th period(From January 1, 2014 to December 31, 2014)

Real estate
Real estate
TenantRatio toTenantRatio toNumber of occupancy operating total real Number of occupancy operating total real
revenuerevenuetenants
tenantsrate
estaterate
estateat end of at end of during the operating at end of at end of during the operating
periodperiodperiodperiodperiodrevenueperiodrevenue(Note 1)
(Note 1)
(Millions(Millions
(%)
(%)
(%)
(%)
of yen)of yen)1

Kobe Meriken Park
Oriental Hotel

1

100.0

1,072

9.3

1

100.0

1,085

8.5

2

Oriental Hotel tokyo bay

1

100.0

1,629

14.2

1

100.0

1,633

12.8

3

Namba Oriental Hotel

1

100.0

974

8.5

1

100.0

1,065

8.3

4

Hotel Nikko Alivila

1

100.0

1,392

12.1

1

100.0

1,406

11.0

5

Oriental Hotel Hiroshima

1

100.0

438

3.8

1

100.0

438

3.4

6

ibis Tokyo Shinjuku

4

100.0

545

4.8

4

100.0

625

4.9

8

The Beach Tower Okinawa

1

100.0

511

4.5

1

100.0

511

4.0

9

Hakone Setsugetsuka

1

100.0

294

2.6

1

100.0

294

2.3

10

Dormy Inn Kumamoto

1

100.0

194

1.7

1

100.0

194

1.5

11

Dormy Inn Namba (Note 2)

2

100.0

87

0.8

―

―

5

0.0

12

Dormy Inn Suidobashi

1

100.0

84

0.7

1

100.0

84

0.7

13

Dormy Inn EXPRESS
Asakusa

1

100.0

63

0.6

1

100.0

63

0.5

14

Hakata Nakasu Washington
Hotel Plaza

1

100.0

240

2.1

1

100.0

240

1.9

15

Nara Washington Hotel
Plaza

2

100.0

153

1.3

2

100.0

151

1.2

16

R&B Hotel Ueno-Hirokoji

1

100.0

100

0.9

1

100.0

100

0.8

17

R&B Hotel
Higashi-Nihombashi

1

100.0

122

1.1

1

100.0

122

1.0

18

Comfort Hotel Tokyo
Higashi-Nihombashi

2

100.0

270

2.4

2

100.0

270

2.1

19

Comfort Hotel
Shin-Yamaguchi

1

100.0

60

0.5

1

100.0

60

0.5

Pearl Hotel Kayabacho

–

–

193

1.7

―

―

―

―

20

(Note 3)21

Daiwa Roynet Hotel Akita

1

100.0

138

1.2

1

100.0

138

1.1

22

Smile Hotel NihombashiMitsukoshimae

1

100.0

134

1.2

1

100.0

134

1.1

23

Hotel Sunroute Niigata

1

100.0

156

1.4

1

100.0

156

1.2

24

Toyoko Inn Hakataguchi
Ekimae

1

100.0

141

1.2

1

100.0

141

1.1

25

Hotel Vista Kamata Tokyo

1

100.0

93

0.8

1

100.0

98

0.8

26

Chisan Inn Kamata

1

100.0

50

0.4

1

100.0

62

0.5

27

Hotel Vista Hashimoto

-

-

41

0.4

―

―

―

―

29

Hotel Keihan Universal
City

1

100.0

561

4.9

1

100.0

560

4.4

30

Hotel Sunroute Shimbashi

5

100.0

350

3.1

5

100.0

367

2.9

31

Hilton Tokyo Bay (Note 5)

1

100.0

1,283

11.2

1

100.0

1,897

14.9

(Note 4)29

14th period(From January 1, 2013 to December 31, 2013)
Property
No.

32
33
34
35

15th period(From January 1, 2014 to December 31, 2014)

Real estate
Real estate
TenantRatio toTenantRatio tooperatingoperatingNumber of
Number ofoccupancy
total real
occupancy
total real
revenuerevenuetenants
tenantsrate
estaterate
estateat end of at end of during the operating at end of at end of during the operating
periodperiodperiodperiodperiodrevenueperiodrevenue(Note 1)
(Note 1)
(Millions(Millions
(%)
(%)
(%)
(%)
of yen)of yen)Property name

ibis Styles Kyoto Station

2

100.0

92

0.8

2

100.0

408

3.2

ibis Styles Sapporo (Note 7)

-

-

-

-

5

99.4

241

1.9

Mercure Hotel Sapporo

-

-

-

-

15

98.1

123

1.0

-

-

-

-

5

100.0

77

0.6

39

100.0

11,472

100.0

62

99.9

12,760100.0(Note 6)(Note 8)

Mercure Hotel Okinawa
Naha (Note 8)
Total(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)Calculation is made with lessees that have direct lease contracts with trustees as tenants.
Dormy Inn Namba was transferred as of January 24, 2014.
Pearl Hotel Kayabacho was transferred as of November 13, 2013.
Hotel Vista Hashimoto was transferred as of June 28, 2013.
Hilton Tokyo Bay was acquired as of April 26, 2013.
ibis Styles Kyoto Station was acquired as of October 31, 2013.
ibis Styles Sapporo was acquired as of July 9, 2014.
Mercure Hotel Sapporo and Mercure Hotel Okinawa Naha were acquired as of September 30, 2014.
No. 7 and No. 28 are intentionally omitted, as they represent assets that were transferred before the fiscal
year ended December 31, 2013.

4. Details of securities assets
The details of securities assets held by JHR as of December 31, 2014 were as follows:

Securities

Asset typeBook value

Estimated value (Millions ofGain or loss

(Millions of yen)yen) (Note 1)

on valuation

Quantity

Remarks
Per
Total
Unit

Equity interest in silent
partnership with G.K.
Tourism Japan No. 1 asbusiness operator(Note 1)

(Note 2)

(Millions of

Per
Total

yen)

729

126

Unit

Equity interest in
silent partnership

-

602

602

729

Estimated value represents the amount for the equity interest in silent partnership calculated on the basis of
the appraisal value of the real estate under management. Furthermore, the evaluation method differs fromthat applied to the fair value in [5. Financial Instruments] in the Notes to Financial Statements.
The silent partnership invests in the real estate beneficial interest in trust of Hotel Francs.

30(Note 2)

5. Contractual amounts and fair values of specified transactions
The contractual amounts and fair values of specified transactions as of December 31, 2014 were as
follows:
Classification

Amounts of contract, etc.
(Millions of yen) (Note 1)

Transaction

Over 1 year
Transactions other thanmarket transactions

Interest rate swaps
Payable fixed rate / Receivable floating rate
Interest rate caps
Total

(Note 1)
(Note 2)60,60453,659Fair value(Millions of yen)
(Note 2)

(358)

9,413

9,413

4

70,017

63,073(353)

Contractual amounts, etc. of interest rate swaps and interest rate caps 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 real estate beneficial interest in trust held by JHR is included in “3. Details of property
assets, etc.” presented above. There were no other major specified assets that are considered to be
JHR’s main investments or are part of JHR’s portfolio as of December 31, 2014.
7. Asset holdings by country and region
There is nothing to be reported on countries and regions other than Japan.

31Capital Expenditures for Portfolio Properties
1. Planned capital expenditures (Note)
The following table shows major estimated capital expenditures for renovation work planned as of theend of the fiscal period under review for investment real estate properties held by JHR. Expenditures
are expected to total ¥1,760 million, which consists of capital expenditures of ¥1,696 million andrepair expenses of ¥63 million, for the following fiscal period.
Estimated construction costs(Millions of yen)

Property name
(Location)

PurposeDormy Inn Suidobashi(Bunkyo-ku, Tokyo)

Replacement of air
conditioning units

From April 2015
to June 2015

56

-

-

Dormy Inn Suidobashi(Bunkyo-ku, Tokyo)

Renewal in association with
re-branding

From April 2015
to June 2015

60

-

-

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of piping

From August 2015
to October 2015

90

-

-

Hilton Tokyo Bay(Urayasu-shi, Chiba)

Replacement of piping in the
kitchen and guest rooms

From February
2015 to December
2015

54

-

-

260

-

-

Scheduled period

Total amount

Total(Note)

Payment for Total amountthe periodpaid

For new construction and renewal work, estimated construction costs include that for buildings, annexed
installation, etc. as well as items classified as furniture and fixtures. The scheduled period of the aboveplanned 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 held by JHR, major construction work conducted during the
fiscal period under review that represents capital expenditures is as below. Capital expenditures forthe fiscal period under review totaled ¥1,306 million, and repair expenses that were accounted for as
expense in the fiscal period under review totaled ¥45 million. In aggregate, there was ¥1,352 millionof construction work.
Property name
(Location)

Purpose

PeriodConstruction costs(Millions of yen)

Namba Oriental Hotel(Chuo-ku, Osaka-shi, Osaka)

Work on emergency power generator

From October 2014
to November 2014

62

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

Renewal of guest rooms

From January 2014
to March 2014

332

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

Painting of outer wall

From January 2014
to March 2014

74

Total
(Note)

468

For new construction and renewal work, construction costs include those for buildings, annexed installation,etc. as well as those classified as furniture and fixtures.

32

3. Cash reserves for the long-term repairs and maintenance plan (reserve for repairs andmaintenance)
JHR accumulates cash reserves from cash flows for each period as detailed below to utilize formedium- to long-term future expenditures on large-scale repairs and maintenance projects based on along-term repairs and maintenance plan prepared for each property.
(Millions of yen)
11th period
Fiscal period(From April 1, 2011
to September 30,
2011)

12th period

14th period

15th period(From October 1, 2011 (From April 1, 2012 (From January 1, 2013 (From January 1, 2014
to March 31, 2012) to December 31, 2012) to December 31, 2013) to December 31, 2014)

Balance at beginning of
period311

369

Provision during the period

87

90

Decrease (reversal) during
the period

29

Amount carried forward

369(Note)

13th period

409

307

454

286

184

46

50

388

37

7

409

307

454

493

(Note)

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

Expenses and Liabilities
1. Details of expenses related to asset management, etc.
(Thousands of yen)
14th period(From January 1, 2013 to
December 31, 2013)(a) Asset management fees

(Note 1)

738,628

15th period(From January 1, 2014 toDecember 31, 2014)(Note 2)

809,152(b) Asset custody fees

23,967

14,134(c) Administrative service fees

73,40971,703(d) Officers’ compensation

9,600

9,600

(e) Other operating expenses

199,857

147,060

1,045,461

1,051,650

Total(Note 1) For asset management fees for the 14th fiscal period, besides the above amounts, there are ¥244,875 thousandof fees included in the acquisition value of investment properties, etc. in purchasing the properties and¥13,400 thousand included in gain or loss on sale of real estate from the transfer of the properties.
(Note 2) For asset management fees for the 15th fiscal period, besides the above amounts, there are ¥110,977 thousandof fees included in the acquisition value of investment properties, etc. in acquiring the properties and ¥3,500
thousand included in gain or loss on sale of real estate from property transfer.

