Asset Management Report
For the Year Ended December 31, 2017

Japan Hotel REIT Investment Corporation

Dear Investors,
Thank you for your support and patronage to Japan Hotel REIT Investment Corporation (JHR) and
its asset management company, Japan Hotel REIT Advisors Co., Ltd.
Having settled the accounts for the 18th fiscal period (from January 1, 2017 to December 31, 2017)of JHR, we are pleased to present you with the asset management status and settlement of accounts
for the period.
Looking at the environment surrounding JHR, the number of foreign tourists visiting Japan (inboundtourists) has continued to increase significantly, while domestic leisure demand remained solid.
Despite the impacts of new hotel supply and minpaku (accommodation at private residences for afee) observed in certain areas, many of JHR’s hotels achieved better operating performance, led by
the rooms department. This, combined with the effects of cost reductions and other measures,
resulted in an increase in the variable rent, etc. received by JHR.
In terms of external growth, JHR conducted capital increase through a public offering of new
investment units in July 2017, which was the eighth such arrangement since the merger that created
JHR, and used the procured funds to acquire Hilton Tokyo Narita Airport (acquisition price: ¥13,175
million) and International Garden Hotel Narita (acquisition price: ¥9,125 million) in the Narita areaand Hotel Nikko Nara (acquisition price: ¥10,373 million) in the Nara area. Each of these properties
is a large-scale full-service hotel with high-competitiveness. With the acquisition of the three hotels,
JHR’s asset size (total acquisition price) grew to ¥319.4 billion.
On top of an increase in rent income with the new property acquisitions, such factors as an increasein the variable rent, etc. and reduction of expenses in existing properties helped JHR to post
operating revenue of ¥25,475 million, ordinary income of ¥14,006 million and net income of¥14,005 million for the 18th fiscal period. Dividend per unit came to ¥3,683, up 7.7% from theprevious fiscal period.
The increase in the number of inbound tourists has been driving the growth of Japan’s tourism
industry and expansion of its hotel market. Given this growth trend, we at JHR, Japan’s largest REIT
specializing in hotel properties, and Japan Hotel REIT Advisors Co., Ltd., its asset managementcompany, will strive for JHR’s further growth and enhancement of its attractiveness.
We would appreciate your continued support for us.

Kaname Masuda
Executive Director
Japan Hotel REIT Investment Corporation
Hisashi Furukawa
Representative Director and President
Japan Hotel REIT Advisors Co., Ltd.

1JAPAN HOTEL REIT INVESTMENT CORPORATION
Contents:

I.

Asset Management Report3This section (P1-P45) is the translation of the Asset Management Report for the 18th Period releasedon March 20, 2018 except for, if any, the update on 6. Significant subsequent events in Outline ofAsset Management Operation. This English translation is provided for information purposes only. If
any discrepancy is identified between this translation and the Japanese original, the Japaneseoriginal shall prevail.

II. Financial Statements
For the Years ended December 31, 2017 and 2016
Balance Sheets

46

Statements of Income

48

Statements of Changes in Net Assets

49

Statements of Cash Flows

50

Notes to Financial Statements

52

Independent Auditor’s Report662

I. ASSET MANAGEMENT REPORT
Outline of Asset Management Operation
1. Operating results and financial position, etc.
Fiscal period
Account closing date
Operating revenue

14th period
December 2013

15th period
December 2014

16th period
December 2015

17th period
December 2016

18th period
December 2017

(Note 1)

JPY1M

11,472

12,76017,343

22,10725,475[Real estate operating revenue]

JPY1M[11,472][12,760][17,033][22,107][25,475]

Operating expenses

JPY1M

6,105

5,214

6,354

8,221

9,717

JPY1M

[3,870][4,163][5,002][6,589][7,911]

Operating income

JPY1M

5,367

7,545

10,98813,88515,757

Ordinary income

JPY1M

3,740

5,776

9,295

12,22014,006[Real estate operating costs]

Net income(Note 2)

Total assets[Period-on-period change]
Net assets[Period-on-period change]

JPY1M

3,233

5,774

9,294

12,12314,005

JPY1M

170,727

188,091

240,356

317,878

352,183[%][22.3][10.2][27.8][32.3][10.8]

JPY1M

89,756

100,342

129,914

181,989

201,963[%][30.1][11.8][29.5][40.1][11.0]

Unitholders’ capital

JPY1M

48,84559,02485,470134,829

153,516

Number of investment units issued andoutstandingUnits

2,621,281

2,791,281

3,144,227

3,761,907

4,010,847

Net assets per unit

JPY

34,24135,94841,31848,37650,354

JPY

1,307

2,159

3,036

3,462

3,606

Total dividends

JPY1M

5,082

6,015

9,354

12,865

14,771Dividend per unit

Net income per unit

(Note 3)

JPY

1,939

2,155

2,975

3,420

3,683

[Earnings dividend per unit]

JPY

1,939

2,155

2,975

3,420

3,683

[Dividend per unit resulted fromexcess of earnings]

JPY

–

–

–

–

–

%

2.4

3.2

4.3

4.4

4.2

%

4.1

6.1

8.1

7.8

7.3

%

52.6

53.3

54.1

57.3

57.3

Ratio of ordinary income to total assets(Note 4)Return on unitholders’ equity(Note 5)

Ratio of net assets to total assets(Note 6)[Period-on-period change]
Payout ratio

[3.2]

[0.8]

[0.7]

[3.2]

[0.1]

(Note 7)

%

157.2

104.2

100.6

106.1

105.5

[%]

[Additional information]
NOI(Note 8)

JPY1M

9,907

11,002

14,82918,82921,424

FFO per unit

(Note 9) (Note 10)

JPY

2,759

2,930

3,748

4,103

4,454

FFO multiple(Note 10) (Note 11)

Times

18.2

26.3

23.9

19.2

17.0

Times

4.5

5.1

9.1

14.2

15.6

JPY1M

74,78481,089102,772

126,179

140,399

%

43.8

43.1

42.8

39.7

39.9

Debt service coverage ratio(Note 10) (Note 12)

Interest-bearing debt
Ratio of interest-bearing debt to total(Note 13)
assetsNumber of investment properties

28

30

36

41

44

349,162.63

386,826.71

493,758.78

587,481.02

687,124.54

38

57

113

128

131

％

100.0

99.9

99.9

99.9

99.9

Depreciation

JPY1M

2,297

2,400

2,772

3,294

3,725

Capital expenditures

JPY1M

854

1,306

1,811

2,619

2,898

Number of operating days

Days

365

365

365

366

365

Number of tenants at end of period(Note 14)

Occupancy rate at end of period(Note 15)

(Note 1)
(Note 2)
(Note 3)(Note 4)

Properties
m2

Total leasable area

Tenants

Operating revenue does not include consumption tax, etc.
Net income for the 14th fiscal period includes loss on sale of real estate properties (¥1,189 million) and impairment
loss (¥516 million). Net income for the 16th fiscal period includes gain on sale of real estate properties (¥305 million).
The computation of net income per unit is based on the weighted-average number of units outstanding during the year.
Ratio of ordinary income to total assets = Ordinary income / ((Total assets at beginning of period + Total assets at endof period) / 2) × 100

3

(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)(Note 13)Return on unitholders’ equity = Net income / ((Net assets at beginning of period + Net assets at end of period) / 2) ×100
Ratio of net assets to total assets = Net assets at end of period / Total assets at end of period × 100
Payout ratio = Total dividends (excess of earnings exclusive) / Net income × 100
NOI = Real estate operating revenue − Real estate operating costs + Depreciation + Loss on retirement of noncurrent
assets + Asset retirement obligations expenses
FFO per unit = (Net income + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations
expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss or income (excluding loss on disaster)) /Number of investment units issued and outstanding
For the 14th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding loss onsale of real estate properties (¥1,189 million) and impairment loss, etc. (¥516 million). For the 16th fiscal period, FFO
per unit, FFO multiple and debt service coverage ratio are calculated excluding gain on sale of real estate properties(¥305 million).
FFO multiple = Investment unit price at end of period / Annualized FFO per unit
Debt service coverage ratio = (Net Income before income taxes + Depreciation + Loss on retirement of noncurrent
assets + Asset retirement obligations expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss
or income (excluding loss on disaster) + Amortization of investment corporation bond issuance costs + Amortization of
investment unit issuance expenses ± Gain or loss on derivative instruments + Interest expense + Interest expense on
investment corporation bonds) / (Interest expense + Interest expense on investment corporation bonds + Total ofcontracted principal repayments (excluding lump-sum principal repayments))
Ratio of interest-bearing debt to total assets = Interest-bearing debt at end of period / Total assets at end of period × 100(Note 14)

Number of tenants at end of period indicates the total number of tenants based on the lease contracts for respective realestate properties in trust (excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, forproperties with pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end
tenants as is in principle, the total number of the end tenants (excluding tenants of parking lots, etc.) is indicated.

(Note 15)

Occupancy rate at end of period indicates the percentage of leased area to leasable area of respective real estate
properties in trust as of the end of each fiscal period.

2. Asset management operation for the fiscal period under review(1) Brief history and principal activities
Japan Hotel REIT Investment Corporation (hereinafter referred to as “JHR”) was established under the Act on
Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended; hereinafter referred to as
the “Investment Trusts Act”) on November 10, 2005 and was listed on the Real Estate Investment Trust(“REIT”) section of the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006.
JHR entrusts the asset management to Japan Hotel REIT Advisors Co., Ltd. (hereinafter referred to as the“Asset Management Company”). Focusing on the importance of hotels as social infrastructure and theirprofitability as investment real estate properties, JHR has primarily invested in real estate related assets which
are in themselves real estate wholly or partially used as hotels or real estate equivalents of such real estate, or
which are backed by such real estate or real estate equivalents.
JHR, the former Nippon Hotel Fund Investment Corporation (hereinafter referred to as the “former NHF”),
merged with the former Japan Hotel and Resort, Inc. (hereinafter referred to as the “former JHR”) with aneffective date of April 1, 2012 (hereinafter referred to as the “Merger”) and changed its name to Japan Hotel
REIT Investment Corporation. Since the Merger, JHR has carried out eight public offerings for capitalincrease and continuously acquired “highly-competitive hotels” in mainly “strategic investment target areas”
where domestic and inbound leisure demand can be expected over the medium to long term.
By implementing the aforementioned growth strategy, JHR has expanded its asset size while improving thequality of its portfolio through new property acquisitions of 24 properties amounting to ¥210,022 million (onan acquisition price basis) in total in approximately a little less than six years since the Merger. As a result, asof the end of the fiscal period under review, JHR had a portfolio of 44 properties with a combined acquisition
price of ¥319,474 million and the total number of investment units issued and outstanding stood at 4,010,847
units.

