Japan Hotel REIT Investment Corporation

Midterm Financial Results
Briefing 19th Period (FY12/2018)
August 22, 2018
(TSE: 8985)
http://www.jhrth.co.jp/en/

Table of Contents

Appendix １

Ⅰ． Midterm Settlement of Accounts for FY12/2018 - Highlights
１．Highlights of Midterm – June 2018

3

Ⅱ． Summary of Midterm Settlement of Accounts and Revenue
Forecast for the Full Fiscal Year

JHR's Characteristics

１．JHR's Investment Targets

32

２．Simultaneous Pursuit of Stability and Upside Potential

33

３．External Growth Strategy

34

１．Midterm Results for the Fiscal Year Ending December 20186

４．Internal Growth Strategy

35

２．Revenue Forecast for the Full Year Ending December 2018

7

５．Financial Strategy

36

３．Balance Sheet

8６．Initiatives for Sustainability

37

７．Benefits Program for Unitholders

38

Ⅲ． External Growth
１．Change in Asset Size

10

２．Summary of Property Sales

11

Appendix ２

Ⅳ． Portfolio
１．Portfolio

13

２．Portfolio Diversification

14

Ⅴ． Internal Growth
１．Rent Structures16

２．Performance of Major Hotels Adopting Variable Rent
Scheme, etc.

17３．Active Asset Management

19

４．Capital Expenditure and Depreciation

2240

２．Summary of Lease Contracts

42

３．Major CAPEX Ⅲ by Hotel

45

４．The Five HMJ Hotels – Highlights

46

５．Portfolio Map

47

Investors Composition and Investment Unit Price

１．Major Unitholders and Classification of Unitholders

49

２．Changes in Investment Unit Price and Market Capitalization

50

Appendix ４

Summary of the Asset Management Company

１．Summary of the Asset Management Company

52

２．Features and Governance of the Asset Management Company 53
24

Ⅶ． Market Environment
１．Market Environment

１．Property List

Appendix ３

Ⅵ． Financial Status
１．Financial Status

Information on Properties

28

1

Ⅰ．MIDTERM SETTLEMENT OF ACCOUNTS FOR FY12/2018 HIGHLIGHTS

１．Highlights of Midterm – June 2018
1. External Growth

2. Internal Growth(*4,5,6)▶ Strategic property replacement
End of FY12/2015

36 properties/JPY225.7Bn◆Public Offering in Jan.
JPY24.0Bn(*1)

Total
Acquisition
Price(*1,2)◆Public Offering in Jul.

Total Funds
Raised throughPublic Offerings

78.3Bn JPY49.3Bn

JPY

Acquired 4 properties/
JPY54.3Bn(*2)

End of FY12/2016

Acquisition in 2017

2017

Total
AcquisitionPrice

Acquired 3 properties/
JPY32.6Bn

Total Funds
Raised throughPublic Offerings

32.6Bn JPY18.6Bn

JPY

44 properties/JPY319.4Bn
Sale in 2018

◆Sale of Properties in Aug.

2018

Sold ▲3 properties/▲JPY10.1

Bn(*3)

R&B Hotel
Higashi-nihonbashi
the b akasaka-mitsuke
the b ochanomizu

As of Aug. 22, 2018

 RevPAR

Total Book
Value of Sold
Properties

Total Sales
Price of Sold
Properties

101Bn JPY121Bn

JPY

Total Gain on Sale:

1.9Bn

JPY

41 properties/JPY309.3Bn(Unit: JPY)
First Half of First Half of
2017
2018

Variance(%)

11 HMJ Hotels

13,027

13,306+2.1%

6 Accor Hotels

9,652

10,071+4.3%

6 the b Hotels

8,433

8,495

+0.7%

Total

11,641

11,922

+2.4%

Name

41 properties/JPY286.8Bn◆Public Offering in Jun.

End of FY12/2017

and increase in variable rent, etc.
through active asset management

Acquisition in 2016

Acquired 2 properties/

2016▶ Improvement in hotel performance Year on Year Change (forecast) in Rent for
Full Year 2018

3. Strengthening of Financial Base

▶ Conservative financial management(End of June 2018)
Costs for Interest- Average Life of
Bearing Debt
Debt

LTV(*7)

39.0%

1.1%

4.9 years

 Diversified funding methods by issuance ofinvestment corporation bonds• Issued investment corporation bonds for retailinvestors (the third)
Total amount of bonds: JPY10 billion
Maturity period: 10 years
Interest rate: 0.84%
 Procurement of new loan utilizing SMBC
Environmental Assessment Loan ("A" grade)(*8)
 Repayment of the existing loans in accordancewith sales of three properties (JPY5.0 billion)

Variance(JPY MM)

Variance(%)

8 HMJ Hotels

+272

+2.7%

6 Accor Hotels

+207

+7.1%

4 the b Hotels

-13

-1.6%

Revenue
Sharing, etc.

-18

-0.4%

JCR

R&I

Total

+447

+2.5%

A+ (stable)

A (stable)

Name

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

 Retained earnings by reserve for special
advanced depreciation• Retained earnings in amount of JPY1.2 billion out
of gain on sale of R&B Hotel Higashi-nihonbashi
JHR hold over 10 years
 Status of Credit Rating

Includes JPY17.3 billion of ACTIVE-INTER CITY HIROSHIMA acquired in December 2015.
Includes JPY7.1 billion of Hotel Centraza Hakata acquired in April 2016.
Stated total amount of the acquisition price.
The Eight 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, Sheraton Grand Hiroshima Hotel (the major facility of ACTIVE-INTER CITY HIROSHIMA) and Holiday Inn Osaka Namba.
The Eleven HMJ Hotels are the Eight HMJ Hotels plus Hilton Tokyo Narita Airport, International Garden Hotel Narita and Hotel Nikko Nara.
The Six Accor Hotels are ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha and Mercure Yokosuka.
The Four the b Hotels are the b ikebukuro, the b hachioji, the b hakata and the b suidobashi. The Six the b hotels are the Four the b hotels plus the bakasaka-mitsuke, the b ochanomizu.
Stating total asset LTV at the end of December 2018 (forecast).
For details, please refer to P.37.

3

１．Highlights of Midterm – June 2018 (cont.)
Dividends Per Unit Growth
(JPY)
4,000

The amount of sales effect(*)
3,420

3,500

2,975

3,000
2,500

98
2,155

2,000
1,500

38.1% up

5.6% up139(excluding theamount of sales effect:

7.7% up

1.8％ up)

15.0% up

3,751

2,877

(excluding theamount of sales effect:

33.5% up)

3,890

3,683

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

15th Period

16th Period

17th Period

18th Period

19th Period (forecast)(FY12/2014)(FY12/2015)(FY12/2016)(FY12/2017)(FY12/2018)77,12978,222

NAV Per Unit Growth(JPY)75,20980,00070,00063,385
18.7% up

60,00050,00046,272
37.0% up

40,00030,0001.4% up

2.6% up

15th Period

16th Period

17th Period

18th Period

19th Period (forecast)(FY12/2014)(FY12/2015)(FY12/2016)(FY12/2017)(FY12/2018)(*) The amount of sales effect represents dividends per unit which are increasing due to sales of properties.

4Ⅱ．SUMMARY OF MIDTERM SETTLEMENT OF ACCOUNTS AND
REVENUE FORECAST FOR THE FULL FISCAL YEAR

１．Midterm Results for the Fiscal Year Ending December 2018
(Unit: JPY MM)
FY12/2017(18th Period)

FY12/2018(19th Period)

Midterm Actual(A)

Midterm Actual(B)(B)–(A)

Major Causes of Variance

Three
Variance Properties Existing(%)
Acquired Properties
in 2017

Fixed rent, etc. of the existing properties• Increase in utilities income, etc.

JPY15 MM

41

44

3

-

Variable rent of the existing properties

Acquisition Price

286,801

319,474

32,673-• The Eight HMJ Hotels: increase in variable rent

JPY53 MM

Operating Revenue

11,272

12,321

1,049

0.6%

987

61

• The Six Accor Hotels: increase in income frommanagement contracts, etc.

JPY69 MM

11,272

12,321

1,049

0.6%

987

61

• The Six the b Hotels: decrease in variable rent

JPY(4) MM• Increase in rent from revenue sharing, etc.

JPY4 MM

Properties

No. of Properties

Real Estate
Operating Revenue
Fixed Rent, etc.

60.5%

6,814

60.3%

7,430

615

0.1%

600

15

Variable Rent

39.5%

4,457

39.7%

4,891

433

1.3%

387

45

9,364

10,294

929

0.9%

939

(9)

1,756

2,031

275

197

78

Asset Retirement
Obligations Expenses

1

1

0

-

0

Loss on Retirement ofNoncurrent Assets

18

11

(6)

-

(6)

7,588

8,250

661

742

(80)

Other Operating
Expenses

847

930

82

Operating Income

6,740

7,319

578

Non-Operating Income

14

28

13

Non-Operating Expenses

803

959

155

Ordinary Income

5,951

6,387

436

1.3%

Net Income (Midterm)

5,951

6,387

436

1.3%

(*2)

NOI

Depreciation
Profit and Loss

Breakdown ofVariance

Variance

NOI after
Depreciation(*2)

1.3%

1.3%

• Hotel Centraza Hakata: decrease in variable rent due to therenovation(*3)
JPY(77) MM(Total)

JPY45 MM(*1) For detail, please refer to Midterm Financial Report for the Fiscal YearEnding December 31, 2018 (January 1, 2018–June 30, 2018) dated August22, 2018.
(*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(*3) As for Hotel Centraza Hakata, the effect of expected decrease in GOP due tothe renovation with suspension of sales from October 2018 is incorporated
in the result of midterm of FY12/2018.

6

２．Revenue Forecast for the Full Fiscal Year Ending December 2018
(Unit: JPY MM)
FY12/2017(18th Period)

FY12/2018(19th Period)
Previous
Forecast(*2)
(A)

Prope
rties

ActualVariance(%)(B)–(A)

Sales
Existing
Properties Properties

No. of Properties

44

44

41

41

(3)

(3)

319,474

319,474309,370309,370(10,104)(10,104)

Operating Revenue

25,47526,56728,48526,269

1,917

7.2%

1,753

164

26,269(19)(0.1)%(183)

164

Fixed Rent, etc.

55.8%

14,22156.0%

14,87855.6%

14,763

55.4%

14,564(114)(0.8)%(128)

14

Variable Rent

44.2%

11,25344.0%

11,68944.4%

11,784

44.6%

0.8%

(55)

149

Gain on Sale of Real
Estate PropertiesNOI
NOI Yield
Profit and Loss

Annualized Effect(reference)(B)

Acquisition Price

Real Estate Operating
Revenue

Depreciation

25,47526,567

26,548

11,704

94

-

-

1,937

-

1,937

21,424

22,18622,221

21,927

34
0.3%

0.2%

0.1%

(33)

(18)

(15)

• The Six the b Hotels: Increase in variable rent

JPY4 MM(20)• Increase in rent from revenue sharing, etc.