33

2. Loans Payable
The status of loans by contractual agreement and by financial institution as of December 31, 2014 was
as follows:

Category

LenderBalance at Balance at
Average
beginning end of
Borrowinginterestof period
perioddate(Millions (Millions rate (%)(Note 1)of yen)of yen)Sumitomo Mitsui Banking
Corporation

389

–

675

–

760

–

844

–

Subtotal

2,669–

Short-term loans payable – Total

2,669

–

2,000

–

3,000

–

5,000

–

2,560

2,560

2,219

2,219

2,219

–

6,998

4,779

5,000

–

5,000

–

3,000

2,945

3,000

2,945

486

–

1,458

–

Resona Bank, Limited

1,945

–

Shinsei Bank, Limited

875

–

4,765

–

718

708

194

191

The Chiba Bank, Ltd.
Short-term Sompo Japan Nipponkoa
Insurance Inc.
loans
payableThe Nomura Trust andBanking Co., Ltd.

Resona Bank, Limited
Shinsei Bank, Limited

March 29,2013

February15, 2011

Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.

February15, 2011

The Norinchukin Bank
Subtotal
MetLife Insurance K.K.

February15, 2011

Subtotal
The Tokyo Star Bank,
LimitedMarch 24,2011

SubtotalLong-term
Sumitomo Mitsui Banking
loans
Corporation
payableSumitomo Mitsui Trust
Bank, Limited

March 31,2011

Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

March 31,
2011

The Tokyo Star Bank,
LimitedSubtotal
Sumitomo Mitsui Banking
Corporation

May 31,
2011

1,251

2,178

2,150

715

–

34

Repayment
methodUse

Remarks

0.77

Repayment of¥7,750 thousand
every 3 months,
March 31,
Unsecured,(Note 16)and lump-sum
unguaranteed
2014
repayment of theremaining
amount1.50

February Lump-sum
15, 2014 repayment(Note 17)

1.71

February Lump-sum
15, 2015 repayment(Note 17)

2.42

February Lump-sum
15, 2018 repayment(Note 17)

March 24, Lump-sum
2016
repayment(Note 17)

(Note 2)

1.91
(Note 3)

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteed

1.52

Repayment of¥12,250thousand every 3
March 31, months, andUnsecured,(Note 16)
unguaranteed2014
lump-sum
repayment of theremaining
amount1.71

Repayment of¥7,000 thousand
every 3 months,
September
Unsecured,(Note 16)and lump-sum
unguaranteed
30, 2015
repayment of theremaining
amount(Note 4)

1,266

Maturity
date

1.61

September Repayment of
30, 2014 ¥13,250(Note 16)

Unsecured,
unguaranteedCategory

LenderBalance at Balance at
Average
beginning end of
Borrowinginterestof period
period
date
rate
(%)
(Millions (Millions(Note 1)of yen)of yen)Sumitomo Mitsui Trust
Bank, Limited

240–

Resona Bank, Limited

1,095

–

Shinsei Bank, Limited

1,210

–

Subtotal

3,262–

Sumitomo Mitsui Banking March 26,
Corporation
2012

2,200

2,200

Subtotal

2,200

2,200

225

–

450

207

The Norinchukin Bank

450–

Subtotal

1,125

207

Sumitomo Mitsui Trust
Bank, Limited

960

960

960

960

The Nomura Trust andBanking Co., Ltd.

960

960

Subtotal

2,880

2,880

1,200

1,200

960

960

960

960

3,120

3,120

500

500

1,000

992

100

100

Subtotal

1,600

1,592

The Norinchukin Bank

2,100

–

2,100

2,100

Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.

Long-term
loans
payableResona Bank, Limited

March 26,2012

September
19, 2012

Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

September
19, 2012

The Tokyo Star Bank,
LimitedSubtotal
The Tokyo Star Bank,
LimitedHiroshima Bank, Ltd.

November15, 2012

Sumitomo Mitsui Banking
Corporation

Mizuho Bank, Ltd.
Sumitomo Mitsui Banking
Corporation

November15, 2012

Subtotal
Shinsei Bank, Limited
The Tokyo Star Bank,
LimitedNovember15, 2012

453

4,653

2,553

2,000

2,000

500

500

35

Repayment
methodUse

Remarks

thousand every 3months, andlump-sum
repayment of theremaining
amount1.97

March 26, Lump-sum
2016
repayment

1.56

Repayment of¥50,000
thousand every 3
March 26, months, andUnsecured,(Note 17)
unguaranteed2016
lump-sum
repayment of theremaining
amount1.11(Note 5)1.32
(Note 6)1.06
(Note 7)

1.21
(Note 8)453

Maturity
date

1.26(Note 9)(Note 17)

September Lump-sum
19, 2015 repayment(Note 18)

September Lump-sum
19, 2017 repayment(Note 18)

November Lump-sum
15, 2015 repayment(Note 16)

March 26, Lump-sum
2016
repayment(Note 16)

November Lump-sum
15, 2017 repayment(Note 16)

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteedCategory

LenderBalance at Balance at
Average
beginning end of
Borrowinginterestof period
period
date
rate
(%)
(Millions (Millions(Note 1)of yen)of yen)Sumitomo Mitsui Banking
Corporation
Subtotal

Sumitomo Mitsui Banking
Corporation

February28, 2013

Subtotal

Sumitomo Mitsui Trust
Bank, Limited

March 29,
2013

4,000

4,000

6,500

6,500

1,781

1,761

1,781

1,761

875

866

875

866

1,990

1,942

995

972

895

879

497

488

4,378

4,283

2,189

2,167

995

985

1,293

1,280

4,477

4,432

1,847

1,828

Sumitomo Mitsui Trust
Bank, Limited

972

962

Subtotal

2,820

2,791

500

500

Long-term
Subtotalloans
The Nomura Trust andpayableBanking Co., Ltd.
The Chiba Bank, Ltd.
Development Bank ofJapan Inc.

April 26,
2013

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

April 26,
2013

The Tokyo Star Bank,
LimitedSubtotal
Sumitomo Mitsui Banking
Corporation
September
30, 2013

Sumitomo Mitsui Banking
Corporation
October 31,
2013
Sumitomo Mitsui Trust
Bank, Limited

1,000

1,000

36

Maturity
date

Repayment
methodUse

Remarks

0.94

Repayment of¥1,625 thousand
every month, andFebruary
Unsecured,(Note 16)
lump-sumunguaranteed
29, 2016
repayment of theremaining
amount1.01

Repayment of¥2,250 thousand
every 3 months,
March 31,
Unsecured,(Note 16)and lump-sum
unguaranteed
2017
repayment of theremaining
amount0.91

Repayment of¥11,000
thousand every 3
April 26, months, andUnsecured,(Note 18)
unguaranteed2016
lump-sum
repayment of theremaining
amount1.11

Repayment of¥11,250thousand every 3
April 26, months, andUnsecured,(Note 18)
unguaranteed2018
lump-sum
repayment of theremaining
amountRepayment of¥7,250 thousand
every 3 months,
September
0.81
Unsecured,(Note 16)and lump-sum(Note 10) 30, 2018
unguaranteed
repayment of theremaining
amount0.81(Note 10)

September Lump-sum
30, 2018 repayment(Note 18)

Unsecured,
unguaranteedCategory

LenderBalance at Balance at
Average
beginning end of
Borrowinginterestof period
period
date
rate
(%)
(Millions (Millions(Note 1)of yen)of yen)Mizuho Bank, Ltd.

1,000

Shinsei Bank, Limited

500

500
3,000

Sumitomo Mitsui Banking
Corporation–

78

Resona Bank, Limited–

773

Shinsei Bank, Limited

–

726

–

89

–

698

The Chiba Bank, Ltd.

–

559

Sompo Japan Nipponkoa
Insurance Inc.

–

625

Long-term
Subtotalloans
Sumitomo Mitsui Banking
payableCorporation

–

3,549

–

648

–

2,516

–

2,516

Sumitomo Mitsui Trust
Bank, Limited

–

1,120

Subtotal–

6,800

Sumitomo Mitsui Banking
Corporation–

600

Mizuho Bank, Ltd.

–

1,200

Resona Bank, Limited–

803

Shinsei Bank, Limited–

720

Sumitomo Mitsui Trust
Bank, Limited–

600

The Bank of Fukuoka, Ltd. September
30, 2014
The Nomura Trust andBanking Co., Ltd.

–

1,000

–

500

Hiroshima Bank, Ltd.

–500

Sompo Japan Nipponkoa
Insurance Inc.

–

371

Development Bank ofJapan Inc.

–

500

–

6,794

–

800

–

1,600

–

1,100

Sumitomo Mitsui Trust
Bank, Limited
The Nomura Trust andBanking Co., Ltd.

Resona Bank, Limited
Shinsei Bank, Limited

March 31,2014

March 31,2014

Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Resona Bank, Limited

September
30, 2014

Repayment
methodUse

Remarks

1,000

3,000

Subtotal

Maturity
date

Repayment of¥19,000
thousand every 3
March 31, months, and
0.66
Unsecured,(Note 16)
(Note 11)
unguaranteed2018
lump-sum
repayment of theremaining
amount0.81(Note 12)0.71
(Note 13)

0.76

37

(Note 14)

March 31, Lump-sum
2021
repayment(Note 16)

September Lump-sum
30, 2019 repayment(Note 17)

September Lump-sum
30, 2020 repayment(Note 17)

Unsecured,
unguaranteed

Unsecured,
unguaranteed

Unsecured,
unguaranteedCategory

LenderBalance at Balance at
Average
beginning end of
Borrowinginterestof period
period
date
rate
(%)
(Millions (Millions(Note 1)of yen)of yen)

Shinsei Bank, Limited–

970

Sumitomo Mitsui Trust
Bank, Limited–

800

Development Bank ofJapan Inc.

