This English translation is provided for information purposes only. If any discrepancy is identified between thistranslation and the Japanese original, the Japanese original shall prevail.
August 25, 2020
REIT Issuer:
Japan Hotel REIT Investment Corporation (TSE code: 8985)
Kaname Masuda, Executive Director
Asset Management Company:
Japan Hotel REIT Advisors Co., Ltd.
Hisashi Furukawa, President & CEO
Contact:
Makoto Hanamura
Executive Director
Head of Planning Group, Operations Division
TEL: +81-3-6422-0530

Notice Concerning Revision of Fixed-Term Lease Contracts
This is to inform you that, Japan Hotel REIT Investment Corporation (hereinafter called “JHR”), resolved andconcluded Contracts (hereinafter called the “Revised Contracts”) to revise fixed-term lease contracts (hereinaftercalled the “Contracts”) on 14 hotels in total (hereinafter called the “14 HMJ Hotels”) with Hotel Management Japan
Co., Ltd. (hereinafter called “HMJ”) and its subsidiaries (with HMJ, collectively called the ”HMJ Group”) as of today,
as below.
Each company of the HMJ Group with which JHR concluded the Revised Contracts falls under the category of aninterested party, etc. as stipulated in the Act on Investment Trusts and Investment Corporation (Act No. 198 of 1951,as amended; hereinafter called the “Investment Trust Act”). Therefore, with regard to the transactions of the RevisedContracts, the consent of the JHR was obtained based on the approval of the JHR’s board of directors meeting inaccordance with the Investment Trust Act and the internal codes for transaction with sponsor-related parties stipulatedby the Japan Hotel REIT Advisors Co., Ltd.(hereinafter called the “Asset Management Company”) (please see “4.
Transaction with Interested Parties, etc.” below.).
(*) For the revision of fixed-term lease contracts, please also refer to page 8 to 10 in “Financial Result Briefing”
announced today.
1.

Rationale for the revision
Since February 2020, the hotel market has deteriorated rapidly due to the restraints on economic activities inJapan and overseas, the decline in the number of foreign visitors to Japan as well as the voluntary restraint ofevents across the nation and the suspension of operations at large theme parks following the state of emergency by
the government as a result of the spread of infection of COVID-19.
Under such circumstances, JHR has been communicating closely with the HMJ Group, discussing and examining
various measures with the HMJ Group, such as thorough implementation of measures to prevent infections andmanagement of employees’ health at each hotel, reduction of operating costs by thorough review of the operations
at each hotel, maintenance of necessary employment, correspondence to financing, etc.
After the discussion and examination with JHR, the HMJ Group has carried out large-scale restructuring ofpersonnel costs and outsourcing costs, etc.. There restructurings are expected to result in cost reduction of at least
JPY4.2Bn in the fiscal year 2020 and JPY1.5Bn in the fiscal year 2021 and beyond, compared with the fiscal year
2019, and working for further cost reductions based on the recognition of continuing impact by the spread ofinfection. Despite these efforts, the GOP (Note 1), which shows revenue before the rent payment of the HMJ
Group, is expected to be JPY204MM, since there is a month which monthly sales decline to the JPY200MM level.

1Therefore, it is difficult for HMJ Group to pay the full fixed rent (JPY9,530MM/year) from the GOP. Based onsuch financial conditions of the HMJ Group, JHR decided to review the Contracts and agreed to revise theContracts with the HMJ Group to reduce the fixed rent for the fiscal year 2020 to the maximum amount that theHMJ Group can pay (JPY794MM/year) after using the internal reserve, and to revise the rent conditions for thefiscal year 2021 and thereafter for the purpose of the described at “2. Summary of the revision” below.
The HMJ Group operates 14 hotels with a total of 4,768 guest rooms. Many of which are large-scale full-service
hotels, which require advanced management expertise. Since it is not practical to secure the alternative operators
required by JHR in the current market environment from the viewpoint of both the scale of operations and theknow-how of operations. Therefore, JHR judged that focusing on reconstructing sustainable relationships with theHMJ Group would contribute to the medium to long term interests of JHR, and JHR reached to agree upon theRevised Contracts.
2.