JPY42 MM

17

(20)
89

5.5%

5.7%

5.9%

5.8%

Other Operating
Expenses

1,806

1,968

1,966

Operating Income

15,757

16,094Non-operating Expenses,
etc.

1,751

1,798

No. of Units Issued (Unit)
Dividend per Unit (JPY)JPY62 MM

7.1%

17,893

Total Dividends

Variable rent
• The Twelve HMJ Hotels: Increase in variable rent

1,937

JPY(114) MM

4,014

17

Reserve for special
advanced depreciation

JPY(128) MM(Total)7.2%

18,152

Use of Negative
Goodwill(*4)• Decrease due to property sales

JPY14 MM

4,049

38

Net Income(sub total)

6.9%

18,062Extraordinary Income or
Loss, etc.

JPY22 MM

4,083

132

Ordinary Income

JPY(8) MM• Increase in utilities income, etc.

6.7%

17,563Non-operating Expenses• Decrease in rent from tenant other than hotel

3,725

NOI after Depreciation
NOI Yield after Depreciation

Fixed rent

• The Six Accor Hotels: Increase in income from management
contracts, etc.
JPY41 MM

Loss on Retirement ofNoncurrent Assets

Non-operating Income

Dividend

Major Causes of Variance

Comparison with Previous Forecast

Forecast This Time

0.2%

(165)

199

0.5%

(146)

236

0.2%

0.1%

0.1%

1,944

(1)

0

(2)

18,122

15,948

2,028

12.6%

1,790

238

1,827

1,817

29

1.7%

27

8

28

28

19

-

19

1,778

1,806

1,856

1,846

49

(6)

55

14,006

14,295

16,294

14,130

1,998

1,796

202

1

1

1

1

-

-

-

14,005

14,294

16,293

14,129

1,998

14.0%

1,796

202

769

565

544

544

(20)

-

-

(20)

-

-

(1,235)0(1,235)-(1,235)

0

557

184

14.0%

14,771

14,86015,602

14,671742

4,010,847

4,010,847

4,010,847

4,010,847

-

-

-

-

3,683

3,705

3,890

3,658

185

5.0%

139

46

(sub total)• Decrease in variable rent due to property sales(Total)+5.0％50-year amortization amount

(*1)

(*3)
(*4)

7

JPY(55) MM
JPY94 MMUse of Negative Goodwill(*4)

(*2)

+5.6％

JPY149 MM

JPY262 MM

Loss on retirement of noncurrent assets

JPY17 MM

Correspondence to major renovation works

JPY265 MM(Total)

JPY544 MM

For detail, please refer to Midterm Financial Report for the Fiscal Year Ending December
31, 2018 (January 1, 2018–June 30, 2018) dated August 22, 2018.
Stating the forecast disclosed on the Financial Report for the Fiscal Year Ended
December 31, 2017 (January 1, 2017–December 31, 2017) dated February 22, 2018.
The Twelve HMJ Hotels are the Eleven HMJ Hotels plus Hotel Centraza Hakata.
Please refer to P.26 for the use of negative goodwill (reserve for temporary difference
adjustment).

３．Balance Sheet(Unit: JPY MM)(as of)

FY12/2017
End of Fiscal Year

FY12/2018
End of Midterm

2017.12.31

2018.6.30

30,91923,676(7,243)27,92021,422(6,497)

Variance(as of)ASSETS

FY12/2017
End of Fiscal Year

FY12/2018
End of Midterm

2017.12.31

2018.6.30

Variance

LIABILITIESCurrent Assets

Cash and Deposits(*1)

Operating Accounts
Receivables
OthersNoncurrent assets
Net Property and Equipment
Buildings in Trust(*2)
Land in Trust
(*3)

2,411

1,742

(668)

587

510

(76)

320,859

319,544(1,314)

283,066

282,096(969)

109,983

108,974(1,009)171,618

171,618

0

1,465

1,504

39

Intangible Assets

34,171

34,090(80)

Other Assets

3,621

3,357

(264)

170

170

0

3,450

3,186

(264)

404

382

(21)

OthersLeasehold and Security
Deposits
OthersCurrent Liabilities

21,161

17,850Operating Accounts Payable

909

346

(563)

Short-Term Loans Payable

3,000

5,000

2,000

Current Portion of Investment
Corporate Bonds Payable

0

2,000

2,000

Current Portion of Long-Term
Loans Payable

15,022

8,589(6,433)

Accounts Payable

1,211

910

(301)

Advances Received

900

905

5

Others

116

98

(18)
2,963

Long-Term Liabilities(3,311)129,058

132,021

Investment Corporation Bonds

23,60031,6008,000

Long-Term Loans Payable

98,777

93,871(4,906)

Tenant Leasehold and Security
Deposits

5,694

5,672

(21)

504

394

(109)

Derivative Liabilities
OthersTOTAL LIABILITIES

482

483

0

150,219

149,872(347)

NET ASSETS
Unitholders' Capital

153,516

153,5160Capital Surplus

21,746

21,746

0Reserve for Temporary
Difference Adjustment

13,127

12,357(769)

Unappropriated Retained
Earnings (midterm/year)

14,0056,390(7,615)

OthersTOTAL ASSETS

352,183

343,603(8,579)

(431)

(278)

152

TOTAL NET ASSETS

201,963

193,731(8,231)TOTAL LIABILITIES AND
NET ASSETS

352,183

343,603(8,579)(*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.

8

Ⅲ．EXTERNAL GROWTH

１．Change in Asset Size
 Realize portfolio quality enhancement through asset replacement and continuous external growth by leveraging JHR's
strength as an independent J-REIT specializing in hotel assets
 Acquired 24 properties, approximately JPY210 billion worth of hotel assets since the merger, while sold 11 properties in
the amount of approximately JPY21.2 billion+27.1%

Growth in Asset Size(*1) (JPY MM)-3.2%+11.4%+30.2%+9.1%+21.4%+7.0%

225,723

286,801

319,474309,370

FY12/2017(18th Period)

FY12/2018(19th Period)(forecast)

158,902173,429

FY12/2012(13th Period)

FY12/2013(14th Period)

FY12/2014(15th Period)

FY12/2015(16th Period)

FY12/2016(17th Period)

–

6.2%

6.2%

6.3%

6.6%

6.6%

6.7%

7.2%

NOI Yield (After
Depreciation)(*2)

–

4.5%

4.8%

5.0%

5.3%

5.4%

5.5%

5.9%

NAV Per Unit–

JPY32,321

JPY36,074

JPY46,272

JPY63,385

JPY75,209

JPY77,129

JPY78,222

No. ofProperties

2

2

3

9

5

3

AcquisitionPrice

JPY10.8Bn

JPY32.6Bn

JPY15.7Bn

JPY57.0Bn

JPY61.0Bn

JPY32.6Bn

No. ofProperties

2

2

1

3

3

Sales Price

JPY0.8Bn

JPY2.6Bn

JPY0.7Bn

JPY4.8Bn

JPY12.1Bn

28

28

30

36

122,285

130,883

April 2012
(merger)NOI Yield (%)(*2)

Acquisition

Sale

Total No. of
Properties

28(*1) Total Assets refers to the total acquisition price.
(*2) NOI yield for FY12/2012 is hypothetical yield calculated based on annualized actual NOI after merger.

10

41

44

41

Aim forFurther
Growth

２．Summary of Property Sales
 Sold three properties in Tokyo in August 2018. Improve portfolio quality by replacement of assets
R&B Hotel
Higashi-nihonbashi

the b akasaka-mitsuke

the b ochanomizu

Total/Average

Acquisition Price

JPY1,534MM

JPY6,250MM

JPY2,320MM

JPY10,104MM

Book Value(*1)

JPY1,483MM

JPY6,293MM

JPY2,353MM

JPY10,131MM

Sale Price

JPY3,050MM

JPY6,600MM

JPY2,500MM

JPY12,150MM

Gain on Sale

JPY1,543MM

JPY265MM

JPY128MM

JPY1,937MM

Appraisal Value(*2)

JPY2,090MM

JPY6,010MM

JPY2,360MM

JPY10,460MM

Appraisal NOI(*3) Yield toSale Price

3.5%

3.5%

4.0%

3.6%

<Reference>

Usage of Gain on Sale

Rational for the sales

 JHR decided to sell as a result of comprehensive consideration regarding
positions of the assets (hotel types, locations, etc.), the competitiveness for
mid-to-long term, upside and stability, etc.

JPY10.13BnRatio of Unrealized Gain/Loss and NOI Yield of each property(*4)

Ratio of Unrealized Gain/Loss

160%
150%
140%
130%
120%
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%

Gain on Sale
JPY1.93Bn

Dividends JPY0.70Bn
reserve for special
advanced depreciation

JPY1.23Bn

Cash
JPY5.10Bn
Book Value

R&B Hotel
Higashi-nihonbashi

the b

3%

5%

Before
(*1)
(*2)
(*3)
(*4)

6%

8%
9%
NOI Yield

11%

12%

14%

11

Allocate tofunds foracquiring newproperties

Sale Price
Repaymentof existingloans
JPY5.00Bn

The b ochanomizu
akasakamitsuke

Improve
dividends

The SaleLower LTV andreduce debt cost

After

As of the end of July, 2018 (estimated)
As of the end of June, 2018
NOI is the actual for FY ended December 2017.
Ratio of unrealized gain/loss ＝(Appraisal value－book value)/book value (as of the end of June2018). NOI yield is the actual for FY ended December 2017. "□" of three sold properties
represents appraisal NOI yield to sale price and ratio of actualized gain on sale.

Ⅳ．PORTFOLIO

１．Portfolio 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
Portfolio Summary

Strategic Investment Areas and Locations of Properties(as of Aug. 22, 2018)

Total Assets
JPY309.3Bn

Existing properties
Strategic Investment Areas

Hokkaido Area
No. of Hotels

Okinawa Area

41 Hotels(32 in Strategic Investment Areas)

No. of Guest Rooms

11,090 Rooms

Tokyo & the Bay Area(*1)
Fukuoka Area
Osaka/Kyoto Area(*2)
Tokyo 23 wards(*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.