–

500

The Tokyo Star Bank,
Limited–

762

Aozora Bank, Ltd.

–

350

–

6,882

–

600

–

1,200

–

850

Shinsei Bank, Limited–

750

Sumitomo Mitsui Trust
Bank, Limited–

600

Subtotal

–

4,000

–

1,000

–

1,000

Long-term loans payable – Total

69,61475,089Total loans payable

72,28475,089SubtotalLong-term
loans
Sumitomo Mitsui Banking
payableCorporation
Mizuho Bank, Ltd.
Resona Bank, Limited

Mitsubishi UFJ Trust andBanking Corporation

September
30, 2014

December30, 2014

Subtotal(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)0.81
(Note 15)

0.63

Maturity
date

Repayment
methodUse

September Lump-sum
30, 2021 repayment(Note 17)

December Lump-sum
30, 2020 repayment(Note 16)

Remarks

Unsecured,
unguaranteed

Unsecured,
unguaranteed

The average interest rate is a weighted average of interest rates during the period, rounded off to two
decimal places.
Under the interest rate swap contract entered as of October 10, 2012, the interest rate is substantially fixed
at 2.54600% per annum from February 15, 2013 through February 15, 2018.
Under the interest rate swap contract entered as of October 10, 2012, the interest rate is substantially fixed
at 2.01375% per annum from November 15, 2012 through March 24, 2016.
Under the interest rate swap contract entered as of October 10, 2012, the interest rate is substantially fixedat 1.80375% per annum from December 28, 2012 through September 30, 2015.
Under the interest rate swap contract entered as of October 10, 2012, the interest rate is substantially fixedat 1.20375% per annum from December 28, 2012 through September 19, 2015.
Under the interest rate swap contract entered as of October 10, 2012, the interest rate is substantially fixedat 1.47000% per annum from December 28, 2012 through September 19, 2017.
Under the interest rate swap contract entered as of December 13, 2012, the interest rate is substantially
fixed at 1.13800% per annum from February 28, 2013 through November 15, 2015.
Under the interest rate swap contract entered as of December 13, 2012, the interest rate is substantially
fixed at 1.29000% per annum from February 28, 2013 through March 26, 2016.
Under the interest rate swap contract entered as of December 13, 2012, the interest rate is substantially
fixed at 1.38000% per annum from February 28, 2013 through November 15, 2017.
Under the interest rate swap contract entered as of November 13, 2013, the interest rate is substantially
fixed at 0.98050% per annum from December 30, 2013 through September 30, 2018.
Under the interest rate swap contract entered as of March 27, 2014, the interest rate is substantially fixed at
0.72738% per annum from March 31, 2014 through March 31, 2018.
Under the interest rate swap contract entered as of March 27, 2014, the interest rate is substantially fixed at
1.15039% per annum from March 31, 2014 through March 31, 2021.

38

(Note 13)

Of these loans payable, the interest rate on the portion totaling ¥1,794 million is, in effect, fixed at
0.80225% for the period from September 30, 2014 through September 30, 2019 due to the execution of aninterest rate swap agreement on September 26, 2014. Moreover, the interest rate on the portion totaling¥5,000 million is projected to be, in effect, fixed at around 0.95% for the period from March 30, 2018
through September 30, 2019 due to the execution of an interest rate swap agreement on September 26,
2014.
Under the interest rate swap contract entered as of September 26, 2014, the interest rate is substantially
fixed at 0.91620% per annum from September 30, 2014 through September 30, 2020.
Under the interest rate swap contract entered as of September 26, 2014, the interest rate is substantially
fixed at 1.03900% per annum from December 31, 2014 through September 30, 2021.
The funds were appropriated for repayment of borrowings.
The funds were mainly appropriated for acquisition of the beneficial interest of real estate in trust,
repayment of borrowings and related expenses, etc.
The funds were mainly appropriated for acquisition of the beneficial interest of real estate in trust andrelated expenses, etc.
To present loans payable for each loan contract, ¥11,825 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)
(Note 15)
(Note 16)
(Note 17)
(Note 18)
(Note 19)

3. Investment corporation bonds
Status of investment corporation bonds as of December 31, 2014 was as follows:
Issuance
date

Balance at
beginningof period(Millionsof yen)Balance at
end ofperiod(Millionsof yen)Second unsecured
investment corporation
bonds

November26, 2013

2,500

2,500

Third unsecured investment
corporation bonds

March 19,
2014

–

Name

2,000

Interest
rate

(%)

0.89

0.92

Maturity
date

Repayment
methodNovember25, 2016

Lump-sum(Note 1)
repayment

March 19,2019

Lump-sum
repayment

Use

Remarks

Unsecured,
unguaranteed(Note 4)

Unsecured,(Note 2)

unguaranteed(Note 4)

Fourth unsecured investment
corporation bonds

December19, 2014

–

1,500

2,500

6,000

0.86

December17, 2021

Lump-sum
repayment

Unsecured,(Note 3)

unguaranteed(Note 4)

Total

(Note 1)
(Note 2)
(Note 3)(Note 4)

The funds were mainly appropriated for redemption of the first unsecured investment corporation bonds
and future acquisition of specified assets, etc.
The funds were appropriated to partly fund the repayment of existing borrowings.
The funds were mainly appropriated for repayment of borrowings and future acquisition of specified assets,etc.
A special pari passu clause among specified investment corporation bonds is attached to the bonds.

4. Short-term investment corporation bonds
Not applicable.

39

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

Property name

Sale

Acquisition
price
Acquisition(Millions of
date
yen)

Sale date(Note 1)Gain (loss)
Sale priceBook value
on sale(Millions of (Millions of(Millions of
yen)
yen)
yen)
(Note 1)
(Note 2)

Beneficial interest ofibis Styles Sapporo
real estate in trust

July 9, 2014

6,797

–

–

–

–

Beneficial interest of
Mercure Hotel Sapporo
real estate in trust

September
30, 2014

6,000

–

–

–

–

Beneficial interest of
Mercure Hotel Okinawa Naha
real estate in trust

September
30, 2014

3,000

–

–

–

–

October 31,
2014

595

–

–

–

–

–

–

January 24,
2014

700

683

0

–

16,392

–

700

683

0

Equity interest in
silent partnership

Equity interest in silent
partnership with G.K. Tourism
Japan No. 1 as business operator

Beneficial interest of
Dormy Inn Namba
real estate in trust

Total(Note 1)

(Note 2)Acquisition price and sale price indicate contracted amounts of the property in the purchase and saleagreement excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale ofsuch property.
“Gain (loss) on sale” shows the amount calculated by deducting the book value and other selling expenses
from the sale price.

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

Acquisition/sale

Acquisition/
sale priceAsset type

Property nameAppraisalvalue

Acquisition/(Millions of (Millions ofsale dateyen)yen)(Note 1)

(Note 2)

Date ofappraisal

Appraisal agency

Acquisition

Beneficial interestof real estate in
trust

ibis Styles Sapporo

July 9, 2014

6,797

7,080

December 31, Japan Real Estate
2014
Institute

Acquisition

Beneficial interestof real estate intrust

Mercure Hotel Sapporo

September
30, 2014

6,000

6,170

December 31, Japan Real Estate
2014
Institute

Acquisition

Beneficial interestof real estate intrust

Mercure Hotel Okinawa
Naha

September
30, 2014

3,000

3,220

December 31, Japan Real Estate
2014
Institute

Acquisition

Beneficial interestof real estate intrust

Dormy Inn Namba

January 24,
2014

700

1,090

June 30, 2013

(Note 1)The Tanizawa Sogo
Appraisal Co., Ltd.

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

40

(Note 2)

The above appraisals were made by applying the “Real Estate Appraisal Standards, Chapter 3: Valuation
for price of real estate for securitization.”(2) Transaction of securities

Acquisition/sale

Acquisition(Note 1)
(Note 2)Acquisition
price

Name of securities

Asset type

Equity interest in
silent partnership

Equity interest in silent
partnership with G.K.
Tourism Japan No. 1 asbusiness operator

Acquisition(Millions of
date
yen)

October 31,
2014

Survey valueof specified
asset(Millions ofyen)(Note 1)

(Note 2)595

729

Acquisition price indicates contracted amounts in the silent partnership agreement excluding related
expenses incurred on the investment in such interest.
The research on price, etc. of the above specified asset was conducted by KPMG AZSA LLC pursuant to
the “Survey on Prices, Etc. of Specified Assets of Investment Trusts and Investment Corporations”(Industry Committee Practical Guidance No. 23, The Japanese Institute of Certified Public Accountants).
The survey report was received by JHR.

(3) Other
For transactions made by JHR that require research on price, etc. pursuant to the provisions ofArticle 201 of the Investment Trusts Act, except for transactions described in “(1) Real estate
properties, etc.” above, the research was commissioned to KPMG AZSA LLC.
JHR has received from KPMG AZSA LLC a research report on six interest rate swap contracts
during the period from January 1, 2014 to December 31, 2014.
4. Transactions with interested parties, etc. (Note 1)(1) Transactions(Millions of yen)
Category

Total amountPrice, etc. (Note 2) (Note 3)
Acquisition price, etc.

Sale price, etc.

Real estate operating revenue

16,392700

12,760

Amount of purchasefrom related parties, etc.

Amount of sales to relatedparties, etc.

3,000 [18.3%]– [–%]

Amount of real estate
operating revenue from
related parties, etc.
6,997 [54.8%]

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

–

[–%]

– [–%]

5,627 [44.1%]

Kyoritsu Maintenance Co., Ltd.

