Make The World
More Sustainable[Provisional Translation Only]
This English translation of the original Japanese document is provided solely for information purposes.
Should there be any discrepancies between this translation and the Japanese original, the latter shall prevail.

November 18, 2020
IssuerIchigo Hotel REIT Investment Corporation (“Ichigo Hotel,” 3463)
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Representative: Osamu Miyashita, Executive Director
www.ichigo-hotel.co.jp/en
Asset Management Company
Ichigo Investment Advisors Co., Ltd.
Representative: Hiroshi Iwai, President
Inquiries: Hidehito Iwasaka, Head of Ichigo Hotel
Tel: +81-3-3502-4892

Subordinated Bond Issuance to Ichigo
Ichigo Hotel today decided to issue JPY 500 million of callable bonds (subordinatedand limited to qualified institutional investors) (the “Subordinated Bonds”) to its
sponsor, Ichigo, in order to further strengthen its financial base amid the Covid
pandemic.
1. Bond Details
NameAllottee
Total Issue AmountForm of Bond Certificate
Bond Denomination AmountIssue Price
Redemption Price
Offering Method
Subscription Period
Payment Date
Redemption Date and Method(Including Early Redemption)

Ichigo Hotel First Callable Unsecured Investment
Corporation Bond (subordinated and limited toqualified institutional investors)
Ichigo Inc. (“Ichigo”)
JPY 500 million
Pursuant to the Act on Book-Entry Transfer ofCorporate Bonds and Shares, bond certificates will
not be issued.
JPY 100 million
Par (JPY 100)
Par (JPY 100)
Private placement limited to qualified institutional
investors
November 18, 2020
November 25, 2020
Lump sum redemption on April 30, 2026.
The principal may be redeemed in whole or in part
before maturity at par (JPY 100) after April 1,2021. If Ichigo Hotel decides on an early
redemption, Ichigo Hotel must notify bondholders
the amount and the redemption date 10 businessdays prior to the early redemption date. The
subordinated bonds may be purchased andcancelled at any time on and after the day
following the payment date unless otherwise
1

Interest Rate
Interest Payment Date

Subordination Agreement

Transfer Restrictions

Financial Covenants
Collateral
Credit Rating
Depository
Fiscal, Issuing, and Paying AgentUnderwriters
1

stipulated by the depository. In the event theredemption date (or early redemption date) is not abusiness day, payment shall be made on the priorbusiness day. Details on redemption are in“Subordination Agreement” below.
2.0% (fixed rate)
May 31 and November 30 every year (the firstinterest payment date will be May 31, 2021). If aninterest payment date is not a business day,payment shall be made on the previous businessday. The interest payment is calculated on a 365day basis for each calculation period (the period
starting on the payment date and ending on the firstinterest payment date, or the subsequent periodsstarting on subsequent interest payment dates andending on the following interest payment date,where the first day of each period is not included in
the interest calculation). Interest payments arerounded to the nearest whole number. Interest
payments are made pursuant to the Subordination
Agreement below, and there are no stipulations
regarding accumulated interest.
In the event of an Ichigo Hotel liquidation or
rehabilitation, Subordinated Bonds will be treatedas subordinated bankruptcy claims or subordinatedrehabilitation claims. If proceedings related toliquidation under Japanese law, or liquidation,
bankruptcy, or rehabilitation pursuant to laws
outside of Japan arise and are ongoing, neither
interest nor principal payment will be made until
senior claims have been repaid in full.
Sales of the Subordinated Bonds require theapproval of Ichigo Hotel, and can only be sold toqualified institutional investors as defined in
Article 10, Clause 1 of the Cabinet Office
Ordinance Relating to Definitions Prescribed inArticle 2 of the Financial Instruments andExchange Law.1
None
The bonds are not secured by any collateral norguaranteed, and no assets have been reserved ascollateral for the Subordinated Bonds.
NoneNoneSMBC
SMBC Nikko Securities

Ichigo, the allottee, has consented not to transfer the Subordinated Bonds without priorconsent of Ichigo Hotel.

