Japan Hotel REIT Investment Corporation(TSE: 8985)

Midterm Financial Results
FY12/2020 (21st Period )Japan Hotel REIT Investment Corporation
Japan Hotel REIT Advisors Co., Ltd.
https://www.jhrth.co.jp/en/
August 25, 2020

Table of Contents

Ⅰ. Introduction: Impact of COVID-19
1. Introduction: Impact of COVID-19
Ⅱ. Initiatives of JHR
1. Initiatives of JHR
2. Sale of Property
3. Refinancing
4. Capital Expenditure and Depreciation
Ⅲ. Summary of Midterm Settlement of Accounts andRevenue Forecast for the Full Fiscal Year
1. Midterm Results for the Fiscal Year Ending December 2020
2. Revenue Forecast for the Full Year Ending December 2020
3. Dividend per Unit and Negative Goodwill
4. NAV per Unit and Appraisal Value
Ⅳ. Status of Hotel Operations
1. Monthly Performance of the 24 Hotels with Variable Rent, etc.
2. Performance of the 24 Hotels with Variable Rent, etc.
3. RevPAR Variance to Previous Year by Region of
the 24 Hotels with Variable Rent, etc. (2020)
4. Infection Prevention Measures of HMJ
5. Sustainability Initiatives
Ⅴ. Market Environment
1. Market Environment
Ⅵ. Takeaways
1. Takeaways

Appendix 1 JHR's Characteristics and Strategy
1. JHR's Investment Targets
2. Simultaneous Pursuit of Stability and Upside Potential
3. External Growth Strategy
4. Internal Growth Strategy
5. Financial Strategy
6. Benefits Program for Unitholders

3

6
11
12
13

Appendix 2 Information on Properties
1. Portfolio Map
2. Portfolio Diversification
3. Rent Structures
4. Active Asset Management
5. Property List
6. Summary of Lease Contracts
7. Major CAPEX Ⅲ by Hotels
8. The Five HMJ Hotels — Highlights
9. Balance Sheet

15
16
17
18

20
21

Appendix 3 Financial Conditions
1. Financial Conditions

22
23
24

32
33
34
35
36
37

39
40
41
42
43
45
47
48
49

51

Appendix 4 Investors Composition and Investment Unit Price
1. Major Unitholders and Classification of Unitholders
54
2. Changes in Investment Unit Price and Market Capitalization
55

26

Appendix 5 Summary of the Asset Management Company
1. Summary of the Asset Management Company
2. Features and Governance of the Asset Management Company

30

1

57
58

Ⅰ. Introduction: Impact of COVID-19

1. Introduction: Impact of COVID-19
Year-on-year of Number of Overnight Guests in Japan and RevPAR of The 24 Hotels with Variable Rent, etc.
January 23
January 30

Wuhan Lockdown

April 8: lifted

Public Health Emergency by WHO
March 13100%

101.6%
101.1%

February 29

National Emergency in the United States
State of Emergency
April 7in JapanTokyo Disney Resort was closed

February 29

Universal Studios Japan was closed

May 25: lifted
July 1: Reopen
June 19: Reopen

86.0%
80%

70.4%
Year-on-year of Number of Overnight Guests in Japan

60%

Year-on-year of Actual RevPAR of
The 24 Hotels with Variable Rent, etc.

46.8%
40%

30.4%

27.3%
19.1%

20%

0%

January 2020

February 2020

The 24 Hotels with Number of hotels closed
Variable Rent,% of number of guest
etc.(*)
rooms of the hotels closed

21.9%

15.1%

12.3%

6.5%

5.0%

March 2020

April 2020

May 2020

June 2020

July 2020

０

10

16

9

4

0%

15.3%

70.5%

33.9%

8.1%

Not
announced

Source: Statistics of Overnight Travel by Japan Tourism Agency(*) The 24 Hotels with Variable Rent, etc. are The 14 HMJ Hotels plus ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha,
Mercure Yokosuka, the b ikebukuro, the b hachioji, the b hakata and the b suidobashi. The 14 HMJ Hotels are Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental
Hotel, Hotel Nikko Alivila, Oriental Hotel Hiroshima, Okinawa Marriott Resort & Spa, ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel), Oriental Hotel Fukuoka Hakata
Station, Holiday Inn Osaka Namba, Hilton Tokyo Narita Airport, International Garden Hotel Narita, Hotel Nikko Nara, Hotel Oriental Express Osaka Shinsaibashi, and Hilton Tokyo Odaiba.

3

1. Introduction: Impact of COVID-19 (cont.) Due to the impact of COVID-19, significant reduction of dividend is expected Implement countermeasures to overcome the crisis of COVID-19
Summary of Forecast for 2020

Full Year 2020
(forecast)

Initiatives of JHR(Unit: JPY MM)
Variance fromthe Initial
Forecast(*1)

13,126(56.2%)

Real Estate Operating
Revenue

9,970(66.7%)

Fixed Rent, etc.

8,921

(50.4%)

Operating Revenue

Variable Rent
Gain on Sale ofProperties, etc.
Net Income

1,049(91.2%)

3,156

ー

243

(98.5％)

Response to Requests for Rent Reduction, etc.
• Implement measures to reduce hotel operating costs incooperation with operators• Comprehensively judge on requests for rent reduction• Agreed on rent with HMJ(*2)

Sale of Property• Sold a limited-service hotel in Tokyo in July 2020
• Add source of dividend and improve liquidity on handRefinancing• Maintain sound relationships with lenders• Secure financial soundness and stability

Use of Negative Goodwill

319

ーDividend per Unit (JPY)126(96.6％)

Review of CAPEX• Review of all capital expenditures (CAPEX) including
large-scale renovations• Prioritize improvement of liquidity on hand(*1) Stating the figures of forecast announced in Financial Report for the Fiscal Year Ended December 2019 (January 1, 2019–December 31, 2019) dated February 20, 2020.
(*2) HMJ represents Hotel Management Japan Co., Ltd. or Hotel Management Japan Co., Ltd. and its subsidiaries. The same shall apply hereinafter.

4

Ⅱ. Initiatives of JHR

1. Initiatives of JHR

1Response to Requests for Rent Reduction, etc.

2

Sale of Property

3

Refinancing

4

Review of CAPEX

6

1-1. Response to Requests for Rent Reduction, etc.
 Comprehensively judge on requests for rent reduction based on the policy Agreed with HMJ regarding rent
Status of Operators
Number of Operators of JHR

Policy of Decision-making on Rent
Make sure that operators are executing maximum efforts to reduce
hotel operating costs, etc., and make comprehensive decisions
based on the items below.

16 operators

Of these, 11 operators, including HMJ,
requested a rent reduction
Breakdown of Operators

1

Details of lease contracts and rent levels(changes in rent burden ratio during theoperating period, etc.)

2

Financial condition of operators(Business continuity risk)

3

Potential of alternative operators

Others (10 operators)
Ishin (the b)

9.9% (12)3.4% (4)Kyoritsu Maintenance* No problems with hotel management capability of operators(Dormy Inn, etc.)
4.1% (4)Progress in Decision-making

Nagoya Hilton
4.1% (1)
THE DAI-ICHI BUILDING(Hilton Tokyo Bay)HMJ

• Agreed to amend a lease contract and changed arent structure for 2020 onwards

Other
operators• Continuing negotiations with some operators• For the revenue forecast for FY2020, 200 million
yen is expected as a risk of rent reduction

7.0% (1)
Accor(Mercure/ibis)
8.5% (6)HMJ
63.0% (14)(*) Based on acquisition price. A parenthesis represents the number of hotel.

71-2. Restructuring Plan of HMJ
 Implemented a large-scale cost reduction to improve profitability and strengthen financial conditions
 Maximize the rent payable for this fiscal year by implementing emergency measures in 2020
Review of Cost Structure of HMJ

Sales

ActionCurrent

After

AGOP (*)

AGOP

Streamlining, reducing, and closing unprofitabledivisions

Cost of goods
purchased

Increase in AGOP

Improve efficiency by consolidating back-officedivisions and common operations

Personnel cost

Personnel Cost Reduction

Cost of goods
purchased

Reduction and streamlining of personnel inaccordance with the above measures

Personnel cost

Outsourcing Cost Reduction
Review of outsourcing business specifications/standardization of standards

Outsourcing
cost

Outsourcing
cost

General andadministrative,
cleaning, and building
management, etc.

Other
expensesUtilities

Fees payable, etc.

Fees payable, etc.

JPY381MM
reduction(17.6%)

Revenue Upside Measures

General andadministrative,
cleaning, and building
management, etc. reduction

Utilities

JPY1,518MM
reduction/year(11.1%)

Introduction of Smart Check-In

reduction

Other
expenses

JPY1,137MM
reduction(10.0%)

Convert directly managed restaurants to tenant
operations and introduce managing contract
Increase direct booking by retaining customers(save commission costs)＜Emergency Measures in 2020>
 Maximize the rent payable by implementing emergency measures
Personnel

Operating Cost

Secure Funding

Temporary salary/bonus reduction
Utilization of subsidies (government subsidies for
employment adjustment, etc.)
Suspension or reduction of outsourcing contracts
Control sales and marketing expenses
Control purchases of consumables
Use of financing backed by public policy
Deferred tax payments
Funding support from the sponsor

Reduction of JPY4,258MM(including some of the costs above)

8(*) AGOP (adjusted GOP) is the amount calculated by subtracting certain fees and otheritems from GOP.

1-3. Change in Rent from HMJ
 Reconstructing sustainable relationships with HMJ, the largest operator
Decision on Rent in 2020
 Based on the current contract, the rent structure was changed to variable rent from February onwards, when the impact of COVID-19 became apparent.
Total rent
The 14 HMJ Hotels

Initial forecast of
fixed rent

Variance from theinitial forecast

JPY357MM＜GOP × ratio of each property － fixed rent
for one month＞

JPY9,530MM(JPY8,379MM)

JPY0

JPY3,100MM(JPY2,842MM)

Fixed rent

Variable rent

JPY1,151MM

JPY794MM(for one month (for January))

JPY258MM

JPY258MM

Of these,
Hilton Tokyo Odaiba

Change in Lease Contract (2021 and 2022 onwards)
 Changed the current contract.
2021
2022
onwards

Variable rent only (The fixed rent is not set as 2021 is a recovery period of hotel performance)
Fixed rent

Same amount as the previous lease contract(*2)

Variable rent

Review the GOP base for each property and set variable rent ratio with appropriate
rent burden ratio(*3)

Receive part of HMJ's cost
reduction as variable rent, andcollect the fixed rent reduction/
waived in 2020 in the future

Rent Burden Ratio
 In 2020 the rent burden exceeds GOP, but from 2021 onwards, the rent burden ratio is decreased due to the change in the rent structure.

2020(forecast)

(*1)
(*2)
(*3)
(*4)
(*5)

GOP
JPY204MM

Rent which
HMJ can pay
JPY1,151MM

Rent which GOP
exceeds GOP base
JPY947MM

Rent burden
ratio(rent/GOP)

2019 actual(annualized)(*4) (A)New rent structure(2021 onwards)(*5) (B)(A)–(B)

89.2%

85.5%

(3.7pt)• The rent burden ratio is decreased, and part of the cost reduction effect can be retained• Strengthen the financial position

For change in rent from HMJ, please see "Notice Concerning Revision of Fixed-Term Lease Agreement" on August 25, 2020.
The fixed rent of Hilton Tokyo Odaiba is the same amount as the fixed rent on and after 2021 (JPY1.6Bn), which was stipulated in the contract before revision.
When AGOP of each hotel exceeds AGOP base, the fixed rent is calculated by multiplying the amount by the fixed rent set for each hotel.
The rents of Hotel Oriental Express Osaka Shinsaibashi and Hilton Tokyo Odaiba were annualized. The fixed rent of Hilton Tokyo Odaiba was calculated at JPY1.6Bn.
The figure was calculated based on certain assumptions based on hotel performance in 2019. The figure may differ depending on the actual GOP results.

9

1-4. New Lease Contract with HMJ (2021 onwards)
 Share the effect of cost reduction of HMJ by JHR (as rent) and HMJ
 Based on the hotel performance in 2019, the cost reduction amount of JPY1,520MM will be equally divided into JHR rent of
JPY670MM and HMJ internal reserve of JPY850MM (JPY550MM after tax)

2019 Actual (annualized)

New Rent Structure(*2) (2021 onwards)＜The 14 HMJ Hotels＞


GOP:

JPY17.11Bn

Total rent: JPY15.26Bn(*1)

Increase in GOP due to the cost reduction effect even when
the sales is the same

Increase in rent received by JHR due to the increase in GOP

Increase in internal reserve of HMJ due to the lower rent
burden ratio (89.2％→85.5%)⇒ Improve rent payment capacity
JPY18.63Bn
Increase in GOP
15億円の
by cost reduction
コスト削減(JPY1,520MM)+JPY850MM(JPY550MM after tax)

JPY15.93Bn+JPY670MM

JPY17.11Bn

GOP

JPY17.11Bn
JPY15.26Bn

HMJ
internal
reserve
JHR
rent
increase

Rent(2019 actual)
JPY15.26Bn

Rent

GOP

Rent

(*1) The rents of Hotel Oriental Express Osaka Shinsaibashi and Hilton Tokyo Odaiba were annualized. The fixed rent of Hilton Tokyo Odaiba was calculated at JPY1.6Bn.
(*2) The actual GOP in 2019 is stated for comparison. However, in the new rent structure, when AGOP of each hotel exceeds AGOP base, the fixed rent is calculated by multiplying theamount by the fixed rent set for each hotel.

102. Sale of Property
 Improve revenue available for dividends and improve liquidity on hand
Sale of Property (July 2020)

Use of Gain on Sale Sold a large, limited-service hotel in Tokyo, which has alarge amount of unrealized gain
Sotetsu Fresa Inn Shimbashi-Karasumoriguchi
Sale Price

JPY8,000MM

Acquisition Price

JPY4,800MM(*1)

Book Value

JPY4,791MM

Gain on Sale

JPY3,156MM

Appraisal Value(*2)

JPY8,950MM

Sale Price
JPY8,000MM
Book Value
JPY4,791MM

BeforeAfter

Gain on Sale
JPY3,156MM

Improve revenue
available fordividends

Cash and
Deposits
JPY4,844MM

Improve liquidity
on hands

After(JPY MM)

122,285

130,883

158,902173,429

225,723

286,801

319,474309,370

374,508

April 2012 FY12/2012 FY12/2013 FY12/2014 FY12/2015 FY12/2016 FY12/2017 FY12/2018 FY12/2019(merger)No. of Properties
No. of Acquisition

28

Acquisition Price
No. of Dispositions
Sale Price(*1) As of the end of June 2020.
(*2) As of the end of December 2019.