13

２．Diversification of Portfolio
 Widely diversified and high-quality portfolio Appeal to inbound visitors by international brands
By Area and Rent (based on rent)(*)

By Hotel Brand (based on the acquisition price)
Others17%(F)1.0%(F)1.8%(V)2.1%

(F)

5.2%

3.5%

7.4%

3.5%
6.1%
Chubu

5.3%

5.3%
Chugoku

Tokyo

5.7%

Okinawa

(V)

16.3%

9.2%

15.0%

Kanto
(excluding
23.2%(excluding
Osaka)

Osaka

8.2%

13.7%

By Grade/Hotel Type (based on the acquisition price)

10.1%

Economy
6%

(F)
7.4%

7.1%
(V)
5.3%

(F)
4.8%

(V)

Luxury25%

6.3%
Mid-price
52%(*)

Sheraton
6%
Marriott5%

International Brand: 48%

(V)

(F)

Holiday Inn
(IHG)
9%

Hilton
18%

Tokyo)

KansaiHotel Nikko
9%

Ibis/Mercure(Accor)
11%

(F)

10.9%

7.5%
Kyushu(excluding Okinawa)
7.0%

(F)

Dormy Inn, etc.
(Kyoritu Maintenance)
5%
The b
4%

(V)

Hokkaido(F)(V)1.2%(V)(V)

Oriental Hotels
16%

Fixed Rent (F)Variable Rent (V)

55.4%

44.6%

Based on the annualized rent in revenue forecast of FY12/2018

14

Upper-middle
17%

Resort25%
Limited-service
39%
Full-service
36%

Ⅴ．INTERNAL GROWTH

１．Rent Structures
Stability

Upside(FY12/2018 estimated)

Rent Structure(*1)

Fixed rent

Fixed rent + Revenue sharing

Fixed rent + Variable rent

Variable rentManagement 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 and/or hotel GOP

Hotel GOP–

JPY2,782MM(10.6%)

JPY3,685MM(14.0%)

JPY14,693MM(55.9%)

JPY1,790ＭM(6.8%)

JPY3,317ＭM(12.6%)

JPY26,269MM(100.0%)

Fixed Rent,
etc.(*2) (%)

JPY2,782MM(10.6%)

JPY3,281MM(12.5%)

JPY7,526MM(28.6%)

JPY508MM(1.9%)JPY465MM(1.8%)

JPY14,564MM(55.4%)

Variable Rent(%)–

JPY403MM(1.5%)

JPY7,167MM(27.3%)

JPY1,282MM(4.9%)

JPY2,851MM(10.9%)

JPY11,704MM(44.6%)

Involvement inHotel Operation

Low

Low

High

High

High

–

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

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

Type of Contract
Type of
Rent

Real Estate Operating
Revenue (%)(breakdown)(FY12/2018 annualized
forecast)

1) Renewal of building
CAPEX Paid by JHR
and facilities

1) Renewal of building andfacilities<3) Strategic investment>

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

Total

No. of Properties

11

6

16

3

5

41

Acquisition Price(%)

JPY37,300MM(12.1%)JPY44,216MM(14.3%)

JPY180,490MM(58.3%)

JPY17,723MM(5.7%)

JPY29,640MM(9.6%)

JPY309,370MM(100.0%)

The Beach Tower
Okinawa

Hilton Tokyo Bay

The Twelve HMJ Hotels

Hilton Nagoya

The Five Accor Hotels(*3)

Hotel Keihan Universal City

The Four the b Hotels

Mercure Yokosuka

Hotel Francs
HotelsCANDEO HOTELS
UENO-KOEN
and other hotels

Chisun Inn Kamata

Hotel Sunroute Shinbashi
Smile Hotel
Nihombashi Mitsukoshimae–

Hotel Vista Kamata Tokyo
Comfort Hotel Tokyo
Higashi Nihombashi(*1) Rent structure is categorized according to the rent contract for hotels of each acquired asset.
(*2) Fixed rent includes fixed rent and utility income based on rent contract from non-hotel portion (offices, signage, car parks, retail shops, etc.) of acquired asset.
(*3) The Five Accor Hotels are five hotels excluding Mercure Yokosuka from The Six Accor Hotels.

16

２．Performance of Major Hotels Adopting Variable Rent Scheme
Occupancy rate (right axis)

ADR (left axis)

RevPAR (left axis)

The Eleven HMJ Hotels(JPY)
20,00015,00010,000
5,000
0

(JPY)
15,00014,912
13,0270(JPY)
12,000013,306

16,037

+1.2%
+1.5%

18,237
16,26916,49014,544

+1.7%
+1.8%

16,77014,800

87.3%

89.0%

89.2%

88.2%

88.3%

First Half of 2017

First Half of 2018

Second Half ofSecond Half ofFull FY2017

Full FY2018

ActualActual2017 Actual2018 Forecast

ActualForecast

100.0%
80.0%
60.0%
40.0%
20.0%
0.0%

The Six Accor Hotels
11,733

12,49010,071

10,709

84.8%

85.8%

85.7%

91.3%

85.3%

88.6%

First Half of 2017

First Half of 2018

Second Half ofSecond Half ofFull FY2017

Full FY2018

ActualActual2017 Actual2018 Forecast

ActualForecast

9,009

9,021

9,125

9,004

8,152

8,289

8,360

8,162

89.4%

90.5%

91.9%

91.6%

90.7%

91.1%

First Half of 2017

First Half of 2018

Second Half ofSecond Half ofFull FY2017

Full FY2018

ActualActual2017 Actual2018 Forecast

ActualForecast

11,383
9,652

8,986

8,000
4,000

+2.1%

18,013

87.4%

10,000
5,000

+2.2%

15,246

8,033

+3.1%
+4.3%

+0.2%
+1.5%

+0.2%

12,519+6.8%

11,432The Four the b Hotels
+1.2%
+0.9%

17

11,944
10,185

+1.6%
+5.6%

+0.7%
+1.2%

12,141
10,757

9,068
8,257

100.0%
80.0%
60.0%
40.0%
20.0%
0.0%

100.0%
80.0%
60.0%
40.0%
20.0%
0.0%

２．Performance of Major Hotels Adopting Variable Rent Scheme (cont.)
Occupancy rate (right axis)

ADR (left axis)

RevPAR (left axis)

Total of Three Hotel Groups(JPY)
18,00013,45415,00012,00011,702

9,000

+2.2%

+2.5%

13,744

11,996

15,761

13,95915,884

+0.8%

+2.4%

14,29014,627

12,840

+1.4%

+2.4%

14,839100.0%
80.0%

13,153

60.0%
40.0%

6,000
3,000
0

87.0%

87.3%

88.6%

90.0%

87.8%

88.6%

First Half of 2017

First Half of 2018

Second Half ofSecond Half ofFull FY2017

Full FY2018

ActualActual2017 Actual2018 Forecast

ActualForecast

20.0%
0.0%

Estimated GOP(JPY MM)
20,00016,00012,000

8,000

Total

The Fourthe b Hotels
The Six
Accor Hotels

The Eleven
HMJ Hotels

18,301

Ratio of each group to
GOP total

17,678

+3.5%

951

-1.7%

935

5.1%

3,004

+6.5%

3,198

17.5%

13,724+3.2%

14,168

77.4%

Full FY2017

Full FY2018

ActualForecast18

３．Active Asset Management
 Implement Active Asset Management at both hotel and REIT sides
 Accelerate internal growth through both revenue enhancement and cost control

Three Hotel Groups(*)

Hotels

FY12/2018 Forecasts (JPY MM)

Examples of Active Asset Management

52,458

 Strategic capital expenditure(e.g., renovation of rooms to increase RevPAR) Rebranding according to each hotel's characteristics
 Sharing guest by hotels located nearby in the same group Renewal of a hotel booking system

Hotel Operating Costs

33,218






GOP

19,239Hotel Revenue

Integration of back-office operations
Optimization of staffing
Cost reduction by joint purchasing in the same group
Reduction of utility costs

Real Estate
Operating
Revenue

REIT

Variable rent contract
Three Hotel Groups

18,544

Other Hotels

8,004

Real Estate Operating Costs

4,327

NOI

22,221

 Rent increase by revision of rent scheme, etc.
• The Five HMJ Hotels, CANDEO HOTELS UENO-KOEN, Chisun
Inn Kamata, Comfort Hotel Tokyo Higashi Nihombashi andrent from non-hotel tenant, etc.
 Optimization of cost for PM/BM/Trust, reduction of ground rent,
etc. and review of fixed asset tax

Maximize DPU(*) The figures of the Three Hotel Groups are the total amount of the Twelve HMJ Hotels, the Six Accor Hotels and the Six the b Hotels.

19

３．Active Asset Management (cont.) Promote internal growth through renovation and rebrand, etc. as a part of Active Asset Management strategy
Hotel Centraza Hakata
Renovation of the Entire Building and Rebrand

Oriental Hotel Tokyo Bay
Renovation of guest rooms and lobby, etc.

 Schedule
October 1, 2018 to March 31, 2019 (plan) Schedule
October 9, 2018 to November 20, 2018 (plan) Rebrand (change of hotel name)Planning to rebrand and open the hotel as "Oriental Hotel
Fukuoka Hakata Station" in April 2019
Aim to improve position of its hotel grade by renovation of theentire building and rebrand of the hotel in prime location in frontof Hakata Station

 Increase in the number of rooms
Increase by eight rooms through converting facilities (reception
desk exclusive to special floor, etc.) to guest rooms and dividing
suite rooms
 Facility renovation for optimize the hotel operation

 Increase in the number of rooms and improve ADR
Increase to 221 from 194 rooms
Add value through making all room types bigger than double
room and set up facilities (gym and others) for exclusive use by
hotel guests

Aim to optimize the hotel operation by multitasking of lobby
operation, such as relocating reception desk exclusive to special
floor to lobby on the second floor Renovation works of mechanical parking lot

 Eliminate an impact on dividend caused by suspension of
hotel operation by using negative goodwill
Plan to utilize JPY265MM in FY12/2018

Guest room (image after renovation)

Reduce maintenance cost by converting it to ground levelparking lot

Lobby area (image after renovation)

Lobby (image after renovation)

20

３．Active Asset Management (cont.)
Holiday Inn Osaka Namba and Namba Oriental Hotel
Renovation of guest rooms

Other Examples

 Holiday Inn Osaka Namba Mercure Sapporo and Ibis Styles Sapporo

Jan. to Feb. 2018 Renovated 56 guest rooms (6th to 7th floor),
Increased triple rooms
Sep. 2018

Plan to install fitness gym
Enhance superiority by aiming to differentiate in the market

Plan to renovate 50 guest rooms (4th and 12th floor)<Before>Mercure Sapporo<After>Gym (image after renovation)

 Namba Oriental HotelJan. 2018 Renovated 41 guest rooms (6th floor)<Before>Ibis Styles Sapporo

Gym (image after renovation)

 Comfort Hotel Tokyo Higashi Nihombashi<After>Jan. 2018 Rent was revised (Increased)
In addition to fixed rent (the same amount as before), revenue
sharing was introduced
 Review of fixed asset tax
Decrease fixed asset tax, including the passed years, throughnegotiating with the concerned authorities regarding someproperties<Guest Room Composition in "Minami" area in Osaka>
Single and double rooms account for approximately 70% of thewhole guest rooms, while there are relatively small number ofrooms larger than twin rooms

21

４．Capital Expenditures and Depreciation
 Strengthen competitiveness and improve asset value by continuing investment in CAPEX(JPY MM)

4,500
4,000
3,500

Clarification of CAPEX
CAPEX Ⅰ

capital investment related to renewal of buildings, facilities, and equipment which is
required to maintain proper values of propertiesCAPEX Ⅱ

capital investment for fixtures and furnishings that are not directly related to building
structures or facilities but necessary for operating hotels

CAPEX Ⅲ

strategic capital investment for renewals including guest rooms, banquet rooms, restaurant
and others in order to maintain or to improve the competitiveness of the hotels

2,772
2,214

2,297

2,400

1,811

2,000

36
1,500
1,000
500

1,306
1,079

640

343

198

854
58
167

622

629

760

130,883

158,902173,429

225,723

FY12/2012(*)

FY12/2013

FY12/2014

FY12/2015

258

3,725

3,294

Depreciation

3,000
2,500

4,049

203
1,134

3,186
2,898

2,619

783

391

469
475

897

511

1,954

1,898

286,801

319,474309,370

FY12/2016

FY12/2017

FY12/2018(forecast)

1,324

0
Asset Size
(JPY MM)(*) Since FY12/2012 is irregular nine months period, the numbers for capital expenditure in FY12/2012 are the accumulated actual numbers from January to December, 2012. On the other hand, the number for
depreciation is the annualized number.