4

(2) Investment performance for the fiscal period under review
During the fiscal year under review (12-month period from January 1, 2017 through December 31, 2017), theJapanese economy continued to show a moderate recovery trend backed by moderate pickup in personal
consumption and improvement in corporate earnings, while the employment and income environment
continued to improve. As to the environment surrounding the tourism market, as the Japanese government
promotes measures for making Japan a tourism nation, the number of foreign visitors to Japan (“inboundvisitors”) in 2017 continued to grow rapidly to reach 28.69 million (up 19.3% from the previous year).
Accordingly, demand for accommodation by inbound tourists remained high while such demand by domestic
tourists remained also stable, creating a favorable environment overall.
The hotel investment market continued to be in a brisk state with continual expectations for growth of Japan’s
tourism industry and hotel industry. JHR has been pursuing expansion of asset size through continuous
property acquisitions by leveraging such strengths as high recognition as Japan’s largest REIT specializing inhotel properties and the ability to propose diverse acquisition schemes and execute transactions. During the
fiscal year under review, JHR conducted public offering for capital increase in July 2017, the eighth since theMerger, and acquired Hilton Tokyo Narita Airport (acquisition price: ¥13,175 million) and International
Garden Hotel Narita (acquisition price: ¥9,125 million) in the Narita area, and Hotel Nikko Nara (acquisition
price: ¥10,373 million) in Nara. In terms of portfolio, JHR has worked to improve the quality of the portfolio
through such measures as promoting geographical diversification of the portfolio, diversifying parties
entrusted with operation (“operator(s)”) and expanding international brands.
The hotels owned by JHR saw some signs of impact of new hotel supply and minpaku (accommodation at
private residences for a fee) in some areas including Tokyo and Osaka. However, many of the hotels in major
regional cities achieved strong operating performance, mainly in the rooms department, as a result of JHR
implementing active asset management, which is the aggressive and proactive pursuit of greater profitability
and asset value of owned hotels. With regard to status of operations during the fiscal year under review of thefive hotels that JHR leases to Hotel Management Japan Co., Ltd. (hereinafter referred to as “HMJ”) undervariable rent contracts (hereinafter referred to as the “Five HMJ hotels”) (Note 1) and the hotels which JHRleases to HMJ Group companies under variable rent contracts (namely, Okinawa Marriott Resort & Spa,
Sheraton Grand Hiroshima Hotel (main facility of ACTIVE-INTER CITY HIROSHIMA), Hotel Centraza
Hakata and Holiday Inn Osaka Namba, and hereinafter collectively referred to together with the Five HMJ
hotels as the “Nine HMJ hotels”) (Note 1), these hotels overall have posted increase over the previous year
both in sales and GOP (gross operating profit), led by the rooms department. The rooms department aimed togenerate greater earnings through such means as flexible pricing in line with each hotel’s accommodation
market condition in order to maximize RevPAR (Revenue Per Available Room). For further details of sales,
GOP and other management indicators for the Twelve HMJ hotels (Note 1), please refer to “<Reference 1>
Major indicators of the hotel business for the fiscal year ended December 31, 2017” and “<Reference 2> <1>
Sales and GOP of the Twelve HMJ hotels” in 7. Reference information.
Moreover, at the six hotels (Note 2) for which AAPC Japan K.K. (hereinafter referred to as “Accor”), a
Japanese subsidiary of Accor Hotels headquartered in Paris, France, serves as the operator (hereinafterreferred to as the “Six Accor hotels”), successfully attracting leisure demand mainly from inbound visitors,
the Six Accor hotels as a whole posted an increase from the previous year both in sales and GOP despite being
affected by suspension of sales due to renovation at some hotels. For further details of sales, GOP and othermanagement indicators for the Six Accor hotels, please refer to “<Reference 1> Major indicators of the hotelbusiness for the fiscal year ended December 31, 2017” and “<Reference 2> <2> Sales and GOP of the Six
Accor hotels” in 7. Reference information.
On the other hand, at the Six the b hotels (Note 3), which are leased to subsidiaries of the Ishin Hotels Group
with a variable rent structure, despite efforts made to address changes in the circumstances, such as inboundtourists’ shifting from group tours to independent travel and a corresponding increase in the percentage of
online bookings, and such factors as the impact of new hotel supply and minpaku in the Tokyo area led to thehotels in Tokyo posting decrease from the previous year both in sales and GOP and, consequently, the Six theb hotels overall also posting decrease over the previous year both in sales and GOP. For further details of sales,
GOP and other management indicators for the Six the b hotels, please refer to “<Reference 1> Major
indicators of the hotel business for the fiscal year ended December 31, 2017” and “<Reference 2> <3> Sales
and GOP of the Six the b hotels” in 7. Reference information.
In addition to efforts to increase revenue by increasing variable rent linked with improved performance of
these hotels, JHR has worked to increase dividend by reducing the costs of each item under real estate
operating costs, general and administrative expenses and borrowing costs through persistent talks with
relevant parties and other measures.
5

(Note 1) The Five HMJ hotels represent the five hotels, namely, Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay,
Namba Oriental Hotel, Hotel Nikko Alivila and Oriental Hotel Hiroshima. The Nine HMJ hotels represent the nine
hotels comprising the Five HMJ hotels plus Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel, whichis the major facility of ACTIVE-INTER CITY HIROSHIMA, Hotel Centraza Hakata and Holiday Inn Osaka Namba.
The Twelve HMJ hotels represent the 12 hotels comprising the Nine HMJ hotels plus Hilton Tokyo Narita Airport,
International Garden Hotel Narita and Hotel Nikko Nara. The same shall apply hereinafter.
(Note 2) Represents the six hotels, namely, ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure
Sapporo, Mercure Okinawa Naha and Mercure Yokosuka. The same shall apply hereinafter.
(Note 3) Represents the six hotels, namely, the b suidobashi, the b akasaka-mitsuke, the b ikebukuro, the b ochanomizu, the bhachioji and the b hakata. The same shall apply hereinafter.

(3) Funding conditions
JHR procured ¥4,000 million in short-term loans and ¥11,000 million in long-term loans, in addition to¥18,686 million by way of capital increase through public offering in June 2017 and third-party allotment inAugust 2017, and acquired three properties, Hilton Tokyo Narita Airport, International Garden Hotel Narita
and Hotel Nikko Nara, in July and August 2017. Upon taking out loans, JHR newly added The Nishi-Nippon
City Bank, Ltd. to lending banks to further diversify lenders.
Furthermore, JHR refinanced existing loans of ¥10,750 million in February, September and November 2017,
which were due for repayment. In addition, JHR issued investment corporation bonds of ¥1,000 million for
institutional investors in November 2017 for the purpose of making partial early repayment of existing
short-term loans.
Consequently, as of the end of the fiscal year under review, balance of interest-bearing debt totaled ¥140,399
million, including short-term loans payable of ¥3,000 million, current portion of long-term loans payable of¥15,022 million, long-term loans payable of ¥98,777 million and investment corporation bonds of ¥23,600
million, and the ratio of interest-bearing debt to total assets at end of year (Note 4) stood at 39.9%.
JHR reduced borrowing costs and extended maturity dates through the aforementioned series of fundprocurement. Along with such, JHR concluded loans with fixed interest rates as well as interest rate swap
contracts to hedge against risks of interest rates rising in the future. These actions brought the fixed rate ratio(including the interest rate cap purchase portion) on total interest-bearing debt at end of year to around 94%.
(Note 4) Ratio of interest-bearing debt to total assets at end of period = Balance of interest-bearing debt at end of period / Total
assets at end of period x 100

As of December 31, 2017, JHR’s issuer ratings were as follows.
Rating agency

RatingOutlookJapan Credit Rating Agency, Ltd.

A＋

StableRating and Investment Information, Inc.

A

Stable(4) Financial results
As a result of the abovementioned asset management, operating revenue, operating income and ordinary
income were ¥25,475 million, ¥15,757 million and ¥14,006 million, respectively, for the fiscal period underreview (12-month period from January 1 to December 31, 2017). Net income was ¥14,005 million.
With regard to dividends, it was decided that ¥14,774 million, which was calculated by adding a reversal ofreserve for temporary difference adjustment (appropriation for dividends) of ¥769 million to unappropriatedretained earnings of ¥14,005 million, would all be distributed except for fractions of less than one yen of
dividend per unit. Consequently, ¥14,771 million will be distributed and the dividend per unit came to ¥3,683.
For details of the appropriation for dividends for the fiscal period under review, please refer to “<Reference
3> Dividend per unit and appropriation for dividends” in 7. Reference information.