(13th Period) (14th Period) (15th Period) (16th Period) (17th Period) (18th Period) (19th Period) (20th Period)

28
28
30
36
41
44
41
43
2
2
3
9
5
3
2
JPY10.8Bn JPY32.6Bn JPY15.7Bn JPY57.0Bn JPY61.0Bn JPY32.6Bn
JPY65.1Bn
2
2
1
3
3
JPY0.8Bn JPY2.6Bn JPY0.7Bn JPY4.8Bn
JPY12.1Bn

11369,708

FY12/2020(21st Period
forecast)

421
JPY8.0Bn

Aim for Successive Growth

Change in Asset Size

3. Refinancing
 Maintain sound relationships with all lenders and discuss more closely than ever before
 Continue to maintain financial soundness and stability
Repayment Schedule of Interest-bearing Debt
(as of the end of June 2020)(JPY MM)
30,000Loans

21,65020,00016,90012,782 12,300
1,500

10,000015,7723,000

19,00010,00017,350 17,000

6,000

10,800 10,900

5,000

28,000Investment Corporation Bonds

25,00015,000Main Financial Indicators

15,772

18,650 19,000

13,10017,000 18,000

2021

2022

2023

2024

2025

2026

2027

2028

2029

Refinancing in Second Half of 2020 and 2021
＜Second half of 2020＞
Repayment Date

Balance

September 30, 2020

JPY11,847MM

December 30, 2020

JPY935MM

Total

JPY12,782MM

Repayment Date

Balance

March 31, 2021

JPY6,800MM

September 30, 2021
December 30, 2021

JPY4,000MM(Investment corporation bonds)

Total

Cost for all interest-bearing debt
(as of the end of June 2020)

1.0%

Average life of debt
(as of the end of June 2020)

4.7 YearFree cash after deducting dividends
as of the end of December 2020(*2)(forecast)

JPY16.0Bn(*1) LTV as of the end of each period/year. LTV as of the end of June 2020 is 42.3%.
(*2) The above figures represent cash and deposits, excluding various reserves fortrust and amount equivalent to dividends to be paid, etc.

Cost
0.93%

Status of Credit Rating＜2021＞

JPY1,500MM

42.2%

8,000

4,250
2020

Changes in LTV (total asset base)(*1)(End of FY12/2020 (expected)(21st Period))

Cost

1.62%

JPY12,300MM

12Japan Credit Rating Agency, Ltd.
(JCR)

A+ (stable)

Rating and Investment Information, Inc.
(R&I)

A

(stable)4. Capital Expenditure and Depreciation
 Reviewed all CAPEX including large-scale renovations and prioritize improvement of liquidity on hand
Clarification of CAPEX

CAPEX ⅠCAPEX ⅡCAPEX Ⅲ(JPY MM)

5,000

capital investment related to renewal of buildings, facilities, and equipment which is
required to maintain proper values of properties
capital investment for fixtures furniture and equipment that are not directly related to building
structures or facilities but necessary for operating hotels
strategic capital investment for renewals of guest rooms, banquet rooms, restaurant
and others in order to maintain or to improve the competitiveness of the hotels

Depreciation
Cost for Large-scale
Renovation Works

4,557
4,091

4,000

3,000

2,000

1,000

3,725

6,766
3,619

3,056

393

469

476

999

475

781

2,898

4,751

(1,975)
Review ofordinary
CAPEX

Large-scale renovation ofOriental Hotel Fukuoka
Hakata Station

3,147

1,690

Review of CAPEX
includinglarge-scalerenovations(4,975)

1,798

2,226
1,456

6,775

3,775
234
862

1,799
100
93

1,954

4,859

Large-scalerenovation of
HiltonTokyo Odaiba

3,000

2,200
2,678

1,605
800

0

Asset Size
(JPY MM)

319,474309,370

374,508

369,708

369,708

FY12/2017

FY12/2018

FY12/2019

FY12/2020(forecast)

FY12/2020(initial plan)(*) The expenditures related to large-scale renovation of Hilton Tokyo Odaiba in FY2020 (21st Period) were expected to be JPY3,000MM, and the expenditure of large-scale renovation of
Namba Oriental Hotel in FY2021 (22nd Period) were expected to be JPY2,600MM. However, both large-scale renovations were postponed.

13

Ⅲ. Summary of Midterm Settlement of Accounts andRevenue Forecast for the Full Fiscal Year

1. Midterm Results for the Fiscal Year Ending December 2020

Properties(Unit: JPY MM)
FY12/2019(20th Period)

FY12/2020(21st Period)

Midterm Actual(A)

Midterm Actual(*1)(B)

Major Causes of Variance

Variance(B)–(A)%

Fixed rent

No. of Properties

43

43

0

–

Acquisition Price

374,508

374,5080–• The 14 HMJ Hotels(JPY3,115MM)• Rent from office andcommercial tenants, etc.

JPY24MM
total

Operating Revenue
Real Estate Operating Revenue

5,536(7,182)(56.5%)

12,7195,536(7,182)(56.5%)

Fixed Rent

59.3%

7,537

80.3%

4,446

(3,090)(47.1％)

Other Income

4.5%

576

8.0%

443

(132)

(22.4％)

Variable Rent

36.2%

4,606

11.7%

646

(3,959)(86.0%)

10,6793,588(7,091)(66.4%)

2,165

2,365

200

Asset Retirement Obligations Expenses

1

1

0

Loss on Retirement of Noncurrent Assets

218

0

(218)

NOI after Depreciation(*2)

8,294

1,220

(7,073)

Other Operating Expenses

1,001

894

(106)

7,293

325

(6,967)

Non-operating Income

9

35

25

Non-operating Expenses

948

911

(37)

Ordinary Income

6,354

(550)

(6,904)–Net Income

6,353

(551)

(6,904)–

NOI(*2)
Profit and Loss

12,719Depreciation

Operating Income(JPY3,090MM)

Variable rent
• The 24 Hotels with Variable Rent, etc.
(JPY3,437MM)[Of these, The 14 HMJ Hotels• Other revenue sharing, etc.
total

(JPY2,058MM)](JPY522MM)(JPY3,959MM)(85.3%)(95.5%)(*1) For detail, please refer to Midterm Financial Report for the Fiscal Year Ending December 31, 2020 (January 1, 2020–December 31, 2020) dated August 25, 2020.
(*2) Each is calculated using the following formula: NOI (Net Operating Income) = Real estate operating revenue − Real estate operating costs + Depreciation + Loss on retirement of
noncurrent assets + Asset retirement obligations expenses NOI after depreciation = Real estate operating revenue − Real estate operating costs

15

2. Revenue Forecast for the Full Year Ending December 2020
(Unit: JPY MM)
FY12/2019(20th Period)

Previous
Forecast(*2)(A)

Properties

ActualNo. of Properties
Acquisition Price
Operating Revenue
Real Estate Operating
Revenue
Fixed Rent, etc.
Other Income

Profit and Loss

Variable Rent
Gain on Sale ofProperties, etc.
NOI
NOI Yield
Depreciation
Asset Retirement
Obligations Expenses
Loss on Retirement ofNoncurrent Assets
NOI after Depreciation
NOI Yield after Depreciation
Other Operating Expenses
Operating Income
Non-operating Income
Non-operating Expenses

Dividend

Ordinary Profit (Loss)
Extraordinary Losses andCorporate Tax
Net Income (Loss)
Use of Negative Goodwill
Total Dividends
Number of Units Issued(Unit)
Dividend per Unit (JPY)FY12/2020(21st Period)(reference)

Forecast
This Time(B)

Comparison with Previous Period

Forecast ThisTime
(annualized
effect)(B)–(A)42
369,708(1)(4,800)

Variance

Property
Sold

Existing
Properties(1.3%)(1)(4,800)

–
–

(*3)

(*4)

43
374,50843
374,50842369,708

28,27829,971

13,126

9,738(16,844) (56.2%)

2,990 (19,835)

28,27829,971

9,970

9,738

(20,001) (66.7%)(165) (19,835)

56.3%15,391 56.1%16,828 79.5% 7,931 79.9% 7,782
4.1% 1,170 3.9% 1,158 9.9% 989 10.0% 974
39.5%11,176 40.0%11,984 10.5% 1,049 10.1% 982(8,897) (52.9％)(169) (14.6％)(10,935) (91.2%)(149) (8,748)
(16)
(152)
– (10,935)

–

–

3,156

–

24,087
6.4%
4,557

25,273
6.7%
4,859

5,614
1.5%
4,751

5,330
1.4%
4,740

3,156

–

(11)

(97)

2

2

2

2

0

–

0

246

18

19

19

0

–

0

19,2815.1%
2,132
17,14846
1,903
15,291

20,3925.4%
2,264
18,1280
1,888
16,239

841
0.2%
1,912
2,085
35
1,876
244

568
0.2%
1,908
(1,340)35
1,876(3,181)(19,658) (77.8%)(5.2%)(108)(19,550) (95.9%)(5.2%)(351)–(16,042) (88.5%)34(12)(15,994) (98.5%)

1

1

1

1

15,290

16,238243(3,182)(15,994) (98.5%)

1,176
16,466496
16,733

319
562

337
–

(177) (35.8%)(16,171) (96.6%)

4,462,347

4,462,347

4,462,347

4,462,347

3,750

126

–

3,690

–
)

–

–

3,156

–

Major Causes of Variance ofExisting Properties
Fixed rent
• The 14 HMJ Hotels

Variable rent
• The 24 Hotels with Variable Rent, etc.
[Of these, The 14 HMJ Hotels

Total(JPY10,935MM)

Use of Negative Goodwill(*5)＜FY12/2019＞50-year negative goodwill amortization

JPY262MM

Adjustment for dilution

JPY310MM

Correspondence to large-scale renovation work
JPY357MM
Loss on retirement of noncurrent assets
Total

JPY246MM
JPY1,176MM＜FY12/2020 (plan)＞
50-year negative goodwill amortization

JPY262MM

Loss on retirement of noncurrent assets

JPY19MM

Amortization of Trademark rights(3,624) (96.6%)

For details, please refer to Midterm Financial Report for the Fiscal Year Ending December 31, 2020 (January 1, 2020–December 31, 2020) dated August 25, 2020.
Stating the figures of forecast announced in Financial Report for the Fiscal Year Ended December 2019 (January 1, 2019–December 31, 2019) dated February 20, 2020.
Stating the amount of effect of Sotetsu Fresa Inn Shimbashi-Karasumoriguchi, which was sold in July 1, 2020.
Existing properties refer to 42 properties JHR owns as of August 25, 2020. The same shall apply hereinafter.
Please refer to P.17 for the use of negative goodwill (reserve for temporary difference adjustment).

16(JPY9,771MM)(JPY6,614MM)]• Decrease in variable rent, etc. in other hotels(JPY1,163MM)(3,564)
(*1)
(*2)
(*3)
(*4)
(*5)

(JPY11MM)
Total (JPY8,748MM)(133) (19,524)(122) (19,427)(JPY8,736MM)• Other tenants

Total

JPY37MMJPY319MM

3. Dividend per Unit and Negative Goodwill
 Under the uncertain environment, priority is given to improving liquidity on hand
Dividend per Unit Growth
(JPY)

3,420
2,975
98
+15.0%

2,000
2,877

1,000
0

<Policy for Use of Negative Goodwill>

The amount of sales effect(*)

4,000
3,000

Negative Goodwill
1. Add JPY262 million (50-year amortization amount ofnegative goodwill) to dividends every period

3,690

204
+5.6%
(5.1%)

+7.7%

3,420

3,890

3,683

(excluding theamount ofsales effect)(excluding theamount ofsales effect)

•
•
•
•

(96.6%)

3,690

3,686

3,683

2. In addition to above, dividends will be increased in
response to the following•

126

Cope with losses caused by property dispositions
Cope with loss on retirement of noncurrent assets
Cope with dilution of dividend per unit
Cope with inconsistency between tax and accounting treatments(Amortization of fixed-term leasehold of land, amortization of asset
retirement obligations, etc.)
Cope with suspension of sales and such due to large-scalerenovation works with significant impact on revenues＜Amount used in FY12/2019＞

FY12/2015

FY12/2016

FY12/2017

FY12/2018

FY12/2019

FY12/2020

50-year amortization amount on negative goodwill :JPY262MM(16th Period)(17th Period)(18th Period)(19th Period)(20th Period)(21st Period

Adjustment for dilution:

JPY310MM

Cope with large-scale renovation works(forecast))

Breakdown of Dividend per Unit:

JPY357MM

Cope with loss on retirement of noncurrent assets :JPY246MM:

JPY1,176MM

Total amount
Balance of Negative Goodwill
after the end of December 2019

Forecast of full
Impact on
year 2020
dividend per unit
Net income for the current fiscal
year excluding gain on sale:

(JPY2,913MM)(JPY652)

Gain on sale of property:

JPY3,156MM

JPY707

Reverse amount of negative
goodwill:

JPY319MM

JPY71

Total amount for dividend for
FY12/2020:

JPY562MM

JPY126

JPY10,617MM＜Amount to be used in FY12/2020＞

50-year amortization amount on negative goodwill :JPY262MM

Cope with loss on retirement of noncurrent assets :JPY19MM

Amortization of trademark rights:

JPY37MM

Total amount (plan):

JPY319MM

Balance of Negative Goodwill
after the end of December 2020 (forecast)(*) The amount of sales effect represents dividends per unit which were increased due to sales ofproperties.