Summary of the revision
The Revised Contracts for each tenant consists of “the Memorandum of Fixed-term Lease Contract” to revise therent structure for the fiscal year 2020 and “Revised Contract on the Fixed-term Lease Contract” to revise the rent
structure for the fiscal year 2021 and beyond.
For the rent structure for the fiscal year 2020, using the funding close to JPY500MM from its shareholders, etc.,
as its source, the HMJ Group agreed to set the equivalent amount to current monthly fixed rent for January,which was not affected by COVID-19, as fixed rent which amount far exceeds the current year’s forecast of GOP
and monthly fixed rent from February onward was waved. On the other hand, when the market environment
improves significantly, JHR can receive the variable rent in case the annual GOP exceeds the fixed rent for one
month through the generation of the variable rent in the contract.
Although the hotel market is expected to gradually recover in the fiscal year 2021, it is difficult to predict thepace of recovery and downside risks due to the second or third wave of infection. Therefore, considering thepossibility that the HMJ Group will not able to generate sufficient GOP for monthly fixed rent payments, the rent
for the fiscal year 2021 will be the full variable rent scheme, which is the most flexible rent scheme for such risks
was adopted. The rent shall be variable rent only, which is the full amount obtained by multiplying AGOP (Note2) by a certain rate. The rates for AGOP are set at appropriate rates for each hotel depending on the contracts witheach hotel, taking into account the previous rent burden ratio and cost reduction effects resulting from therestructuring.
The rent from the fiscal year 2022 onwards shall be a rent scheme that combines the fixed rent and variable rent
like before, assuming the post-COVID-19 market environment. The fixed rent is partially adjusted according tothe potential revenue of each hotel, however, the total fixed rent amount of total the 14 HMJ Hotels is the same as
before. With the variable rent, JHR and the HMJ Group will share the effects of cost reduction throughrestructuring and set the base amount for variable rent and AGOP rate so that each hotel’s rent burden ratio will
be at an appropriate level. By receiving cost reduction effects of the HMJ Group as the future variable rent, JHRaims to recover the amount of reduction of the fixed rent for the fiscal year 2020 over the medium to long term,
while at the same time, the HMJ Group aims to improve their internal reserve, thereby the HMJ Group will
improve the capability to pay rents in the event of a similar event occurring in the future.
The rent structure of the 14 HMJ Hotels after revision (fixed rent and variable rent) is shown in the table below.

(1) Fixed rent
Fixed rent
No

1
2
3
4
5

Name
Kobe Meriken Park
Oriental Hotel
Oriental Hotel tokyo bay
Namba Oriental Hotel
Hotel Nikko Alivila
Oriental Hotel Hiroshima

LesseeHotelManagement
Japan Co., Ltd.

BeforeAfter

FY2020 onwards

FY2020

FY2021

From FY2022
onwards

JPY3,221MM/year

January only
JPY268MM

Not
applicable

JPY3,221MM/year2678910

Okinawa Marriott Resort& Spa
Sheraton Grand
Hiroshima Hotel(ACTIVE-INTER CITYHIROSHIMA) (Note 3)
Oriental Hotel Fukuoka
Hakata Station
Holiday Inn Osaka
Namba
Hilton Tokyo Narita
Airport11

International Garden
Hotel Narita

12

Hotel Nikko Nara

13

Hotel Oriental ExpressOsaka Shinsaibashi

14

Hilton Tokyo Odaiba

Lagoon resort
Nago Co., Ltd.

JPY550MM/year

January only
JPY45MMJPY550MM/year

K.K. A.I.C
Hiroshima
Management

JPY348MM/year

January only
JPY29MMJPY348MM/year

Hotel Centraza
Co., Ltd.
OW HotelOperations KK
KK NaritaKosuge
Operations
KK
NaritaYoshikura
Operations
Hotel
Management
Co., Ltd.
K.K. HOTELORIENTAL
EXPRESSTokyo Humania
Enterprise Inc.

JPY425MM/year
JPY576MM/year
JPY444MM/year

January only
JPY35MM
January only
JPY48MM
January only
JPY37MMJPY425MM/year
JPY576MM/year
JPY444MM/year

JPY336MM/year

January only
JPY28MMJPY336MM/year

JPY420MM/year

January only
JPY35MMJPY420MM/year

JPY110MM/year

January only
JPY9MM

JPY110MM/year

JPY3,100MM/year
On and afterJanuary 1, 2022:
JPY1,600MM/year

January only
JPY258MM

JPY1,600MM/year(2) Variable rent
Method of calculation of variable rent
NoNameBefore

After

FY2020 onwards
1

Kobe Meriken Park
Oriental Hotel

2

Oriental Hotel tokyobay

3

Namba Oriental Hotel

4

Hotel Nikko Alivila

5

Oriental Hotel
Hiroshima

6

Okinawa Marriott
Resort & Spa

78Sheraton Grand
Hiroshima Hotel(ACTIVE-INTER
CITY HIROSHIMA)(Note 3)
Oriental Hotel
Fukuoka Hakata
StationFY2020

FY2021

From FY2022 onwardsAGOP x 86.0%(The total GOP of The FiveHMJ Hotels (Note 4) － baseamount (JPY3,351MM/year))x 85.0%