–

[–%]

– [–%]

1,153 [ 9.0%]

GK Sapporo Hotel Holding

–

[–%]

– [–%]

216 [ 1.7%]

Tsubogawa GK (Note 4)

3,000 [18.3%]– [–%]

Total

3,000 [18.3%]– [–%](Note 1)–[–%]

6,997 [54.8%]

Interested parties are the Asset Management Company’s interested parties, etc. stipulated in Article 201,
paragraph 1 of the Investment Trusts Act (hereinafter referred to as “interested parties, etc.”). The amountsin “(1) Transactions” above and “(2) Amounts of fees paid, etc.” below include transactions with thoseinterested parties, etc. as well as sponsor-related parties stipulated in the Asset Management Company’s
company code for transactions with sponsor-related persons, which include 1. Interested parties, etc., 2.

41

(Note 2)(Note 3)(Note 4)The Asset Management Company’s shareholders, 3. Companies, etc. that take a 50% or more stake in ashareholder that holds 50% or more of the shares in the Asset Management Company, 4. Companies inwhich a shareholder of the Asset Management Company have a 50% or more stake, 5. Entity or persons
who ceased to fall under 1. or 4. within 3 months, and 6. Entity or persons who are deemed appropriate by
the compliance officer to be treated as sponsor-related persons in light of the company code fortransactions with sponsor-related persons and the purpose of these rules.
Acquisition price, etc. and sale price, etc. indicate contracted amounts of the property in the purchase andsale agreement excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or saleof such property.
The figures in brackets show the ratio of the amount to the total amount of purchase and sale amount, etc.
rounded off to one decimal place.
Tsubogawa GK does not fall under the category of interested parties, etc. stipulated in Article 201 of theInvestment Trusts Act and Article 123 of the Enforcement Order of the Investment Trusts Act. However, it
falls under the category of sponsor related party under the Code for Transaction with Sponsor Related Party,
an internal code of the asset management company. The RECAP group, to which the asset managementcompany’s parent company belongs, has silent partnership equity interests in the seller.

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

Outsourcing
expenses (Note)(Note)

Total amountsof fees paid,
etc.
(A)
115,979

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

Amount ofpayment (B)5,760

Ratio to total
amountB/A (%)
5.0

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

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

42II. Financial Information
1. Assets, liabilities, equity, and profit and loss
For the status of assets, liabilities, equity, and profit and loss, please refer to “BALANCE SHEETS,”“STATEMENTS OF INCOME,” “STATEMENTS OF CHANGES IN NET ASSETS,”“STATEMENTS OF CASH FLOWS” and “NOTES TO FINANCIAL STATEMENTS.”
2. Changes in calculation method of depreciation
Not applicable.
3. Changes in evaluation method of real estate properties
Not applicable.
4. Beneficiary certificates of investment trusts set up by JHR
Not applicable.

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

Item

Summary

August 20, 2014

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

Due to the issuance of new investment units, generaladministration for offering the investment units was entrusted
to SMBC Nikko Securities Inc. and Daiwa Securities Co.,
Ltd.

Comprehensive resolution on
the issuance of investment
November 19, 2014 corporation bonds andentrustment of accompanying
administration (Note 2)

A comprehensive resolution was made on the issuance ofinvestment corporation bonds with the issuance period
between November 19, 2014 and September 10, 2015 withthe total amount issued of up to ¥50.0 billion, and the decision
on matters regarding the issuance of investment corporation
bonds, including entrustment of the administration, was left tothe discretion of the Executive Director.

(Note 1) On March 19, 2014, the third unsecured investment corporation bonds were issued. General administration on
the third unsecured investment corporation bonds was entrusted to Sumitomo Mitsui Banking Corporation.
Furthermore, the comprehensive resolution and entrustment of accompanying administration were approvedby the Board of Directors’ meeting held on September 3, 2014.
(Note 2) On December 19, 2014, the fourth unsecured investment corporation bonds were issued. Generaladministration on the fourth unsecured investment corporation bonds was entrusted to Sumitomo Mitsui Trust
Bank, Limited.

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

43

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
December 31, 2014 and 2013
Thousands of yen
As ofDecember 31,
2014

As of
December 31,
2013¥

7,539,897
6,884,877
1,029,379
381,639428
3715,836,259¥

155,796
1,041,932
67,291,439
736,632
469,007
129,339
89,055,831
126
158,880,106(8,143,763)
150,736,342

129,562
748,924
57,994,577
654,368
243,405
133,069
82,502,566
14,573
142,421,049(5,891,461)
136,529,587

Intangible assets:
SoftwareLeasehold rights in trust (Note 4)
Other intangible assets
Total intangible assets

57,421
19,774,039
10,968
19,842,429

38,407
19,774,039
11,647
19,824,094

Other assets:
Investment securities (Note 5)
Security deposits
Leasehold and security deposits in trust
Long-term prepaid expenses
Derivative assets (Note 16)
Investment unit issuance costs
Investment corporation bond issuance costs
Total other assets

602,725
12,520158,323
803,747
4,834
55,62838,923
1,676,703

12,500158,323445,294
35,75962,355
17,499731,733¥188,091,734¥170,727,927

ASSETS
Current assets:
Cash and deposits (Notes 3, 4 and 5)
Cash and deposits in trust (Notes 3 and 5)
Operating accounts receivable
Prepaid expenses
Income taxes receivable
Other current assets
Total current assets
Property and equipment, at cost (Notes 4, 12, 15, 17, 18 and 19):
Machinery and equipment
Tools, furniture and fixtures
Buildings in trust (Note 11)
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Land in trust
Construction in progress in trust
Less: Accumulated depreciation
Net property and equipment

Total assets

6,356,081
6,197,207
753,808
329,729405
5,278
13,642,511(Continued)

44

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
December 31, 2014 and 2013
Thousands of yen

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

As ofDecember 31,
2014

As of
December 31,
2013

¥

¥

285,938
11,825,132
400,390
1,210
290,174
651,652
10,7709,384
13,474,653

238,9542,669,150
13,701,860
46,197398,909
1,210
113,717634,692
7,208
74,895375
17,887,171

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

6,000,000
63,264,603
2,041,916
2,608,901
358,752
74,274,172

2,500,000
55,913,055
2,010,520
2,615,148
44,7891,028
63,084,541

Total liabilities

87,748,826

80,971,713

59,024,923

48,845,323

21,746,398

21,746,398

14,168,614
14,168,614
5,776,116
41,691,129
100,716,052

16,017,484
16,017,484
3,235,030
40,998,912
89,844,236(373,144)(373,144)
100,342,908(88,022)(88,022)89,756,213¥188,091,734¥170,727,927

Net assets (Note 8):
Unitholders’ equity:
Unitholders’ capital
Units authorized: 20,000,000 units
Units issued and outstanding; 2,791,281 units and 2,621,281 units asof December 31, 2014 and 2013, respectively
Surplus:Capital surplus
Voluntary reserve:
Dividend reserve
Total voluntary reserve
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Valuation and translation adjustments:
Deferred gains (losses) on hedges (Note 16)
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

See notes to financial statements.
45

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Income
For the years ended December 31, 2014 and December 31, 2013
Thousands of yen
For the year
For the year
ended
ended
December 31, December 31,
2014
2013
Operating revenue:
Real estate operating revenue (Note 9)
Other real estate operating revenue (Note 9)
Gain on sale of real estate properties (Note 10)
Total operating revenue¥ 12,510,628
249,564
13
12,760,205¥ 11,277,162
195,761
11,472,924

Operating expenses:
Real estate operating costs (Note 9)
Loss on sale of real estate properties (Note 10)
Asset management fee
Asset custody fee
Administrative service fee
Directors’ compensation
Other operating expenses
Total operating expenses

4,163,015
809,152
14,13471,7039,600
147,060
5,214,666

3,870,583
1,189,084
738,628
23,96773,4099,600
199,857
6,105,130

Operating income

7,545,539

5,367,794

2,111
1,268
958
447
4,785

1,996
1,744
2,329
806
35,63742,514Non-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 (Note 16)
Advanced depreciation deduction of property and equipment (Note 11)
Impairment loss (Notes 12 and 18)
Other
Total non-operating expenses

1,029,964
37,110599,282
8,677
35,77463,35767
1,774,234

1,053,352
43,888491,126580
36,437
8,632
24,921
516,77945
2,175,763

Income before income taxes

5,776,090

3,234,544

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

1,210
1,210

1,210
1,210

Non-operating income:Interest income
Gain on forfeiture of unclaimed dividends
Gain on insurance claims
Interest on tax refunds
Government subsidy income
Total non-operating income¥

Net income

See notes to financial statements.
46

5,774,880¥

3,233,334

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Changes in Net Assets
For the years ended December 31, 2014 and December 31, 2013

Balance, January 1, 2013
Changes of items during the year:
Issuance of new investment units
Addition to dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear
Balance, December 31, 2013
Changes of items during the year:
Issuance of new investment units
Decrease of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear
Balance, December 31, 2014¥¥

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

Unitholders’capitalCapital surplus

28,260,193

21,746,398--

20,585,130--

16,017,484
-

-

-

-

20,585,130
48,845,323¥ 21,746,398

10,179,600--(1,848,870)-(1,848,870)-

1,848,870(5,082,663)
5,774,880(5,082,663)
5,774,880

10,179,600(5,082,663)
5,774,880

-

-

-

-

-

-

-

10,179,600
59,024,923¥ 21,746,398¥¥

Balance, December 31, 2014¥

19,031,977

40,778,375

69,038,569

16,017,484-(16,017,484)(3,012,797)
3,233,334(3,012,797)
3,233,334

20,585,130(3,012,797)
3,233,334

-

-

-

-

Total net assets(28,279)

69,010,289--

20,585,130(3,012,797)
3,233,334(59,743)(59,743)(59,743)¥(59,743)(88,022)

20,745,923
89,756,213

¥

-

-

10,179,600(5,082,663)
5,774,880(285,121)(285,121)(285,121)(285,121)(373,144)

10,586,694
100,342,908(285,121)(373,144)¥¥(1,848,870)(1,848,870)
14,168,614 ¥ 14,168,614 ¥(28,279)(59,743)(88,022)¥

Total unitholders’equity16,017,484
16,017,484
16,017,484 ¥ 16,017,484

Thousands of yen
Valuation and translation adjustments
Deferred gains
Total valuation(losses) on
and translation
hedgesadjustments
Balance, January 1, 2013
Changes of items during the year:
Issuance of new investment units
Addition to dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear
Balance, December 31, 2013
Changes of items during the year:
Issuance of new investment units
Decrease of dividend reserve
Dividends paid
Net income
Net changes of items other thanunitholders’ equity
Total changes of items during theyear

Total surplus

See notes to financial statements.