17

JPY10,298MM

4. NAV per Unit and Appraisal Value NAV and the appraisal value declined slightly by 6.8% and 4.3%, respectively, reflecting the current decline in appraised cash flow,
despite no major changes in the CAP rate
 Maintain a high level of unrealized gains of about JPY130Bn

NAV per Unit Growth(JPY)75,20980,00070,000+2.6%

63,38560,00077,129Changes in Appraisal Value (Unrealized Gains)
83,286

79,407

+4.9%

+3.0%

(JPY Bn)

77,630(6.8%)

500

439.3

FY12/2016

FY12/2017

FY12/2018

FY12/2019200

Appraisal

End ofJune 2020(*3)

Acquisition
Variance
Variance Net Cash
Price
Price
of NetVariance Cap Rate of Cap
Flow(JPY MM) (JPY MM)
(*1)
(*2)
Cash
Rate (*2) (JPY MM)
Flow
374,508

525,910

2.0%

4.5%

–

126.7

130.7

113.8

205.4
(as of June 30, 2020)

43

151.5

78.7

Change in Appraisal Value

End ofDecember
2019

302.1

300

(forecast))

No. ofProperty

122.1

FY12/2020(16th Period) (17th Period) (18th Period) (19th Period) (20th Period) (21st Period

437.5

398.7

400

40,000FY12/2015

494.6

Unrealized Gains+18.7%

50,00030,000525.9Book Value

23,452

34.8

374.3

367.9

40.5%

34.4%

FY12/2014 FY12/2015 FY12/2016 FY12/2017 FY12/2018 FY12/2019

End of

284.9
100

170.5

317.2

306.7

38.5%

42.6%

223.3

–

0

42

369,708

494,690(4.3%)

4.5%

0.1pt

22,422(2.9%)(*1) Variance is based on the properties owned by JHR as of the end of each fiscal year.
(*2) Cap rate and variance of cap rate are rounded off.
(*3) Figures for the end of June 2020 are for 42 properties excluding Sotetsu Fresa Inn ShimbashiKarasumoriguchi.

Ratio of
Unrealized Gains

18

20.4%

35.2%

39.9%

(15th Period) (16th Period) (17th Period) (18th Period) (19th Period) (20th Period) June 2020
(Midterm of
21st Period)(*) Unrealized gains are calculated by subtracting book value from appraisal value. Figures for the end ofJune 2020 are for 42 properties excluding Sotetsu Fresa Inn Shimbashi-Karasumoriguchi.

Ⅳ. Status of Hotel Operations

1. Monthly Performance of the 24 Hotels with Variable Rent, etc.
Monthly Performance of the 24 Hotels with Variable Rent, etc.
Occupancy (right axis)(JPY)

ADR (left axis)

25,00010,000
5,000
0

100%

21,19720,00015,000

RevPAR (left axis)

14,055

11,065

15,311

12,792

16,09813,723

17,34615,315

16,23314,14318,084
14,915

18,88815,75515,80913,293

13,052

16,489 16,095

14,351 14,223

15,70480%

16,492
14,103 13,777

13,35013,239
11,17813,315

14,178

9,420

3,461

Mar.

Apr.

May

Jun.

Jul.

4,547 4,434 4,862 5,010 4,968 4,539

1,606
701
7.4% 14.8% 26.1% 30.1% 34.8% 38.0% 38.6% 37.9% 34.1%

2019
Feb.

2020
Aug.

Sep.

Oct.

Nov.

Dec.

Full year

YoY change
in RevPAR

Jan.

Feb.

Mar.

Apr.

May

60%
40%

9,003 3,750

Jan.

12,742 12,797 12,969 13,118 13,313

10,843

11,246991
78.7% 83.5% 85.2% 88.3% 87.1% 87.5% 87.4% 89.1% 84.4% 87.0% 88.4% 84.8% 86.0% 79.7% 65.3% 28.1% 8.9%

15,086

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

20%
0%

Full year+1.6% (29.6%) (72.7%) (93.5%) (95.0%) (87.7%) (78.1%) (75.9%) (66.6%) (66.1%) (64.8%) (62.7%) (68.0%)

Of these, Monthly Performance of the 14 HMJ Hotels
Occupancy (right axis)(JPY)

ADR (left axis)

25,00020,00018,41816,014 16,465

15,00010,0005,000
019,49015,761
12,31017,681

22,437 17,561

16,497
18,16816,142

13,445

14,874

14,614

18,721 18,102

17,952

18,635

17,905
15,92916,548 16,219

15,222

14,901 14,767 14,432

Apr.

May

Jun.

Jul.

3,954

5,259 4,997 5,535 5,763 5,718 5,120

1,784

639
4.6% 12.5% 22.1% 25.1% 30.7% 35.5% 37.8% 36.7% 32.2%

2020
Aug.

Sep.

Oct.

(*) Figures for August 2020 to December 2020 and full year 2020 are forecast figures.

Nov.

Dec.

Full year

YoY change
in RevPAR

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Full year+3.7% (27.8%) (72.3%) (94.0%) (96.0%) (87.8%) (78.2%) (76.6%) (66.4%) (66.6%) (64.5%) (62.4%) (68.3%)

20

80%
60%

12,7672019
Mar.

15,587 15,252 15,583 15,906

16,143

1,069
76.9% 81.7% 85.6% 90.7% 88.4% 88.6% 89.0% 91.0% 84.7% 88.4% 89.6% 84.8% 86.6% 80.1% 65.2% 29.6% 7.4%

Feb.

16,285

13,943 14,223

9,711 4,370

Jan.

100%

20,986

20,421
18,254

RevPAR (left axis)

24,65140%
20%
0%

2. Performance of the 24 Hotels with Variable Rent, etc.
Performance and Forecast of Major Indicators
Occupancy (right axis)

ADR (left axis)

Total of the 24 Hotels with Variable Rent, etc.
(JPY)
20,00015,00010,0005,000
015,691
13,34885.1%(14.8%)

13,362
4,536(66.0%)

34.0%

17,263(23.2%)

RevPAR (left axis)

13,2644,541

14,993(69.7%)

86.9%

34.2%

16,492
14,17886.0%(19.3%)

13,313
4,539(68.0%)

34.1%

First Half ofFirst Half ofSecond Half ofSecond Half ofFull Year

Full Year2019 Actual2020 Actual2019 Actual2020 Forecast

2019 Actual2020 Forecast

16,623

18,635

5,193

16,143

100%
50%
0%

The 14 HMJ Hotels(JPY)
20,00015,00010,0005,000
017,587
15,00585.3%(13.4%)

15,222
5,045(66.4%)

33.1%

19,635(15.3%)

17,26387.9%(69.9%)

31.2%

86.6%

(14.6%)(68.3%)

50%

32.2%

Second Half ofSecond Half ofFull Year

Full Year2019 Actual2020 Actual2019 Actual2020 Forecast

2019 Actual2020 Forecast

20,871

18,00005,120First Half of(JPY MM) Total of the 24 Hotels with
24,000
Variable Rent, etc.

600

100%

First Half of

Performance and Forecast of GOP

1,200

15,906(98.0%)
The 14
HMJ Hotels

17,116(98.8%)

414

Full Year 2019204
Full Year 2020

(Actual)(Forecast)

210%3. RevPAR Variance to Previous Year by Region of the 24 Hotels with Variable Rent, etc. (2020)
 Nationwide impact of COVID-19

Hokkaido (2 properties)

Total of 24 properties

Strategic Investment Areas
Existing Properties-66.0%-64.0%-68.0%-69.7%

 ibis Styles Sapporo
 Mercure Sapporo

Hiroshima (2 properties)

Narita (2 properties)

Okinawa (3 properties)-63.8%-67.6%-66.7%First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast) Hotel Nikko Alivila
 Okinawa Marriott Resort & Spa Mercure Okinawa Naha

-52.1%-57.7%-50.0%First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast)-58.5%

 Hilton Tokyo Narita Airport
 International Garden Hotel Narita

Tokyo and Bay Area (6 properties)

Osaka and Kyoto (4 properties)-74.8%-66.2%First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast) Oriental Hotel Hiroshima
 ACTIVE-INTER CITY HIROSHIMA(Sheraton Grand Hiroshima Hotel)

Fukuoka (2 properties)-48.4%-67.9%First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast)First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast)-65.4%-71.2%-64.8%First Half of Second Half ofFull Year
2020 (actual) 2020 (forecast) 2020 (forecast) Oriental Hotel Fukuoka Hakata Station
 the b hakata-78.1%-85.5%

 Hilton Tokyo Odaiba
 Oriental Hoteltokyo bay
-69.7%-71.2%-72.5%
 ibis Tokyo Shinjuku
 the b ikebukuro
First Half of Second Half ofFull Year the b hachioji2020 (actual) 2020 (forecast) 2020 (forecast)  the b suidobashi

 Namba Oriental Hotel Holiday Inn Osaka Namba
First Half of Second Half ofFull Year Hotel Oriental Express Osaka Shinsaibashi
2020 (actual) 2020 (forecast) 2020 (forecast)  ibis Styles Kyoto Station(*) Stating major hotels in each area out of the 24 Hotels with Variable Rent, etc.

-93.8%

22

4. Infection Prevention Measures by HMJ
 Example of initiatives to prevent COVID-19
HMJ provides customers with safe and secure stays by implementing the measures in highest level toprevent COVID-19.

Clean & Safe Policy
Hotel Management Japan Group Hotel is dedicated to thorough "avoidance of the Three Cs(*)" and "hygiene
management." We will embody the three codes of service and implement measures to prevent COVID-19.

① Prevent infections by contact② Prevent droplet infections③ Thorough promotion* The "Three Cs" represents Closed spaces with poor ventilation, Crowded places with many people nearby and Close-contact settings such as close-range conversations.
(From the Ministry of Health, Labour, and Welfare Website)

Thorough cleaning forsterilization

Thorough ventilation

Disinfect areasthat are frequently
touched

Cleaning for extended stay

Frequently
ventilate
everywhere in all
the building

Prevention ofdroplet infections

Staff enter in theguest room at thetime of guests'
request only

New buffet style
Frequently exchange
tongs and chopsticks
for serving. Pleasewear masks andgloves when you takefood from buffet table

Check of body temperatures
upon entry

All guests are
required to checkbody temperatures
Temperature check system at the entrance<Hilton Tokyo Odaiba>

Installation adisinfection station
Create anenvironment inpublic area where
guests can use
hand sanitizer at
any time

Installation a panelat the reception toprevent droplet
infections

Service staff

Avoid congestion
All staff wear
masks and manage
health and hygieneControl waiting
lines to keep
distance and avoid
close contact with
staff

23

Thorough disinfection<Oriental Hotel Fukuoka Hakata Station>

5. Sustainability Initiatives
Aiming for achieving a mid to long-term growth that coexists with society and environment and enhancing sustainability
through appropriate actions for ESG issues(*1)
Sustainability Policy

GRESB Real Estate Assessment(*2)

 JHR and JHRA stipulated "Sustainability Policy," which defines material
issues and initiatives for sustainability in our business JHR received a "Green Star" designation. It was highly evaluated in both
"Management & Policy" and "Implementation & Measurement" areas withregards to initiatives for environmental considerations and sustainability

Sustainability Policy

 Monitoring and improvement ofenvironmental performance in our
portfolio Promotion of comfortable, healthy,
secure and safe hotels
 Promotion of ESG in value chains▶ Highest ranking

 Consideration for and contribution
to local communities

Acquired Initiatives for our officers andemployees▶ "GRESB Rating" Compliance as corporate citizens
 Improvement of transparency andengagement with our stakeholders

CASBEE Certification for Buildings(*3)(May 2020)

 Hilton Tokyo Odaiba received CASBEE
Certification for Buildings, (B+: Good) for the
first time as existing hotel

Green Star

Acquired

3-starAcquisition of BELS Certification(*4)
 JHR obtained a BELS certification for two
properties, Hotel Nikko Alivila and Mercure
Okinawa Naha, for the first among J-REIT
owned hotels

Accommodate COVID-19 Patients
 Accommodated COVID-19 patients with mild
or no symptoms (Two hotels)• Of COVID-19 patients in Tokyo, accommodate
those who are with mild or no symptoms• Introduced cleaning and welcoming robots
to make stay at
hotels safer andmore comfortable

Hotel Nikko
AlivilaMercureOkinawa Naha(*1) For sustainability policy and examples of initiatives by JHR, please see websites of JHR (https://www.jhrth.co.jp/en/about/sustainability.html).
(*2) The GRESB is an annual benchmarking program to evaluate ESG considerations of property companies and real estate funds. The GRESB Real Estate Assessment is distinguished by its comprehensive evaluationof initiatives for sustainability of property companies, REITs and real estate funds, not of individual properties. GRESB rating is a relative evaluation based on comprehensive scores and the highest being "5-stars."(*3) CASBEE (Comprehensive Assessment System for Built Environment Efficiency) is a method for evaluating and rating the environmental performance of buildings. CASBEE Certification for Buildings is granted forassessment results provided by CASBEE for New Construction, Existing Buildings, and Renovation. Assessment results by CASBEE are indicated in a scale of the following five ranks: "S: Superior," "A: Very Good,""B+: Good," "B-: Slightly Poor," and "C: Poor."(*4) BELS (Building-Housing Energy-Efficiency Labeling System) is a display system of energy conservation performance of a building set by Ministry of Land, Infrastructure, Transport and Tourism.

24

Ⅴ. Market Environment

1. Market Environment
 The number of inbound visitors since April was close to zero

 Hit the bottom in April and May under the state of emergency
 The number of Japanese overnight guests has recovered slowly
since June

Changes in Number of Inbound Visitors(thousands)

201917,000Changes in Number of Overnight Guests in Japan(Guest nights in Millions)2020

No. of Inbound Overnight Guests
No. of Japanese Overnight Guests

300

16,634285.3

16,000

250
136.0

3,947

4,000

3,000

2,689
2,6612,604

2,760

2,927

2,773

100

2,880

226.7

75

2,000

50

42.7 43.2 43.5

1,000

25
194

YoY change

51.4

34.3

41.6 23.9 39.4

41.7

32.6
22.8

2.9

1.7

2.6

0

2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
January February
March
April
May
June
Jan.–Jun.

(1.1%)

33.5 33.5(58.3%) (93.0%) (99.9%) (99.9%) (99.9%) (76.3%)

YoY change

Source: Number of International Visitors to Japan by Japan National Tourism Organization (JNTO)(*) The numbers for Jan.–Apr. 2020 are provisional numbers, and May–Jun. are estimated numbers.

26

119.8
45.8

37.4

1,085

0

50.7

51.1

9.7

58.6

36.2
7.8

13.9

16.2
9.5
13.8
11.3
9.7 7.7
9.6
1.1
0.2
0.2
0.1
2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
January
February
March
April
May
June
Jan.–Jun.
9.2 9.7

9.3

+1.1%

(14.0%)

4.9

9.5(53.2%)(80.9%)(84.9%)(69.6%)(52.3%)

Source: Statistics of Overnight Travel by Japan Tourism Agency(*) Rounded off to the nearest millions of people.
Numbers for Jan.–May 2020 are second preliminary figure, numbers for June 2020 are firstpreliminary figure.