22

Ⅵ．FINANCIAL STATUS

１．Financial Status
Changes in LTV (total Asset Base)
45.0%

43.1%

Term of Interest-Bearing Debt
As of the end of Dec. 2017

42.8%
39.7%

40.0%

39.9%

Short termLong-term(scheduled repayment
within one year)
Long-term

39.0%

2.1%
10.7%

(16th Period)(17th Period)(18th Period)

88.9%

Fixed Interest Rate Ratio

End of FY12/2014End of FY12/2015End of FY12/2016End of FY12/2017End of FY12/2018(15th Period)

3.5%
7.5%

87.2%

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

35.0%

As of the end of Jun. 2018

(forecast)(19th Period)

As of the end of Dec. 2017(*) LTV as of the end of each period/year. LTV for Midterm of FY12/2018 is 41.1%.

94.0％

Changes in Costs for Interest-Bearing Debt(*1) and
Average Life of Debt(*2)
Average Life of Debt
1.8%

1.7%

5.0

1.7%
1.6%
1.5%

3.3

1.4%

(years)Costs for Interest-Bearing Debt
4.9

4.0

1.5%

3.0

1.3%

1.2%

1.2%

1.1%

End of FY12/2014End of FY12/2015End of FY12/2016End of FY12/2017 End of June 2018
(15th Period)(16th Period)(17th Period)

20,000(18th Period)Loans

15,000

2.0
1.1%

1.1%
1.0%

(JPY MM)

5.0

3.7

94.7％

Repayment Schedule of Interest-Bearing Debt

6.0
4.7

As of the end of Jun. 2018

10,0001.0
0.0(19th Period)0(*1) Weighted-average costs for interest-bearing debt (including up-front fee, etc.) as of the end of each period/year.
Rounded off to one decimal place.
(*2) Average life of debt as of the end of each period/year.

24

19,00017,35016,90015,27215,550
1,000

12,41712,78212,300 6,000
1,500

9,489 2,000

2018

2019

2020

2021

10,00013,10014,55010,800 10,900

10,4175,000(as of the end of Jun. 2018)

Investment Corporation Bonds

2022

10,000

2023

2024

2025

4,250

0

2026

2027

2028

１．Financial Status (cont.)
Lender List for Interest-Bearing Debt

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

Balance(as of the end of
Dec. 2017)

Balance(as of the end ofJun. 2018)

Balance%

Balance

Sumitomo Mitsui Banking Corporation

29,63221.1%

31,993

22.7%

2,360

Shinsei Bank, Ltd.

16,492

11.7%

15,03510.7%(1,457)

Mizuho Bank, Ltd.

16,48011.7%

15,03010.7%(1,450)Sumitomo Mitsui Trust Bank, Limited

11,495

8.2%

10,567

7.5%

(927)

Resona Bank, Limited

10,073

7.2%

9,360

6.6%

(713)

The Nomura Trust and Banking Co,Ltd.

4,858

3.5%

4,190

3.0%

(668)

MUFG Bank, Ltd.

4,135

2.9%

4,135

2.9%

0

Development Bank of Japan Inc.

3,780

2.7%

3,780

2.7%

0

Fukuoka Bank, Ltd.

3,260

2.3%

3,260

2.3%

0

Hiroshima Bank, Ltd.

2,427

1.7%

2,927

2.1%

500

The Chiba Bank, Ltd.

2,705

1.9%

2,670

1.9%

(35)

Aozora Bank, Ltd.

2,435

1.7%

2,435

1.7%

0

The Nishi-Nippon City Bank, Ltd.

1,000

0.7%

1,250

0.9%

250

929

0.7%

828

0.6%

(101)

5.1%

–

–

(7,097)

83.2% 107,460

76.2%(9,339)Lenders/Bond Name

Sompo Japan Nipponkoa Insurance Inc.
The Tokyo Star Bank, Limited
Total of Bank Loans

7,097
116,799

As of the end of Dec. 2017

Variance

Loans
Investment
Corporation Bonds%

Investment Corporation Bonds

2,000

1.4%

2,000

1.4%

0

4th Investment Corporation Bonds without Collateral

1,500

1.1%

1,500

1.1%

0

6th Investment Corporation Bonds without Collateral

3,000

2.1%

3,000

2.1%

0

8th Investment Corporation Bonds without Collateral

1,100

0.8%

1,100

0.8%

0

9th Investment Corporation Bonds without Collateral

1,000

0.7%

1,000

0.7%

0

8,600

6.1%

8,600

6.1%

0

5th Investment Corporation Bonds without Collateral

6,000

4.3%

6,000

4.3%

0

7th Investment Corporation Bonds without Collateral

9,000

6.4%

9,000

6.4%

0

10th Investment Corporation Bonds without Collateral––

10,000

7.1%

10,00015,00010.7%

25,00017.7%

10,00023,60016.8%

33,60023.8%

10,000140,399 100.0% 141,060 100.0%

661

Total of Investment Corporation Bonds(for institutional investors)

Total of Investment Corporation Bonds
Total of Interest-Bearing Debt

23.8%

76.2%

Status of Credit Rating

Investment Corporation Bonds (forindividual investors)

Total of Investment Corporation Bonds(for individual investors)

16.8%

83.2%

Investment Corporation Bonds (forinstitutional investors)
3rd Investment Corporation Bonds without Collateral

As of the end of Jun. 201825

Japan Credit Rating Agency, Ltd.
(JCR)

A+ (stable)

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

A

(stable)１．Financial Status (cont.)
Negative Goodwill

Changes in Appraisal Value (Unrealized Gains)<Policy for Use of Negative Goodwill>(JPY Bn)

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

450

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

400

Book Value
Unrealized Gains• Cope with loss on retirement of noncurrent assets

302.1

300

• 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.)

200

166.2

:

JPY17MM:JPY265MM

317.2

316.1

38.5%

39.9%

113.8

34.8

9.8

284.9

< Amount to be Used in FY12/2018 >JPY262MM

126.0

205.4

150

:

122.1

78.7

250

• Cope with suspension of sales and such due to majorrenovation works with significant impact on revenues

50-year amortization amount on negative
goodwill
Cope with loss on retirement of noncurrent
assetsCope with major renovation works

442.2

398.7

350

• Cope with losses caused by property dispositions

439.3

223.3

100
156.3

170.5

6.3%

20.4%

50
0

Total amount: JPY544MM
Balance of Negative Goodwill as of the end
JPY11,813MM
of December 2018 (forecast)

Ratio of
Unrealized
Gains

35.2%

39.9%

FY12/2013
FY12/2014
FY12/2015
FY12/2016
FY12/2017 End of June
(14th Period) (15th Period) (16th Period) (17th Period) (18th Period)
2018(Midterm for19th Period)(*) The "50-year amortization amount of negative goodwill" includes amortization, etc. of fixed-term leasehold of land,
asset retirement obligations, etc. of Hotel Centraza Hakata and HOTEL ASCENT FUKUOKA, which were purchased in
the year ended December 2016 (17th Period).

(*) Unrealized gains are calculated by subtracting book value from appraisal value.

26

Ⅶ．MARKET ENVIRONMENT

１．Market Environment Inbound visitors drew the lodging demand
The number of overnight guests has been solid Japanese demand for domestic travels has been stable

Changes in Number of Overnight Guests in Japan

Changes in Travel Spending among Japanese Travelers(Guest nights in millions)

600

500

(JPY Tn)

30

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

+6.0%
439

+1.6%

466

+6.5% -2.3% +3.5%
504

474

492

510

25

Overseas Travel
Domestic Day Trip
Domestic Overnight Travel
23.8
4.4

4.4
300
413

100

0

432

429

438

423

430

239

CAGR (Compound Average Growth Rate)of Japanese overnight guests+0.8%+46.4% +5.8%+14.8%+33.8%+27.3%
80

26

33

45

2012

2013

2014

66

69

2015

2016

-0.5%

2017

24.2
22.7

4.4

3.8

25.0

25.3

4.0

4.2

4.9

5.0

4.3

20

400

200

24.5

4.5

4.7
4.5

15

237
10

200

14.9

194

15.4

13.8

15.8

16.0

16.0

5

+11.2%
39

43

2017

2018

0

Jan.-Jun. Jan.-Jun.

2012

2013

2014

2015

2016

2017

Domestic Travel:
+2.1%
5.3

5.6

0.9
1.0

1.1
0.9

3.3

3.5

2017

2018

Jan.-Mar. Jan.-Mar.
Source: Travel and Tourism Consumption Trends survey by Japan Tourism Agency

Source: Statistics of Overnight Travel by Japan Tourism Agency(*) Rounded off to the nearest millions of people.

28

１．Market Environment (cont.) The number of inbound visitors increased at a faster pace than thegovernment's target: 40 million in 2020, 60 million in 2030

 The number of inbound overnight guests in Tokyo, Osaka andmajor local cities saw a year on year increase as well as thenumber of international arrivals by airports

Number of Inbound Overnight Guest andNumber of International Arrivals by Airports in 2017

Changes in Number of Inbound Visitors(Thousands)

30,000No. of Inbound Visitors
Tourists

25,000+19.3%+21.8%(year-on-year)

28,691+14.8%

24,039Number of InboundOvernight Guests to Japan
Total 79.7 million

25,441
19,73720,000+47.1%

15,00013,413+30.0%+18.0%+17.5%

Number of International
Arrivals by Airport
Total 26.7 million

16,438+13.9%

16,969Okinawa Naha Airport
4.6 million 1.6 million+9.5%

10,363
10,000

5,000

0

8,358

10,880+35.2%

7,962+16.4%

6,041

2012

2013

Hokkaido New Chitose
7.7 million Airport
1.5 million+19.8% +20.4%

18,73021,049(year-on-year)

2014

2015

2016

2017

2017

Fukuoka
Fukuoka
3.1 million Airport
2.2 million

2018

Jan.-Jul.Jan.-Jul.
Source: Number of International Visitors to Japan by Japan National Tourism Organization (JNTO)(*) The numbers for 2018 Jan.-May are provisional numbers, and Jun.-Jul. are estimated numbers.

29+20.7%+12.0%+14.8%Tokyo
Tokyo/
Tokyo
19.8 million Narita International
International (Haneda)
Airport
Airport
7.6 million 3.7 million+16.6%+17.6%

Osaka
KansaiKyoto
5.6 million 11.7 million International
Airport
7.2 million

Source: Japanese Tourism Agency and Immigration Bureau of JAPAN, The Ministry of Justice(*) Rounded off to the nearest millions of people.