47(15,796,947)
3,235,030

2,541,086
5,776,116¥¥

220,536
40,998,912

692,216
41,691,129¥¥

20,805,666
89,844,236

10,871,816
100,716,052

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2014 and December 31, 2013
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2014
2013
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on disposal of property and equipment
Loss on derivative instruments
Government subsidy income
Advanced depreciation deduction of property and equipment
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Impairment loss
Decrease in property and equipment in trust 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 accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in consumption taxes payable
Increase (decrease) in advances received
Increase (decrease) in deposits received
Other – net
SubtotalInterest received
Interest paid
Interest received on tax refunds
Income taxes – refunded (paid)
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investment securities
Purchase of property and equipment in trust
Purchase of property and equipment
Purchase of intangible assets
Proceeds from security deposits in trust
Proceeds from tenant leasehold and security deposits in trust
Reimbursements of tenant leasehold and security deposits in trust
Proceeds from tenant leasehold and security deposits
Government subsidy received
Net cash used in investing activities¥

5,776,090
2,400,444
4,643
63,357
8,677
35,774
683,986(2,111)
1,067,075(447)(275,570)(51,910)(358,452)(11,682)(46,197)
60,922
176,457
16,960(65,510)(4,307)
9,478,198
2,111(1,126,516)
447(1,233)8,353,007(602,725)(16,924,492)(317,551)(14,290)102,021(72,900)
1,396¥ (17,828,541)¥

3,234,544
2,297,350
8,005
8,632
(35,637)
24,921580
36,437516,779
3,763,543(1,996)
1,097,240(806)(47,846)(4,882)(17,609)49,673
46,16165,035(19,208)(3,642)
63,160(7,285)
11,073,151
1,996(1,084,141)806
92
9,991,905(33,875,735)(208,522)
10,000759,374(70,521)35,637¥ (33,349,766)(Continued)

48

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2014 and December 31, 2013
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2014
2013
Cash flows from financing activities:
Proceeds from short-term loans payable
Repayments of short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from investment corporation bonds
Repayments of investment corporation bondProceeds from issuance of investment units
Payments for investment corporation bond issuance costs
Payments for derivative instruments
Dividends paid
Net cash provided by financing activities¥

6,800,000(9,469,150)
29,082,000(23,607,180)
3,500,000
10,150,551(30,101)(5,079,101)
11,347,018¥

2,949,980(4,122,810)
17,407,175(7,170,515)
2,500,000(2,000,000)
20,541,446(18,080)(86,595)(3,011,748)
26,988,851

Net increase in cash and cash equivalents

1,871,484

3,630,990

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

12,553,289

8,922,299¥

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

See notes to financial statements.

49

14,424,774¥

12,553,289

JAPAN HOTEL REIT INVESTMENT CORPORATION
Notes to Financial Statements
For the years ended December 31, 2014 and December 31, 2013
1. 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.
Focusing on hotels, which are important and profitable parts of the social infrastructure, JHR primarily invests inreal estate assets that are wholly or partially used as hotels and real estate-related assets that are in themselves realestate equivalents pertaining to such real estate assets or that are backed by such real estate or real estate
equivalents.
In the nine months ended December 31, 2012, the former NHF, as the surviving entity, merged with Japan Hoteland Resort, Inc. (the “former JHR”), as the dissolved entity, with an effective date of April 1, 2012 (the “merger”).
In conjunction with the merger, the former NHF changed its name to Japan Hotel REIT Investment Corporation,
marking a new start as the only REIT specializing in hotel properties in Japan.
Through the merger, nine properties held by the former JHR were succeeded by JHR. As a result, as of theeffective date of the merger, JHR’s property portfolio expanded to 28 properties. As of December 31, 2014, JHR
has ownership interests in 30 properties.

2. Summary of Significant Accounting Policies
a. 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 withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as tothe application and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been reformatted and translated into English (with certain
reclassifications and expanded descriptions) from the financial statements of JHR prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese
language financial statements, but not 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 orentities.
b. Cash and cash equivalents

Cash and cash equivalents in the statements of cash flows consist of cash on hand, cash in trust accounts,
bank deposit and trust deposit, which can be withdrawn at any time, and short-term investments with amaturity of three months or less when purchased, which can easily be converted to cash and subject tominimal risk of change in value.
c. Securities
Investment securities without market value held as available-for-sale are stated at cost being determined by themoving average method. Equity interest in silent partnership is stated at its net asset value corresponding to theequity interest in the silent partnership.
d. Property and equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using thestraight-line method over their estimated useful lives. The useful lives of major property and equipment
components are as follows:
Machinery and equipment
Tools, furniture and fixtures
Buildings in trust

2 to 12 years
2 to 20 years
2 to 65 years
50Structures in trust
Machinery and equipment in trust
Tools, furniture and equipment in trust

2 to 65 years
10 to 35 years
2 to 29 years

e. Intangible assets
Intangible assets are amortized using the straight-line method.
f. Long-term prepaid expenses
Long-term prepaid expenses are amortized using the straight-line method.
g. Investment unit issuance costs
Investment unit issuance costs are amortized using the straight-line method over three years.
The issuance of new investment units through a public offering on September 9, 2014 was consummated under anunderwriting agreement in which an underwriting securities company 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 the underwriters were compensated by theunderwriting spread, which amounted to ¥345,440 thousand for the year ended December 31, 2014 and ¥721,650
thousand for the year ended December 31, 2013, representing the difference between the issue price and the issue
value of all new investment units issued.
h. Investment corporation bond issuance costs
Investment corporation bond issuance costs are amortized using the interest method over the respective term of thebond.
i. Income taxes
Deferred tax assets and liabilities are recognized in the financial statements with respect to the differences between
the financial reporting and tax bases of the assets and liabilities, and were measured using the enacted tax rates andlaws which will be in effect in the years when the temporary differences are expected to be recovered or settled.
j. Taxes on property and equipment
Taxes imposed on properties such as property taxes, city planning taxes, and depreciable asset taxes are allocatedto the respective reporting period and expensed as “Real estate operating costs.” Cash paid for property taxes andcity planning taxes to the transferor of real properties at acquisition is not recorded as “Real estate operating costs”
but capitalized as part of the acquisition cost of the relevant property. The amount of such taxes capitalized in theacquisition cost of real properties was ¥36,674 thousand for the year ended December 31, 2014 and ¥104,803
thousand for the year ended December 31, 2013.
k. Derivatives and hedging activities
JHR enters into certain derivative transactions in accordance with its financial policy in order to manage risks,
which is provided in the Articles of Incorporation, mainly arising from adverse fluctuations in interest rates onloans payable. Derivative financial instruments are carried at fair value with changes in the unrealized gain or loss
charged or credited to operations, except for those which meet the criteria for hedge accounting in which theunrealized gain or loss is deferred as a component of net assets.
JHR evaluates hedge effectiveness by comparing the cumulative changes in cash flow of hedging instruments andthe hedged items and assessing the ratio between the changes.
l. Accounting treatment of beneficiary interests in trust assets including real estate
For trust beneficiary interests in real estate, all assets and liabilities held in trust accounts as well as all income
generated and expenses incurred from assets in trust are recorded separately in the accompanying balance sheet
and income statement accounts.
m. Consumption taxes
Consumption taxes are excluded from the transaction amounts. However, non-deductible consumption taxes onproperty and equipment are included in the acquisition cost of the respective assets.
n. Rounding of amounts presented in the financial statements
The amounts are rounded down to the nearest thousands or millions in the accompanying financial statements.
51

3. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2014 and 2013 in the statements of cash flows consisted of thefollowing:Thousands of yen
As of December
As of December
31, 2014
31, 2013¥
7,539,897¥
6,356,081
6,884,877
6,197,207¥
14,424,774¥
12,553,289

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

4. Pledged Assets and Secured Liabilities
The carrying amount of assets pledged as collateral and the secured liabilities as of December 31, 2014 and 2013
were as follows:
Thousands of yen
As of December
As of December
31, 2014
31, 2013
Assets pledged:
Cash and deposits
Machinery and equipment
Tools, furniture and fixtures
Buildings in trust
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Land in trust
Construction in progress in trust
Leasehold rights in trust
Total

¥

¥

Secured liabilities:
Short-term loans payable
Current portion of long-term loans payable
Long-term loans payable
Total

¥

¥

-

¥

-

¥

¥

¥

6,328,424
101,572
374,761
52,609,359
579,472
205,494
71,56482,502,566
14,573
19,774,039
162,561,828

2,669,150
13,701,860
55,913,055
72,284,065

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 makeinvestments in specified assets. JHR does not utilize surplus funds to invest in financial instruments except for
short-term deposits and other equivalent short-term financial instruments. JHR may enter into derivativetransactions in order to hedge against interest rate risk, but not for speculative trading purposes.
(2) Details of financial instruments, their risks, and risk management system
Investment securities, which represent an investment in a silent partnership, are exposed to credit risks of theissuer and risks of fluctuation of real estate property value, etc. JHR manages these risks by periodicallymeasuring the actual market values of such properties and the financial conditions of the issuer.
The floating rate loans payable are exposed to risks of interest rate fluctuations. In order to mitigate interest
rate risk, JHR may enter into derivative transactions, if necessary.