1. Market Environment (cont.)
 Consumption by inbound visitors and Japanese overseas travelis at the same level Shift from overseas travel to domestic travel is expected Part of new hotel opening plans were canceled or postponed The number of new supplies in Tokyo and Osaka, where mass
supply has continued, is expected to decrease from 2021 onwards

Changes in Number of Consumer Outlook Survey in Tourism

Supply of Rooms in Hotels/Ryokans in Japan(Trillion Yen)

35

Domestic Overnight Travel
Inbound Travel

30

25

25.0
4.5

20

1.1
4.4

26.0
4.4
1.4
4.8

15

27.6
24.8
4.3
2.0

3.8
3.5
4.6

Domestic Day Trip
Overseas Travel

28.8
4.1
3.7
4.9

31.6

29.8 29.3
4.2
4.4

5.0

4.8

4.7

20,0000

Excl. Tokyo, Osaka(%: change from theprevious year)

4.8

16,5172016

13.9

10,000

16.0

16.1

15.8

6,107

2013

2014

5.4
1.0
1.2
1.0

2015

2016

2017

2018

2019

14,3482016

30,650

3.2

0.9
0.7
0.7
2.6

2019

2020

3,000

2017

2018

8,329

2019

2023~

3,059

2,150

16,93910,594 7,745

2020

2021

2022

2023~

10,721

7,257

5,018

3,052

1,402

0

Ratio of New Supply +1.8%(%: change from theprevious year)

2022＜Osaka＞

9,000
6,000

2021

+3.8% +7.4% +6.4% +9.3% +3.9% +1.5% +1.0%

12,000

4.1

2020

6,345

(No. of Rooms)

Jan.-Mar. Jan.-Mar.

Source: Consumer Outlook Survey in Tourism by Japan Tourism Agency(*) Numbers for Jan.–Mar. 2020 are first preliminary figure.

5,866

5,000

5

2012

2019

11,833 11,062

15,0004.8

2018＜Tokyo＞

0

15.8

2017

20,00017.2

37,833+2.1% +3.4% +3.6% +3.4% +2.1% +0.8% +1.7%+0.7% +1.7% +2.5% +2.7% +2.4% +1.7% +0.6% +1.7%(%: change from theprevious year)

15.4

31,62427,295

Ratio of New Supply +4.1%

15.0

32,988(No. of Rooms)

4.5

10

0

53,946 59,036 58,919

60,000

Supply Forecast

Ratio of New Supply +1.1%

4.3
4.5

80,00040,000

Actual＜Japan＞(No. of Rooms)

Expected tocover decline of
inbound travelby shiftingoverseas travel
to domestic
travel

2016

5,725
2,347

4,205

3,419

+6.3% +9.9% +11.6% +7.0% +5.2% +2.0% +2.9%
2017

2018

2019

2020

2021

2022

2023~

Source: Estimated by the Asset Management Company using data from "Public Health Administration Report" by Ministry of
Health, Labour and Welfare (MHLW), a weekly hotel & restaurant magazine (HOTERES), and Nikkei Telecom.
(*) Ratio of new supply is the ratio of new rooms to be supplied in a year to the stock of rooms at the beginning of the year.
With regard to the above data, please note that in case the number of rooms are stated as "to be determined" by hotels,
the asset management company has used 180, the average number of new supply of hotel rooms, for calculation.

27

1. Market Environment (cont.)
 To stimulate tourism demand, the government has started
support measures with unprecedented budgets

 Campaigns for encouraging travel unique to each local
government have started, and encourage local travel

Measures to stimulate domestic tourism demandby the government

Campaigns for encouraging travel
by major local governments

Go To Travel Campaign

Rediscover Okinawa
Campaign

 One of four campaigns to stimulate tourism demand
Travelers can receive up to 50% subsidies on accommodation anddaytrip in JapanOf the subsidies, 70% is granted as a discount on travel expenses
and 30% is given by vouchers that can be used in local areas when
Summary
travelling
Up to JPY20,000 per person per night (up to JPY10,000 for daytrip)(no limit of the number of consecutive nights at the destination andnumber of times you can use)
Budget

JPY1,350Bn (80% of Go To Campaign)

Schedule

The discount of travel has started on July 22, 2020

"Workation"

Remote work at
areas including
resort and hot
springs

Pleasure

Satellite Office

Stay-on Trip

Extend stay on
business trip toenjoy leisureAccommodation
facilities can beused as office

Experience local
nature for a periodof time, including
weekdays

Support home!
Eat in Kyoto,
stay in Kyoto
Campaign"Saa!" (Let's) Sapporo
Summer Discount &Staying in Sapporo,
Smile Coupon Campaign"Doumin Wari"(Hokkaido Citizen Discount)

Welcome to
Hyogo Campaign"Rediscover Fukuoka"
Kyushu Campaign

Stay CHIBA
Campaign
Yokosuka Premium"Oendan" (supporter)"Irasshai" (welcome) Campaign forresidents of Osaka and Kansai area

Promote "new style of travel" in tourist spot
and accommodations
Source: "Supplementary budget related to Japan Tourism Agency for the fiscal year 2020" "Summary of
Go To travel campaign" "Initiatives to increase travel consumption and diversification ofvacations" (minutes of Tourism Strategy Promotion Council) by Japan Tourism Agency(*) The above information is planned as of the end of July 2020. The budget is the amount insupplementary budget for the fiscal year 2020.

Existing properties

NAHA "Tomaru" (stay) Coupon

Diversification of vacations and promotion of new style of travel(work + vacation)

Strategic Investment Areas

Hiroshima City Premium Accommodation Coupon
Hiroshima Prefecture Accommodation Discount Coupon

28

Source: Disclosures by each local government(*) Stating major campaigns in the areas where the hotels owned by JHR. Each campaign
was confirmed as of the end of July 2020 and may change in the future.

Ⅵ. Takeaways

1. Takeaways
Pre
COVID-19
2019● Development and distribution ofeffective vaccine and medicine

With
COVID-19

2020

2021

Post
COVID-19

2022

2023

ChangeSense ofSocial &values/economic

Lifestyleactivity

Leisuredemand(quantity andquality)

FinancialmarketSociety

Guests'Investment

needs

opportunity

Hotel market

Respond flexibly to change
Aim to become a front-runneradopting to
the "post COVID-19" period

Survivethe "with COVID-19" period30Appendix 1
JHR's Characteristics and Strategy

1. JHR's Investment Targets
Strong ability in acquiring properties

Aim to increase dividend
for mid to long term Highly recognized as Japan's largest J-REIT specializing
in hotels
 High presence and credibility in the property market bycontinuously acquiring properties Capability to propose various acquisition schemes and to
execute acquisitions

High capability in achieving internal growthHighcapability inachievinginternal
growthStrongability inacquiringproperties

 Management approach through active asset management
strategies that achieves a good balance between stability
and upside potential
 Increase in hotel revenue through collaboration with highquality operators
 Attract inbound demand through enhanced international
brand portfolio
 Strengthen and maintain competitiveness by investing inappropriate capital expenditures

Stablefinancingcapability

Stable financing capability
 Secure sound and stable finance Diversify financing methods

32

2. Simultaneous Pursuit of Stability and Upside Potential
 JHR pursues both stability and upside potential by steadily implementing growth strategies

Ensure Stable Revenue

Pursue UpsideManagement
contract structure

Fixed rent structure

Variable rent
structure

Revenue sharing
structure

Active Asset Management Strategies

 Appropriate monitoring of hotel operation
 Capital expenditures to maintain competitiveness and asset value

 Change in rent structures and rebranding Strategic capital expenditures, etc.

Maintain and improve rent-paying capacity of tenants, etc.

Increase in rental income, etc. throughimprovement in hotels' performance

Proportion of Rental Income

Proportion of Rent Structures

2019 Actual(annualized)(as of August 25, 2020)

2020 Forecast(annualized)
Variable rent, etc.(＊)

Variable rent, etc.(＊)

Fixed rent only

11 properties

10.1%

38.4%

Fixed rent, etc.

61.6%
(*)

Variable rent, etc.(*)

31 properties

Fixed rent, etc.

89.9%

Variable rent, Rent from revenue sharing andIncome from management contracts

(*)

33

Fixed rent + variable rent structure
Fixed rent + revenue sharing structure
Variable rent structure and management contract structure

3. External Growth Strategy
Recognition of External
Environment

Basic Policies

Trend of the Hotel
Investment Market

 Acquire highly competitive hotel real estate, etc. in areas that have potential to attract "demand by both domestic
and inbound leisure customers" in the medium to long-term

 Amid the rapid economic downturncaused by the COVID-19, hotelrevenue has been largely hit andunprecedented events, such as
requests for rent reductions fromtenants and concerns about thecreditworthiness of hotel operators
have occurred. As a result, the hotel
market, which had been brisk due tothe expansion of inbound demand, hasbeen turning around and the businessenvironment continues to bechallenging.
 In the short term, both sellers andbuyers are quiet due to the uncertainty
about the market conditions, and hoteltransactions are stagnant.
 For medium to long term, demand fordomestic and overseas
accommodations is expected torecover as a result of the development
and commercialization of a vaccine andmedicine for COVID-19. As the market
recovers, the hotel investment may berevitalized again. However, thecompetitiveness of hotels is becoming
more evident in accordance with the
hotel specifications, locations, and theabilities of hotel operators, and it isimportant to differentiate each hotel.

 Improve profitability, stability, and quality of the overall portfolio

Key Measures
 Emphasize the superiority of buildings and facilities (infrastructure), operations (services), and locations of hotel
real estate, etc.
• The prime investment targets are "full-service hotels" and "resort hotels" that have high barriers to entry due tooperation and management know-how, capital outlay and locations• In the case of "limited-service hotels," the creditworthiness of the hotel lessee, the age of the building, location,
guest room composition and profitability are important• For limited-service hotels specialized in selling single rooms, consider acquisition individually, taking into accountthe hotel specifications and the possibility of achieving the upside.
• Especially, proactively review the purchase of hotels that have potential for internal growth by implementing
active asset management or the possibility of synergy effect with the existing properties Strategic investment areas• Hokkaido area, Tokyo and bay area, Osaka/Kyoto area, Fukuoka area, and Okinawa area
 Investigation and planning of the internal growth strategy upon property acquisition• Investigate the appropriate rent level and rent structure upon renewal, etc., cost reduction possibilities, andpossibilities to improve buildings and facilities• Particularly, if the hotel pays variable rent, etc., promote internal growth through collaboration with lessees
and/or operators
 Use HMJ's efficient hotel operation platform, etc. to respond to new investment opportunities (such as sales ofhotels without operators, etc.) caused by the impact of COVID-19

34

4. Internal Growth Strategy
Recognition of External
Environment
Hotel Market Environment Due to the spread of infection by
COVID-19, both inbound and domestic
demand declined significantly, and theJapanese tourism and hotel industries
are expected to remain stagnant for
the time being. From now on, global
trend needs to be watched closely, but
inbound and domestic demand are
expected to gradually recover as the
spread of infections come to an end.
 Although there are supply-demand
imbalances depending on the market
due to the continued supply of newhotels against the backdrop of robust
hotel demand in recent years, there
are no changes to the medium to longterm trend of expansion in the tourism
market accompanying economic
growth in the Asia region.
 As hotel operators are temporarily
exposed to significant deterioration in
the market environment, they must
adopt a defensive strategy to maintainsound management and respondflexibly to changes.

Basic Policies
 Pursue both stability and upside potential by steadily implementing active asset management strategies

Key Measures Planning and execution of the active asset management in order to realize pursuit in upside revenue• Make strategic CAPEX which will improve profitability and strengthen competitiveness mainly at hotels with highgrowth potential• Raise rent and change to rent structures that can achieve upside revenue• Reduction of management contract fee of properties under management contract• Attract inbound demand through rebranding to international brands• Make proactive proposals to build effective hotel operating structures which aim to maximize GOP, from theperspective of both hotel sales and expenses• Increase hotel revenue through collaboration with high-quality operators
 Planning and execution of strategic CAPEX which secure steady revenue, and monitoring of lessees• Analyze the creditworthiness of hotel lessees, understand hotel income and expenditures, closely observe andimprove rent-paying capacity• Maintain and improve rent-paying capacity of tenants, etc. through capital expenditures, which lead to maintainand improve competitiveness and asset value Flexible approach to the influence of COVID-19• Promote drastic restructuring of hotel revenue structure through cost reduction measures centered on thoroughefficiency improvement of operating structure• Develop appropriate products and improve hotel facility environment in response to major changes in themarket environment• Appropriately implement strategic CAPEX in response to the conditions of the domestic accommodation andtourism markets as well as changing customer needs

35

5. Financial Strategy
Recognition of External
Environment
Trend of Financing Environment
and Interest Rates
 In the first half 2020, both the numberof public offering (including IPOs) andthe amount of fund procured by JREITs were smaller than the previous
year due to the financial market
turmoil caused by the spread of
infection by COVID-19. The Tokyo
Stock Exchange RIET Index fell sharply
in mid-March and has remained weaksince then.
 Although there has been no change insupportive attitude by financial
institutions. However, some sectors,
such as hotels, have seen a cautious
stance toward long-term loan andupward pressure on interest rates dueto the spread of infection by COVID-19.

Basic Policies
 Ensure healthy and stable finance Strengthen lender formation and relationships with financial institutions
 Diversify financing methods

Key Measures
 Maintain LTV level at a maximum of 50% (total asset base) for the time being
 Diversify financing methods such as public offerings and issuance of investment corporation bonds
 Improve financial stability by diversifying repayment periods and fixing interest rates, etc. as necessary Optimize borrowing costs
 Aim to improve liquidity on hand and further strengthen the financial base by controlling capital expenditures, etc.

 Both short-term and long-term interest
rates remain at low levels due to themonetary easing policy.
 As for investment corporation bonds,
issuance of green bonds continues toincrease, but the amount of issuance ison a declining trend.

36

6. Benefits Program for Unitholders
JHR implemented benefits program for unitholders to obtain a better understanding, improve theirsatisfaction and expand the investor
Eligible recipients of complimentary couponsComplimentary coupons will be sent to those who hold ten or more JHR units
at the end of June every year (end of the midterm settlement)＜FY2020＞
Eligible unitholders: 16,369
Valid period: One year between October 1, 2020 to September 30, 2021

Details of the benefits program
Five complimentary coupons for accommodations and fivecomplimentary coupons for restaurants(*)
10% discount from the best rate for accommodation by each
hotel and 10% discount for restaurants(*) Complimentary coupons for restaurants are only available at selected hotels.