6

3. Changes in unitholders’ capital, etc.
The table below indicates increases (decreases) in the number of investment units issued and outstanding andunitholders’ capital of JHR in the past five years.
Date

Capital transaction

Number of units issued(Units)Unitholders’ capital(JPY1M)

Increase(decrease)

Balance

Increase(decrease)

Balance

Note

April 17,2013

Capital increase through public
offering of investment units

510,000

2,621,281

20,585

48,845(Note 1)

September 9,
2014

Capital increase through public
offering of investment units

170,000

2,791,281

10,17959,024(Note 2)January 27,
2015

Capital increase through public
offering of investment units

200,000

2,991,281

14,97473,999(Note 3)February 18,
2015

Capital increase through third-party
allotment of investment units

9,041

3,000,322

676

74,676(Note 4)

June 22,2015

Capital increase through public
offering of investment units

140,000

3,140,322

10,50085,177(Note 5)

July 232015

Capital increase through third-party
allotment of investment units

3,905

3,144,227

292

85,470(Note 6)

January 20
2016

Capital increase through public
offering of investment units

170,000

3,314,227

13,98699,456(Note 7)

February 17
2016

Capital increase through third-party
allotment of investment units

7,680

3,321,907

631

100,088(Note 8)July 27
2016

Capital increase through public
offering of investment units

428,260

3,750,167

33,813

133,902(Note 9)August 23
2016

Capital increase through third-party
allotment of investment units

11,7403,761,907

926

134,829(Note 10)

July 52017

Capital increase through public
offering of investment units

236,000

3,997,907

17,715

152,544(Note 11)

August 2
2017

Capital increase through third-party
allotment of investment units

12,9404,010,847

971

153,516(Note 12)(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)
(Note 12)

New investment units were issued through public offering with an issue price per unit of ¥41,778 (issue value of¥40,363) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥61,912 (issue value of¥59,880) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥77,415 (issue value of¥74,874) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥74,874 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.
New investment units were issued through public offering with an issue price per unit of ¥77,512 (issue value of¥75,007) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥75,007 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.
New investment units were issued through public offering with an issue price per unit of ¥85,020 (issue value of¥82,273) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥82,273 in order toraise funds for the acquisition of new properties, etc.
New investment units were issued through public offering with an issue price per unit of ¥81,536 (issue value of¥78,956) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥78,956 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.
New investment units were issued through public offering with an issue price per unit of ¥77,518 (issue value of¥75,065) in order to raise funds for the acquisition of new properties, etc.
New investment units were issued through third-party allotment with an issue value per unit of ¥75,065 in order toraise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital
expenditures to maintain or improve competitiveness of existing properties.

7

[Fluctuation in market price of investment units]
The highest and lowest prices (closing price) during each fiscal period of the investment units of JHR on theTokyo Stock Exchange REIT section are as follows:(yen)
Fiscal period

14th period

15th period

16th period

17th period

18th period

Account closing month

December 2013

December 2014

December 2015

December 2016

December 2017

Highest price

51,50082,40093,800103,400

81,200

Lowest price

23,67045,35070,60070,90071,100Price at end of period

50,40077,00089,50078,60075,6004. Dividends, etc.
Earnings dividend for the period under review was decided in accordance with the monetary distribution policy
stipulated in Article 34, paragraph 1 of JHR’s Articles of Incorporation to exceed 90% of JHR’s distributableprofit that is defined by Article 67-15 of the Act on Special Measures Concerning Taxation. And¥14,774,998,197, which was calculated by adding a reversal of the reserve for temporary difference adjustment(appropriation for dividends) of ¥769,508,609 to unappropriated retained earnings of ¥14,005,489,588 as of endof the fiscal period under review, would all be distributed except for fractions of less than one yen of dividend
per unit. Consequently, the dividend per unit came to ¥3,683.
(yen)
14th period

15th period

16th period

17th period

18th period(From January 1, 2013
to December 31, 2013)(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)(From January 1, 2017
to December 31, 2017)

3,235,030,032

5,776,116,820

9,296,121,922

12,126,057,948

14,005,489,588

1,236,316

1,444,427

2,894,304

411,048

3,048,696

Total cash dividends

5,082,663,859

6,015,210,555

9,354,075,325

12,865,721,940

14,771,949,501[Dividend per unit][1,939][2,155][2,975][3,420][3,683]

5,082,663,859

6,015,210,555

9,354,075,325

12,865,721,940

14,771,949,501[1,939][2,155][2,975][3,420][3,683]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

–

–

–

–

–

[–]

[–]

[–]

[–]

[–]

Classification
Unappropriated retained
earnings
Retained earnings

Of the above, total earnings
dividends[Earnings dividend per unit]
Of the above, total return ofcapital contributions[Return of capital
contributions per unit]
Of total return of capital
contributions, total distributions
from allowance for temporary
difference adjustment[Of return of capital
contributions per unit,
distributions from allowancefor temporary difference
adjustment per unit]
Of total return of capital
contributions, total distributions
from the unitholders’ capital fortax purpose[Of return of capital
contribution per unit,
distributions from theunitholders’ capital for tax
purpose per unit]8

5. Investment policies and issues to be addressed
General investment outlook
In 2018, the Japanese economy is expected to be on a moderate recovery, due in part to the effects of various
government policies, while the employment and income environment continues to improve. On the other hand,attention must be paid to the trends of U.S. government policies, the economic outlook for China and otheremerging Asian economies as well as impacts of uncertainties of said policies, the impact of fluctuations in thefinancial and capital markets, geopolitical risks and other factors.
In the environment surrounding the tourism industry, expansion of national tourism policies continues to be
anticipated as introduction of the departure tax (tax levied upon leaving Japan) is being discussed to allocate therevenue for tourism-related policies, etc. Moreover, needs for overseas travels especially among the
middle-income group and the wealthy group in the fast-growing Asian region have expanded and the number oftourists to Japan has continued to rise. Japan being favorably chosen as a travel destination is not a temporary
phenomenon, but is likely to be mostly attributable to factors such as progress in information andcommunications technology (ICT) allowing tourists to enjoy travelling in Japan without language barriers, andtravelers communicating charms of Japan with abundant tourism resources through SNS to the world. The
further increase in the number of inbound tourists and the solid domestic leisure demand due to such structuralshifts are expected to work favorably for JHR. On the other hand, however, close attention should be paid to thechanges in supply-demand balance going forward, including an increase in supply from new development ofhotels following trends of increase in inbound visitors, and the impact of the private house lodging business law(new minpaku law) to be enforced in June 2018. Under such circumstances, JHR intends to work with the AssetManagement Company to manage assets based on the approach described below aiming to enhance theattractiveness of investing in JHR.
Internal growth
JHR will work to maximize variable rent and income from management contracts receivable by JHR. JHR aim
to maximize variable rent from the Twelve HMJ hotels and the Six the b hotels, etc., and boost sales and GOP of
the Six Accor hotels that are mainly operated under a management contract structure.. To achieve this goal, JHR
will focus efforts on seeking the cooperation of relevant parties in shifting from competition based on price tocompetition based on value in an aim to differentiate itself in the market, in terms of both facilities and services,
through active asset management. This will include requesting lessees, operations support companies andoperators of respective hotels to implement marketing initiatives to attract a wider range of demand, measures tomaintain and increase room rates, etc., and implementing strategic capital expenditures.
For hotels with fixed rent only contracts, JHR will increase its efforts to monitor operating conditions and, by
paying careful attention to each tenant’s ability to bear the rent costs, conduct negotiations with the hotels at
which the ability to bear rent costs has been enhanced through better performances so that the improvement inhotel earnings would lead to an increase in JHR’s earnings, such as revising rents upward and introducing
revenue sharing structure.
In addition, JHR will carry out an ongoing program of facility maintenance and improvement to ensure each
hotel becomes prominent in the market and to maintain and increase the value of its assets.
External growth
In terms of external growth strategy, JHR will keep its focus on acquiring highly-competitive hotels in areas
which can expect “domestic and inbound leisure demand” over the medium to long term as JHR has done to date.
As to hotel types, the policy is that limited-service hotels, full-service hotels and resort hotels are all investment
targets, but JHR will only acquire properties with competitive advantages in terms of both buildings, facilities,
etc. (infrastructure) and the capabilities of the hotel lessee and operator (services).
In the hotel investment market, harsh competition over acquisitions is ongoing due in part to the listing of new
J-REITs specializing in hotels and formation of non-listed private J-REITs. JHR will aim for expansion of asset
size that accompanies an improvement in the quality of its portfolio by acquiring highly competitive properties
while leveraging its strength and advantages and also utilizing the HMJ platform in some cases.
Finance strategy
JHR presses ahead with diversification of the means of financing while maintaining and enhancing therelationships of trust with financial institutions with which it does business, under the basic policy of carryingout conservative financial strategy which places importance on securement of financial stability and soundness.
It aims to conduct financial operations by keeping the ratio of interest-bearing debt to total assets at no larger
9than 50% as in the past. In addition, when seeking new funding for property acquisitions or refinancing existing
debt, JHR will work to further reinforce and expand its base of lenders and further diversify funding methods,
including issuance of investment corporation bonds, while considering the balance between the dispersion of thematurity dates of its debt and borrowing costs.
Furthermore, while monitoring the conditions of the interest rate market, JHR aims to further improve its
financial foundation by managing risk of interest rates market through extending maturity dates and fixing rates,
etc.
Policy on handling of negative goodwill
Starting from the fiscal year under review (the fiscal year ended December 31, 2017 (18th period)), JHR started
appropriation for dividends through reversal of reserve for temporary difference adjustment in connection withpartial amendments to the “Ordinance on Accounting of Investment Corporations” and the “Regulation for Real
Estate Investment Trusts and Real Estate Investment Corporations” of The Investment Trusts Association, Japan.
Specifically, JHR reverses ¥262 million (hereinafter called the “50-year amortization amount of negative
goodwill”), which is an amount equivalent to 2% (1/50) of the initial balance of the reserve for temporary
difference adjustment (¥13,127 million), to pay out as dividends, with the balance of the reserve for temporary
difference adjustment remaining at the time of reversal set as the maximum reversal amount, for every year fromthe fiscal year under review.
Furthermore, in cases of incurrence of losses caused by property dispositions, impairment loss of assets, dilutionof dividend per unit due to the issuance of new investment units through public offerings, etc., loss on retirementof noncurrent assets, and suspension of sales and such due to large-scale renovations with significant impact onrevenues, JHR plans to reverse additional portion of the negative goodwill on top of the 50-year amortization
amount of negative goodwill.
As for the fiscal year ending December 31, 2018 (19th period), JHR expects ¥565 million, which is the total of
the 50-year amortization amount (¥262 million), loss on retirement of noncurrent assets (¥38 million) and thecorrespondence to the large-scale renovation at Hotel Centraza Hakata (¥265 million) as additional amounts todividends by reversing the negative goodwill.
(Note)The policy may change due to a resolution of the board of directors, and it does not guarantee the method of reversing
the reserve for temporary difference adjustment, and amounts to be reversed, etc., in the future.