52

Derivative transactions are conducted principally in accordance with rules prescribed by JHR and risk
management rules applied by the asset management company. Derivative transactions are arranged by thefinance section of the asset management company by using financial institutions with high credit ratings
through approval and resolution by authorized personnel and a meeting committee structure set forth in its
decision-making standards and resolution of JHR’s board of directors.
Loans payable are exposed to liquidity risks. The finance department of the asset management company
prepares and updates projections and actual cash flows on a monthly basis to manage liquidity risks andmonitor compliance with restrictive covenants set forth in the loan agreements. JHR manages liquidity risks bymanaging the ratio of short-term and long-term loans payable considering the current financial environment
through approval and resolution by authorized personnel and meeting committee structure in the asset
management company and resolution of JHR’s board of directors.
(3) Supplemental explanation regarding fair value of financial instruments
The carrying amount of derivative transactions described in “5.b. Fair values of financial instruments” does notconsider market risk related to derivative transactions.
b. Fair Value of Financial Instruments
Carrying amounts of financial instruments on the balance sheets, their fair values, and the differences as ofDecember 31, 2014 and 2013 were as follows. Financial instruments whose fair values are considered extremely
difficult to measure are not included in the table. See Note (2) below.

(i) Cash and deposits(ii) Cash and deposits in trust
Total(iv) Current portion of long-term loans payable(v) Investment corporation bonds(vi) Long-term loans payable
Total

Thousands of yen
As of December 31, 2014
Carrying amount
Fair value
Difference¥
7,539,897¥
7,539,897¥
6,884,877
6,884,877¥
14,424,774¥
14,424,774
¥
¥

¥

¥

11,825,132
6,000,000
63,264,603
81,089,735(vii) Derivative transactions (*)¥(353,917)(i) Cash and deposits(ii) Cash and deposits in trust
Total

Thousands of yen
As of December 31, 2013
Carrying amount
Fair value
Difference¥
6,356,081¥
6,356,081¥
6,197,207
6,197,207¥
12,553,289¥
12,553,289¥(iii) Short-term loans payable(iv) Current portion of long-term loans payable(v) Investment corporation bond(vi) Long-term loans payable
Total

¥

(vii) Derivative transactions (*)¥¥

11,825,132
6,029,450
63,264,603
81,119,185¥

29,45029,450¥(353,917)

¥

-

¥

¥

2,669,150
13,701,860
2,500,000
55,913,055
74,784,065¥(9,030)¥-¥2,669,150
13,701,860
2,500,250
55,913,055
74,784,315

¥

250
250

¥

(9,030)¥-(*) Receivables and payables arising from derivative transactions are presented on a net basis and amounts in parenthesis denote net payables.

53-

Notes:(1) Methods to measure fair value of financial instruments(i) Cash and deposits, (ii) Cash and deposits in trust, (iii) Short-term loans payable
The carrying value is deemed to approximate the fair value since the instruments are scheduled to be settled ina short period of time.
(iv) Current portion of long-term loans payable, (vi) Long-term loans payable
The carrying value is deemed to approximate the fair value since the interest rate on long-term loans payable
are floating interest rates which are revised periodically to reflect market interest rates.
(v) Investment corporation bonds
The fair value of investment corporation bonds is measured based on the market price.
(vii) Derivative transactions
The information on the fair value of derivative transactions is presented in Note 16.
(2) Information on financial instruments whose fair values are considered extremely difficult to measure as ofDecember 31, 2014 and 2013 was as follows:
Thousands of yen
As of December
As of December
31, 2014
31, 2013
Carrying amount¥602,725¥
2,041,916
2,010,520
2,608,901
2,615,148¥
5,253,542¥
4,625,668

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

Investment securities
Investment securities (equity investment in silent partnership) are not subject to fair value disclosure because
they have no market price and their fair values are considered extremely difficult to measure.
Tenant leasehold and security deposits / Tenant leasehold and security deposits in trust
Furthermore, tenant leasehold and security deposits (in trust) are not subject to fair value disclosure because
they have no market price and their actual deposit periods from a tenant’s move-in to move-out are notestimable, thus making a reasonable estimate of future cash flows difficult.
(3) Redemption schedule for monetary claims as of December 31, 2014 and 2013:

As of December 31, 2014
Cash and deposits
Cash and deposits in trust
Total

As of December 31, 2013
Cash and deposits
Cash and deposits in trust
Total

Due within
one year¥ 7,539,897
6,884,877¥14,424,774

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¥ 6,356,081
6,197,207¥12,553,289

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
¥
¥
-

54

(4) Schedule for repayment of loans payable and redemption of investment corporation bonds as of December 31,
2014 and 2013.

As of December 31, 2014
Current portion of long-termloans payable
Investment corporation bonds
Long-term loans payable
Total

As of December 31, 2013
Short-term loan payable
Current portion of long-termloans payable
Investment corporation bondLong-term loans payable
Total

Due within
one year

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 fiveyears

Due after
five years

¥

¥

¥

¥

¥11,825,132¥11,825,132

2,500,000
13,847,603¥16,347,603

10,618,250¥10,618,250

13,322,750¥13,322,750

2,000,000
6,794,000¥ 8,794,000

1,500,000
18,682,000¥20,182,000

Due within
one year¥ 2,669,150

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¥-

13,701,860¥16,371,010

14,275,430¥14,275,430

2,500,000
16,093,625¥18,593,625

15,001,750¥15,001,750

-

55

¥

10,542,250¥10,542,250¥

6. Short-Term and Long-Term Loans Payable
Short-term and long-term loans payable as ofDecember 31, 2014 and 2013 consisted of thefollowing:
As of December
31, 2014
Maturity date
Short-term loan payable:
Unsecured loan, payable ¥7,750 thousand quarterly andthe remaining balance in a lump-sum at maturity
Sub-total
Long-term loans payable:
Unsecured loan, payable in a lump-sum at maturity
Unsecured loan, payable in a lump-sum at maturity
Unsecured loan, payable in a lump-sum at maturity (*2)
Unsecured loan, payable in a lump-sum at maturity (*3)
Unsecured loan, payable ¥12,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable ¥7,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*4)
Unsecured loan, payable ¥13,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable in a lump-sum at maturity
Unsecured loan, payable ¥50,000 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable in a lump-sum at maturity (*5)
Unsecured loan, payable in a lump-sum at maturity (*6)
Unsecured loan, payable in a lump-sum at maturity (*7)
Unsecured loan, payable in a lump-sum at maturity (*8)
Unsecured loan, payable in a lump-sum at maturity (*9)
Unsecured loan, payable ¥1,625 thousand monthly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable ¥2,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable ¥11,000 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable ¥11,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
Unsecured loan, payable ¥7,250 thousand quarterly andthe remaining balance in a lump-sum at maturity (*10)
Unsecured loan, payable in a lump-sum at maturity (*10)
Unsecured loan, payable ¥19,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*11)
Unsecured loan, payable in a lump-sum at maturity (*12)
Unsecured loan, payable in a lump-sum at maturity (*13)
Unsecured loan, payable in a lump-sum at maturity (*14)
Unsecured loan, payable in a lump-sum at maturity (*15)
Unsecured loan, payable in a lump-sum at maturity

March 31, 2014

Amount¥As of December
31, 2013
Amount-0.77%

February 15, 2014
February 15, 2015
February 15, 2018
March 24, 2016

4,779
2,945

1.50%
1.71%
2.42%
1.91%

5,000
6,998
5,000
3,000

March 31, 2014

-

1.52%

4,765

September 30, 2015

2,150

1.71%

2,178

September 30, 2014
March 26, 2016

2,200

1.61%
1.97%

3,262
2,200

March 26, 2016
September 19, 2015
September 19, 2017
November 15, 2015
March 26, 2016
November 15, 2017

207
2,880
3,120
1,592
2,553
6,500

1.56%
1.11%
1.32%
1.06%
1.21%
1.26%

1,125
2,880
3,120
1,600
4,653
6,500

February 29, 2016

1,761

0.94%

1,781

March 31, 2017

866

1.01%

875

April 26, 2016

4,283

0.91%

4,378

April 26, 2018

4,432

1.11%

4,477

September 30, 2018
September 30, 2018

2,791
3,000

0.81%
0.81%

2,820
3,000

March 31, 2018
March 31, 2021
September 30, 2019
September 30, 2020
September 30, 2021
December 30, 2020

3,549
6,800
6,794
6,882
4,000
1,000
75,08975,089

0.66%
0.81%
0.71%
0.76%
0.81%
0.63%

69,61472,284Sub-total
Total of short-term and long-term loans payable

Millions of yen
For the year
ended December
31, 2014
Average Interest
rate (*1)

¥

¥

¥

2,669
2,669

Notes:(*1) The average interest rate represents the weighted average rate during the period based on the number of days
and outstanding balance of the loans payable. The interest rate is rounded to the nearest second decimal place.
(*2) The interest rate for this loan payable is, in effect, fixed at 2.54600% for the period from February 15, 2013
through February 15, 2018 due to the execution of an interest rate swap agreement on October 10, 2012.
(*3) The interest rate for this loan payable is, in effect, fixed at 2.01375% for the period from November 15, 2012
through March 24, 2016 due to the execution of an interest rate swap agreement on October 10, 2012.
(*4) The interest rate for this loan payable is, in effect, fixed at 1.80375% for the period from December 28, 2012
through September 30, 2015 due to the execution of an interest rate swap agreement on October 10, 2012.
56

(*5) The interest rate for this loan payable is, in effect, fixed at 1.20375% for the period from December 28, 2012
through September 19, 2015 due to the execution of an interest rate swap agreement on October 10, 2012.
(*6) The interest rate for this loan payable is, in effect, fixed at 1.47000% for the period from December 28, 2012
through September 19, 2017 due to the execution of an interest rate swap agreement on October 10, 2012.
(*7) The interest rate for this loan payable is, in effect, fixed at 1.13800% for the period from February 28, 2013
through November 15, 2015 due to the execution of an interest rate swap agreement on December 13, 2012.
(*8) The interest rate for this loan payable is, in effect, fixed at 1.29000% for the period from February 28, 2013
through March 26, 2016 due to the execution of an interest rate swap agreement on December 13, 2012.
(*9) The interest rate for this loan payable is, in effect, fixed at 1.38000% for the period from February 28, 2013
through November 15, 2017 due to the execution of an interest rate swap agreement on December 13, 2012.
(*10) The interest rate for this loan payable is, in effect, fixed at 0.98050% for the period from December 30, 2013
through September 30, 2018 due to the execution of an interest rate swap agreement on November 13, 2013.
(*11) The interest rate for this loan payable is, in effect, fixed at 0.72738% for the period from March 31, 2014
through March 31, 2018 due to the execution of an interest rate swap agreement on March 27, 2014.
(*12) The interest rate for this loan payable is, in effect, fixed at 1.15039% for the period from March 31, 2014
through March 31, 2021 due to the execution of an interest rate swap agreement on March 27, 2014.
(*13) Of these loans payable, the interest rate on the portion totaling ¥1,794 million is, in effect, fixed at 0.80225%
for the period from September 30, 2014 through September 30, 2019 due to the execution of an interest rate swap
agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000 million is projected tobe, in effect, fixed at around 0.95% for the period from March 30, 2018 through September 30, 2019 due to the
execution of an interest rate swap agreement on September 26, 2014.
(*14) The interest rate for this loan payable is, in effect, fixed at 0.91620% for the period from September 30,
2014 through September 30, 2020 due to the execution of an interest rate swap agreement on September 26, 2014.
(*15) The interest rate for this loan payable is, in effect, fixed at 1.03900% for the period from December 31, 2014
through September 30, 2021 due to the execution of an interest rate swap agreement on September 26, 2014.