１．Market Environment (cont.) New supply of rooms has been increasing, mainly in Tokyo andOsaka New Minpaku law became effective on June 2018.
Number of listings of private lodgings have been sluggish

Overview of New Minpaku Law and Recent Changes

Number of New Supply of Rooms in Hotels/Ryokans in Japan
ActualSupply Forecast(No. of Rooms)

60,18860,00040,00020,0000

Ratio of New Supply
Excl. Tokyo, Osaka

16,517

+1.1%
+0.6%

+2.1%
+1.7%

+3.8%
+2.9%

+3.5%
+2.4%

+1.9%
+1.5%

2016

2017

2018

2019

2020~

Ratio of New Supply

13,371
6,107

 Rules to be observed by the private lodging business operator•

Ensuring the health of lodgers•

Ensuring safety of lodgers•

Posting of signs•

Furnish registry book of guests•

Response to complaints•

Periodic reporting to prefectural governor

•
6,800

Secure comfort and convenience of lodgers, who are foreign tourists•

Prevention of harmful effects on the living environment in the surrounding area

<No. of registration based on the Private Lodging Business Act>(as of July 27, 2018)

13,582

5,866
5,358

+4.1%

+3.8%

+8.4%

+7.8%

+3.6%

2016

2017

2018

2019

2020~

<Osaka>(No. of Rooms)

10,0005,000

 The "house" that can conduct private lodging business shall be currently
used as residence<Tokyo>5,0000 Subject to the registration to local governments, homeowners areallowed to rent out their rooms within 180 days a year
(Local governments are able to reinforce the regulations with additional
restrictions)33,191
26,16520,00010,000 The law enforced from June 15, 201858,26032,988(No. of Rooms)

15,000<Overview of The Private Lodging Business Act (New Minpaku Law)><Japan>

5,018
1,402

0

8,072

The number of registration The number of registration
submitted
acceptedJapan

10,663 The number of listings recorded highest in spring 2018 (approximately
62,000 listings), however, the number has sharply dropped after the
new Minpaku law went into effect

4,182
+6.3%

+9.6%

+11.5%

+4.8%

2016

2017

2018

2019

2020~

5,235 (79%)<Changes in number of listings on Minpaku related website (Airbnb, etc.)>

4,893

Ratio of New Supply +1.8%

6,603

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 number of new rooms to be supplied in a year to the stock of rooms at the beginning of theyear. With regard to the above data, please note that in case the number of rooms are stated as "to be determined" byhotels, the asset management company has used 180, the average number of new supply of hotel rooms, for calculation.

30

 There are still some unregistered properties listed on the websites, theJapan Tourism Agency requires Airbnb, etc. to crack down on illegal
private lodgings•

The number of listings of illegal properties has been deleting

Source: Japan Tourism Agency, The Nikkei

Appendix 1
JHR'S CHARACTERISTICS

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(Annualized effect (forecast) of FY12/2018)

As of August 22, 2018

Fixed rent only
Fixed rent

Variable rent(*)

55.4%

44.6%

11 properties
Variable rent(*)

30 properties(*) Fixed rent + variable rent structure
Fixed rent + revenue sharing structure
Variable rent structure, Management contract structure(*) Variable rent, Rent from revenue sharing andIncome from management contracts

33

３．External Growth Strategy
Recognition of External
Environment
Trend of the Hotel
Investment Market
 Amid gradually recovering
economy, hotel assets have gained
a firm position as an investment
target due to increase in hotelrevenue resulting from stable
domestic leisure demand andstrong growth of inbound tourists
mainly from Asian countries. On theother hand, since the yields ofother asset classes are decreasing
and investors in hotel investment,
including private funds, areincreasing. Therefore, competition
to acquire hotel assets has become
intense in hotel investment market.
 New supply of hotels is on the rise,
responding to the increasing
number of inbound visitors.
Depending on specifications,locations, capability of hotel
operators, the superiority or
inferiority in competitiveness ofhotel may be seen more clearly.

Basic Policies
 Acquire highly competitive hotel real estate, etc. in areas that have potential to attract "demand byboth domestic and inbound leisure customers" in the medium to long-term
 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 toentry due to operation and management know-how, capital outlay and locations• In the case of "limited-service hotels," the creditworthiness of the hotel lessee, the age of thebuilding, location, guest room composition and profitability are important• Hotels specialized in selling single rooms are carefully chosen• Especially, proactively review the purchase of hotels that have potential for internal growth as well as
the possibility of synergy effect to the existing properties by implementing active asset management

 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, and possibilities to improve buildings and facilities• Particularly, if the hotel pays variable rent, etc., promote internal growth through collaboration withlessees and/or operators

34

４．Internal Growth Strategy
Recognition of External
外部環境に対する認識
Environment
Hotel Market Environment
 In addition to stable domestic
leisure demand, due to thegovernment policy to promote
tourism nation, the number of
inbound tourists, mainly from
Asian countries, is continuing torise. Amid such growth
expectation for Japan's tourism
and hotel industries, although
there are needs to carefully
monitor some impact by supplyof new hotels and Minpaku(private lodging for a fee),demand for accommodation is
expected to stay firm.

Basic Policies
 Pursue both stability and upside potential by steadily implementing growth strategies

Key Measures Planning and execution of the active asset management in order to realizes pursuit in upside revenue• Make strategic investments which will improve profitability and strengthen competitiveness• Change to rent structures that can achieve upside revenue• Make proactive proposals to build effective hotel operating structures which aim to maximize GOP,
from the perspective of both hotel sales and expenses• Attract inbound demand through rebranding to international brands• 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 and improve hotel income andexpenditures• Maintain and improve rent-paying capacity of tenants, etc. through capital expenditures, which leadto maintenance of competitiveness and asset value

35

５．Financial Strategy
Recognition of External
外部環境に対する認識
Environment
Trend of Financing Environment
and Interest Rates

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

 The amount of financing by
equity offering has exceeded tothe previous year, and theamount of bond issues by
J-REITs is upward trend while.
Lending stance by financial
institutions remains well.

Key Measures
 Maintain LTV level at a maximum of 50% (total asset base) for the time being Although short-term and longterm interest rates have beenstable due to the Bank ofJapan's monetary easing policy,
need to be paid close attention
to a fluctuation of long-terninterest rates provoked byinternational factors.

 Diversify financing methods such as public offerings and issuance of investment corporation bonds
 Improve financial stability by extending and diversifying repayment periods and fixing interest rates,etc.
 Optimize borrowing costs

36

６．Initiatives for Sustainability
Aiming for mid to long-term growth to coexist with society and environment and working on to enhance sustainability based onsuitable actions for ESG issues
 Sustainability Policy

 SMBC Environment Assessment Loan (＊2) from Sumitomo Mitsui Banking
Corporation (March 2018)

JHR and JHRA have established "Sustainability Policy", which includes
important issues and initiatives.

Acquisition of "A" grade
Took out a loan using the SMBC Environmental Assessment Loan which
evaluated JHR's excellent initiatives for environmental considerations in asset
management

Sustainability Policy








Monitoring and improvement of environmental performance in our portfolio
Promotion of comfortable, healthy, secure and safe hotels
Promotion of ESG in value chains
Consideration for and contribution to local communities
Initiatives for our officers and employees
Compliance as corporate citizens
Improvement of transparency and engagement with our stakeholders

 Initiatives at hotel
Conversion to the LEDs in lightning fixtures•

ACTIVE-INTER CITY HIROSHIMA (January 2018)
Converted to the LEDs in atrium at 1st and 2nd floor•

Oriental Hotel Hiroshima (May 2018)
Converted to the LEDs in the banquet room at 4th floor in addition to thebanquet room at 3rd floor (December 2017)
Around 75% of the electricity has reduced (preliminary calculation)

 Green Lease Provisions
Added "Green Lease Provisions" on the lease agreement with the Twelve HMJ
Hotels, JHR and JHRA are working on to improve environmental and energy
conservation in collaboration with HMJ Group.
 Acquisition of BELS certification(*1) (February 2018)
JHR has acquired a BELS certification for our two properties, Hotel Nikko
Alivila and Mercure Okinawa Naha, for the first among J-REIT owned
properties(*2)
Hotel Nikko Alivila

Mercure Okinawa Naha

Energy reduction through optimization of facility management•

Analyze energy consumption mainly in HMJ Hotels
Expect to reduce around 7% to 33% of energy use through effective
operation of main facilities such as optimization of operation pattern ofheat system (preliminary calculation)(*1) BELS (Building-Housing Energy-Efficiency Labeling System) is a display system of energy conservation performance of a building.
(*2) "SMBC Environmental Assessment Loan" assesses status of corporate initiatives for environmental considerations, on loan execution and establishment of lending conditions, based on
environmental assessment criteria developed independently by SMBC and the Japan Research Institute, Limited.

37

７．Benefits Program for Unitholders
JHR implemented benefits program for unitholders to obtain a better understanding, improve their satisfaction and expand the investor
base. JHR also expanded the benefits program in 2018 by adding three HMJ hotels, aggregated coverage to 18 hotels.


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)<FY2018 (plan)>
Eligible unitholders: 13,376
Valid period: One year between October 2018 to September 2019

※ The valid period for Hotel Centraza Hakata is April 1, 2019 to September 30, 2019(plan) due to the renovation works

Hotels that offer the benefits program
The Twelve HMJ Hotels and The Six Accor Hotels



The Twelve HMJ

Details of the benefits program
Five complimentary coupons for accommodations and five complimentary
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



Record of coupon redemption(Nine month from October 2017 to June 2018)<Eligible Unitholders: 14,346>
Accommodation

Restaurant

No. of Coupons Used No. of Coupon Users No. of Coupons Used No. of Coupon Users251


Kobe Meriken Park
Oriental Hotel

Okinawa Marriott
Resort & Spa

Oriental Hoteltokyo bay

Sheraton Grand
Hiroshima Hotel

Namba
Oriental Hotel

Oriental Hotel
Hiroshima

Hotel Centraza Hakata

340

621

1,694

The Six Accor Hotels

Hotel Nikko
Alivilaibis Tokyo Shinjuku

ibis Styles Kyoto Station

ibis Styles Sapporo

Mercure Sapporo

Mercure Okinawa Naha

Mercure Yokosuka

Holiday Inn
Osaka Namba

New Addition

ヒHilton NatiraInternational Garden Hotel Narita

Hotel Nikko Nara

38

Appendix 2
INFORMATION ON PROPERTIES

１．Property List (1/2)(as of June 30, 2018)
Appraisal ValueNo.