Initiatives for Sustainability
In recent years, there has been growing importance of the risks and opportunities of ESG (Environment, Socialand Governance) issues in the investment management industry from the standpoint of long-term sustainability.
JHR recognizes that conducting real estate investment management based on consideration for ESG is important
to enhance unitholder value and to further raise the attractiveness of JHR. In addition, JHR believes that it isindispensable to establish favorable relationships with its stakeholders including unitholders, hotel users (guests),
lessees, operators, business partners including property managers, etc., local communities, officers andemployees of the Asset Management Company and others and to fulfill our social responsibilities expected fromeach of them.
In order to put such ideas into practice, JHR, along with the Asset Management Company, established a“Sustainability Policy” in December 2017 as guidance to ESG initiatives. We have promoted efforts to reduce
environmental impact at our portfolio properties based on this policy, and received the Building-Housing
Energy-efficiency Labeling System (BELS) evaluation for Hotel Nikko Alivila and Mercure Okinawa Naha on
February 15, 2018 as first such cases for J-REIT’s hotel properties (Note). Furthermore, recognizing its social
responsibility towards local communities as a J- REIT specializing in hotels, JHR will proactively carry out
social contribution activities capitalizing on the characteristics of the hotel sector and each hotel.
(Note)

Investigated by the Asset Management Company based on disclosed information

10

6. Significant subsequent events
Issuance of investment corporation bonds
JHR issued investment corporation bonds under the following terms and conditions.
Category

Tenth unsecured investment corporation bonds

Total amount of bonds¥10,000 million

Issue price¥100 for ¥100 of each bondInterest rate

0.840% per year

Issue dateFebruary 21, 2018

Maturity

February 21, 2028

Collateral

None

Use of proceed

The proceeds will be partially used to prepay the existing loans by
the end of February, 2018. The residual funds will be used for futureacquisition of specified assets, for repayment of loans or for repair
cost and/or capital expenditure to maintain or improve
competitiveness of the existing properties.

7. Reference information<Reference 1>
Major indicators of the hotel business for the fiscal year ended December 31, 2017
The following tables indicate the figures related to the hotel business of the Twelve HMJ hotels, theSix Accor hotels and the Six the b hotels for the operating period from January 1, 2017 throughDecember 31, 2017, based on the data provided by the hotel lessees, etc. Furthermore, while theindicators of the hotels are among the indicators that show the operating status of the rooms
departments, they do not necessarily represent the operating revenue and the ability to bear rent, etc. of
the respective hotels, as the daily rates of the respective rooms available for sale and profit margins, etc.
are not uniform, among other reasons. As such, the indicators are no more than the reference figures.
(a) The Twelve HMJ hotels(millions of yen)
Kobe Meriken Park Oriental Hotel tokyo
Oriental Hotelbay
Ratio to
total
sales

Namba Oriental
Hotel

Ratio to
total
sales

Hotel Nikko
AlivilaRatio to
total
sales

The Five HMJ
hotelsTotal/Average

Oriental Hotel
Hiroshima

Ratio to
total
sales

Ratio to
total
sales

Ratio to
total
sales

Occupancy rate

84.1%

－

98.7%

－

95.7%

－

87.0%

－

85.0%

－

91.0%

－

ADR (Note 1)

17,005－

19,456－

19,852－

28,314

－

9,749

－

19,856－

RevPAR(Note 2)

14,296－

19,200－18,998－24,636

－

8,287

－

18,060－Total sales

5,381

100.0%

6,838

100.0%

2,887

100.0%

6,389

100.0%

2,153

100.0%

23,647100.0%

Rooms department

1,836

34.1%

3,889

56.9%

1,970

68.2%

3,958

61.9%

756

35.1%

12,40952.5%

Food & beveragedepartment

3,256

60.5%

2,459

36.0%

124

4.3%

1,919

30.0%

1,332

61.9%

9,090

38.4%

Tenant department

63

1.2%

237

3.5%

754

26.1%

2

0.0%

23

1.0%

1,079

4.6%

Other departments(Note 3)

226

4.2%

252

3.7%

38

1.3%

510

8.0%

42

1.9%

1,068

4.5%

1,245

23.1%

1,985

29.0%

1,776

61.5%

2,346

36.7%

414

19.2%

7,765

32.8%

GOP

11

Okinawa Marriott
Resort & Spa
Ratio to
total
sales

Sheraton Grand
Hiroshima Hotel(Note 4)

Hotel Centraza
HakataRatio to
total
sales

Holiday Inn Osaka
Namba

Ratio to
total
sales

Hilton Tokyo Narita
AirportRatio toRatio tototal
(Note 5)
total
sales
sales

International
Garden Hotel
Narita(Note 6)Ratio
to totalsales

Occupancy rate

85.8%

－

89.7%

－

94.6%

－

96.5%

－

85.5%

－

82.9%

－

ADR (Note 1)

21,348－

17,698－

11,707－18,362－

10,208

－

7,221

－

RevPAR(Note 2)

18,314－

15,874－

11,071－

17,725

－

8,725

－

5,985

－

Total sales

4,151

100.0%

3,348

100.0%

2,464

100.0%

2,074

100.0%

3,238

100.0%

1,438

100.0%

Rooms department

2,663

64.1%

1,543

46.1%

866

35.1%

2,033

98.0%

1,947

60.1%

1,112

77.4%

Food & beveragedepartment

1,044

25.2%

1,704

50.9%

1,357

55.1%

－

－

1,192

36.8%

314

21.9%

Tenant department

63

1.5%

－

－

225

9.1%

30

1.5%

52

1.6%

6

0.4%

Other departments(Note 3)

382

9.2%

101

3.0%

16

0.6%

11

0.5%

46

1.4%

5

0.3%

1,440

34.7%

968

28.9%

942

38.3%

1,341

64.7%

929

28.7%

567

39.5%

GOP

Hotel Nikko Nara

The Twelve HMJ
hotelsTotal/Average(Note 7)

Ratio to
total
sales

Occupancy rate

79.6%

－

88.5%

－

ADR (Note 1)

12,510－

16,251－

RevPAR(Note 2)

9,963－

14,382－

Total sales

2,970

100.0%

43,329100.0%

Rooms department

1,327

44.7%

23,90055.2%

Food & beveragedepartment

1,592

53.6%

16,294

37.6%

Tenant department

34

1.2%

1,491

3.4%

Other departments(Note 3)

16

0.5%

1,644

3.8%

GOP

713

24.0%

14,66633.8%(Note 1)

(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 8)

Ratio to
total
sales

ADR: Represents average daily rate, which is calculated by dividing total rooms revenue for a certain period (excluding
service charges) by the total number of rooms sold during the period. Holiday Inn Osaka Namba, the Six Accor hotels
and the Six the b hotels do not request service charges. Described in unit of yen. The same shall apply hereinafter.
RevPAR: Represents revenue per available room, which is calculated by dividing total rooms revenue for a certain
period (excluding service charges) by the total number of rooms available for sale during the period. Revenue peravailable room equals the product of ADR and occupancy rate. Described in unit of yen. The same shall apply
hereinafter.
Figures for the Other departments include sales of the Product sales department.
The indicated figures are for Sheraton Grand Hiroshima Hotel, the main facility of ACTIVE-INTER CITYHIROSHIMA.
For Hilton Tokyo Narita Airport, which JHR acquired on July 12, 2017, the annual figures are for throughout the year
including those prior to the acquisition.
For International Garden Hotel Narita, which JHR acquired on July 12, 2017, the annual figures are for throughout theyear including those prior to the acquisition.
For Hotel Nikko Nara, which JHR acquired on August 1, 2017, the annual figures are for throughout the year including
those prior to the acquisition.
For Total/Average of the Twelve HMJ hotels, figures are calculated by JHR as reference since no figures have been
provided by the hotel operators or hotel lessees.

12(Note 9)

The occupancy rate is rounded off to one decimal place, while ADR and RevPAR are rounded off to single units. Sales
and GOP are rounded off to the nearest million yen. For the ratio to total sales, the ratio of sales in each department tototal sales is rounded off to one decimal place. The same shall apply hereinafter.

(b) The Six Accor hotels(millions of yen)ibis Tokyo
Shinjuku

ibis Styles
Kyoto Station

Ratio to
total
sales

ibis Styles
SapporoRatio to
total
sales

MercureSapporoRatio to
total
sales

MercureOkinawa Naha

Ratio to
total
sales

MercureYokosuka

Ratio to
total
sales

Total/Average(Note)

Ratio to
total
sales

Ratio
to totalsales

Occupancy rate

74.1％

－

94.6%

－

89.5%

－

84.6%

－

82.9%

－

84.6%

－

85.3%

－

ADR

12,636－

11,697－

10,882－

13,127－

11,412－

12,230－11,944－

RevPAR

9,369－

11,066

－

9,741

－

11,110

－

9,464

－

10,345－

10,185－

Total sales

773 100.0%

977 100.0%

Rooms department

704

91.1%

868

88.8%

988

81.1%

1,156

85.5%

898

81.9%

604

58.3%

5,219

80.9%

Food & beveragedepartment

55

7.2%

100

10.3%

206

16.9%

184

13.6%

169

15.4%

418

40.3%

1,133

17.6%

Other departments

14

1.8%

9

0.9%

24

2.0%

12

0.9%

29

2.6%

15

1.4%

102

1.6%

GOP

379

49.0%

551

56.4%

639

52.4%

631

46.7%

491

44.8%

311

30.0%

3,004

46.5%

(Note)

1,219 100.0%

1,351 100.0%

1,096 100.0%

1,037 100.0%

6,454 100.0%

For Total/Average, figures are calculated by JHR as reference since no figures have been provided by the hotel operators or
hotel lessees.

(c) The Six the b hotels(millions of yen)
the b suidobashi

the bakasaka-mitsuke

Ratio to
total
sales

the b ikebukuro

Ratio to
total
sales

the b
ochanomizu

Ratio to
total
sales

the b hachioji

Ratio to
total
sales

the b hakata

Ratio to
total
sales

Total/Average(Note)

Ratio to
total
sales

Ratio to
total
sales

Occupancy rate

89.1%

－

87.4%

－

90.1%

－

92.9%

－

90.4%

－

92.3%

－

90.4%

－

ADR

10,851－

11,051－

10,623－

10,739

－

7,044

－

8,565

－

9,445

－

RevPAR

9,667

－

9,654

－

9,573

－

9,977

－

6,369

－

7,908

－

8,535

－

Total sales

351 100.0%

433 100.0%

617 100.0%

263 100.0%

548 100.0%

509 100.0%

2,721 100.0%

Rooms
department

349

99.6%

430

99.2%

611

99.2%

262

99.6%

456

83.1%

505

99.2%

2,614

96.0%

Food & beveragedepartment

－

－

－

－

－

－

－

－

88

16.0%

－

－

88

3.2%

Other
departments

2

0.4%

3

0.8%

5

0.8%

1

0.4%

5

0.9%

4

0.8%

20

0.7%

164

46.7%

235

54.2%

331

53.6%

119

45.1%

189

34.4%

268

52.6%

1,304

47.9%

GOP

(Note)For Total/Average, figures are calculated by JHR as reference since no figures have been provided by the hotel lessees.