Hotels that offer the Benefits Program
The 14 HMJ Hotels

Kobe Meriken Park
Oriental Hotel

Oriental Hoteltokyo bay

ACTIVE-INTER CITY
Oriental Hotel Fukuoka
HIROSHIMA (Sheraton
Hakata Station
Grand Hiroshima Hotel)

Hotel Nikko Nara

Namba
Oriental Hotel

Oriental Hotel
Hiroshima

Holiday Inn
Osaka Namba

Hilton Tokyo Odaiba

The Six Accor Hotels

Hotel Nikko Alivila

Hilton Tokyo
Narita Airport

Okinawa Marriott
Resort & Spa

International Garden Hotel Narita

Hotel Oriental Express Osaka Shinsaibashi

37

ibis Tokyo Shinjuku

ibis Styles Kyoto Station

Mercure Sapporo

ibis Styles Sapporo

Mercure Okinawa Naha

Mercure Yokosuka

Appendix 2
Information on Properties

1. Portfolio Map
 Portfolio consisting of competitive hotels in areas with strong leisure lodging demand Selectively invest in locations with high growth potential of leisure demand such as Strategic Investment Areas
Total Assets(as of August 25, 2020)

Strategic Investment Areas
Existing properties

JPY369.7Bn

1

2

3

4

5

6

Kobe Meriken Park
Oriental Hotel

Oriental Hoteltokyo bay

Namba
Oriental Hotel Hotel Nikko Alivila
Oriental Hotel Hiroshima

78

Limited-service hotel

No. of Hotels

Full-service hotel

23 24

Resort hotel

42 Hotels

Hokkaido Area

12

13

14

The Beach
HakoneTower Okinawa Setsugetsuka

Dormy Inn
Kumamoto

15

16

17

Toyoko Inn
Hakata-guchi
EkimaeHotel Keihan
Universal City

9

10

11

the b
suidobashi

dormy inn・
global cabin
Asakusa

Hakata Nakasu Nara Washington R&B Hotel
Comfort Hotel Smile Hotel
Hotel Plaza
Washington
Ueno-hirokoji Tokyo Higashi Nihombashi
Hotel Plaza
Nihombashi
Mitsukoshimae

18

19

20

21

22

Chisun Inn
KamataHotel Vista
Kamata Tokyo

Hilton Tokyo Bay

ibis Tokyo
Shinjuku

ibis Styles
ibis Styles
Kyoto Station Sapporo

No. of Guest Rooms

11,485 Rooms
Tokyo & the Bay Area(*1)
27Osaka/Kyoto Area(*2)
Fukuoka
11 16
Area
28 34 36

7

38 39

30

20

37

8

1
4 32

12 40

9
5

21

6

25

25

MercureSapporoMercurethe b ikebukuro
Okinawa Naha

34

27

28

29

30

31

32

the b hachioji

the b hakata

Hotel Francs

MercureYokosuka

Okinawa Marriott
Resort & Spa

ACTIVE-INTER CITY

35

36

37

38

39

40

41

42

Holiday Inn
Osaka Namba

HOTEL ASCENTFUKUOKA

Hilton Nagoya

Hilton Tokyo
Narita Airport

International
Garden Hotel
NaritaHotel Nikko Nara

Hotel Oriental
Express Osaka
Shinsaibashi

Hilton Tokyo Odaiba

33

Tokyo 23 wards
26

31

26

24

2 29

22

3 17 35 41

23

10
14
15

18
19

13 33

HIROSHIMA (Sheraton
Grand Hiroshima Hotel)

CANDEO
Oriental Hotel
HOTELS
Fukuoka
UENO-KOEN Hakata Station

42

Okinawa Area(*1) Bay Area includes the coastal area of Tokyo Bay in Kanagawa and Chiba prefectures.
(*2) Osaka/Kyoto Area refers to Osaka and Kyoto prefectures.

39

2. Portfolio Diversification
 Widely diversified and high-quality portfolio Appeal to inbound visitors by international brands
By Area and Rent(*1)(V)(F)
2019 Actual(V)
0.9% 4.2%(F)
3.3%(annualized) (V) 1.7%
2.3%
(F)
4.9%
(V)
1.6%
(F)

Dormy Inn, etc.

(F)

(Kyoritsu Maintenance)

17.3%

Hokkaido
Chugoku

the b

5.0%

Tokyo

Chubu
7.2%
Kyushu 5.0%

(V)

20.7%

3.4%

(excluding Okinawa)

5.2%

6.8%

(V)

Okinawa

6.5%

12.9%

Kanto
(excluding Tokyo)

(F)

22.6%

Kansai13.8%(excluding Osaka)
Osaka
8.6%

(F)
6.4%

By Hotel Brand(*2)

(F)
4.3%

(V)

(F)

4.1%

7.1%

Hotel Nikko

3%

8%

61.6%

ibis/Mercure (Accor)

Variable Rent (V)8%Holiday Inn
(IHG)

38.4%

7%
Sheraton
Hilton

8.7%

32%

(F)

By Grade(*2)

18.9%

0.7%
Hokkaido

7.7%

3.1%
Chugoku

(V)

8.5%

2.5%

Kyushu
14.6%

20.3%

8.1%

(excluding Okinawa)
(F)

Tokyo

Chubu

Kansai

6.4%

(F)
2.9%

1.5%

(F)

(V)

7.1%

0.7%

5%

4%

By Hotel Type(*2)

5%Fixed Rent, etc. (F)89.9%
Variable Rent (V)(excluding Tokyo)

7.1%

(F)

Mariott

Economy(V)

Kanto(excluding Osaka)
Okinawa 2.9%
6.4%
Osaka

12.1%

16%

International Brand: 56%(F) (V)
2020 forecast(V)(F) 3.6% 2.0% 1.1%
(annualized) (V) 4.6%
(F)

Oriental Hotel(Ishin Hotels Group)

Fixed Rent, etc. (F)

(V)

4.2%

12%

4%

11.2%

(V)

Others

28.9%
(F)

10.1%

Resort21%

21%

Mid-price
41%

28.2%

(*1) Based on the annualized rent in actual of FY12/2019 and revenue forecast of FY12/2020.
(*2) Based on the acquisition price.

Luxury40

Limitedservice
32%

Uppermiddle

Full-service

33%

47%

3. Rent Structures
Stability

Upside(FY12/2020 forecast)Rent Structure(*1)

Fixed rent

Fixed rent +Revenue sharing

Fixed rent + Variable rent

Variable rentManagement contract

Type of Contract

Lease contract

Lease contract

Lease contract

Lease contract

Management contract

Fixed

○

○

○

–

–

–

Variable–

A certain percentage of sales
exceeding the threshold

A certain percentage of
hotel GOP

A certain percentage of hotelrevenue or hotel GOP

Hotel GOP–

JPY2,818MM(29.0%)

JPY3,057MM(31.4%)

JPY2,473MM(25.4%)

JPY868MM(8.9%)

JPY504MM(5.2%)

JPY9,723MM(100.0%)

Fixed Rent,
etc.(*3) (%)

JPY2,818MM(29.0%)

JPY3,043MM(31.3%)

JPY2,000MM(20.6%)JPY485MM(5.0%)JPY392MM(4.0%)

JPY8,741MM(89.9%)

Variable Rent(%)–

JPY13MM(0.1%)JPY473MM(4.9%)

JPY383MM(3.9%)

JPY111MM(1.1%)

JPY982MM(10.1%)

Low

Low

High

High

High

–

Type of
Rent

Real Estate Operating
Revenue(*2) (%)(breakdown)(annualized forecast for
FY12/2020)

Involvement inHotel Operation

Total

CAPEX Paid by JHR

1) Renewal of building
and facilities

1) Renewal of building
and facilities<3) Strategic investment>

1) Renewal of building andfacilities
2) Fixtures and equipment
3) Strategic investment

1) Renewal of building andfacilities
2) Fixtures and equipment
3) Strategic investment

1) Renewal of building andfacilities
2) Fixtures and equipment
3) Strategic investment–

No. of Properties

11

5

18

3

5

42

Acquisition Price(%)

JPY37,300MM(10.1%)JPY39,416MM(10.7%)

JPY245,628MM(66.4%)

JPY17,723MM(4.8%)

JPY29,640MM(8.0%)

JPY369,708MM(100.0%)

The Beach Tower Okinawa

Hilton Tokyo Bay

The 14 HMJ Hotels

Hilton Nagoya

ibis Tokyo Shinjuku

Hotel Francs

Hotel Keihan Universal City

the b ikebukuro

Mercure Yokosuka

ibis Styles Kyoto Station

CANDEO HOTELS
UENO-KOEN

Smile Hotel
Nihombashi Mitsukoshimae

the b hachioji

Chisun Inn Kamata

ibis Styles Sapporo

HOTEL ASCENT FUKUOKA

Hotel Vista Kamata Tokyo

the b hakata

Mercure Sapporo

and other hotels

Comfort Hotel Tokyo
Higashi Nihombashi

the b suidobashi

Mercure Okinawa Naha

Hotels(*1) Rent structure is categorized according to the rent contract for hotels of each asset owned by JHR.
(*2) Revenue from trademark rights is excluded from the real estate operating revenue in the table above.
(*3) Fixed rent includes fixed rent and utility income based on rent contract of non-hotel portion (offices, signage, car parks, retail shops, etc.) of asset owned by JHR.

41–

4. Active Asset Management
 Implement Active Asset Management Strategy at both hotel and REIT sides
 Focus on "reduction of hotel operating costs" in order to overcome COVID-19 crisis

HotelsExamples of Active Asset Management
Improvement of Hotel
Revenue

Reduction of Hotel
Operating Costs

 Strategic capital expenditure (e.g., renovation of rooms to increase RevPAR) Rebranding according to each hotel's characteristics
 Synergy from sharing guest by hotels located nearby in the same group Renewal of a hotel booking system Integration of back-office operations at hotels located in nearby area
 Optimization of staffing● Cost reduction by joint purchasing in the same group
 Reduction of utility costs

REIT

Improve GOP

Improvement of Real
Estate Operating Revenue Rent increase by revision of rent scheme, etc.

Reduction of Real Estate
Operating Costs

 Reduction of cost for Property Management and Trust, management contract fee,and ground rent, etc.
Improve NOI

Maximize DPU

42

5. Property List (1/2)(as of the end of June 2020)
Appraisal ValueNo.

Property Name

Hotel Type
(*1)

Grade
(*2)

No. of
Guest
Rooms

LocationAge(*3)

Acquisition
Price(JPY MM)(*4)

Book Value(JPY MM)(*5)

20th Period(as of December 31, 2019)
Appraisal
Value(JPY MM)

21st Period(as of June 30, 2020)

CAP Rate

Appraisal
Value(JPY MM)CAP Rate

Investment
Ratio
(*6)

Revenue from
Real Estate
NOI
Operation(JPY1,000)(JPY1,000)
(*7)
(*7)

P/L from
Real Estate
Operation(JPY1,000)(*7)

NOI Yield(actual)(*8)

1

Kobe Meriken Park Oriental Hotel

Full-service

Upper-middle

323

Hyogo

25.0

10,9009,762

16,2004.8%

14,6004.8%

2.9%

50,961(74,314)(223,423)(1.8%)

2

Oriental Hotel tokyo bay

Full-service

Mid-price

511

Chiba

25.2

19,90017,53037,800

4.4%

32,100

4.4%

5.3%

63,216

4,029(179,316)(0.3%)

3

Namba Oriental Hotel

Limited-service

Mid-price

258

Osaka

24.3

15,00014,571

32,9004.1%

31,4004.1%

4.0%

70,325

17,561(61,762)(0.2%)

4

Oriental Hotel Hiroshima

Full-service

Upper-middle

227

Hiroshima

26.8

4,100

4,139

4,400

4.9%

4,370

4.9%

1.1%

17,875(4,401)(48,028)(0.7%)

5

Hotel Nikko Alivila

ResortLuxury397

Okinawa

26.3

18,90018,13232,9004.8%

28,9004.8%

5.0%

67,008(7,123)(159,859)(0.4%)

6

The Beach Tower Okinawa

ResortMid-price

280

Okinawa

16.3

7,610

6,524

10,100

4.4%

10,1004.4%

2.0%

255,504

234,061

167,019

6.1%

7

Hakone Setsugetsuka

ResortMid-price

158

Kanagawa 13.8

4,070

3,659

5,310

4.9%

5,310

4.9%

1.1%

147,469

135,723

88,516

6.7%

8

Dormy Inn Kumamoto

Limited-service

Mid-price

291

Kumamoto 12.4

2,334

2,184

3,060

5.6%

2,990

5.7%

0.6%

97,23086,21364,191

7.4%

9

the b suidobashi

Limited-service

Mid-price

99

Tokyo

33.9

1,120

1,199

2,440

4.1%

2,420

4.1%

0.3%

42,49937,181

22,563

6.6%

10

dormy inn・global cabin Asakusa

Limited-service

Economy

75

Tokyo

23.3

999

939

1,330

3.9%

1,280

4.0%

0.3%

31,99727,503

20,661

5.5%

11

Hakata Nakasu Washington Hotel Plaza

Limited-service

Mid-price

247

Fukuoka

25.4

2,130

2,030

4,520

4.4%

4,510

4.4%

0.6%

120,000

112,000

100,000

10.5%

12Nara Washington Hotel Plaza

Limited-service

Mid-price

204

Nara

20.3

2,050

1,782

2,440

5.0%

2,430

5.0%

0.5%

75,00067,00049,000

6.6%

13

R&B Hotel Ueno-hirokoji

Limited-service

Economy

187

Tokyo

18.3

1,720

1,814

2,010

3.9%

1,910

4.0%

0.5%

48,65441,51333,2184.8%

14

Comfort Hotel Tokyo Higashi Nihombashi

Limited-service

Economy

259

Tokyo

12.4

3,746

3,509

5,830

4.3%

5,390

4.4%

1.0%

136,911

121,758

103,456

6.5%

15

Smile Hotel Nihombashi Mitsukoshimae

Limited-service

Economy

164

Tokyo

23.3

2,108

2,012

3,160

4.0%

2,930

4.1%

0.6%

79,847

71,792

61,472

6.2%

16

Toyoko Inn Hakata-guchi Ekimae

Limited-service

Economy257

Fukuoka

18.8

1,652

1,410

2,750

4.5%

2,750

4.5%

0.4%

70,51963,73754,627

7.7%

17

Hotel Keihan Universal City

ResortMid-price

330

Osaka

19.0

6,000

5,869

13,9004.9%

13,4004.9%

1.6%

285,410248,139204,727

7.9%

18

Chisun Inn Kamata

Limited-service

Economy

70

Tokyo

17.2

823

767

1,430

4.5%

1,370

4.6%

0.2%

15,65012,141

6,992

1.4%

19

Hotel Vista Kamata Tokyo

Limited-service

Economy

105

Tokyo

28.4

1,512

1,440

1,990

4.5%

1,930

4.6%

0.4%

46,837

39,68527,001

5.2%

20

Sotetsu Fresa Inn ShimbashiKarasumoriguchi (*9)