The annual maturities of long-term loan payable as of December 31, 2014 were as follows:
Years ending
December 31
2015
2016
2017
2018
2019
2020 and thereafter
Total

¥

¥

Millionsof yen11,825
13,847
10,61813,322
6,794
18,68275,08957

7. Investment Corporation Bonds
Investment corporation bonds as of December 31, 2014 and 2013 consisted of the following:
Millions of yen
As of
As of
December 31,
December 31,
2014
2013
Unsecured investment corporation bond at interest rate of 0.89%, due on
November 25, 2016
Unsecured investment corporation bond at interest rate of 0.92%, due on
March 19, 2019
Unsecured investment corporation bond at interest rate of 0.86%, due on
December 17, 2021
Total

¥

2,500

¥

2,000

¥

1,500
6,000

-

¥

The annual maturities of the investment corporation bonds as of December 31, 2014 were as follows:
Years ending
December 31
2015
2016
2017
2018
2019
2020 and thereafter
Total

Millionsof yen
¥

2,500
2,000
1,500
6,000

¥

8. Net Assets
JHR maintains at least ¥50,000 thousand as the minimum net assets as required by the Investment Trust Act.

58

2,500

2,500

9. Real Estate Operating Revenue and Costs
The components of “Real estate operating revenue” and “Real estate operating costs” for the years ended
December 31, 2014 and December 31, 2013 were as follows:
Thousands of yen
For the year
For the year
ended December
ended December
31, 2014
31, 2013
Operating revenue:
Real estate operating revenue:
Fixed rent
Variable rent
Income from management contract
Sub-total
Other real estate operating revenue:
Parking lots
Other incidental revenue
Utilities
Other
Sub-total
Total operating revenue
Real estate operating costs:
Land lease and other rent expenses
Property taxes
Outsourcing expenses (*1)
Nonlife insurance
Depreciation and amortization
Loss on disposal of property and equipment
Repairs
Utilities
Trust fees
Other
Total real estate operating costs
Net real estate operating income¥¥

8,817,424
2,739,966
953,237
12,510,628¥

8,465,465
2,370,041
441,655
11,277,162

61,735
26,112
133,458
28,258249,564
12,760,192

56,87918,937102,762
17,182
195,761
11,472,924

463,124
835,162
197,668
26,4802,400,444
4,643
45,507
132,826
44,901
12,254
4,163,015
8,597,176

474,954721,254
147,574
25,906
2,297,350
8,005
40,804
103,782
42,7858,165
3,870,583
7,602,340¥

Note:(*1) Outsourcing expenses include management contract fees of ¥81,689 thousand for the year ended December
31, 2014 and ¥44,477 thousand for the year ended December 31, 2013.

59

10. Gain and Loss on Sale of Real Estate Properties
The components of “Gain on sale of real estate properties” and “Loss on sale of real estate properties” for theyears ended December 31, 2014 and December 31, 2013 were as follows:

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

Thousands of yen
For the year ended
For the year ended
December 31, 2014
December 31, 2013
Hotel Vista
Pearl Hotel
Dormy Inn Namba
Hashimoto
Kayabacho¥
700,000¥
380,000¥ 2,300,000
683,986
593,174
3,170,368
16,00010,36095,180¥13¥(223,535) ¥(965,549)

11. Advanced Depreciation Deduction of Property and Equipment
The advanced depreciation deduction of property and equipment for the years ended December 31, 2014 andDecember 31, 2013 represents the amounts deducted from acquisition costs for the property and equipment due togovernment subsidies received:
Thousands of yen
For the year
For the year
ended December
ended December
31, 2014
31, 2013¥
24,921 ¥24,921

Buildings in trust

12. Impairment LossJHR identified groups of assets based on each real estate property, which were individually reviewed for
impairment. The recoverable amounts were measured at the net sale price. The net sale price is calculated as thesale price, which is based on an appraisal made by a licensed real estate appraiser, less estimated selling costs.
<For the year ended December 31, 2014>
Not applicable.
<For the year ended December 31, 2013>
JHR recorded an impairment loss for the following asset groups for the year ended December 31, 2013:
Thousands of yen

Dormy Inn Namba

Purpose of use

Location

Hotel

Osaka-shi,
Osaka

Category
Land in trust
Buildings and other property
and equipment in trust¥

Amount220,001¥

296,777

For the year ended December 31, 2013, in connection with the beneficial interest sale and purchase agreement that
JHR entered into on December 19, 2013, the book values of property and equipment were written down to theirrespective recoverable amounts by ¥516,779 thousand. The amount consisted of ¥292,049 thousand for buildingsin trust, ¥525 thousand for structures in trust, ¥1,796 thousand for machinery and equipment in trust, ¥2,405
thousand for tools, furniture and fixtures in trust, and ¥220,001 thousand for land in trust.

60

13. Income Taxes
Significant components of deferred tax assets and liabilities as of December 31, 2014 and 2013 were as follows:
Thousands of yen
As of December
As of December
31, 2014
31, 2013
Deferred tax assets – noncurrent:
Valuation difference on assets acquired by merger
Impairment loss
Deferred losses on hedges
Total gross deferred tax assets – noncurrent
Valuation allowance
Total deferred tax assets – noncurrent¥

Deferred tax liabilities – noncurrent:
Deferred gains on hedges
Total deferred tax liabilities – noncurrent
Net deferred tax liabilities – noncurrent¥

2,084,809
135,963
2,220,772(2,220,772)
-

-

¥

¥

2,126,163
176,531
30,7452,333,441(2,333,441)
-

1,028
1,028
1,028

Reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in theaccompanying statements of income for the years ended December 31, 2014 and December 31, 2013 was asfollows:
For the year
ended December
31, 2014
34.16%(30.56)(3.62)
0.04
0.02%

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

61

For the year
ended December
31, 2013
36.59%(29.93)(6.22)(0.40)
0.04%

14. Amounts per Unit
Net income per unit for the years ended December 31, 2014 and December 31, 2013 was as follows:

For the year ended December 31, 2014

Thousandsof yenNet
incomeNumber ofunits
Weightedaverage units

Basic net income per unit - Net income attributable tocommon unitholders¥

5,774,880

2,674,377

¥

2,159

For the year ended December 31, 2013
Basic net income per unit - Net income attributable tocommon unitholders¥

3,233,334

2,473,171

¥

1,307

Yen
Net income
per unit

Notes:(1) The computation of net income per unit is based on the weighted-average number of units outstanding during
the period.
(2) Diluted net income per unit is not presented since there are no potentially dilutive units for the years ended
December 31, 2014 and December 31, 2013.
Net assets per unit as of December 31, 2014 and 2013 were as follows:
Yen
As of December
As of December
31, 2014
31, 2013¥
35,948 ¥34,241

Net assets per share

15. Leases
As Lessor:
JHR leases its real estate properties to third parties under non-cancellable operating leases. As of December 31,
2014 and 2013, future minimum rental revenue under the non-cancellable operating leases were as follows:
Thousands of yen
As of December
As of December
31, 2014
31, 2013¥
1,308,494¥
1,483,459
6,161,012
7,452,533¥
7,469,507¥
8,935,992

Due within one year
Due after one year
Total

62

16. Derivatives and Hedging Activities
a. Derivative transaction to which hedge accounting is not applied
Derivative transaction to which hedge accounting is not applied as of December 31, 2014 and 2013 was asfollows:<For the year ended December 31, 2014>

As of December 31, 2014
Interest rate swaps(fixed rate payment,
floating rate receipt)

Classification
Transactions
other thanmarkettransactions

Contract
amountThousands of yen
Contract
amountdue after one
year¥ 5,000,000¥ 5,000,000

Fair value¥(37,252)<For the year ended December 31, 2013>
Not applicable.
b. Derivatives to which hedge accounting is applied
Derivative transactions to which hedge accounting is applied as of December 31, 2014 and 2013 were as follows:

As of December 31, 2014
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method ofaccounting

Hedged item

DeferralmethodLong-termloans payable

DeferralmethodLong-termloans payable

Total

As of December 31, 2013
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method ofaccounting

Hedged item

DeferralmethodLong-termloans payable

DeferralmethodLong-termloans payable

Total

Contract
amount(*1)

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

¥55,604,250¥ 48,659,950

9,413,500¥65,017,750

9,413,500¥58,073,450 ¥Contract
amount(*1)¥(321,499)
4,834(316,665)

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

¥34,907,250¥34,907,250

9,413,500¥44,320,750

9,413,500¥44,320,750¥(41,779)¥

32,749(9,030)Notes:(*1) The contract amounts of the interest rate swap and interest rate cap are presented based on the notional
principal amounts.
(*2) The fair value is measured at the quoted price obtained from the counterparty financial institutions.

