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.
February 25, 2022
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
Director of the Board, Managing Director
Head of Finance and Planning Division
TEL: +81-3-6422-0530

Notice Concerning Changes of Fixed-Term Lease Contracts
This is to inform you that, Japan Hotel REIT Investment Corporation (hereinafter called “JHR”), resolved and concluded
Memorandums of understanding related to change fixed-term building lease contracts (hereinafter called the“Memorandums”) to change fixed-term building lease contracts on 14 hotels in total (hereinafter called the “14 HMJHotels”) leased by 10 companies, described in “2. Summary of the change” among 16 hotels (*1) which owned by JHRand leased to Hotel Management Japan Co., Ltd. (hereinafter called “HMJ”) and its subsidiaries (with HMJ, collectively
called the “HMJ Group”) as of today, as follows
Each company of the HMJ Group with which JHR concluded the Memorandums falls under the category of an interested
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 Memorandums, theconsent of the JHR was obtained based on the approval of the JHR’s board of directors meeting in accordance with theInvestment Trust Act and the internal codes for transaction with sponsor-related parties stipulated by the Japan Hotel
REIT Advisors Co., Ltd. (hereinafter called the “Asset Management Company”) (please see “4. Transaction withInterested Parties, etc.” below.).
(*) For the changes of fixed-term lease contracts, please also refer to page 10 in “Financial Result Briefing” dated
today.

1.

Rationale for the revision
Since February 2020, from the early stage of the spread of infection by COVID-19, JHR has been communicatingclosely with the HMJ Group, a group company of asset management company. JHR has been discussed andrequested various measures such as reducing operating costs by thorough review of the operations at each hotel andcorrespondence to financing, etc. in order to respond to the sharp deterioration of the hotel market.
HMJ Group has carried out large-scale restructuring including reduction of personnel costs and outsourcing costs,etc. However, it was difficult for HMJ Group to pay the fixed rent (JPY9,530MM/year) from GOP (*2), which isrevenue before the rent payment of the 14 HMJ Hotels. Therefore, JHR concluded the new fixed-term building lease
contracts with lessees of 14 hotels of the HMJ Group (hereinafter called “Previous Contracts”) in August 2020.
Under the rent structure in the Previous Contracts, fixed rent of JPY8,736MM from February onward in the fiscalyear 2020 was exempted, and full variable rent scheme was adopted in order to prepare for the risk of unstable
market environment in the fiscal year 2021. The rent scheme from the fiscal year from 2022 onwards wascombination of fixed rent and variable rent as in the past.

1

Since then, the outlook for the hotel market remains unclear, as the COVID-19 has been repeated spread of infection
and stable condition, and particularly the variant that differ from those before has been spread since the start of 2022.
Although the HMJ Group continues to thoroughly reduces operating costs, improves management efficiency andstrives to increase sales by branding, and improvement of product appeal, taking consideration of uncertain hotel
market and the stability of the management of HMJ Group, there is a high degree of uncertainty regarding thepayment of fixed rent (JPY8,030MM/year) for 14 HMJ hotels in the fiscal year 2022. As the result, JHR has reached
an agreement with the HMJ Group to conclude Memorandums to apply the full variable rent scheme which appliedin the fiscal year 2021 for the full year in the fiscal year 2022, with conditions of further permanent cost reductions
through the restructuring of the operating system by the HMJ Group.
The HMJ Group operates 16 hotels with a total of 5,361 guest rooms of hotels owned by JHR. Many of which arelarge-scale full-service hotels, which require advanced management expertise. HMJ Group is an important partner
in JHR’s highly flexible investment strategy, and despite of situation under the impact of COVID-19, JHR rebranded
three hotels to brand of Oriental Hotels, etc. JHR judged conclusion of the Memorandum would contribute to themedium to long term benefit of JHR and reached to agreement with HMJ Group.
2.

Summary of the change
Although JHR believes that the hotel market will gradually recover in the fiscal year 2022 due to the progress ofvaccination and the development of therapeutic medicine, as well as the support by measures to promote tourism
by the national and local governments, it is difficult to predict the pace of recovery and downside risks. Therefore,JHR will exempt the fixed rent of JPY8,030MM/year for 14 HMJ hotels in the fiscal year 2022 and adopt the fullvariable rent scheme as we did in Previous Contracts. The base amount of AGOP (*3) and the rate against AGOP
in which generate variable rent remain unchanged from the Previous Contracts. Moreover, from 2023 onwards, theconditions stipulated in the Previous Contracts are not changed.
In concluding Memorandums, JHR and the HMJ Group agreed that HMJ Group will further improve the profit
structure by implementing a new cost reduction of approximately JPY0.5Bn/year at 14 HMJ Hotels in addition toa permanent cost reduction of approximately JPY1.5Bn/year agreed upon conclusion of Previous Contracts andachieved to date. JHR and HMJ Group mutually confirmed that a portion of the increase in GOP due to theimprovement of the profit structure will contribute to an increase in variable rent received by JHR, and through theamount of this increase, JHR can recover the amount equivalent to the exemption of the fixed rent for the fiscalyear 2022 in the medium to long term.
The rent structure of the 14 HMJ Hotels after revision (fixed rent and variable rent) is shown in the table below.