22. Reason for Bond Issuance
Ichigo Hotel sold two hotels in the January 2020 fiscal period (total sale price JPY 9.78billion) and distributed 100% of gains on sales (c. JPY 2 billion) as dividends to its
shareholders and retained the remaining proceeds to fund future asset acquisitions. Afterhaving acquired two hotels in the July 2020 fiscal period (total acquisition price JPY 4.78billion), Ichigo Hotel’s cash-on-hand at the end of the period was JPY 3.5 billion.
On the other hand, Covid-related restrictions on travel and events have significantly
lowered hotel demand for both Japanese and inbound guests, resulting in lower hotelrevenues, and in turn, lower rental income for Ichigo Hotel. This has resulted in Ichigo
Hotel’s July 2020 fiscal period earnings to significantly decrease.
With uncertainty abound from the Covid pandemic, Ichigo Hotel believes that furtherstrengthening its financial base is important for negotiating financing terms withfinancial institutions. Rather than selling quality portfolio assets or diluting net asset
value per share through issuing new shares via third-party allotment, Ichigo Hotel has
decided to issue subordinated bonds to its sponsor, Ichigo. The continued commitment
and support from Ichigo underpins Ichigo Hotel’s ability to drive sustainable value
creation for its shareholders.
3. Characteristics and Benefits of Subordinated Bond Issuance
The Subordinated Bonds have characteristics of both equity and debt. Although they arelegally considered debt and do not cause share dilution, in the event of bankruptcy orrehabilitation, they are treated as subordinated bankruptcy claims or subordinatedrehabilitation claims. Furthermore, if proceedings related to liquidation under Japaneselaw, or liquidation, bankruptcy, or rehabilitation pursuant to laws outside of Japan arise
and are ongoing, the Subordinated Bonds are subordinated to other general claims
pursuant to the Subordination Agreement and thus have characteristics of equity capital.
The Subordinated Bond Issuance allows Ichigo Hotel to effectively strengthen its equity
base while avoiding any dilution of net asset value per share.
4. Rationale of Subordinated Bond Issuance Terms
Because there have been a limited number of subordinated bonds issued by investment
corporations in Japan, Ichigo Hotel conducted a multi-faceted analysis to determine
issuance terms including setting an interest rate based on information provided byfinancial institutions, interest rate spreads of existing subordinated investment
corporation bonds, interest rate spreads of other bonds issued by similar investment
corporations, and Ichigo Hotel’s forecast dividend yields.

35. Allottee Details(1) Allottee Overview
Company NameIchigo Inc.

Address

1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo

Representative

Scott Callon, Chairman
Takuma Hasegawa, President

CapitalJPY 26.886 billion

Establishment Date

March 17, 2000

Major Shareholder

Ichigo Trust Pte. Ltd.

Principal Businesses

Asset Management, Sustainable Real Estate, Clean Energy

Relationship withIchigo Hotel or IIA

Parent Company of Ichigo Investment Advisors (IIA), theAsset Management Company(2) Allottee Selection RationaleIchigo Hotel aims to further strengthen its financial base via the Subordinated Bondissuance and maintain stable operations amid an uncertain market environment.
Towards this end, the selection of its sponsor, Ichigo, as allottee demonstrates Ichigo’s
unwavering commitment and support for Ichigo Hotel. The strong sponsor support fromIchigo will fully support Ichigo Hotel’s financial strategy, such as when negotiating
financing terms with financial institutions.
Ichigo currently owns 6,500 Ichigo Hotel shares (2.54% of shares outstanding), and isthe parent company of IIA, Ichigo Hotel’s asset management company.
(3) Related-Party Transactions
Transactions with the allottee, Ichigo, are related-party transactions as defined under theInvestment Trust and Investment Corporation Law (Act No. 198 of 1951, including
subsequent revisions). Pursuant to its rules on related-party transactions, IIA’s Risk
Compliance Committee and Asset Management Committee reviewed and approved theterms and conditions of the Subordinated Bond issuance. Ichigo Hotel also received
approval from its Board of Directors.
6. Total Amount to be Raised and Use and Timing of Proceeds(1) Amount of Estimated Net Proceeds
JPY 4.93 million(2) Use of Proceeds and Scheduled Expenditure Date
The proceeds will first be retained as cash-on-hand through December 2020, and thendeployed towards operations and value-add capex as necessary.

47. Outstanding Loan and Bond Balance (as of November 25, 2020)(JPY million)
BeforeBond Issuance
(A)

After
Bond Issuance(B)

Short-term bank loans

1,750

1,750

–

Long-term bank loans

23,72023,720–Total bank loans

25,47025,470

––500

+500

25,47025,970+500Subordinated bonds
Total bank loans and bonds

Change(B) - (A)

8. Other(1) Equity Treatment of Subordinated Bonds
The Subordinated Bonds are a form of hybrid financing that has characteristics of both
equity and debt. Ichigo Hotel expects to receive lender approval for equity treatment of
the entire notional value of the Subordinated Bond.
(2) Investment Risks
Risks related to this bond issuance include the “Investment Risks” described in thelatest Financial Report submitted on October 28, 2020, as well as the following risks for
Ichigo Hotel shareholders and holders of the Subordinated Bonds.
-The interest rate for the Subordinated Bonds has been set relatively high toappropriately reflect the subordinated priority of repayment compared to seniordebt. Because Ichigo Hotel’s shareholder dividends are paid from profits afterinterest payments have been made to the holders of the Subordinated Bonds,
dividends may be lower than dividends under a loan without a subordinationagreement or a typical bond issuance.

-If an event triggering the prioritization of Ichigo Hotel’s debt occurs, theSubordinated Bonds have lower priority than senior debt for interest and principal
repayment, but have higher priority than shareholders for claims to residual assets
because the bonds are characterized as debt. As such, depending on bond issuanceterms, Ichigo Hotel’s shareholder rights and share price may be negatively
impacted.

5

Distribution of Loan and Bond Maturities (as of November 25, 2020)(JPY million)
8,000
7,000

6,000

Long-term Loans (fixed rate)Long-term Loans (floating rate)

Short-term Loans

Subordinated Bonds

1,750

4,500

4,000

4,500

5,250

2,500
500

3,000

2,000

2,220

1,800

2,000

450

0
January
2021

0
July
2021

0
January
2022

0
July
2022

January
2023

July
2023

6

January
2021

July
2024

January
2025

0
July
2025

0
January2026

July2026