17. Investment and Rental PropertiesJHR owns investment and rental properties 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:63

Hotels

Thousands of yen
Carrying amount (*1)
January 1,
December 31,
2014
Net increase (*2)
2014¥
155,753,667¥
14,094,120¥
169,847,788

Fair value (*3)
December 31,
2014¥
205,408,000

Notes:(*1) Carrying amount recognized in the balance sheet is net of accumulated depreciation and accumulated
impairment losses, if any. Amounts for machinery and equipment, tools, furniture and fixtures, construction inprogress in trust, and intangible assets other than leasehold rights in trust and facility usage rights are not included.
(*2) Increase during the year ended December 31, 2014 principally represents the acquisition of ibis Styles
Sapporo (formerly Best Western Hotel Sapporo Nakajima Koen) for ¥6,868 million, Mercure Hotel Sapporo for¥6,102 million and Mercure Hotel Okinawa Naha for ¥3,009 million. Decrease during the year ended December
31, 2014 principally represents the sale of Dormy Inn Namba for ¥683 million.
(*3) Fair value of properties as of December 31, 2014 is generally the appraisal value determined by licensed realestate appraisers.

HotelsThousands of yen
Carrying amount (*1)
January 1,
December 31,
2013
Net increase (*2)
2013¥
128,342,605¥
27,411,061¥
155,753,667

Fair value (*3)
December 31,
2013¥
166,237,000

Notes:(*1) Carrying amount recognized in the balance sheet is net of accumulated depreciation and accumulated
impairment losses, if any. Amounts for machinery and equipment, tools, furniture and fixtures, construction inprogress in trust, and intangible assets other than leasehold rights in trust and facility usage rights are not included.
(*2) Increase during the year ended December 31, 2013 principally represents the acquisition of Hilton Tokyo Bayfor ¥26,354 million and ibis Styles Kyoto Station for ¥6,765 million. Decrease during the year ended December 31,
2013 principally represents the sale of Hotel Vista Hashimoto for ¥593 million and Pearl Hotel Kayabacho for¥3,170 million, and the recognition of an impairment loss of ¥516 million on Dormy Inn Namba.
(*3) Fair value of properties as of December 31, 2013 is generally the appraisal value determined by licensed realestate appraisers. The fair value of Dormy Inn Namba as of December 31, 2013 is the sale price stated in thepurchase and sale agreement.
Real estate operating revenue and costs for the years ended December 31, 2014 and December 31, 2013 related to
the rental properties were as follows:

HotelsThousands of yen
For the year ended December 31, 2014
Real estate
Real estate
operating revenue
operating costs
Net real estate
(*1)
(*1)
operating income¥
12,760,192¥
4,163,015¥
8,597,176

HotelsThousands of yen
For the year ended December 31, 2013
Real estate
Real estate
operating revenue
operating costs
Net real estate
(*1)
(*1)
operating income¥
11,472,924¥
3,870,583¥
7,602,340

Note:(*1) “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 estate64operating costs,” respectively.

18. Segment Informationa. Segment information
The segment information has been omitted because JHR has only one segment, which is the investment andmanagement business of hotel real estate.
b. Related information(1) Information about products and services for the years ended December 31, 2014 and December 31, 2013
Information about products and services has been omitted because operating revenue from external customers
in a single product/service category accounted for more than 90% of total operating revenue.
(2) Information about geographical areas for the years ended December 31, 2014 and December 31, 2013(i) Sales
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, 2014>

Name of customer

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

Hotel Management Japan Co., Ltd.
The Dai-ichi Building Co., Ltd.

Thousands of yen
Operating revenue¥

5,627,554¥

1,872,000<For the year ended December 31, 2013>

Name of customer

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

Hotel Management Japan Co., Ltd.
The Dai-ichi Building Co., Ltd.
Kyoritsu Maintenance Co., Ltd.
c. Information about impairment loss
<For the year ended December 31, 2014>
Not applicable.
<For the year ended December 31, 2013>

Impairment loss of ¥516,779 thousand is not presented because JHR has only one segment.

65

Thousands of yen
Operating revenue¥

5,506,588¥

1,283,669¥

1,225,203

19. Subsequent Eventsa. Acquisition of assets
On January 30, 2015, JHR acquired five properties with a total acquisition price of ¥20,000 million as follows.
Property namethe b akasaka-mitsuke

Asset category

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

Asset type

Hotel

Address

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

Acquisition date

January 30, 2015

SellerYosezaka TMK

Acquisition price (Note)¥ 6,250 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b ikebukuro

Asset category

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

Asset type

Hotel

Address

1-39-4 Higashi-ikebukuro, Toshima-ku, Tokyo

Acquisition date

January 30, 2015

SellerInarizaka TMK

Acquisition price (Note)¥ 6,520 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b ochanomizu

Asset category

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

Asset type

Hotel

Address

1-7-5 Kanda-awajicho, Chiyoda-ku, Tokyo

Acquisition date

January 30, 2015

SellerTenjinzaka TMK

Acquisition price (Note)¥ 2,320 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

Property namethe b hachioji

Asset category

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

Asset type

Hotel

Address

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

Acquisition date

January 30, 2015

SellerHijirizaka TMK

Acquisition price (Note)¥ 2,610 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

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Property namethe b hakata

Asset category

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

Asset type

Hotel

Address

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

Acquisition date

January 30, 2015

SellerTenjinzaka TMK

Acquisition price (Note)¥ 2,300 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

On March 31, 2015, JHR acquired the following property.
Property name

Hotel Francs

Asset category

Real estate beneficial interest in trust

Asset type

Hotel

Address

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

Acquisition date

March 31, 2015

Seller

G.K. Tourism Japan No. 1(Note 1)

Acquisition price(Note 2)

¥ 3,105 million(Note 1)

(Note 2)

GK Tourism Japan No. 1 is the business operator of a silent partnership in which JHR invested ¥595 million(represented a 49.8% equity interest in the silent partnership; excluding acquisition expenses) and JHR exercised
the preferential negotiation rights that were granted to JHR upon the investment in the concerned partnership.
Furthermore, in connection with the acquisition, the invested equity interest in the silent partnership will be
redeemed to JHR by the end of the fiscal year ending December 2015.
The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

On April 2, 2015, JHR acquired the following property.
Property nameMercure Yokosuka

Asset category

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

Asset type

Hotel

Address

3-27, Honcho, Yokosuka-shi, Kanagawa

Acquisition date

April 2, 2015

SellerMitsui Fudosan Co., Ltd.

Acquisition price(Note)¥ 1,650 million(Note)

The acquisition price does not include expenses for acquisition, settlement of fixed asset tax and city planningtax, and national and local consumption taxes.

b. Borrowing of funds
On January 30, 2015, JHR obtained new borrowings under Term Loans 9, 10 and 11 totaling ¥13,900 million inorder to fund the acquisition of the real estate beneficial interest in trust of the five “the b” hotel properties andmovable assets attached thereon (as described above in item a. Acquisition of assets) and to fund the early
repayment on the same date of an existing loan (¥4,779 million outstanding balance) maturing on February 15,
2015.
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Term Loan 9 (Term: 1 year)
Facility

Term Loan 9

LenderSumitomo Mitsui Banking Corporation

Amount of the loan

¥1,000 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month in JBA)+0.40%

Date of borrowing

January 30, 2015

Method of principal repayment

Lump-sum payment on the maturity date

Maturity date

January 29, 2016

Collateral

Unsecured/Unguaranteed

Term Loan 10 (Term: 5 years)
Facility

Term Loan 10

LenderSumitomo Mitsui Banking Corporation / Mizuho Bank, Ltd. / Shinsei
Bank, Limited / Resona Bank, Limited / Sumitomo Mitsui Trust Bank,
Limited / The Chiba Bank, Ltd.

Amount of the loan

¥4,700 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month in JBA)+0.45%

Date of borrowing

January 30, 2015

Method of principal repayment

Lump-sum payment on the maturity date

Maturity date

January 31, 2020

Collateral

Unsecured/Unguaranteed

Term Loan 11 (Term: 7 years)
Facility

Term Loan 11

LenderSumitomo Mitsui Banking Corporation / Mizuho Bank, Ltd. / Shinsei
Bank, Limited / Resona Bank, Limited / Sumitomo Mitsui Trust Bank,
Limited / The Tokyo Star Bank, Limited / Aozora Bank, Ltd.

Amount of the loan

¥8,200 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month in JBA)+0.55%

Date of borrowing

January 30, 2015

Method of principal repayment

Lump-sum payment on the maturity date

Maturity date

January 31, 2022

Collateral

Unsecured/Unguaranteed

On March 31, 2015, JHR conducted new borrowing in order to fund the acquisition of Hotel Francs (as describedabove in item a. Acquisition of assets), as follows.
Term Loan 12 (Term: 7 years)
LenderSumitomo Mitsui Banking Corporation

Amount of the loan

¥1,500 million

Interest rate

Base interest rate (Japanese Yen TIBOR for one month in JBA)+0.55%

Date of borrowing

March 31, 2015

Method of principal repayment

Lump-sum payment on the maturity date

Maturity date

March 31, 2022

Collateral

Unsecured/Unguaranteed68

c. Issuance of new investment units

JHR resolved to issue new investment units at the Board of Directors meetings held on January 9, 2015 andJanuary 20, 2015. Payment for the new investment units was completed on January 27, 2015 and February 18,
2015, and the investment units were issued under the following terms and conditions. As a result, JHR’s
unitholders’ capital increased to ¥74,676,659,234, with the number of investment units issued and outstanding
totaling 3,000,322 units.
(1) Issuance of new investment units (public offering)Number of investment units issued:
Issue price:
Total issue price:
Paid-in amount (Issue value):
Total paid-in amount (issue value):
Payment date:

200,000 units¥77,415 per unit
¥15,483,000,000¥74,874 per unit
¥ 14,974,800,000
January 27, 2015(2) Issuance of new investment units (third-party allotment)
Number of investment units issued:
9,041 units
Paid-in amount (Issue value):¥74,874 per unit
Total paid-in amount (issue value):¥676,935,834
Payment date:February 18, 2015
Allottee:
SMBC Nikko Securities Inc.
(3) Use of funds
JHR used the proceeds obtained from the public offering to partly fund the acquisition of specified
assets described above in item a. Acquisition of assets, as well as to partly fund repayment of otherborrowings and capital expenditures for maintaining and enhancing the competitiveness of existing
properties. JHR plans to use the remainder of the proceeds from the public offering and the proceedsfrom the third-party allotment to partly fund the future acquisition of specified assets, repayment ofother borrowings, and capital expenditures for maintaining and enhancing the competitiveness ofexisting properties.

69