<Reference 2>
Of the hotels that have adopted variable rent, the following presents sales and GOP of the Twelve HMJ hotels,
the Six Accor hotels and the Six the b hotels. The numerical figures are based on figures obtained from hotel
lessees, etc. Please note that these numbers have not been audited or gone through other procedures. No
guarantee is made as to the accuracy or completeness of the numbers and information. Sales and GOP arerounded off to the nearest millions of yen. Comparison with the previous period is rounded off to one decimal
place.

13

<1> Sales and GOP of the twelve HMJ hotels(1) Sales by hotel(millions of yen)
Fiscal year ended Dec. 31, 2016
Sales of the Twelve HMJ hotels
First half
Kobe Meriken Park
Oriental Hotel

Second half
Full year
First half

Oriental Hotel tokyo bay Second half
Full year
First half
Namba Oriental Hotel

Second half
Full year
First halfHotel Nikko Alivila

Second half
Full year
First half

Oriental Hotel Hiroshima Second half
Full year
First half
Total for the five HMJ
hotelsSecond half
Full year

First half
Okinawa Marriott Resort
Second half
& Spa
Full year
First half
Sheraton Grand
Hiroshima Hotel

Second half
Full year
First halfHotel Centraza Hakata

Second half
Full year
First half

Holiday Inn Osaka
Namba

Second half
Full year

First half
Total for the nine HMJ
Second half
hotelsFull year
First half
Hilton Tokyo Narita
AirportSecond half
Full year
First halfInternational Garden
Hotel Narita

Second half
Full year
First halfHotel Nikko Nara

Second half
Full year

Fiscal year ended Dec. 31, 2017

Comparison withprevious period

Actual

2,465
2,896
5,361
3,454
3,817
7,271
1,386
1,491
2,877
2,421
3,734
6,155
1,025
1,216
2,240
10,751
13,15423,905
1,607
2,326
3,933
1,369
1,627
2,996
1,155
1,265
2,421
1,104
1,103
2,206
15,985
19,47635,461
1,420
1,566
2,986
734
718
1,453
1,483
1,521
3,003

1.7%
2.4%
2.1%
1.7%
(2.8)%(0.7)%
16.6%
11.1%
13.7%
1.8%
4.6%
3.5%
3.4%
6.4%
5.0%
3.6%
2.7%
3.1%
(0.4)%(3.2)%(2.1)%
1.7%
8.3%
5.2%
2.8%
5.0%
3.9%
32.7%
(2.7)%
12.3%
4.5%
2.2%
3.3%
(0.8)%
2.8%
1.1%
11.9%
8.5%
10.2%
(1.4)%(2.4)%(1.9)%
14

Actual

2,431
2,950
5,381
3,319
3,518
6,838
1,394
1,492
2,887
2,568
3,821
6,389
993
1,159
2,153
10,706
12,941
23,647
1,692
2,459
4,151
1,601
1,747
3,348
1,266
1,198
2,464
1,011
1,063
2,074
16,276
19,40835,684
1,542
1,696
3,238
705
733
1,438
1,458
1,512
2,970

Comparison withprevious period(1.4)%
1.9%
0.4%(3.9)%(7.8)%(6.0)%
0.6%
0.1%
0.3%
6.1%
2.3%
3.8%
(3.0)%(4.7)%(3.9)%(0.4)%(1.6)%(1.1)%
5.3%
5.7%
5.6%
17.0%
7.4%
11.8%
9.5%
(5.3)%
1.8%(8.4)%(3.6)%(6.0)%
1.8%(0.3)%
0.6%
8.6%
8.3%
8.4%
(4.1)%
2.1%(1.0)%(1.7)%(0.6)%(1.1)%

(millions of yen)
Fiscal year ended Dec. 31, 2016
Sales of the Twelve HMJ hotels

Actual19,622
23,28142,903First half
Total for the Twelve HMJ
Second half
hotelsFull year(Note 1)
(Note 2)

Fiscal year ended Dec. 31, 2017

Comparison withprevious period

Comparison withprevious period

Actual

3.9%
2.1%
2.9%

19,98023,34943,329

1.8%
0.3%
1.0%

Hotel Centraza Hakata and Holiday Inn Osaka Namba were acquired on April 1, 2016 and August 1, 2016, respectively.
The figures for the fiscal year ended December 2016 are for the entire year including the periods prior to the acquisition.
For the properties acquired during the fiscal year ended December 2017 (Hilton Tokyo Narita Airport, International
Garden Hotel Narita and Hotel Nikko Nara), the figures for the fiscal year ended December 2016 and the fiscal year
ended December 2017 are for the entire year including the periods prior to the acquisition.

(2) Hotel GOP(millions of yen)
GOP and ratio of GOP (Note 1)of the Twelve HMJ hotels
Total for the Nine HMJ
hotelsTotal for the Twelve
HMJ hotels(Note 1)
(Note 2)
(Note 3)

<2>

Fiscal year ended Dec. 31, 2016

Fiscal year ended Dec. 31, 2017

Comparison withprevious period

ActualComparison withprevious period

ActualGOP

12,01010.1%

12,457

3.7%

Ratio of GOP

33.9%

2.1%

34.9%

1.0%

GOP

14,12410.4%

14,666

3.8%

Ratio of GOP

32.9%

2.2%

33.8%

0.9%

Ratio of GOP refers to the ratio of GOP to sales. The same shall apply hereinafter.
Hotel Centraza Hakata and Holiday Inn Osaka Namba were acquired on April 1, 2016 and August 1, 2016, respectively.
The figures for the fiscal year ended December 2016 are for the entire year including the periods prior to the acquisition.
For the properties acquired during the fiscal year ended December 2017 (Hilton Tokyo Narita Airport, International
Garden Hotel Narita and Hotel Nikko Nara), the figures for the fiscal year ended December 2016 and the fiscal year
ended December 2017 are for the entire year including the periods prior to the acquisition.

Sales and GOP of the Six Accor hotels(1) Sales by hotel(millions of yen)
Fiscal year ended Dec. 31, 2016
Sales of the Six Accor hotels
First half
ibis Tokyo Shinjuku

Second half
Full year
First half

ibis Styles Kyoto Station Second half
Full year
First half
ibis Styles Sapporo

Second half
Full year
First half

Mercure Sapporo

Second half
Full year
First half

Mercure Okinawa Naha

Second half
Full year

Comparison withprevious period

Actual

406
426
832
464
513
977
490
633
1,122
546
708
1,254
489
560
1,049

(10.3)%
1.3%(4.7)%
30.0%
12.3%
20.1%
14.3%
7.1%
10.1%
9.3%
5.3%
7.0%
20.2%
8.6%
13.7%
15

Fiscal year ended Dec. 31, 2017
Comparison withprevious period

Actual

365
408
773
482
496
977
548
671
1,219
596
755
1,351
532
564
1,096

(10.1)%(4.1)%(7.1)%
3.7%(3.4)%
0.0%
11.9%
6.1%
8.6%
9.3%
6.6%
7.8%
8.7%
0.8%
4.5%

569
502
1,071
2,965
3,341
6,306

First half
Mercure Yokosuka

Second half
Full year
First half

Total

Second half
Full year

(2)

3.5%
(2.0)%
0.8%
10.0%
5.5%
7.6%

551
486
1,037
3,074
3,380
6,454

(3.2)%(3.1)%(3.2)%
3.7%
1.2%
2.4%

Hotel GOP
(millions of yen)
Fiscal year ended Dec. 31, 2016

GOP and ratio of GOPof the Six Accor hotels

Fiscal year ended Dec. 31, 2017

Comparison withprevious period

ActualComparison withprevious period

ActualTotal for Six Accor hotels

2,885

14.9%

3,004

4.1%

Ratio of GOP

45.8%

2.9%

46.5%

0.8%

<3> Sales and GOP of the Six the b hotels(1) Sales by hotel(millions of yen)

Fiscal year ended Dec. 31, 2016
Sales of the Six the b hotels

First half
the b akasaka-mitsuke

Second half
Full year
First half

the b ikebukuro

Second half
Full year
First half

the b ochanomizu

Second half
Full year
First half

the b hachioji

Second half
Full year
First half

the b hakata

Second half
Full year
First half

the b suidobashi

Second half
Full year
First half

Total for Six the b hotels

Second half
Full year(Note)

Comparison withprevious period

Actual

242
226
468
323
312
635
131
135
266
291
273
564
230
249
478
177
174
351
1,394
1,369
2,763

9.4%
(6.7)%
1.0%
7.3%(3.7)%
1.6%(0.8)%
3.5%
1.3%
9.0%
(6.1)%
1.1%
20.6%
15.5%
17.9%
－
－
－
－
－
－

Fiscal year ended Dec. 31, 2017
Actual

215
218
433
306
311
617
130
133
263
266
282
548
244
266
509
173
177
351
1,333
1,388
2,721

Comparison withprevious period(11.2)%(3.4)%(7.5)%(5.3)%(0.4)%(2.9)%(0.9)%(1.1)%(1.0)%(8.5)%
3.2%(2.8)%
5.9%
6.9%
6.4%
(2.1)%
1.9%(0.2)%(4.3)%
1.4%(1.5)%The b suidobashi was rebranded from Dormy Inn Suidobashi on July 1, 2015. Therefore, comparison with previous
period for the fiscal year ended December 2016 for the b suidobashi and the total for Six the b hotels are not indicated.