2(1) Fixed rent
Fixed rent
NoName9Kobe Meriken Park OrientalHotel
Oriental Hotel tokyo bay
Namba Oriental Hotel
Hotel Nikko Alivila
Oriental Hotel Hiroshima
Oriental Hotel Okinawa
Resort & Spa
ACTIVE-INTER CITYHIROSHIMA (Sheraton
Grand Hiroshima Hotel) (*4)
Oriental Hotel Fukuoka
Hakata Station
Holiday Inn Osaka Namba

10

Hilton Tokyo Narita Airport

11

International Garden HotelNarita

12

Hotel Nikko Nara

13

Hotel Oriental ExpressOsaka Shinsaibashi

14

Hilton Tokyo Odaiba12345678

Before change

After change

From FY2022 onwards

FY2022 From FY2023 onwards

LesseeHotel Management Japan
Co., Ltd.

JPY3,221MM/year

JPY3,221MM/year

Lagoon resort Nago Co.,Ltd.

JPY550MM/year

JPY550MM/year

K.K. A.I.C Hiroshima
Management

JPY348MM/year

Hotel Centraza Co., Ltd.

JPY425MM/year

OW Hotel Operations KK
KK NaritaKosuge
Operations
KK NaritaYoshikura
Operations
Hotel Management
Co., Ltd.
K.K. HOTEL ORIENTAL
EXPRESSTokyo Humania
Enterprise Inc.

JPY576MM/year

JPY576MM/year

JPY444MM/year

JPY444MM/year

JPY336MM/year

JPY336MM/year

JPY420MM/year

JPY420MM/year

JPY110MM/year

JPY110MM/year

JPY1,600MM/year

JPY1,600MM/year

3

Notapplicab
leJPY348MM/year
JPY425MM/year(2) Variable rent
Method of calculation of variable rent
NoNameBefore

After

From FY2022 onwards
1

Kobe Meriken Park
Oriental Hotel

2

Oriental Hotel tokyo bay

FY2022AGOP x 86.0%
AGOP x 79.0%(The total AGOP of The Five HMJ
Hotels (*5)－base amount(JPY4,120MM/year)) x 85.0%

3

Namba Oriental Hotel

4

Hotel Nikko Alivila

AGOP x 74.0%5Oriental Hotel Hiroshima

AGOP x 89.0%

67891011

Oriental Hotel Okinawa
Resort & Spa
ACTIVE-INTER CITYHIROSHIMA (Sheraton
Grand Hiroshima Hotel)(*4)
Oriental Hotel Fukuoka
Hakata Station
Holiday Inn Osaka
Namba
Hilton Tokyo Narita
AirportInternational Garden
Hotel Narita

12

Hotel Nikko Nara

13

Hotel Oriental Express
Osaka Shinsaibashi

14

Hilton Tokyo Odaiba

From FY2023 onwards

AGOP x 91.0%(The total AGOP of The FiveHMJ Hotels－base amount(JPY4,120MM/year)) x 85.0%(AGOP－base amount(JPY655MM/year)) x 95.0%

AGOP x 89.0%(AGOP－base amount(JPY655MM/year)) x 95.0%(AGOP－base amount(JPY360MM/year)) x 90.0%

AGOP x 93.0%(AGOP－base amount(JPY360MM/year)) x 90.0%(AGOP－base amount(JPY442MM/year)) x 98.0%(AGOP－base amount(JPY580MM/year)) x 97.0%(AGOP－base amount(JPY450MM/year)) x 93.0%(AGOP－base amount(JPY360MM/year)) x 98.0%(AGOP－base amount(JPY440MM/year)) x 95.0%(AGOP－base amount(JPY128MM/year)) × 91.0%(AGOP－base amount(JPY1,660MM/year) x 98.0%

AGOP x 97.0%
AGOP x 98.0%
AGOP x 95.0%
AGOP x 95.0%
AGOP x 95.0%
AGOP x 87.0%
AGOP x 97.0%(AGOP－base amount(JPY442MM/year)) x 98.0%(AGOP－base amount(JPY580MM/year)) x 97.0%(AGOP－base amount(JPY450MM/year)) x 93.0%(AGOP－base amount(JPY360MM/year)) x 98.0%(AGOP－base amount(JPY440MM/year)) x 95.0%(AGOP－base amount(JPY128MM/year)) ×91.0%(AGOP－base amount(JPY1,660MM/year) x 98.0%(*1) 16 hotels refers to Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba OrientalHotel, Hotel Nikko Alivila, Oriental Hotel Hiroshima, Oriental Hotel Okinawa Resort & Spa,
Sheraton Grand Hiroshima Hotel, Oriental Hotel Fukuoka Hakata Station, Holiday Inn OsakaNamba, Hilton Tokyo Narita Airport, International Garden Hotel Narita, Hotel Nikko Nara, HotelOriental Express Osaka Shinsaibashi, Hilton Tokyo Odaiba, Hotel Oriental Express Fukuoka Tenjin
and Oriental Hotel Universal City.
(*2) 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.
(*3) AGOP is the amount calculated by subtracting certain fees and other items from hotel GOP. The
same shall apply hereinafter in this document.
(*4) Stating the rent for Sheraton Grand Hiroshima Hotel, the main facility of ACTIVE-INTER CITYHIROSHIMA. The same shall apply hereinafter in this document.
(*5) 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 to HMJ.
3.

Future Prospects
Operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd Period), isnot determined yet. JHR will announce it as soon as it is formulated.

44.

Transactions with Interested Parties, etc.
Each company of the HMJ Group, which is the lessee under the Memorandum, 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, inaccordance with “the Code for Transaction with the Sponsor-Related Parties” stipulated by the AssetManagement Company, appropriate procedures stipulated in the Code for Transactions with SponsorRelated Parties such as approval of the compliance committee attended by outside experts and of theBoard of Directors meeting of JHR have been obtained, prior to the conclusion of the Memorandum witheach company of the HMJ Group.

* Website of Japan Hotel REIT Investment Corporation: https://www.jhrth.co.jp/en/5