The total GOP of AGOP x 79.0%
The Five HMJ
Hotels x 89.78%－
AGOP x 91.0%
fixed rent forJanuary
AGOP x 74.0%(The total AGOP of The
Five HMJ Hotels－baseamount(JPY4,120MM/year)) x85.0%

AGOP x 89.0%(GOP－base amount(JPY700MM/year)) x 90.0%(GOP－base amount(JPY468MM/year)) x 82.5%(GOP－base amount(JPY442MM/year)) x 98.0%

9Holiday Inn OsakaNamba(GOP－base amount(JPY650MM/year)) x 92.5%

10Hilton Tokyo Narita
Airport(GOP－base amount(JPY550MM/year)) x 86.5%

11International Garden
Hotel Narita(GOP－base amount(JPY360MM/year)) x 98.0%

GOP x 82.92% －fixed rent for
January

AGOP x 89.0%(AGOP－base amount(JPY655MM/year)) x
95.0%

GOP x 79.03% －fixed rent for
January

AGOP x 93.0%(AGOP－base amount(JPY360MM/year)) x
90.0%

GOP x 96.98% －fixed rent for
January
GOP x 90.15% －fixed rent for
January
GOP x 83.59%－
fixed rent for
January
GOP x 95.35%－
fixed rent forJanuary

3

AGOP x 97.0%
AGOP x 98.0%
AGOP x 95.0%
AGOP x 95.0%(AGOP－base amount(JPY442MM/year)) x98.0%(AGOP－base amount(JPY580MM/year)) x97.0%(AGOP－base amount(JPY450MM/year)) x93.0%(AGOP－base amount(JPY360MM/year)) x
98.0%

12

Hotel Nikko Nara

(GOP－base amount(JPY470MM/year)) x 91.5%

13

Hotel Oriental
Express Osaka
Shinsaibashi(GOP－base amount(JPY128MM/year)) ×91.0%

14

Hilton Tokyo Odaiba

FY2020 to FY2021:(AGOP－base amount(JPY2,970MM/year)) x30.0%
On and after FY2022:(AGOP－base amount(JPY1,660MM/year) x 98.0%

GOP x 90.05% －fixed rent for
January
GOP x 87.11% －fixed rent for
January
GOP x 92.10% －fixed rent for
January

AGOP x 95.0%
AGOP x 87.0%

AGOP x 97.0%(AGOP－base amount(JPY440MM/year)) x95.0%(AGOP－base amount(JPY128MM/year))
×91.0%(AGOP－base amount(JPY1,660MM/year) x
98.0%(*1) GOP (gross operating profit) is the remainder after expenses, such as personnel costs and generaland administrative expenses, etc. incurred in hotel operation, are deducted from total sales.
(*2) AGOP is the amount calculated by subtracting certain fees and other items from hotel GOP.
(*3) Stating the rent for Sheraton Grand Hiroshima Hotel, the main facility of ACTIVE-INTER CITYHIROSHIMA.
(*4) The Five HMJ Hotels refers to Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay,
Namba Oriental Hotel, Hotel Nikko Alivila, and Oriental Hotel Hiroshima, which JHR leases toHMJ.
(*5) The existing fixed-term lease contracts for Okinawa Marriott Resort & Spa and Hotel Nikko Narawill expire on December 31, 2020. Therefore, the rent structure for FY2021 and beyond is
stipulated in the new fixed-term lease contracts with the term of the lease from January 1, 2021 toDecember 31, 2030.
3.

Future Prospects
For the operating forecast and forecast of dividend for the fiscal year ending December 2020 (21stPeriod) which reflect the impact of the Revised Contracts, please see the “Notice Concerning
Difference Between Operating Forecast and Actual Results for the Midterm of the Fiscal Year Ending
December 2020 (21st Period), and Operating Forecast and Forecast of Dividend for the Fiscal YearEnding December 2020 (21st Period)” announced today.

4.

Transactions with Interested Parties, etc.
Each company of the HMJ Group, which is the lessee of the Revised Contracts, falls under the categoryof an interested party, etc. as stipulated in Article 201 of the Investment Trust Act as well as Article 123of the Order for Enforcement of the Act on Investment Trusts and Investment Corporations. Therefore,in accordance with “the Rule for Transaction with the Sponsor-Related Parties” stipulated by the AssetManagement Company, appropriate procedures stipulated in the Code for Transactions withSponsor-Related Parties such as approval of the compliance committee attended by outside experts andof the Board of Directors meeting of JHR have been obtained, prior to the conclusion of the revised
Contracts with each company of the HMJ Group.

* Website of Japan Hotel REIT Investment Corporation: https://www.jhrth.co.jp/en/4