16

(2) Hotel GOP(millions of yen)
Fiscal year ended Dec. 31, 2016
GOP and ratio of GOP of the Six the b hotels

Fiscal year ended Dec. 31, 2017

Comparison withprevious period

ActualComparison withprevious period

ActualTotal for the Six the b hotels

1,370

－

1,304

(4.8)%

Ratio of GOP

49.6%

－

47.9%

(1.7)%(Note)The b suidobashi was rebranded from Dormy Inn Suidobashi on July 1, 2015. Therefore, comparison with previous
period for the fiscal year ended December 2016 for the b suidobashi and the total for Six the b hotels are not indicated.

17

<Reference 3>

Dividend per unit and appropriation for dividends

Dividend per unit for the fiscal year ended December 31, 2016 and December 31, 2017 was calculated based on
the assumptions described below.
(millions of yen)
Fiscal year ended
December 31, 2016
Unappropriated retained earnings

Fiscal year ended
December 31, 201712,126

14,005740

769

Negative goodwill – 50-year amortization
amount (Note 1) (Note 2)-262

Loss on retirement of noncurrent assets

16

132

Amortization, etc. of fixed-term leasehold ofland and asset retirement obligations (Note 2)112-

Adjustment for dilution (Note 3)

611

374

Total of reserve for temporary difference adjustments (Note 1)(negative goodwill) used

Total dividends

12,865

14,771

Number of investment units issued and outstanding(Units)

3,761,907

4,010,847

Dividend per unit

(JPY)

3,420

3,683

(Note 1) Starting from the fiscal year ended December 31, 2017 (18th period), JHR commenced appropriation for dividends
through reversal of reserve for temporary difference adjustment in connection with partial amendments to the “Ordinanceon Accounting of Investment Corporations” and the “Regulation for Real Estate Investment Trusts and Real Esatte
Investment Corporations” of The Investment Trusts Association, Japan. Specifically, JHR transferred the remainingbalance of dividend reserve (¥13,127 million) attributable to the gain on negative goodwill to “reserve for temporary
difference adjustment” through appropriation of profit for the fiscal year ended December 31, 2016 (17th period) andplans to reverse ¥262 million (hereinafter called the “50-year amortization amount of negative goodwill”), which is anamount equivalent to 2% (1/50) of the initial balance of the reserve for temporary difference adjustment, to payout as
dividends, with the balance of the reserve for temporary difference adjustment remaining at the time of reversal set as the
maximum reversal amount, for every year from the fiscal year ended December 31, 2017 (18th period).
(Note 2) The amounts recognized as amortization, etc. related to fixed-term leasehold of land and asset retirement obligations for
Hotel Centraza Hakata and HOTEL ASCENT FUKUOKA were added to the dividends through appropriation of thedividends reserve (negative goodwill) for the fiscal year ended December 2016 but these amounts are included in the
50-year amortization amount of negative goodwill for the fiscal year ended December 2017.
(Note 3) Adjustment to compensate for dilution of dividend per unit due to issuance of new investment units.

<Reference 4>Balance of reserve for temporary difference adjustment (negative goodwill)

The balance of reserve for temporary difference adjustment (negative goodwill) after appropriation for dividends
for the fiscal year ended December 2017 is as follows.
Balance of reserve for temporary difference adjustment as of December 31, 2017
Appropriation for dividends for the fiscal year ended December 31, 2017
Balance of reserve for temporary difference adjustment after appropriation for dividends for the
fiscal year ended December 31, 201718

(millions of yen)
13,127(769)
12,357

Overview of JHR
1. Unitholders’ capital
14th period

15th period

16th period

17th period

18th period

As ofDecember 31, 2013

As ofDecember 31, 2014

As ofDecember 31, 2015

As ofDecember 31, 2016

As ofDecember 31, 2017

Total number of authorized units(Units)

20,000,000

20,000,000

20,000,000

20,000,000

20,000,000

Number of investment units issued andoutstanding(Units)2,621,281

2,791,281

3,144,227

3,761,907

4,010,847

48,84559,02485,470134,829

153,516

17,073

22,86625,182

31,37135,046

Account closing date

Unitholders’ capital(JPY1M)
Number of unitholders(Persons)

2. Matters regarding investment units
Major unitholders of JHR as of December 31, 2017 were as follows:
Number of units held
(Units)Name

Percentage (Note)(%)

The Master Trust Bank of Japan, Ltd. (Trust Account)609,417

15.19%

Japan Trustee Services Bank, Ltd. (Trust Account)

563,882

14.05%

Trust & Custody Services Bank, Ltd. (Securities Investment Trust
Account)

186,334

4.64%

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

183,404

4.57%

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

2.07%

STATE STREET BANK AND TRUST COMPANY 505012

71,916

1.79%

Shikoku Railway Company

58,311

1.45%

STATE STREET BANK AND TRUST COMPANY 505223

55,442

1.38%

CBNY DFA INTERNATIONAL REAL ESTATE SECURITIESPORTFOLIO

53,933

1.34%

47,9241.19%

1,913,829

47.71%

STATE STREET BANK WEST CLIENT TREATY 505234
Total(Note)The percentage indicates the ratio of the number of units held to the number of units issued and outstanding, rounded down
to the two decimal places.

193. Matters regarding officers, etc.
(1) Officers, etc. as of December 31, 2017 were as follows:
Position

Name

Major concurrent post outside
JHR

Total amount of remuneration foreach position during thecorresponding fiscal period(JPY1000)

Executive Director

Kaname Masuda (Note 1)

Representative Partner, Masuda &Partners Law Office

5,400Supervisory Director

Tetsuya Mishiku (Note 1)

Representative Attorney, Mishiku& Nagamachi Law Office

3,000Supervisory Director

Hiroto Kashii (Note1)

–

3,000

Independent auditor

KPMG AZSA LLC (Note 2)–

44,050(Note 1)

(Note 2)

(Note 3)(Note 4)

None of the Executive Director and the Supervisory Directors own investment units of JHR in their own name or anotherperson’s name. Moreover, although the Supervisory Directors may be officers in corporations other than those listed
above, there are no conflicts of interest between those corporations including those listed above and JHR.
Remuneration for the independent auditor includes fees for services other than those stipulated in Article 2, paragraph 1of the Certified Public Accountants Act amounting to ¥19,000 thousand, such as preparation of comfort letters associatedwith the capital increase through the public offerings on July 5, 2017 and the issuance of investment corporation bondson November 24, 2017.
Following the resolution made at the 8th General Meeting of Unitholders held on November 22, 2017, Hiroshi
Matsuzawa resigned from office of Supervisory Director as of the date. Furthermore, the total remuneration for theservices he provided as Supervisory Director during the fiscal year through his resignation amounted to ¥2,750 thousand.
In case the number of Executive Director does not meet the requirement stipulated by laws and regulations, Hisashi
Furukawa, Representative Director of the Asset Management Company, was elected as Substitute Executive Director,
based on the resolution made by the 8th General Meeting of Unitholders of JHR held on November 22, 2017. The
elected Substitute Executive Director owns 456 investment units of JHR.

(2) Policy for decisions on dismissal or non-reappointment of independent auditor
We have a policy to determine, at a General Meeting of Unitholders, whether to dismiss the independent
auditor pursuant to provisions of the Investment Trusts Act, and to determine whether or not to reappoint theindependent auditor taking into comprehensive consideration the audit quality, audit fees and other various
matters.

4. Asset management company, custodian and general administrators
The asset management company, etc. as of December 31, 2017 were as follows:
Consignment classification

Name

Asset management company

Japan Hotel REIT Advisors Co., Ltd.

Custodian

Sumitomo Mitsui Trust Bank, Limited

General administrator (administration of the unitholders’registry, book keeping, tax payments, organizational operations,
Sumitomo Mitsui Trust Bank, Limited
etc., and administration of the special account management
agency)General administrator (administration regarding investment
corporation bonds)

Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Trust Bank, Limited
Mizuho Bank, Ltd.
Resona Bank, Limited
Mitsubishi UFJ Trust and Banking Corporation

General administrator (tax return preparation, etc.)

PwC Tax Japan

20

Status of Investment Assets
1. Composition of assets

Type of assets

Business
category(Note 1)

17th period(As of December 31, 2016)
Prefectural
location

Total amount ofassets held
(JPY1M)

Name of property, etc.

(Note 2)

Tokyo

Limitedservice hotel

Osaka
Hokkaido

Fukuoka
Real estate intrust(Note 3)

Total amount ofassets held
(JPY1M)(Note 2)

Ratio to total
assets (%)(Note 3)

ibis Tokyo Shinjuku

7,671

2.4

7.984

2.3

CANDEO HOTELS UENO-KOEN

6,751

2.1

6,719

1.9

the b ikebukuro

6,578

2.1

6,573

1.9

the b akasaka-mitsuke

6,286

2.0

6,290

1.8

Hotel Sunroute Shinbashi

4,854

1.5

4,840

1.4

Comfort Hotel Tokyo Higashi
Nihombashi

3,625

1.1

3,593

1.0

the b hachioji

2,673

0.8

2,680

0.8

the b ochanomizu

2,344

0.7

2,350

0.7

Smile Hotel Nihombashi
Mitsukoshimae

2,047

0.6

2,041

0.6

R&B Hotel Ueno Hirokoji

1,764

0.6

1,751

0.5

R&B Hotel Higashi Nihonbashi

1,512

0.5

1,495

0.4

Hotel Vista Kamata Tokyo

1,467

0.5

1,464

0.4

the b suidobashi

1,205

0.4

1,204

0.3

Dormy Inn EXPRESS Asakusa

951

0.3

961

0.3

Chisun Inn Kamata

797

0.3

789

0.2

Holiday Inn Osaka Namba

27,163

8.5

27,083

7.7

Namba Oriental Hotel

14,656

4.6

14,595

4.1

ibis Styles Sapporo

6,724

2.1

6,659

1.9

Mercure Sapporo

5,945

1.9

5,895

1.7

HOTEL ASCENT FUKUOKA

5,211

1.6

5,187

1.5

the b hakata

2,330

0.7

2,335

0.7

Hakata Nakasu Washington Hotel
Plaza

2,054

0.6

2,040

0.6

Toyoko Inn Hakata-guchi Ekimae

1,477

0.5

1,456

0.4

ibis Styles Kyoto Station

6,701

2.1

6,682

1.9

Okinawa

Mercure Okinawa Naha

2,916

0.9

2,889

0.8

Kumamoto Dormy Inn Kumamoto

2,199

0.7

2,185

0.6

Nara

1,871

0.6

1,835

0.5

Subtotal

129,78340.8

129,58836.8

Oriental Hotel tokyo bay

Hiroshima

Nara Washington Hotel Plaza

18,2675.7

18,002

5.1

Hilton Tokyo Narita Airport--

13,3183.8International Garden Hotel

-

-

9,222

2.6

Hotel Francs

3,145

1.0

3,155

0.9

ACTIVE-INTER CITYHIROSHIMA (Sheraton Grand
Hiroshima Hotel) (Note 4)