Limited-service

Mid-price

220

Tokyo

12.3

4,800

4,792

8,950

3.9%

8,000

–

1.3%

231,184

201,402

190,390–21

Hilton Tokyo Bay

ResortLuxury

828

Chiba

32.0

26,05026,33240,5004.3%

40,0004.3%

7.0%

989,150

848,139756,609

6.5%

22

ibis Tokyo Shinjuku

Limited-service

Mid-price

206

Tokyo

39.8

7,243

7,958

10,200

4.0%

9,900

4.1%

1.9%

90,44027,760(29,520)

0.3%

23

ibis Styles Kyoto Station

Limited-service

Mid-price

215

Kyoto

11.3

6,600

6,657

10,900

4.3%

10,2004.3%

1.8%

22,967(10,045)(28,934)(0.3%)

24

ibis Styles Sapporo

Limited-service

Mid-price278

Hokkaido

9.9

6,797

6,561

11,200

4.7%

11,1004.7%

1.8%

50,357

11,734(29,360)

0.2%

43

5. Property List (2/2)(as of the end of June 2020)
Appraisal ValueNo.

Property Name

Hotel Type
(*1)

Grade
(*2)

No. of
Guest
Rooms

LocationAge(*3)

Acquisition
Price(JPY MM)(*4)

Book Value(JPY MM)(*5)

20th Period(as of December 31, 2019)
Appraisal
Value(JPY MM)

21st Period(as of June 30, 2020)

CAP Rate

Appraisal
Value(JPY MM)CAP Rate

Investment
Ratio
(*6)

25

Mercure Sapporo

Limited-service

Mid-price285

Hokkaido

11.2

6,000

5,824

11,000

4.6%

10,600

4.7%

1.6%

26

Mercure Okinawa Naha

Limited-service

Mid-price

260

Okinawa

10.9

3,000

2,872

7,190

4.6%

6,950

4.7%

27

the b ikebukuro

Limited-service

Mid-price

175

Tokyo

38.0

6,520

6,603

7,350

4.2%

7,280

4.2%

28

the b hachioji

Limited-service

Mid-price

196

Tokyo

33.9

2,610

2,682

2,790

5.1%

2,770

29

the b hakata

Limited-service

Mid-price

175

Fukuoka

22.8

2,300

2,350

4,610

4.3%

30

Hotel Francs

Full-service

Mid-price

222

Chiba

28.9

3,105

3,156

4,140

31

Mercure Yokosuka

Full-service

Mid-price

160

Kanagawa 26.7

1,650

1,640

32

Okinawa Marriott Resort & Spa

ResortUpper-middle

361

Okinawa

15.4

14,95033

ACTIVE-INTER CITY HIROSHIMA(Sheraton Grand Hiroshima Hotel)

Full-service

Luxury238

Hiroshima

9.8

34

CANDEO HOTELS UENO-KOEN

Limited-service

Mid-price

268

Tokyo

35

Oriental Hotel Fukuoka Hakata Station

Full-service

Upper-middle

221

36

Holiday Inn Osaka Namba

Limited-service

Mid-price

37

HOTEL ASCENT FUKUOKA

Limited-service

38

Hilton Nagoya

39
40
41

Hotel Nikko Nara

42

Hotel Oriental Express Osaka
Shinsaibashi

43

Revenue from
Real Estate
NOI
Operation(JPY1,000)(JPY1,000)
(*7)
(*7)

P/L from
Real Estate
Operation(JPY1,000)(*7)

NOI Yield(actual)(*8)

110,495

34,131(13,185)

0.8%

0.8%

–

(32,145)(64,475)(2.4%)

1.7%

112,878

100,244

84,199

2.8%

5.1%

0.7%

103,323

90,33173,649

7.4%

4,550

4.3%

0.6%

47,73841,12630,049

3.5%

4.6%

4,120

4.6%

0.8%

150,000

119,073

96,523

7.7%

3,590

4.6%

3,450

4.6%

0.4%

45,422(2,910)(20,600)(2.7%)

14,962

17,9004.9%

17,5004.9%

4.0%45,833

3,858(141,077)(0.3%)

17,32017,36021,900

4.5%

21,2004.6%

4.6%

410,020

225,154

115,929

2.3%

10.5

6,705

6,632

7,650

4.0%

7,610

4.0%

1.8%

174,985

162,103

142,053

4.8%

Fukuoka

35.0

7,197

9,661

15,300

4.6%

15,2004.6%

1.9%

165,773

42,150(161,921)

0.4%

314

Osaka

11.9

27,00027,032

27,2004.3%

26,500

4.3%

7.2%

48,00023,687(72,008)

0.0%

Economy263

Fukuoka

21.2

4,925

5,234

6,620

4.8%

6,530

4.8%

1.3%

228,131

165,939

148,357

6.9%

Full-service

Luxury

460

Aichi

31.4

15,25015,692

15,7004.2%

15,000

4.2%

4.1%

399,826

92,666

9,904

0.8%

Hilton Tokyo Narita Airport

Full-service

Upper-middle

548

Chiba

26.9

13,175

13,392

13,7004.6%

13,500

4.6%

3.5%

37,000(6,298)(115,753)(0.3%)

International Garden Hotel Narita

Full-service

Mid-price

463

Chiba

24.1

9,125

9,210

9,660

4.8%

9,500

4.8%

2.4%

47,00424,916(48,085)

0.2%

Full-service

Upper-middle

330

Nara

22.4

10,373

10,37910,900

4.8%

9,840

4.8%

2.8%

35,00011,353(61,676)(0.1%)

Limited-service

Mid-price

124

Osaka

2.4

2,738

2,823

2,990

4.6%

2,900

4.6%

0.7%

9,200

4,983

(1,459)(0.2%)

Hilton Tokyo Odaiba

Full-service

Upper-middle

453

Tokyo

24.5

62,40063,63469,5003.7%

68,400

3.7%

16.7%

258,300

173,767

38,487(0.1%)

Total or Average (43 properties)––

11,705–22.3

374,508

372,731525,9104.5%

502,6904.5%

100.0%

5,536,698

3,588,155 1,229,734–

Total or Average(42 properties excluding one property sold)––11,485–22.4

369,708

367,938

516,960

4.5%

494,690

4.5%

98.7%

5,305,514

3,386,753 1,039,344

1.4%

(*1)
(*2)
(*3)
(*4)
(*5)
(*6)
(*7)
(*8)
(*9)

Under the category of Hotel Type, "Full-service" is full-service hotel, "Resort" is resort hotel, and "Limited-service" is limited-service hotel.
Mainly based on ADR, etc., JHR has classified the hotels into four categories as "luxury," "upper-middle," "mid-price," and "economy."
Average age: Weighted average calculated as follows. The sum of (acquisition price of each property x property age)/total acquisition price.
The acquisition price in the Purchase & Sale Agreement for the Beneficial Interest in Trust, etc. is indicated. (Consumption tax, amount equivalent to consumption tax, brokerage fee, and other purchase-related costs are excluded.)Book value as of the end of June 2020.
Investment ratio indicate percentage of the acquisition price of each asset to the total acquisition price. Numbers beyond one decimal place is rounded off.
Actual for six months from January to June 2020. Since the lessees did not agree to disclose numbers in units of JPY1,000 for No. 11 and 12, amounts are rounded down to the nearest JPY million.
NOI yield (forecast) states forecast of NOI yield (annualized) for FY12/2020. NOI yield for the portfolio is calculated as follows: Total NOI for FY12/2020 (forecast) (annualized) ÷ total acquisition price of properties expected to be held of the end of
FY12/2020.
Sotetsu Fresa Inn Shimbashi-Karasumoriguchi was sold on July 1, 2020. The appraisal value as of the end of June 2020 states the sales price.

44

6. Summary of Lease Contracts (1/2)(as of the end of June 2020)
No.
1

Property Name
Kobe Meriken Park Oriental Hotel

2

Oriental Hotel tokyo bay(*3)

3Namba Oriental Hotel(*3)

4Oriental Hotel Hiroshima(*3)

5Hotel Nikko Alivila(*3)

6

The Beach Tower Okinawa

Lease
Type

Rent
Structure(*1)

Fixedlease

Fixed +
Variable

LesseeHotel Operator/
Lease/ Expiration
Hotel Consulting andMC
Date ofManagement Company Term Contract

Contractual Rent(*2)

Rent Modification Summary

Rent Modification Summary Rent Modification Schedule(After acquisition)(2020 to 2021)
TimingCondition

2020

2021

Conditions
changed

–

–

–

–

–

(*3)

Fixedlease
Fixedlease
Fixedlease

Fixed

7

Hakone Setsugetsuka
Dormy Inn Kumamoto

9

dormy inn・global cabin Asakusa

10

Hakata Nakasu Washington Hotel
Plaza

Lease

Fixed

11

Nara Washington Hotel Plaza

Lease

Fixed

12

R&B Hotel Ueno-hirokoji

Lease

Fixed

13

Comfort Hotel Tokyo Higashi
Nihombashi

Fixedlease

14

Smile Hotel Nihombashi
Mitsukoshimae

Lease

15

Toyoko Inn Hakata-guchi Ekimae

Lease

16

Hotel Keihan Universal City

Lease

17

Chisun Inn Kamata

Fixedlease18

Hotel Vista Kamata Tokyo

Lease

19

Sotetsu Fresa Inn ShimbashiKarasumoriguchi(*4)

Fixedlease20

Hilton Tokyo Bay

Fixedlease21

ibis Tokyo Shinjuku–

22

ibis Styles Kyoto Station–

23

ibis Styles Sapporo–

24

Mercure Sapporo–

25

Mercure Okinawa Naha–

26

Mercure Yokosuka

27

the b ikebukuro28

the b hachioji

29

the b hakata

Fixedlease
Fixedlease
Fixedlease
Fixedlease

15(Fixed rent) JPY268,417,000/month (The fixed rent
In principle, the same rent will be
for February to December 2020 is JPY0) +Aug. 2020
Dec. 2034 (Variable rent) Total GOP of The Five HMJ Hotels(*5) applied until expiration of themultiplied by 89.78% minus fixed rent (If thecontract.
amount is below JPY0, it will be JPY0)20

Jun. 2026 JPY42MM/month

Okura Nikko HotelManagement Co., Ltd.

8

Lease

Hotel Management Japan Co., Ltd.

Fixed
Fixed

Kyoritsu Maintenance Co., Ltd.

Fixed

20

Oct. 2026 JPY24MM/month

12Mar. 2023 JPY16MM/month

3

Mar. 2023 JPY5MM/month

The same rent will be applied until–
expiration of the contract.
The same rent will be applied until–
expiration of the contract.
Rent can be modified through mutual
Apr. 2020
agreement every three years.
Rent can be modified through mutual
Apr. 2020
agreement every three years.
Rent can be modified through mutual
Apr. 2018agreement.

3

Mar. 2021 JPY20MM/month

3

Mar. 2023 JPY11MM/month20

Apr. 2022 JPY8MM/month

Greens Co., Ltd.

20

Jan. 2028 JPY21MM/month + Revenue sharing

THE KAMOGAWA GRAND HOTEL, LTD.

3

Mar. 2023 JPY11MM/month + Revenue sharing

Rent can be modified through mutual
Mar. 2020
agreement.

Fixed

Toyoko Inn Co., Ltd.

30

Sep. 2031 JPY11MM/month

No rule has been stipulated.

Fixed +
Revenuesharing

K.K. Hotel Keihan

20Jun. 2021 Nondisclosure(*6)

7Dec. 2026

Fixed +
Revenuesharing
Fixed +
Revenuesharing

Washington Hotel K.K.

Solare Hotels &SHR Hotels, Co., Ltd.
Resorts Co., Ltd.
Fixed +
Revenue
Vista Hotel Management Co., Ltd.
sharing
Fixed +
Revenue
Sotetsu Hotel Development Co., Ltd.
sharing
Fixed +THE DAI-ICHI
Hilton International
Revenue
BUILDING CO., LTD.
Company
sharing
Management
contract
Management
contract
Management–
AAPC Japan K.K.
contract
Management
contract
Management
contract
Variable

Variable
Fixed +
Variable
Fixed +
Variable
Fixed +
Variable

AAPC Japan K.K.

Hotel GOP x 86%(If the amount is below JPY0, it will be JPY0)

Rent can be modified through mutual
Mar. 2020
agreement.
Rent can be modified through mutual
Apr. 2011agreement.

–

–

–

Same

–

–

Same

–

–

–

To be expired(Mar.)

Same
Same

–

–

–

–

–

–

Same

–

–

Oct. 2007

Increased(+9.4%)––

Nondisclosure(*6)

Jul. 2014

Modified
Structure–

To be expired(Jun.)–

Jan. 2020

Same

–

–

Jul. 2015

Modified
Structure–

To be expired(Dec.)

Increased(+3.0%)
Same
Rent can be modified through mutual
Apr. 2018(Introduced
agreement every five years.
revenue sharing)4

Dec. 2021 JPY7MM/month + Revenue sharing

In principle, the same rent will beapplied until expiration of thecontract.

15

Mar. 2023 JPY18MM/month + Revenue sharing

No rule has been stipulated.

–

–

–

–

4

Dec. 2022 JPY163MM/month + Revenue sharing

Rent can be modified throughmutual agreement.

Jan. 2019

Renewed(Increased)

–

–

12

Jun. 2024 Amount equivalent to hotel GOP–

Jul. 2012

Modified
Structure––5

Dec. 2024 Amount equivalent to hotel GOP

–

–

–

–

–

5

Dec. 2024 Amount equivalent to hotel GOP

–

–

–

–

–

15

Sep. 2029 Amount equivalent to hotel GOP

–

–

–

–

–

10

Apr. 2024 Amount equivalent to hotel GOP

–

–

–

–

–

5

Aug. 2024 Linked to hotel GOP

Renewed(Increased)––

Ishin Ikebukuro Operations K.K.

7

Jan. 2022 JPY163MM/year + Linked to hotel GOP

Ishin Hachioji Operations, Y.K.

7

Jan. 2022 JPY98MM/year + Linked to hotel GOP

Ishin Hakata Operations K.K.

7

Jan. 2022 JPY82MM/year + Linked to hotel GOP

45

The same rent will be applied until
Aug. 2019
expiration of the contract.
The same rent will be applied until–
expiration of the contract.

The same rent will be applied until
expiration of the contract.
The same rent will be applied until
expiration of the contract.