Property Name

Hotel Type(*1)

Full-service

Grade
(*2)

Uppermiddle

No. of
Guest
Rooms

319

Location

Hyogo

Age
(*3)

23.0

Acquisition
Book Value
Price(JPY MM)(JPY MM)(*5)(*4)

10,900

9,962

18th Period(as of Dec. 31, 2017)
Appraisal
Value(JPY MM)CAP Rate

15,1005.2%

Midterm for 19th Period
Investment(as of Jun. 30, 2018)
Ratio
(*6)
Appraisal
Value(JPY MM)CAP Rate

15,800

5.2%

1Kobe Meriken Park Oriental Hotel

2

Oriental Hotel tokyo bay

Full-service

Mid-price

503

Chiba

23.2

19,90018,026

34,1004.5%

34,1003

Namba Oriental Hotel

Limited-service

Mid-price

258

Osaka

22.3

15,00014,74932,7004.3%

32,9004

Oriental Hotel Hiroshima

Full-service

Uppermiddle

227

Hiroshima

24.8

4,100

4,183

4,280

7.5%

4,350

5

Hotel Nikko Alivila

ResortLuxury396

Okinawa

24.3

18,90018,281

31,5004.9%

31,500

Revenue
P/L fromfrom Real
Real Estate
NOI
Estate(JPY1,000) Operation
Operation(JPY1000)(*7)(JPY1,000)
(*7)
(*7)

NOI Yield(forecast)
(*8)

3.4%

492,707

365,634

212,452

9.0%

4.5%

6.2%

814,633

755,019558,281

8.8%

4.3%

4.7%

787,740

736,567

639,284

10.2%

7.5%

1.3%

187,392

165,142

123,481

9.3%

4.9%

5.9%

586,879

512,448355,201

10.3%

6

The Beach Tower Okinawa

ResortMid-price

280

Okinawa

14.3

7,610

6,713

9,820

4.5%

9,810

4.5%

2.4%

255,508

233,412

168,763

6.1%

7

Hakone Setsugetsuka

ResortMid-price

158

Kanagawa

11.8

4,070

3,763

5,220

5.0%

5,240

5.0%

1.3%

147,472

135,395

89,693

6.6%

8

Dormy Inn Kumamoto

Limited-service

Mid-price

291

Kumamoto

10.4

2,334

2,167

2,960

5.8%

3,000

5.7%

0.7%

97,23084,32563,6467.3%

9

the b suidobashi

Limited-service

Mid-price

99

Tokyo

31.9

1,120

1,230

1,940

4.3%

1,940

4.3%

0.4%

54,664

49,10835,702

8.8%

10

Dormy Inn EXPRESS Asakusa

Limited-service

Economy

77

Tokyo

21.3

999

954

1,300

4.1%

1,330

4.0%

0.3%

31,99727,65020,996

5.5%

11

Hakata Nakasu Washington Hotel Plaza

Limited-service

Mid-price

247

Fukuoka

23.3

2,130

2,044

4,330

4.7%

4,340

4.7%

0.7%

120,000

110,000

98,000

10.4%

12Nara Washington Hotel Plaza

Limited-service

Mid-price

204

Nara

18.3

2,050

1,821

2,430

5.2%

2,430

5.2%

0.6%

75,00067,00046,000

6.5%

13

R&B Hotel Ueno-hirokoji

Limited-service

Economy

187

Tokyo

16.2

1,720

1,744

1,920

4.1%

1,950

4.0%

0.5%

48,64741,597

34,797

4.8%

14

R&B Hotel Higashi-nihonbashi

Limited-service

Economy

202

Tokyo

20.3

1,534

1,486

2,050

4.7%

2,090

4.6%

0.5%

61,10352,58443,063–

15

Comfort Hotel Tokyo Higashi
Nihombashi

Limited-service

Economy

259

Tokyo

10.4

3,746

3,575

5,330

4.5%

5,680

4.4%

1.2%

135,463

120,564

102,481

6.4%

16

Smile Hotel Nihombashi Mitsukoshimae

Limited-service

Economy

164

Tokyo

21.3

2,108

2,040

3,060

4.2%

3,110

4.1%

0.7%

86,26578,751

68,770

6.5%

17

Toyoko Inn Hakata-guchi Ekimae

Limited-service

Economy257

Fukuoka

16.8

1,652

1,446

2,670

4.7%

2,720

4.6%

0.5%

70,51964,00354,4337.7%

18

Hotel Keihan Universal City

ResortMid-price

330

Osaka

17.0

6,000

5,972

13,6005.1%

13,9005.0%

1.9%

533,511495,849

450,899

12.3%

19

Chisun Inn Kamata

Limited-service

Economy

70

Tokyo

15.2

823

787

1,430

4.5%

1,430

4.5%

0.3%

38,69335,10029,3508.6%

20Hotel Vista Kamata Tokyo

Limited-service

Economy

105

Tokyo

26.4

1,512

1,456

2,000

4.5%

2,010

4.5%

0.5%

46,802

39,22627,373

6.5%

21

Hotel Sunroute Shinbashi

Limited-service

Mid-price

220

Tokyo

10.3

4,800

4,833

8,740

4.0%

8,780

4.0%

1.5%

260,091

226,632

215,962

7.6%

22Hilton Tokyo Bay

ResortLuxury

828

Chiba

30.0

26,05026,114

36,1004.3%

36,1004.4%

8.2%

940,482

790,700

698,903

6.1%

23

ibis Tokyo Shinjuku

Limited-service

Mid-price

206

Tokyo

37.8

7,243

8,101

9,650

4.2%

9,650

4.2%

2.3%

318,028

227,396

171,965

6.3%

24

ibis Styles Kyoto Station

Limited-service

Mid-price

215

Kyoto

9.3

6,600

6,695

11,300

4.3%

11,2004.3%

2.1%

270,246

242,705

224,472

7.6%

40

１．Property List (2/2)(as of June 30, 2018)
Appraisal ValueNo.

Property Name

Hotel Type
(*1)

Grade
(*2)

No. of
Guest
Rooms

LocationAge(*3)

Acquisition
Book Value
Price(JPY MM)(JPY MM)(*5)(*4)

18th Period(as of Dec. 31, 2017)
Appraisal
Value(JPY MM)CAP Rate

Midterm for 19th Period
Investment(as of Jun. 30, 2018)
Ratio
(*6)
Appraisal
Value(JPY MM)CAP Rate

Revenue
P/L fromfrom Real
Real Estate
NOI
Estate(JPY1,000) Operation
Operation(JPY1000)(*7)(JPY1,000)
(*7)
(*7)

NOI Yield(forecast)
(*8)

25

ibis Styles Sapporo

Limited-service

Mid-price278

Hokkaido

7.9

6,797

6,647

10,5004.9%

10,8004.9%

2.1%

306,916

243,182

204,9118.7%

26

Mercure Sapporo

Limited-service

Mid-price285

Hokkaido

9.2

6,000

5,892

10,5004.8%

10,7004.7%

1.9%

373,477

267,102226,730

9.5%

27

Mercure Okinawa Naha

Limited-service

Mid-price

260

Okinawa

8.9

3,000

2,890

7,760

4.8%

7,760

4.8%

0.9%

219,900

178,922

152,495

13.0%

28

the b akasaka-mitsuke

Limited-service

Mid-price

122

Tokyo

15.6

6,250

6,297

6,010

4.1%

6,010

4.1%

2.0%

119,708

110,197

99,027–29

the b ikebukuro

Limited-service

Mid-price

175

Tokyo

36.0

6,520

6,618

7,330

4.4%

7,330

4.3%

2.0%

175,407160,215

143,497

5.0%

30

the b ochanomizu

Limited-service

Mid-price

72

Tokyo

18.9

2,320

2,355

2,360

4.2%

2,360

4.2%

0.7%

48,591

44,29539,000–31

the b hachioji

Limited-service

Mid-price

196

Tokyo

31.9

2,610

2,695

2,780

5.2%

2,780

5.2%

0.8%

99,68886,59872,4196.6%

32

the b hakata

Limited-service

Mid-price

175

Fukuoka

20.8

2,300

2,343

4,160

4.5%

4,390

4.5%

0.7%

121,413

115,192

104,718

10.4%

33

Hotel Francs

Full-service

Mid-price

222

Chiba

26.9

3,105

3,136

4,050

4.7%

4,080

4.7%

1.0%

150,000

118,699

95,764

7.6%

34

Mercure Yokosuka

Full-service

Mid-price

160

Kanagawa

24.7

1,650

1,683

2,800

4.7%

2,830

4.7%

0.5%

180,904

124,906

106,763

13.1%

35

Okinawa Marriott Resort & Spa

ResortUppermiddle

361

Okinawa

13.4

14,95014,752

18,5005.0%

18,6005.0%

4.7%

337,816

294,615

176,2717.4%

36

ACTIVE-INTER CITY HIROSHIMA

Full-service

Luxury238

Hiroshima

7.8

17,32017,622

20,500

4.6%

20,6004.6%

5.4%

729,831522,545424,209

6.3%

37

CANDEO HOTELS UENO-KOEN

Limited-service

Mid-price

268

Tokyo

8.5

6,705

6,708

7,630

4.0%

7,620

4.0%

2.1%

174,985

162,192

142,366

4.8%

38

Hotel Centraza Hakata

Full-service

Mid-price

194

Fukuoka

33.0

7,197

7,385

8,490

4.7%

8,490

4.7%

2.3%

359,739

236,695

109,890

4.3%

39

Holiday Inn Osaka Namba

Limited-service

Mid-price

314

Osaka

9.9

27,00027,13927,200

4.4%

27,200

4.4%

8.5%

572,576

549,536

483,796

4.1%

40

HOTEL ASCENT FUKUOKA

Limited-service

Economy263

Fukuoka

19.2

4,925

5,173

5,560

4.8%

5,560

4.8%

1.5%

217,174

144,691

126,928

6.0%

41

Hilton Nagoya

Full-service

Luxury

460

Aichi

29.4

15,25015,621

15,7004.2%

15,7004.2%

4.8%

683,347

337,495

264,156

4.5%

548

Chiba

24.9

13,175

13,324

13,4004.7%

13,4004.7%

4.1%

397,072

374,229

300,415

5.6%

463

Chiba

22.1

9,125

9,215

9,430

4.9%

9,430

4.9%

2.9%

304,494292,293

231,4276.0%

286,166

42

Hilton Tokyo Narita Airport

Full-service

Uppermiddle

43International Garden Hotel Narita

Full-service

Mid-price

Full-service

Uppermiddle

330

Nara

20.3

10,373

10,520

11,200

4.9%

11,2004.9%

3.2%

272,907210,287

6.0%

Total or Average (44 properties)––

11,486–19.9

319,474

316,179

439,390

4.6%

442,200

4.6%

100.0%

12,321,105 10,294,589

8,250,043

7.2%(reference) Total or Average (41 properties)––

11,090–20.0309,370306,040

428,970

4.6%

431,740

4.6%–

12,091,702 10,087,513

8,068,953

–

44

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

Hotel Nikko Nara

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 2018.
Percentage of the acquisition price of the each asset to the total acquisition price. Numbers beyond one decimal place is rounded off.
Actual for half a year from January to June 2018. 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) is the forecast as of FY12/2018. NOI yield for the portfolio is calculated as follows: Total NOI for FY12/2018 (forecast) / total acquisition price of properties held as of the end of FY12/2017.
No.14 "R&B Hotel Higashi-nihonbashi," No.28 "the b akasaka-mitsuke" and No.30 "the b ochanomizu" were sold on August 10, 2018.

41

２．Summary of Lease Contracts (1/3)(as of June 30, 2018)
No.