17,778

5.6

17,6205.0

Oriental Hotel Hiroshima

4,071

1.3

4,091

1.2

Aichi

Hilton Nagoya

15,5304.9

15,588

4.4

Nara

Hotel Nikko Nara--

10,525

3.0

Hyogo

Kobe Meriken Park Oriental Hotel

9,947

3.1

9,893

2.8

Fukuoka

Hotel Centraza Hakata

7,506

2.4

7,341

2.1

Kanagawa

Mercure Yokosuka

1,643

0.5

1,636

0.5

Subtotal

77,891

24.5

110,397

31.3

Hotel Nikko Alivila

18,2675.7

18,128

5.1

Okinawa Marriott Resort & Spa

14,861

4.7

14,722

4.2

The Beach Tower Okinawa

6,831

2.1

6,749

1.9

Chiba

Hilton Tokyo Bay

26,1808.2

26,192

7.4

Osaka

Hotel Keihan Universal City

5,982

1.9

5,984

1.7

Kanagawa

Hakone Setsugetsuka

3,747

1.2

3,798

1.1

Okinawa
Resort hotel

Ratio to total
assets (%)

Kyoto

Chiba

Full-service
hotel

18th period(As of December 31, 2017)21

Type of assets

Business
category(Note 1)

17th period(As of December 31, 2016)
Prefectural
location

Total amount ofassets held
(JPY1M)

Name of property, etc.

(Note 2)

(Note 1)
(Note 2)
(Note 3)(Note 4)(Note 5)

Ratio to total
assets (%)(Note 3)18th period(As of December 31, 2017)
Total amount ofassets held
(JPY1M)(Note 2)

Ratio to total
assets (%)(Note 3)

Subtotal

75,871

23.9

75,576

21.5

Real estate in trust – Total

283,54689.2

315,561

89.6

Deposits and other assets (Note 5)

34,332

10.8

36,621

10.4

Total assets

317,878100.0

352,183

100.0

Hotels are categorized as limited-service hotels, full-service hotels or resort hotels according to the manner of operation.
For real estate in trust, “Total amount of assets held” shows the amount calculated by deducting accumulated depreciationfrom acquisition price (including expenses incidental to acquisition).
“Ratio to total assets” shows the ratio of each asset held to total assets, rounded off to one decimal place.
ACTIVE-INTER CITY HIROSHIMA is classified in accordance with the business category of Sheraton Grand Hiroshima
Hotel, its main facility.
Includes machinery and installation, furniture, fixtures and equipment, construction in progress, construction in progressin trust, and intangible assets (excluding leasehold rights in trust and fixed-term leasehold rights in trust).

22

2. Major portfolio assets
An overview of the portfolio assets of JHR (44 properties in total) as of December 31, 2017 was as follows.
PropertyNo.

1

Name of property, etc.

Kobe Meriken Park Oriental Hotel(Note 5)

Book value(JPY1M)

Leasable area(m2)

Leased area(m2)

(Note 1)

(Note 2)

(Note 3)

10,06532,663.90

Tenantoccupancy
ratio
(%)

Ratio of rental
revenue to total
rental revenue
(%)

Major
use

(Note 4)32,663.90

100.0

4.7

Hotel

2

Oriental Hotel tokyo bay

18,172

44,833.11

44,833.11

100.0

6.8

Hotel

3

Namba Oriental Hotel

14,737

19,364.33

19,364.33

100.0

6.3

Hotel

4

Hotel Nikko Alivila (Note 6)

18,36338,024.98

38,024.98

100.0

7.7

Hotel

5

Oriental Hotel Hiroshima

4,160

13,752.22

13,752.22

100.0

2.0

Hotel

6

ibis Tokyo Shinjuku

8,136

6,801.84

6,801.84

100.0

2.1

Hotel

8

The Beach Tower Okinawa (Note 7)

6,754

20,140.01

20,140.01

100.0

2.0

Hotel

9

Hakone Setsugetsuka

3,806

10,655.03

10,655.03

100.0

1.2

Hotel

10

Dormy Inn Kumamoto

2,185

7,701.19

7,701.19

100.0

0.8

Hotel

12

the b suidobashi

1,234

3,097.25

3,097.25

100.0

0.4

Hotel

13

Dormy Inn EXPRESS Asakusa

961

2,014.90

2,014.90

100.0

0.3

Hotel

14

Hakata Nakasu Washington Hotel Plaza

2,041

5,602.04

5,602.04

100.0

0.9

Hotel

15

Nara Washington Hotel Plaza

1,838

5,271.54

5,271.54

100.0

0.6

Hotel

16

R&B Hotel Ueno Hirokoji

1,751

3,060.31

3,060.31

100.0

0.4

Hotel

17

R&B Hotel Higashi Nihonbashi

1,495

3,800.77

3,800.77

100.0

0.5

Hotel

18

Comfort Hotel Tokyo Higashi Nihombashi

3,593

5,765.27

5,765.27

100.0

1.1

Hotel

22

Smile Hotel Nihombashi Mitsukoshimae

2,041

3,167.82

3,167.82

100.0

0.6

Hotel

Main building: Main building:
3,581.66
3,581.66
Annex:
Annex:
868.36868.36

100.0

0.6

Hotel

24

Toyoko Inn Hakata-guchi Ekimae

1,456

25

Hotel Vista Kamata Tokyo

1,465

3,831.80

3,831.80

100.0

0.4

Hotel

26

Chisun Inn Kamata792

1,499.87

1,499.87

100.0

0.3

Hotel

29

Hotel Keihan Universal City (Note 8)

5,985

16,212.40

16,212.40

100.0

3.2

Hotel

30

Hotel Sunroute Shinbashi

4,840

5,246.66

5,246.66

100.0

1.6

Hotel

31

Hilton Tokyo Bay (Note 9)26,19264,931.94

64,931.94

100.0

7.6

Hotel

32

ibis Styles Kyoto Station

6,712

5,003.99

5,003.99

100.0

2.3

Hotel

33

ibis Styles Sapporo

6,686

14,992.49

14,896.40

99.4

2.8

Hotel

34

Mercure Sapporo

5,931

15,189.42

14,905.88

98.1

3.2

Hotel

35

Mercure Okinawa Naha

2,916

10,884.25

10,884.25

100.0

1.9

Hotel

36

the b akasaka-mitsuke (Note 10)

6,306

2,867.04

2,867.04

100.0

1.0

Hotel

37

the b ikebukuro (Note 10)6,585

5,650.01

5,650.01

100.0

1.4

Hotel

38

the b ochanomizu (Note 10)2,357

1,742.23

1,742.23

100.0

0.4

Hotel

39

the b hachioji (Note 10)

2,693

7,847.65

7,847.65

100.0

0.8

Hotel

40

the b hakata (Note 10)2,354

3,986.09

3,986.09

100.0

1.0

Hotel

41

Hotel Francs

3,155

19,213.39

19,213.39

100.0

1.2

Hotel

42

Mercure Yokosuka (Note 11)

1,669

16,881.82

16,881.82

100.0

1.1

Hotel

43

Okinawa Marriott Resort & Spa

14,85336,430.15

36,430.15

100.0

4.8

Hotel

44

ACTIVE-INTER CITY HIROSHIMA(Note 12)

17,694

31,181.05

31,131.60

99.8

5.8

Hotel

45

CANDEO HOTELS UENO-KOEN(Note 13)

6,728

7,934.26

7,934.26

100.0

1.4

Hotel

46

Hotel Centraza Hakata

7,413

18,105.42

18,105.42

100.0

3.4

Hotel

47

Holiday Inn Osaka Namba

27,122

11,501.10

11,501.10

100.0

4.8

Hotel

48

HOTEL ASCENT FUKUOKA

5,187

8,238.75

8,238.75

100.0

1.7

Hotel

49

Hilton Nagoya (Note 14)

15,58847,942.71

47,942.71

100.0

5.4

Hotel

50

Hilton Tokyo Narita Airport

13,38356,817.28

56,817.28

100.0

1.6

Hotel

51

International Garden Hotel Narita

9,258

21,814.93

21,814.93

100.0

1.0

Hotel

52

Hotel Nikko Nara (Note 15)

10,55821,011.31

21,011.31

100.0

1.1

Hotel

317,229

687,124.54

686,694.46

99.9

100.0

Total

23

(Note 1)(Note 2)

(Note 3)(Note 4)(Note 5)(Note 6)(Note 7)(Note 8)(Note 9)(Note 10)(Note 11)

(Note 12)(Note 13)

(Note 14)

(Note 15)

(Note 16)