–

–

–

–

–

–

–

–

–

–

–

6. Summary of Lease Contracts (2/2)(as of the end of June 2020)
No.

Property Name

Hotel Operator/
Lease/ Expiration
Hotel Consulting andMC
Date ofManagement Company Term Contract

Rent Modification Summary Rent Modification Schedule(After acquisition)(2020 to 2021)

Lease
Type

Rent
Structure(*1)
Fixed +
Variable

Ishin Suidobashi Operations K.K.

5

Dec. 2026 JPY85MM/year + Linked to hotel GOP

The same rent will be applied until
Jan. 2020
expiration of the contract.
The same rent will be applied until
expiration of the contract.

LesseeContractual Rent(*2)

Rent Modification Summary

TimingCondition

2020

2021

Conditions
changed(Increased)

–

–

–

–

–

30

the b suidobashi

Fixedlease31

Hotel Francs

Fixedlease

Fixed

K.K. Bridal Produce

19

Oct. 2024 JPY25MM/month

32

Okinawa Marriott Resort & Spa(*3)

Fixedlease

Fixed +
Variable

Lagoon resort Nago Co., Ltd.

10

Dec. 2030(Fixed rent) JPY45,833,333/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 82.92% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––Fixedlease

Fixed +
Variable

Luxury Hotels
K.K. A.I.C Hiroshima
International of HongManagement
Kong Limited

11

Dec. 2026(Fixed rent) JPY29,000,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 79.03% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––Fixedlease

Fixed

Candeo Hospitality Management, Inc.

20

Feb. 2030 Nondisclosure(*6)––

Conditions
changed

–

–

33

34

ACTIVE-INTER CITY HIROSHIMA(*3)(Sheraton Grand Hiroshima Hotel)

CANDEO HOTELS UENO-KOEN–

Rent can be modified through mutual
Jul. 2016 Nondisclosure(*6)
agreement every three years.

35

Oriental Hotel Fukuoka
Hakata Station(*3)

Fixedlease

Fixed +
Variable

Hotel Centraza Co., Ltd.

15

(Fixed rent) JPY35,416,666/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
Dec. 2034
applied until expiration of the(Variable rent) GOP multiplied by 96.98% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

36

Holiday Inn Osaka Namba(*3)

Fixedlease

Fixed +
VariableOW Hotel Operations KK

15

Oct. 2031(Fixed rent) JPY48,000,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 90.15% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––37

HOTEL ASCENT FUKUOKA

Fixedlease

Fixed

K.K.ASCENT.

7

Mar. 2026(Fixed rent) ① JPY20MM per month from May 1,
2019 to March 30, 2020,
The same rent will be applied until
Apr. 2019② JPY22MM per month from April 1, 2020 to March expiration of the contract.
31, 2026

Renewed(Increased)

–

–

38

Hilton Nagoya

Lease

Variable41

Dec. 2029 Nondisclosure(*6)

–

–

–

Conditions
changed––

Nagoya Hilton Co.,Ltd.

Hilton International
Company

Rent can be modified through mutual
agreement.

–

Fixedlease

Fixed +
Variable

KK NaritaKosuge Operations

20(Fixed rent) JPY37,000,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
Jun. 2037
applied until expiration of the(Variable rent) GOP multiplied by 83.59% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)(*3)

Fixedlease

Fixed +
Variable

KK NaritaYoshikura Operations

10

Jun. 2027(Fixed rent) JPY28,000,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 95.35% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––

41

Hotel Nikko Nara(*3)

Fixedlease

Fixed +
Variable

Hotel Management
Okura Nikko Hotel
Co., Ltd.
Management Co., Ltd.

10

Dec. 2030(Fixed rent) JPY35,000,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 90.05% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––42

Hotel Oriental Express Osaka
Shinsaibashi(*3)

Fixedlease

Fixed +
Variable

K.K. HOTEL ORIENTAL EXPRESS

10

Mar. 2028(Fixed rent) JPY9,200,000/month (The fixed rent forIn principle, the same rent will be
February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 87.11% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––43

Hilton Tokyo Odaiba(*3)

Fixedlease

Fixed +
Variable

Tokyo Humania Enterprise Inc.

11

Dec. 2029(Fixed rent) JPY258,300,000/month (The fixed rent
In principle, the same rent will be
for February to December 2020 is JPY0) +Aug. 2020
applied until expiration of the(Variable rent) GOP multiplied by 92.10% minus fixed
contract.
rent (If the amount is below JPY0, it will be JPY0)

Conditions
changed––39

Hilton Tokyo Narita Airport(*3)

40

(*1)

International Garden Hotel Narita

Rent structure is as follows:
Fixed: Fixed rent
Variable: Variable rentManagement contract: Management contract
Fixed + Variable: Property paying both fixed and variable rent
Fixed + Revenue sharing: When the sales of the hotel exceed pre-determined amount, additional rent is paid

(*2)
(*3)
(*4)
(*5)
(*6)

46

Amount including car park and CAM without tax
For No. 1–5, 32, 33, 35, 36, 39–43, the lease contracts were changed on August 25, 2020. For detail, please see"Notice Concerning the Revision of the Fixed-Term Lease Agreement" on August 25, 2020.
Sotetsu Fresa Inn Shimbashi-Karasumoriguchi was sold on July 1, 2020.
The Five HMJ Hotels are Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel,
Hotel Nikko Alivila and Oriental Hotel Hiroshima.
The detailed content of the contract is not disclosed as consent on disclosure has not been obtained from the lessee.

7. Major CAPEX Ⅲ by Hotels* (Numbers in parentheses are CAPEX amounts: JPY MM)
FY12/2012
Kobe Meriken
Park Oriental
Hotel

–

Oriental Hoteltokyo bay–

Namba Oriental
Hotel

–

Hotel Nikko
Alivila

–FY12/2013–

FY12/2014

FY12/2020 Plan

Guest rooms on 7F
Private rooms at
Restaurant (30) Conversion of space(50)
restaurant andConversion of brides'of backyard to
Balconies on each Bridal salon (76)balcony, etc. on 3F
room to guest
guest rooms
floor (62)(19)
rooms (40)(120)
Bar (85)
Guest rooms on 4F
Guest rooms on 11F
–
–
–
(101)
to 12F (140)––

Guest rooms on 9F Guest rooms on Guest rooms on 6F
(91)
(78)
7F (77)–––

Guest rooms on 3F to
8F of North building
and 3F to 5F ofcentral building (333)–

Guest rooms on 9F(55)
Restaurant (31)

–

–

–

Guest rooms on
7F to 10F (43)Banquet room on 4F(38)–

Chapel (10)–Guest rooms on
3F to 10F (192)

Guest rooms on
3F to 10F (312)

–

–

–

Guest rooms on
10F to 11F (72)
Guest rooms on
8F to 9F (72)

–

–

–

Ibis Tokyo
Shinjuku

Lobby and
restaurant on 2F,
and guest rooms
on 3,5,7,9F (170)––

Hilton Tokyo
OdaibaFY12/2019––

Okinawa Marriott
Resort & Spa
Oriental Hotel
Fukuoka
Hakata Station

FY12/2018–

Restaurant(45)
Corner rooms
on 5F to 8F(10)–

the b Ikebukuro

FY12/2017

Chapel (36)Banquet room on 23F(10)ibis Styles
SapporoMercure Hotel
Sapporo

FY12/2016–

Oriental Hotel
Hiroshima

Holiday Inn
Osaka Namba

FY12/2015–

Guest rooms on 1F,
etc.
(16)

Guest rooms on
Guest rooms on 13F 17F to 18F (14)to 14F (14)Increase number ofseats in café (8.5)

–

–

–

–

–

–

Guest rooms on
4,6,7,12F (115)

–

–

–

–

–

–

Vacant space on 1F
(28)

–

–

–

–

–

–

Banquet room (15)

–

–

–

–

–

–

–

–

Guest rooms on
3F to 10F, etc. (18)

–

–

–

–

–

–

–

–

–

Restaurant (142)

–

–

–

–

–

–

–

–

Large-scalerenovation works(1,690)

–

–

–

–

–

–

–

–

–

(*) The text in red color represents the CAPEX planned at the beginning of the fiscal year, but postponed after review by today.

47

Banquet room (92)
Large-scalerenovation works(3,000)8. The Five HMJ Hotels — Highlights
Change in GOP and GOP ratio(JPY MM)
10,000

6,296

6,000
4,000

27.0%

GOP ratio

5,136
24.3%

5,696
26.6%

5,645

5,158

26.5%

25.5%

6,155
28.0%

6,302
28.3%

6,941

29.9%

8,033

7,793

32.8%

34.2%

33.7%

7,591

31.8%

50%

7,765

30%
20%
2.8%

2,000
0

40%

242
CY2008

CY2009CY2010CY2011CY2012

CY2013

CY2014

CY2015

CY2016

CY2017

CY2018CY2019CY2020(forecast)(forecast)

GOP ratio

GOP

8,000

GOP

10%
0%

Change in KPI
ADR
77.9%

77.8%

20,00015,00010,0005,000

17,97013,99918,46314,367

RevPAR
73.8%

17,197
12,696OCC
80.4%
15,98012,845

76.7%
15,846

12,16082.7%
16,20013,40086.1%
17,297

14,886

86.9%
17,551

15,245

87.7%

88.4%

91.0%

19,212

20,153

19,856

17,80718,06016,843

89.9%

90.5%

100%

21,06722,197

16,91019,95419,066

60%
40%
33.3%
5,623

CY2007

CY2008

CY2009CY2010CY2011CY2012

CY201348

CY2014

CY201580%

CY2016

CY2017

CY2018CY2019CY2020(forecast)(forecast)

20%
0%

OCC

ADR・RevPAR(JPY)
25,0009. Balance Sheet(Unit: JPY MM)
FY12/2019
End ofFiscal Year(as of) December 31,
2019

ASSETS
Current Assets

Cash and Deposits(*1)
Operating Accounts
Receivables
OthersNoncurrent Assets
Net Property andEquipment

Buildings in Trust(*2)

FY12/2020
End of
Midterm
June 30,
2020

Variance

37,762

22,158(15,604)

34,34320,708(13,634)

2,779

669

(2,109)

638

779

140

377,608376,390(1,217)

340,522

339,046(1,476)

118,128

116,951(1,176)219,901

219,901

–

2,493

2,193

(299)

33,80434,249

445

3,280

3,094

(185)

162

162

–

Others

3,117

2,931

(185)

Deferred Assets

351

278

(73)

Land in Trust(*3)

OthersIntangible Assets
Other Assets
Leasehold andSecurity Deposits

LIABILITIESFY12/2019
End ofFiscal Year(as of) December 31,
2019

Current Liabilities
Operating Accounts Payable

7,003

493

(991)

5,792

5,792
1,008

Accounts Payable

1,313

502

(811)

Advances Received

909

562

(346)

Others

137

2,490

2,353

162,572

155,769(6,803)

41,60041,600–114,372

107,572(6,800)

5,722

5,689

(33)

Derivative Liabilities

416

456

39

Others

461

451

(9)

179,200

179,400

200

186,894

186,894–

21,746

21,746–

11,794

10,617(1,176)

–

1,174

1,174

1,174

–

(1,174)

15,290(550)(15,841)

Long-term Liabilities
Investment Corporation Bonds
Long-term Loans Payable
Tenant Leasehold and Security Deposits

TOTAL LIABILITIESNET ASSETS
Unitholders' Capital

Reserve for Special Account for Tax Purpose
Reduction Entry
Unappropriated Retained Earnings
OthersTOTAL NET ASSETS(16,895)

23,6301,485

13,790Reserve for Special Advanced
Depreciation

398,827

16,627–

Current Portion of Long-term Loans Payable

Reserve for Temporary Difference
Adjustment

415,722

Variance

12,782

Short-term Loans

Capital Surplus

TOTAL ASSETS

FY12/2020
End of
Midterm
June 30,
2020

TOTAL LIABILITIES AND NET ASSETS(*1) Cash and deposits in trust is included.
(*2) The sum of buildings in trust, structures in trust, machinery and equipment in trust, tools, furniture and fixtures in trust, and construction in progress in trust.
(*3) The sum of machinery and equipment, tools, furniture and fixtures, and construction in progress.

49

(377)

(455)

(77)

236,522

219,427(17,095)

415,722398,827(16,895)

Appendix 3
Financial Conditions

1. Financial Conditions
Changes in LTV (total asset base)

Term of Interest-bearing Debt
As of the end of Dec. 201950%

Short-term

45%
40%

39.7%

39.9%

39.0%

40.6%

Long-term(*) Long-term represents debts withoriginal maturity over one year, andshort-term represents debts withoriginal maturity within one year.

35%
30%

(*)

End of

End of

End of

End of

End of

FY12/2016

FY12/2017

FY12/2018

FY12/2019

FY12/2020 (expected)(17th Period)(18th Period)(19th Period)(20th Period)(21st Period)

5.0

4.7

Costs for Interest-bearing Debt
4.8

5.2

1.5%

1.0%

1.1%

1.1%

1.0%

0.5%

0.0%

5.0

30,0002.0

End of

End of

End of

End of

End of June 2020

FY12/2017

FY12/2018

FY12/2019

Medterm FY12/2020(17th Period)(18th Period)(19th Period)(20th Period)(21st Period)(*1) Weighted-average costs for interest-bearing debt (including up-front fee, etc.) as of the end ofeach period/year. Rounded off to one decimal place.
(*2) Average life of debt as of the end of each period/year.

Loans

21,65020,0003,000

16,90012,782 12,300
1,500

10,0000.0

051

15,772

19,00010,00017,350 17,000

6,000

10,800 10,900

5,000

28,000Investment Corporation Bonds

25,00015,0001.0

FY12/2016(as of the end of June 2020)(JPY MM)

3.0
1.0%

95.0%

Repayment Schedule of Interest-bearing Debt

4.0
1.2%

As of the end ofJun. 2020

97.8%(year)
6.0

4.7

88.4%

As of the end of
Dec. 2019

Changes in Costs for Interest-bearing Debt(*1) and
Average Life of Debt(*2)
Average Life of Debt

92.4%

Fixed Interest Rate Ratio

LTV as of the end of each period/year. LTV as of the end of June 2020 is 42.3%.

2.0%

3.4%
8.2%

7.6%

Long-term(scheduled repayment
within one year)

42.2%

As of the end of Jun. 2020

15,772

18,650 19,000

13,10017,000 18,000

8,000

4,250
2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

1. Financial Conditions (cont.)
Lender List for Interest-bearing Debt

Breakdown of Interest-bearing Debt
(Unit: JPY MM)

Balance(as of the end of
December 2019)
Balance%

Balance(as of the end ofJune 2020)
Balance%

Sumitomo Mitsui Banking Corporation

31,90118.9%

31,901

18.9%

0

Shinsei Bank, Ltd.