Property Name

Lease
Type

1

Kobe Meriken Park Oriental Hotel

2

Oriental Hotel tokyo bay

3Namba Oriental Hotel

4

Oriental Hotel Hiroshima

5

Hotel Nikko Alivila

6

The Beach Tower Okinawa

Fixed-lease

7

Hakone Setsugetsuka

8

Dormy Inn Kumamoto

9

Dormy Inn EXPRESS Asakusa

Rent
Structure(*1)

Fixed-lease Fixed + Variable

Remaining
Hotel Operator/
Lease/ Contract
Hotel Consulting and
MC Term Term
Management Company(*2)

LesseeHotel Management Japan Co., Ltd.

8

1

Fixed

20

8

Fixed-lease

Fixed

20

8

Fixed-lease

Fixed

12

4

Okura Nikko HotelManagement Co., Ltd.

Kyoritsu Maintenance Co., Ltd.

Lease

Fixed

20

1

10 Hakata Nakasu Washington Hotel Plaza

Lease

Fixed

3

2

11 Nara Washington Hotel Plaza

Lease

Fixed

20

1

12 R&B Hotel Ueno-hirokoji

Lease

Fixed

13 R&B Hotel Higashi-nihonbashi

Lease

Fixed

14 Comfort Hotel Tokyo Higashi Nihombashi

Fixed-lease

Fixed+Revenue
sharing

15 Smile Hotel Nihombashi Mitsukoshimae

Lease

16 Toyoko Inn Hakata-guchi Ekimae
17 Hotel Keihan Universal City
18 Chisun Inn Kamata

19 Hotel Vista Kamata Tokyo
20 Hotel Sunroute Shinbashi
21 Hilton Tokyo Bay
22 ibis Tokyo Shinjuku
23 ibis Styles Kyoto Station
24 ibis Styles Sapporo

Washington Hotel K.K.

Contractual Rent(*3)

Rent Modification Summary(Fixed rent)
JPY3,221MM/year+(Variable rent)
In principle, the same rent will be
When the total GOP of theapplied until expiration of thefive HMJ hotels exceeds
contract.
GOP base amount(JPY3,351MM), the excess x
85% is paid.
The same rent will be applied
JPY42MM/month
until expiration of the contract.
The same rent will be applied
JPY24MM/month
until expiration of the contract.
Rent can be modified through mutual
JPY16MM/monthagreement every three years.
Rent can be modified through mutual
JPY5MM/monthagreement every three years.
Rent can be modified through
JPY20MM/monthmutual agreement.
Rent can be modified throughJPY11MM/monthmutual agreement.
Rent can be modified throughJPY8MM/monthmutual agreement.
Rent can be modified throughJPY10MM/monthmutual agreement.

Rent Modification Summary(Acquisition to end of Jun. 2018)
TimingCondition
(*4)

2018

2019

Jan. 2016

Structure was modified－

To be expired(Dec.)

－

－

－

－

－

－

－

－

Same

－

－

Apr. 2017
Apr. 2017
Apr. 2018－－
Increased(+3.0%)
Renewed(same)
Renewed(same fixed rent+applied revenue
sharing scheme)
Renewed(same)

20

3
2

Greens Co., Ltd.

20

9

JPY21MM/month+
Revenue sharing

Rent can be modified throughmutual agreement every five
years.

Deb. 2018

Fixed+Revenue
sharing

THE KAMOGAWA GRAND HOTEL, LTD

20

1

JPY11MM/month +Revenue sharing

Rent can be modified throughmutual agreement.

Apr. 2017

Lease

Fixed

Toyoko Inn Co., Ltd.

30

13

JPY11MM/month

No rule has been stipulated.

Oct. 2007

Increased (+9.4%)

Lease

Fixed+Revenue
sharing

K.K. Hotel Keihan

20

3Nondisclosure(*5)

Nondisclosure(*5)

Jul. 2014

Structure was modified.

2

1

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

4

0

JPY7MM/month +Revenue sharing

15

4

Variable

Lease

Fixed+Revenue
sharing

Solare Hotels &Resorts Co., Ltd.

SHR Hotels, Co., Ltd.

Vista Hotel Management Co., Ltd.

Fixed+Revenue
Sotetsu Hotel Management Co., Ltd.
sharing
Fixed+Revenue
THE DAI-ICHI
Hilton International
Fixed-leasesharing
BUILDING CO., LTD.
Company
Management–
contract
Management–
contract
Management–－
AAPC Japan K.K.
contract
Fixed-lease

25 Mercure Sapporo–

26 Mercure Okinawa Naha–Management
contract
Management
contract

4

0

12

6

5

0

5

1

15

11

10

5

42

JPY18MM/month +Revenue sharing
JPY157MM/month +Revenue sharing
Amount equivalent to hotel
GOP
Amount equivalent to hotel
GOP
Amount equivalent to hotel
GOP
Amount equivalent to hotel
GOP
Amount equivalent to hotel
GOP

Apr. 2011

Contract was renewed(same)
Contract was renewed(same)

20

Fixed-lease

Apr. 2018-

Jul. 2017

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

Jul. 2015

No rule has been stipulated.
Rent can be modified throughmutual agreement.
––

Rent Modification Schedule(2018 to 2019)

－

－

－

Renewed

－

－

－

－

－

Renewed－

Structure wasmodified

－

－

－

－

－

－

－

Renewed(the calculation method－of variable rent was
modified)
Contract was renewed(the calculation method To be expiredof revenue sharing was(Dec.)
modified)

To be expired(Dec.)－－－－

Jul. 2015

RenewedTo be expired(Dec.)－

Jul. 2012

Structure was modified.

－

－

－

To be expired(Dec.)To be expired(Dec.)－－–

Dec. 2014

Structure was modified.

－

–

－

－

－

－

–

－

－

－

－

２．Summary of Lease Contracts (2/3)(as of June 30, 2018)
No.

Property Name

27 Mercure Yokosuka

Lease
Type
Fixed-lease

28 the b akasaka-mitsuke

Fixed-lease

29 the b ikebukuro

Fixed-lease

30 the b ochanomizu

Fixed-lease

31 the b hachioji

Fixed-lease

32 the b hakata

Fixed-lease

33 the b suidobashi

Fixed-lease

34 Hotel Francs

Fixed-lease

Rent
Structure(*1)
Variable
Fixed+
Variable
Fixed+
Variable
Fixed+
Variable
Fixed+
Variable
Fixed+
Variable
Fixed+
VariableFixed

35 Okinawa Marriott Resort & Spa

Fixed-lease

Fixed+
Variable

36 ACTIVE-INTER CITY HIROSHIMA

Fixed-lease

Fixed+
Variable

37 CANDEO HOTELS UENO-KOEN

Fixed-lease

Fixed

Remaining
Hotel Operator/
Lease/ Contract
Hotel Consulting and
MC Term Term
Management Company(*2)

LesseeAAPC Japan K.K.

5

1

Ishin Akasaka Operations, K.K.

7

3

Ishin Ikebukuro Operations K.K.

7

3

Ishin Ochanomizu Operations K.K.

7

3

Ishin Hachioji Operations, Y.K.

7

3

Ishin Hakata Operations K.K.

7

3

Ishin Suidobashi Operations K.K.

5

2

K.K. Bridal Produce

196Lagoon resort Nago Co., Ltd.

K.K. A.I.C Hiroshima
Management

Luxury Hotels
International of
Hong Kong Limited.

Candeo Hospitality Management, Inc.

5

2

11

8

20

11

Contractual Rent(*3)
Linked to hotel GOP
JPY102MM/year +Linked to hotel GOP
JPY163MM/year +Linked to hotel GOP
JPY69MM/year +Linked to hotel GOP
JPY98MM/year +Linked to hotel GOP
JPY82MM/year +Linked to hotel GOP
JPY85MM/year +Linked to hotel GOP
JPY25MM/month(Fixed rent)
JPY550MM/year +(Variable rent)
When the total GOP exceeds
GOP base amount(JPY700MM), the excess x
90% is paid.
(Fixed rent)
JPY348MM/year +(Variable rent)
When the total GOP exceeds
GOP base amount(JPY468MM), the excess x
82.5% is paid.
Nondisclosure(*5)(Fixed rent)
JPY400MM/year +(Variable rent)
When the total GOP exceeds
GOP base amount(JPY425MM), the excess x
90% is paid.
(Fixed rent)
JPY576MM/year(Variable rent) +when the total GOP exceeds
GOP base amount(JPY650MM), the excess x
92.5% is paid.

38 Hotel Centraza Hakata

Fixed-lease

Fixed+
Variable

Hotel Centraza Co., Ltd.

4

1

39 Holiday Inn Osaka Namba

Fixed-lease

Fixed+
VariableOW Hotel Operations KK

15

1340 HOTEL ASCENT FUKUOKA

Lease

Fixed

NIKOH SANGYO co., Ltd.

20

041 Hilton Nagoya

Lease

Variable

41

11

Nondisclosure(*5)

19(Fixed rent)
JPY444MM/year(Variable rent) +When the total GOP exceeds
GOP base amount(JPY550MM), the excess x
86.5% is paid.

42

Hilton Tokyo Narita
AirportFixed-leas

Fixed+
Variable

Nagoya Hilton Co.,Ltd.

Hilton International
Company

KK NaritaKosuge Operations

20

43

Nondisclosure(*5)

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

Rent Modification Summary(Acquisition to end of Jun. 2018)
TimingCondition(*4)

Rent Modification Schedule(2018 to 2019)
2018

2019

－

－

－

To be expired(Aug.)

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

Jul. 2015

Rebranded

－

－

－

－

－

－

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

－

－

－

－

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

－

－

－

－

Jul. 2016

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

－－－

To be expired(Dec.)

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

－

－

－

－

－

－

－

To be expired(Apr.)

－

－

－

－

－

－

－

－

Rent can be modified throughmutual agreement every three
years.

Rent can be modified throughmutual agreement every three
years.
Rent can be modified throughmutual agreement.
In principle, the same rent will beapplied until expiration of thecontract.

２．Summary of Lease Contracts (3/3)(as of June 30, 2018)
No.

43 International Garden Hotel Narita

44 Hotel Nikko Nara

(*1)

Lease
Type

Property Name

Rent
Structure(*1)

Fixed-lease Fixed + Variable

Fixed-lease Fixed + Variable

LesseeRemaining
Hotel Operator/
Lease/ Contract
Hotel Consulting and
MC Term Term
Management Company(*2)

KK NaritaYoshikura Operations

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

10

3Contractual Rent(*3)

Rent Modification Summary

9(Fixed rent)
JPY336MM/year +(Variable rent)
When the total GOP exceeds
GOP base amount(JPY360MM), the excess x
98% is paid.

2(Fixed rent)
JPY420MM/year +(Variable rent)
When the total GOP exceeds
GOP base amount(JPY470MM), the excess x
91.5% is paid.
(*4)

Rent structure is as follows:

Rent Modification Summary(Acquisition to end of Jun. 2018)
TimingCondition
(*4)

2018

2019

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

－

－

－

－

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

－

－

－

－

Details of "Modified Structure" are as follows.