19,015

11.3%

19,01511.3%

0Mizuho Bank, Ltd.

19,00011.3%

19,00011.3%

0Sumitomo Mitsui Trust Bank, Limited

13,6408.1%

13,6408.1%

0Resona Bank, Limited

10,126

6.0%

10,1266.0%

0Development Bank of Japan Inc.

5,750

3.4%

5,750

3.4%

0

Fukuoka Bank, Ltd.

4,750

2.8%

4,750

2.8%

0

The Nomura Trust and Banking Co., Ltd.

4,660

2.8%

4,660

2.8%

0

MUFG Bank, Ltd.

4,135

2.5%

4,135

2.5%

0

Aozora Bank, Ltd.

3,435

2.0%

3,435

2.0%

0

The Chiba Bank, Ltd.

3,100

1.8%

3,100

1.8%

0

Hiroshima Bank, Ltd.

2,892

1.7%

2,892

1.7%

0

The Nishi-Nippon City Bank, Ltd.

2,750

1.6%

2,750

1.6%

0

Sompo Japan Nipponkoa Insurance Inc.

1,500

0.9%

1,500

0.9%

0

500

0.3%

500

0.3%

0

75.3% 127,154

75.3%

0

Lenders/Bond Name

The Shizuoka Bank, Ltd.

127,154

1,500

0.9%

1,500

0.9%

0

6th Investment Corporation Bonds without Collateral

3,000

1.8%

3,000

1.8%

0

8th Investment Corporation Bonds without Collateral

1,100

0.7%

1,100

0.7%

0

9th Investment Corporation Bonds without Collateral

1,000

0.6%

1,000

0.6%

0

12th Investment Corporation Bonds without Collateral

2,000

1.2%

2,000

1.2%

0

Total of Investment Corporation Bonds(for institutional investors)

8,600

5.1%

8,600

5.1%

0

6,000

3.6%

6,000

3.6%

0

7th Investment Corporation Bonds without Collateral

9,000

5.3%

9,000

5.3%

0

10th Investment Corporation Bonds without Collateral

10,000

5.9%

10,0005.9%

011th Investment Corporation Bonds without Collateral

8,000

4.7%

8,000

4.7%

0

33,00019.6%

33,00019.6%

041,60024.7%

41,60024.7%

0168,754 100.0% 168,754 100.0%

0

Loans
Investment
Corporation Bonds

Total of Investment Corporation Bonds(for individual investors)
Total of Investment Corporation Bonds
Total of Interest-bearing Debt

24.7%

24.7%

75.3%

75.3%

Status of Credit Rating
Japan Credit Rating Agency, Ltd.
(JCR)

A+ (stable)

Rating and Investment Information, Inc.
(R&I)

A

(stable)Status of Reserve for Special Advanced Depreciation

Investment Corporation Bonds(for individual investors)
5th Investment Corporation Bonds without Collateral

As of the end of Jun. 2020

Variance

Total of Bank Loans
Investment Corporation Bonds(for institutional investors)
4th Investment Corporation Bonds without Collateral
Investment Corporation Bonds

As of the end of Dec. 2019

 A part of gain on sale of three properties sold in 2018 is retained

Reserve for special
advanced depreciation

52

JPY1,174MM

Appendix 4
Investors Composition and Investment Unit Price1. Major Unitholders and Classifications of Unitholders
Top 10 Major Unitholders
As of the end of December 2019

As of the end of June 2020

Name

Rank

No. of Units

%(*)

Rank

Name

No. of Units%(*)

697,10215.62

526,839

11.80

1
2

621,578
462,840

13.92
10.37

3

350,747

7.86

190,091
186,509

4.25
4.17

184,356

4.13

140,364

3.14

59,561

1.33

56,9891.27

50,7631.13

2,303,798

51.62

1

The Master Trust Bank of Japan, Ltd. (Trust)2

Japan Trustee Service Bank, Ltd. (Trust)

3

J.P. Morgan Bank Luxembourg S.A. 384500

334,947

7.50

4The Nomura Trust and Banking Co., Ltd. (Investment Trust)

213,3024.78

5

140,401

3.14

134,779

3.02

6

7

BNYM AS AGT Clients 10 PERCENT
Trust and Custody Services Bank, Ltd.
(Securities Investment Trust)State Street Bank West Client-Treaty 505234

4
5

59,918

1.34

7

8

Shikoku Railway Company

56,989

1.27

JPMorgan Securities Japan Co., Ltd.

1.18

8

9

52,951The Master Trust Bank of Japan, Ltd. (Trust)Japan Trustee Service Bank, Ltd. (Trust)
STICHTING PGGM DEPOSITARY PGGM LISTED REALESTATE PF FUND
The Nomura Trust and Banking Co., Ltd. (Investment Trust)
BNYM AS AGT Clients 10 PERCENT
THE CHASE MANHATTAN BANK, N.A. LONDON SPECIALACCOUNT NO.1
Trust and Custody Services Bank, Ltd. (Securities
Investment Trust)State Street Bank West Client-Treaty 505234

9

Shikoku Railway Company

46,6001.04

2,263,828

50.73

6

10 Japan Securities Finance Co., Ltd.
Total

10 THE BANK OF NEW YORK MELLON 140044
Total(*) The total units held by each investor to the total units issued by JHR as of the end of December 2019 and the end of June 2020 respectively. (Rounded off to two decimal places.)

Owners of the Investment Units
As of the end of December 2019
OwnersNo. ofInvestors

Individuals & Others

29,670406,900

Financial Institutions(Incl. Securities Firms)

155

2,090,477

Other Domestic Firms

357

113,795

Foreign Firms &Individuals

392

1,851,175

Total

No. ofUnits

30,574 4,462,347

No. of Investors

0.5%

1.1%

As of the end of June 2020

No. of Units

9.1%

1.2%
41.4%

46.8%
97.0%
Individuals &OthersOwnersNo. ofInvestors

No. ofUnits

Individuals & Others

39,485

598,621

Financial Institutions(Incl. Securities Firms)

100 1,675,074

Other Domestic Firms

462

Foreign Firms &Individuals
Total

2.5%

Financial Institutions(Incl. Securities Firms)

Other Domestic
Firms

No. of Investors

0.2%

1.1%

445 2,061,073

Foreign Firms &Individuals

13.4%

1.0%
46.1%

127,579

40,492 4,462,347

No. of Units

37.5%

97.5%
2.8%

(*) Percentage of investors is percentage of owners in each segment to the total number of investors in JHR, and percentage of investment units is percentage of investment units owned by each segment to the total investment units issued as ofrespective date (both rounded off to one decimal place).

54

2. Changes in Investment Unit Price and Market Capitalization
Changes in the investment unit priceand market capitalization(Based on the closing price)
Price of the investment unit:(JPY)

JPY38,150

120,000

JPY170.2Bn

100,000

Total market capitalization:(based on the closing price of July 31, 2020)(*1) Price of the real estate investment securities
may fall depending on the fluctuations ofprice of the real estate under management
or profitability, etc., and investors may suffer
losses. Investors may also suffer losses
through the bankruptcy or deteriorated
financial condition of the issuer. Withreference to the risk of investment in JHR
units, please see Securities Report dated
March 27, 2020.
(*2) Including OA

Comparison withREIT Index and TOPIX of
Tokyo Stock Exchange
(TSE)
(*)

100 is the closing price of JHR unit, REIT
index and TOPIX at TSE dated April 2, 2012.
REIT Index of TSE is an index of a weighted
average of the market capitalization of all
REITs listed on TSE.

80,00060,000Market Capitalization
Investment Unit Price of JHR

Jun. 2015
Jan. 2016
Jun. 2017
PO(*2) JPY10.7Bn PO(*2) JPY14.6Bn PO(*2) JPY18.6Bn

Jan. 2015
PO(*2) JPY15.6Bn
Apr. 2013
PO JPY20.5Bn

Jul. 2016
PO(*2) JPY34.7Bn

Sep. 2014
PO JPY10.1Bn

Jan. 2019
PO(*2) JPY33.3Bn(JPY MM)450,000

300,000

Sep. 2012
PO(*2) JPY5.0Bn

40,000150,000

20,0000600

0Investment Unit Price of JHR

TSE REIT Index

500

400

300

200

100

0

55

TOPIX

Appendix 5
Summary of the Asset Management Company

1. Summary of the Asset Management Company
Company

Japan Hotel REIT Advisors Co., Ltd.

Location

Ebisu Neonato 4F, 4-1-18 Ebisu, Shibuya-ku, Tokyo 150-0013

Establishment
CapitalShareholders
Representative Director

August 10, 2004
JPY300MM as of June 30, 2020
Rockrise Sdn Bhd, Kyoritsu Maintenance Co., Ltd., ORIX Corporation
Hisashi Furukawa
Building Lots and Buildings Transaction Business Operator, Governor of Tokyo (4) No. 83613
Discretionary Transaction Agent by Minister of Land, Infrastructure, Transport and Tourism No. 38

Registration and Licenses

Financial Instruments Trading Company, Director-General of Kanto Local Finance Bureau No. 334
Member of The Investment Trusts Association, Japan
Member of The Japan Investment Advisers Association<Organization Chart>

Shareholders' Meeting
AuditorBoard of Directors' Meeting

Investment (andOperation) Committee

Compliance Committee
Representative Director
Compliance Office

Investment Division

Acquisitions

Public REIT

Operations Division

Private Fund

Planning

57

Finance

Accounting &Reporting

Personnel and
Administration

2. Features and Governance of the Asset Management Company
Mission Statement"Provide attractive hotel investment opportunities to investors as specialist in investment and management of hotel assets. Gain
trust from our stakeholders, and contribute to local communities and society through investing and managing hotel assets."

Code of Conduct
As an independent asset management company, all employees and officers at JHRA should have a "spirit of challenge" aiming
to constantly provide high added value.
Also, "teamwork" is inevitable to provide high added value.
JHRA recognizes "challenge" and "teamwork" as essential value which our code of conduct is based upon.

Challenge

Teamwork Respect teamwork and collaborate with team-mates Be a self-starter, take initiative and demonstrate drive Respect others. Respect values and opinions of others Set high goal and strive Promote "sharing" (idea, knowledge, information, goal,
achievement, joy of achievement, lesson, etc.)

 Respect creativity and innovation
 Promote challenge, free from fear of failure Make effort for open, frank and sincere communication

58

2. Features and Governance of the Asset Management Company (cont.)
Advanced Expertise Ability to propose transaction scheme, execute transaction, and plan and execute unprecedented measures of asset
management based on in-depth understanding of hotel operation and track record of such asset management.
 Extensive experience of renovation and rebranding through collaboration with many hotel lessees and hotel operators.
 Strong and long-term relationships with a large number of hotel lessees and hotel operators.
 High analytical skills and accurate judgement capacity based on rich information and data obtained through a broad
network and high credibility.

Ensured Independence No employee of JHRA is a seconded employee from sponsor.
 Part-time directors from our main sponsor, SC CAPITAL PARTNERS group and non-sponsor-related full-time directors
each account for half of JHRA's board of directors.
 With regard to transactions with sponsor-related parties and JHR, JHRA has set strict decision-making rules.
In principle, in addition to obtaining approval by Compliance Committee which includes an outside specialist, who isauthorized to dismiss proposals, JHRA is required to obtain approval from JHR's board of directors' meetings(directors are all third-party members who do not have any relationship with the sponsor-related parties).
 As our main sponsor, SC CAPITAL PARTNERS group is also an independent asset management company, it fully
understands and respects importance of JHRA's independency. JHRA conducts asset management business based
upon its own judgement.

59

Disclaimer
This material is prepared and provided solely for the purpose of providing information and not to offer, solicit, or do business, etc. with specific products
including purchase of investment units, investment unit subscription rights, or investment corporation bonds of Japan Hotel REIT Investment Corporation("JHR") or any other particular products. If any discrepancy is identified between this translation and the Japanese original, the Japanese original shall prevail.
This material is neither a disclosure document nor an investment report required under or prepared pursuant to the Financial Instruments and Exchange Act,Act on Investment Trusts and Investment Corporations and related government ordinances, Cabinet Office regulations, listing rules by Tokyo Stock Exchange,
Regulations of The Investment Trusts Association, Japan, or other related rules and regulations.
This material contains forward-looking statements about financial conditions, operational results, and businesses of JHR, as well as plans and intentions of JHR
and its asset management company, Japan Hotel REIT Advisors Co., Ltd ("JHRA"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results or performance of JHR to materially differ from those expressed or implied forecasts. Those
forecasts are made based on JHR's present and future business strategies and assumptions relating to the political and economic circumstances surrounding
JHR in the future.
Every effort has been made to ensure the accuracy of the information contained in this material. However, there can be no assurance that the information isaccurate, complete, appropriate or fair. The information may be revised or retracted without prior notice.
Regarding the offering and trading of investment units, investment unit subscription rights or investment corporation bonds, financial institutions may charge
you pre-determined handling fees and other charges aside from the price of the investment units, investment unit subscription rights or investment corporation
bonds. Since neither JHR nor JHRA handles the offering and trading of investment units, investment unit subscription rights or investment corporation bonds,
please ask financial institutions for the amount, upper limit, and calculation methods of such fees and other charges.
JHR mainly invests in real estate-related assets, primarily hotels which are subject to change in values. Therefore, unitholders, holders of investment unit
subscription rights and investment corporation bonds may suffer losses due to economic conditions of the real estate market or securities market, economic
situations including interest rate environment, the nature of investment units, investment unit subscription rights, and investment corporation bonds,
dependency on mechanisms and related persons of investment corporations, changes in legal systems related to real estate (include tax regulations, building
regulations and others), damage caused to the real estate-related assets by natural disasters, fluctuation in prices or profitability of the real estate-related
assets, nature of the trust beneficiary rights under management, delisting of the investment units, or worsening financial position or insolvency of JHR.
For details, please refer to the Articles of Incorporation, Securities Registration Statement, Annual Securities Report and Extraordinary Report, etc. of JHR.
The contents of this material may not be copied or reproduced without our prior permission.
Japan Hotel REIT Advisors Co., Ltd.
Financial Instruments Trading Company
Director-General of Kanto Local Finance Bureau No. 334
Member of The Investment Trust Association, Japan
Member of The Japan Investment Advisers Association

60

Memo

61