Fixed: Fixed rent

No.1–5: Variable rent was modified from 81.5% to 85%

Variable: Variable rent

No.14, 15, 17: Revenue sharing structure has been applied in addition to fixed rent
No.22, 24: JHR has commenced direct management contract

Management contract: Management contract
Fixed + Variable: Property paying both fixed and variable rent(*5)

Information is undisclosed as the lessee did not agree to disclose detail of the rent agreement.

Fixed + Revenue sharing: When the sales of the hotel (lessee) exceed pre-determined amount, additional rent is paid(*6)

No.13, 28, 30: Sold on August 10, 2018.

(*2)

Remaining contract term as of the end of June, 2018 Rounded down to a year.

(*3)

Amount including car park and CAM without tax.

44

Rent Modification Schedule(2018 to 2019)

３．Major CAPEX Ⅲ by Hotel* (Numbers in parentheses are CAPEX, amounts: JPY MM)
FY12/2012

FY12/2013

FY12/2014

FY12/2015

FY12/2016

FY12/2017

FY12/2018 Plan

Bridal salon (76)

Private rooms at restaurant
and balcony, etc. on 3F(19)

Kobe Meriken Park
Oriental Hotel

-

-

-

Chapel (36)

Guest rooms on 7F(50)
Balconies on each floor(62)
Bar (85)

Oriental HotelTokyo Bay-

Restaurant (45)--

Guest rooms on 4F
(101)

-

Guest rooms on 11F to 12F(140)

Namba Oriental Hotel-

Corner rooms on
5F to 8F (10)--Guest rooms on 9F(91)

Guest rooms on 7F(77)

Guest rooms on 6F (78)-

Guest rooms on 3F to
8F of North building
and 3F to 5F of central
building (333)-

Guest rooms on 9F(55)
Restaurant (31)-Guest rooms on 1F, etc(16)-Banquet room on 23F(10)-

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

Chapel (10)

-

-

-

Guest rooms on 3F to Guest rooms on 3F to
10F (192)
10F (312)

Hotel Nikko Alivila

Oriental Hotel
Hiroshima--

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

-

Holiday Inn
Osaka Namba

-

-

-

-

-

-

Guest rooms on 4,6,7,12F(118)

ibis Styles Sapporo

-

-

-

-

-

-

Vacant space on 1F (28)

Mercure Hotel
Sapporo

-

-

-

-

-

-

Banquet room (15)the b Ikebukuro

-

-

-

-

-

-

Guest rooms on 3F to 10F,
etc. (18)45

４．The Five HMJ Hotels – Highlights
Changes in GOP and GOP Ratio
GOP

10,000

GOP

8,000

6,296

5,136

6,000

GOP Ratio

5,696

5,158

4,000
2,000
0

27.0%

24.3%

CY2008

CY200926.6%

CY2010

28.0%

26.5%

25.5%

CY2011

6,302

6,155

5,645

CY2012

CY2013

6,941

8,073

45%

35%
29.9%

28.3%

CY2014

7,591

7,765

CY201531.8%

CY2016

32.8%

33.1%
25%

CY2017

CY2018GOP Ratio(JPY MM)

15%(forecast)

Changes in KPI

ADR・RevPAR

22,00020,000ADR
77.9%

18,00016,00017,97014,00012,000

RevPAR

77.8%

73.8%

OCC
80.4%

76.7%

82.7%

17,197

13,999
CY2007

CY2008

86.9%

87.7%

19,212

18,46314,36786.1%

12,696
CY200915,98012,845
CY201015,846
12,160CY2011

16,20013,400CY2012

17,297

17,551

14,886

15,245

CY2013

CY2014

16,843

88.4%

91.0%

90.5%

20,153

19,856

20,221

18,06018,30417,807

80%
60%
40%
20%

CY2015

CY2016

CY2017

CY2018(forecast)

46

100%

0%

Occupancy Rate

(JPY)

５．Portfolio Map
Total Assets

Limited-service hotel

JPY309.3Bn(as of August 22, 2018)

Full-service hotel

1

2

3

4

Kobe Meriken Park
Oriental Hotel

Oriental Hoteltokyo bay

Namba Oriental Oriental Hotel
Hotel
Hiroshima

5

6

7

8

Hotel Nikko Alivila

The BeachTower Okinawa

HakoneSetsugetsuka

Dormy Inn
Kumamoto

Resort hotel

No. of Hotels
25

41 hotels

26

9

10

11

12

the b
suidobashi

Dormy Inn
EXPRESSAsakusa

Nara Washington
Hakata Nakasu
Washington Hotel Hotel Plaza
Plaza

13

15

16

17

18

R&B Hotel
Ueno-hirokoji

Comfort HotelTokyo Higashi
Nihombashi

Smile Hotel
Nihombashi
Mitsukoshimae

Toyoko Inn
Hakata-guchi
EkimaeHotel Keihan
Universal City

No. of
Guest Rooms

11,090 rooms24
31

3 18 39

22

41
1

21

22

23

24

25

26

Chisun Inn
KamataHotel Vista
Kamata Tokyo

Hotel Sunroute
Shinbashi

Hilton Tokyo Bay

ibis Tokyo
Shinjuku

ibis Styles
Kyoto Station

ibis Styles Sapporo

Mercure Sapporo

27

29

31

32

33

34

35

36

the b hachioji

the b hakata

Hotel Francs

Mercure Yokosuka Okinawa Marriott
Resort & Spa

42 43
34

11 17

8

20

2 33
7

32 38 40

19

12 44

Tokyo 23 wards

4 36
13 37

29
9

23
5
35
27

(*)

16

21

10
15

Mercure Okinawa the b ikebukuro
Naha

37

38

39

CANDEO HOTELS
UENO-KOEN

Hotel Centraza Hakata Holiday Inn
Osaka Namba

ACTIVE-INTER CITYHIROSHIMA (Sheraton
Grand Hiroshima Hotel)

40

41

42

43

44

HOTEL ASCENTFUKUOKA

Hilton Nagoya

Hilton Tokyo Narita
AirportInternational
Garden Hotel Narita

Hotel Nikko Nara

6
19
20

R&B Hotel Higashi-nihonbashi (No.14), the b akasaka-mitsuke (No.28) and the b ochanomizu (No.30), which were sold on August 10, 2018 are excluded.

47

Appendix 3
INVESTORS COMPOSITION AND INVESTMENT UNIT PRICE

１．Major Unitholders and Classifications of Unitholders
Top 10 Major Unitholders
As of the end of December 2017

As of the end of June 2018

Name

Rank

No. of Units

%(*)

Name

Rank

No. of Units

%(*)

1

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

609,417

15.19

1

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

626,327

15.61

2

Japan Trustee Service Bank, Ltd. (Trust)

563,882

14.05

2

Japan Trustee Service Bank, Ltd. (Trust)

537,982

13.41

3

Trust and Custody Services Bank, Ltd. (Securities Investment Trust)

186,334

4.64

3

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

183,975

4.58

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

183,404

4.57

4

Trust and Custody Services Bank, Ltd. (Securities Investment Trust)

159,993

3.98

5

The Bank of New York, Non-Treaty JASDEC Account83,266

2.07

5

The Bank of New York, Non-Treaty JASDEC Account99,9202.49

6State Street Bank & Trust Company 505012

71,916

1.79

6

The Bank of New York Melon SANV 10

73,839

1.84

7

Shikoku Railway Company

58,311

1.45

7

JP Morgan Chase Bank 385628

65,1001.62

8State Street Bank & Trust Company 505223

55,442

1.38

8

STATE STREET BANK WEST CLIENT TREATY 505234

59,006

1.47

9

CBNY DFA INTERNATIONAL REAL ESTATE SECURITIES PORTFOLIO

53,933

1.34

9

Shikoku Railway Company

58,311

1.45

47,924

1.19

10 State Street Bank & Trust Company 505223

57,373

1.43

1,913,829

47.71

1,921,826

47.91

10 STATE STREET BANK WEST CLIENT TREATY 505234
Total

Total

(*) The total units held by each investor to the total units issued by JHR as of the end of December 2017 and the end of June 2018 respectively. (Rounded off to two decimal places.)

Owners of the Investment Units
As of the end of December 2017
OwnersNo. ofInvestors

Individuals & Others

34,113

No. ofUnits
471,932

Financial Institutions(Incl. Securities Firms)

152

1,869,983

Other Domestic Firms

414

131,309

Foreign Firms &Individuals

367

1,537,623

Total

35,046 4,010,847

No. of Investors

0.4%

As of the end of June 2018

No. of Units

1.1%

11.7%

1.0%

38.3%
46.6%

97.3%

3.2%

Individuals &OthersFinancial Institutions(Incl. Securities Firms)

No. of
Units

OwnersNo. ofInvestors

Individuals & Others

30,413387,302

Financial Institutions(Incl. Securities Firms)

146

1,836,662

Other Domestic Firms

362

113,987

Foreign Firms &Individuals

356

1,672,896

Total

31,277 4,010,847

Other Domestic
Firms

Foreign Firms &Individuals

No. of Investors

0.4%

No. of Units

1.1%
1.1%

9.6%
41.7%
45.7%

97.2%
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.)49

２．Changes in Investment Unit Price and Market Capitalization
Changes in the investment unit priceand market capitalization

Jun. 2015
PO(*2) JPY10.7Bn(Based on the closing price)
Price of the investment unit:

JPY81,900

Total market capitalization:

JPY328.5Bn(Based on the closing price of July 31, 2018)
(*1)

(*2)

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 ordeteriorated financial condition of theissuer. With reference to the risk ofinvestment in JHR units, please see
Securities Report dated March 20, 2018.
including OA

Market Capitalization(JPY)
120,000

100,000

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 aweighted average of the market
capitalization of all REITs listed on TSE.

Apr. 2013
PO JPY20.5Bn

80,00060,000Jan. 2015
PO(*2) JPY15.6Bn

Sep. 2014
PO JPY10.1Bn

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

Jun. 2017
PO(*2) JPY18.6Bn(JPY MM)450,000

300,000

Sep. 2012
PO(*2) JPY5Bn
150,000

40,00020,00000Comparison with
600
REIT Index and TOPIX of
Tokyo Stock Exchange (TSE) 500(*)

Investment Unit Price of JHRJan. 2016
PO(*2) JPY146Bn

Investment Unit Price of JHR
TSE REIT Index
TOPIX

400

300

200

100

0

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Appendix 4
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, 2018
Rockrise Sdn Bhd, Kyoritsu Maintenance Co., Ltd., ORIX Corporation
Hisashi Furukawa
Building Lots and Buildings Transaction Business Operator, Governor of Tokyo (3) No. 83613

Registration and Licenses

Discretionary Transaction Agent by Minister of Land, Infrastructure, Transport and Tourism No. 38
Financial Instruments Trading Company, Director-General of Kanto Local Finance Bureau No. 334
Member of The Investment Trusts Association, Japan<Organization Chart>

Shareholders' Meeting
AuditorBoard of Directors' Meeting

Investment (and Operation)
Committee

Compliance Committee
Representative Director
Compliance Office

Investment Division

Acquisitions

Public REIT

Operations Division

Finance & Planning Division

Private Fund

Finance & Planning

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Accounting &ReportingGeneral Affairs

Investor Relations

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

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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 director and 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.

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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

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