Book value includes real estate in trust, machinery and installation, furniture, fixtures and equipment, construction inprogress, construction in progress in trust, and intangible assets.
In principle, leasable area represents leasable area of the building, which does not include leasable area of land(including parking lots on ground), based on a lease contract or plan for each real estate in trust. For properties inwhich the leased area is not described in the lease contract, leasable area represents the area described in theregistration of the building. Furthermore, when the leasable area in the lease contract is indicated in tsubo units, thefigure in the table has been converted to the area in metric units (3.30578 square meters per one tsubo).
In principle, leased area represents the leased area described in the lease contract of the building. For properties inwhich the leased area is not described in the lease contract, leased area shows the area described in the registration of
the building. Furthermore, when the leased area in the lease contract is indicated in tsubo units, the figure in the tablehas been converted to the area in metric units (3.30578 square meters per one tsubo). However, for properties for whichmaster lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR
receives the same amount of rents, etc. paid by end tenants as is in principle, the total area for which lease contracts
have been concluded with end tenants and which are actually leased is indicated. The same shall apply hereinafter
throughout this document.
Represents the ratio of rental revenue to total real estate operating revenue for the fiscal period under review. In
calculating, the figures are rounded off to one decimal place.
Kobe Meriken Park Oriental Hotel is a building owned in the form of a compartmentalized ownership by two owners(JHR and Kobe City). The area in this table shows the portion owned exclusively by JHR (including an accessory
building of 764.83 square meters). With regard to the portion of the building owned exclusively by Kobe City, the area
rented by JHR from Kobe City with permission for use under Kobe City’s ordinance for harbor facilities, etc. is 694.00
square meters and excluded from the above area of 32,663.90 square meters.
Leasable area and leased area for Hotel Nikko Alivila include an accessory building of 120.10 square meters andexclude a building of 493.50 square meters rented by JHR from Kabushiki Kaisha Okinawa Umi No Sono.
Leasable area and leased area for The Beach Tower Okinawa include the floor area of a warehouse in a two-story
light-gauge steel annex building (91.20 square meters).
The building of Hotel Keihan Universal City is a building with compartmentalized ownership for Universal CityWalk
Osaka, which comprises two hotel buildings, business facilities, commercial facilities and others, as a single building.
For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.
The building of Hilton Tokyo Bay is co-owned with other right holders, and JHR owns co-ownership interest for
64,931.94 square meters (JHR owns 9/10 of co-ownership interest).
The b akasaka-mitsuke, the b ikebukuro, the b ochanomizu, the b hachioji and the b hakata are properties with
pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end tenants as is inprinciple. The same shall apply hereinafter throughout this document.
The building of Mercure Yokosuka is a building with compartmentalized ownership for Bay Square Yokosuka
Ichibankan, which comprises a hotel, a theater, stores, apartments, office spaces and parking lots, as a single building.
For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.
The building of ACTIVE-INTER CITY HIROSHIMA is a building with compartmentalized ownership for
ACTIVE-INTER CITY HIROSHIMA, which comprises Sheraton Grand Hiroshima Hotel, office spaces, stores,
parking lots and bicycle parking lots etc., as a single building. For the leasable area and leased area of the property, theleased area under the lease contract of the hotel, office spaces and stores is indicated.
Leasable area and leased area of CANDEO HOTELS UENO-KOEN indicate the total floor area described in thecertificate of inspection, based on the building lease agreement with the hotel lessee. Furthermore, the figure includes
the floor area for the mechanical parking facilities.
Building of Hilton Nagoya is a compartmentalized ownership of AMMNAT SQUARE, which consists of a hotel
building (including retail space), office building and car parking space, etc., as a single building. Leasable area andleased area indicate the sum total of the leased area for the hotel building, the office building and the retail spacedescribed in the lease agreement.
The building of Hotel Nikko Nara is a compartmentalized ownership of the entire building of Redeveloped Building 1
in front of JR Nara Station, which consists of hotel building, retail space and car parking space, etc. JHR’s share of
voting right of the building is 223/353 (approximately 63.2%).
The omitted numbers are the numbers for assets that have been transferred.

24

3. Details of property assets, etc.
(1) Details of property assets
The details of real estate properties, etc. held by JHR as of December 31, 2017 were as follows:
PropertyNo.

Name of property, etc.

Location (Displayed address)

Assessedvalue at end
Form of ownership of period(JPY1M)

Book value(JPY1M)

Appraisal
agency(Note 2)

(Note 3)(Note 1)

1

Kobe Meriken Park Oriental
Hotel

5-6 Hatobacho, Chuo-ku, Kobe-shi, Hyogo

Beneficial interestin trust

15,10010,065

J

2

Oriental Hotel tokyo bay

8-2 Mihama 1-chome, Urayasu-shi, Chiba

Beneficial interestin trust

34,10018,172

J

3

Namba Oriental Hotel

8-17 Sennichimae 2-chome, Chuo-ku,
Osaka-shi, Osaka

Beneficial interestin trust

32,70014,737

J

4

Hotel Nikko Alivila

600 Aza Gima, Yomitan-son,
Nakagami-gun, Okinawa

Beneficial interestin trust

31,50018,363

J

5

Oriental Hotel Hiroshima

6-10 Tanakamachi, Naka-ku,
Hiroshima-shi, Hiroshima

Beneficial interestin trust

4,280

4,160

J

6

ibis Tokyo Shinjuku

10-5 Nishi-Shinjuku 7-chome, Shinjuku-ku, Beneficial interestTokyoin trust

9,650

8,136

J

8-6 Aza Mihama, Chatan-cho,
Nakagami-gun, Okinawa

Beneficial interestin trust

9,820

6,754

J

8

The Beach Tower Okinawa(Note 4)

9

Hakone Setsugetsuka

1300 Goura, Hakone-machi,
Ashigarashimo-gun, Kanagawa

Beneficial interestin trust

5,220

3,806

J

10

Dormy Inn Kumamoto

3-1 Karashimacho, Kumamoto-shi,
Kumamoto

Beneficial interestin trust

2,960

2,185

M

12

the b suidobashi

25-27 Hongo 1-chome, Bunkyo-ku, Tokyo

Beneficial interestin trust

1,940

1,234

J

13

Dormy Inn EXPRESS Asakusa 3-4 Hanakawado 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

1,300

961

M

14

Hakata Nakasu Washington
Hotel Plaza

8-28 Nakasu 2-chome, Hakata-ku,
Fukuoka-shi, Fukuoka

Beneficial interestin trust

4,330

2,041

J

15

Nara Washington Hotel Plaza

31-1 Shimosanjo-cho, Nara-shi, Nara

Beneficial interestin trust

2,430

1,838

J

16

R&B Hotel Ueno Hirokoji

18-8 Ueno 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

1,920

1,751

M

17

R&B Hotel Higashi
Nihonbashi

15-6 Higashi-Nihonbashi 2-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

2,050

1,495

M

18

Comfort Hotel Tokyo Higashi
Nihombashi

10-11 Nihonbashi-bakurocho 1-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

5,330

3,593

M

22

Smile Hotel Nihombashi
Mitsukoshimae

4-14 Nihonbashi-Honcho 1-chome,
Chuo-ku, Tokyo

Beneficial interestin trust

3,060

2,041

M

24

Toyoko Inn Hakata-guchi
EkimaeMain building: 15-5 Hakataekimae
1-chome, Hakata-ku, Fukuoka-shi, Fukuoka Beneficial interest
Annex: 1-15 Hakataekimae 1-chome,in trust
Hakata-ku, Fukuoka-shi, Fukuoka

2,670

1,456

T

25

Hotel Vista Kamata Tokyo

20-11 Nishikamata 8-chome, Ota-ku, Tokyo

Beneficial interestin trust

2,000

1,465

T

26

Chisun Inn Kamata23-13 Kamata 4-chome, Ota-ku, Tokyo

Beneficial interestin trust

1,430

792

T

29

Hotel Keihan Universal City

2-78 Shimaya 6-chome, Konohana-ku,
Osaka-shi, Osaka

Beneficial interestin trust

13,600

5,985

R

30

Hotel Sunroute Shinbashi

10-2 Shinbashi 4-chome, Minato-ku, Tokyo

Beneficial interestin trust

8,740

4,840

D

31

Hilton Tokyo Bay

1-33 Maihama, Urayasu-shi, Chiba

Beneficial interestin trust

36,10026,192D

32

ibis Styles Kyoto Station

47-1, 47-2 Higashikujo Kamitonodacho,
Minami-ku, Kyoto-shi, Kyoto

Beneficial interestin trust

11,300

6,712

D

33

ibis Styles Sapporo

10-10 Minami 8-jo Nishi 3 chome, Chuo-ku,
Sapporo-shi, Hokkaido

Beneficial interestin trust

10,500

6,686

J

34

Mercure Sapporo

2-4 Minami 4-jo Nishi 2-chome, Chuo-ku,
Sapporo-shi, Hokkaido

Beneficial interestin trust

10,500

5,931

J

35

Mercure Okinawa Naha

3-19 Tsubogawa 3-chome, Naha-shi,
Okinawa

Beneficial interestin trust

7,760

2,916

J

36

the b akasaka-mitsuke

21-7 Akasaka 3-chome, Minato-ku, Tokyo

Beneficial interestin trust

6,010

6,306

J

25

Property
No.

Name of property, etc.

Location (Displayed address)

Assessedvalue at end
Form of ownership of period(JPY1M)

Book value(JPY1M)

Appraisal
agency(Note 2)

(Note 3)(Note 1)37

the b ikebukuro39-4 Higashi-ikebukuro 1-chome,
Toshima-ku, Tokyo

Beneficial interestin trust

7,330

6,585

J

38

the b ochanomizu

7-5 Kanda-awajicho 1-chome, Chiyoda-ku, Beneficial interestTokyoin trust

2,360

2,357

J

39

the b hachioji

6-12 Myojincho 4-chome, Hachioji-shi,Tokyo

Beneficial interestin trust

2,780

2,693

J

40

the b hakata

3-9 Hakata-eki Minami 1-chome,
Hakata-ku, Fukuoka-shi, Fukuoka

Beneficial interestin trust

4,160

2,354

J

41

Hotel Francs

10-2 Hibino 2-chome, Mihama-ku,
Chiba-shi, Chiba

Beneficial interestin trust

4,050

3,155

D

42

Mercure Yokosuka

27 Honcho 3-chome, Yokosuka-shi,
Kanagawa

Beneficial interestin trust

2,800

1,669

D

43

Okinawa Marriott Resort &Spa

1490-1 Kise, Nago-shi, Okinawa

Beneficial interestin trust

18,50014,853J

44ACTIVE-INTER CITYHIROSHIMA

12-1 Wakakusa-cho, Higashi-ku,
Hiroshima-shi, Hiroshima

Beneficial interestin trust

20,50017,694D

45

CANDEO HOTELS
UENO-KOEN

2-13 Negishi 1-chome, Taito-ku, Tokyo

Beneficial interestin trust

7,630

6,728

D

46

Hotel Centraza Hakata

4-23 Hakata-eki Chuogai, Hakata-ku,
Fukuoka-shi, Fukuoka

Beneficial interestin trust

8,490

7,413

D

47

Holiday Inn Osaka Namba

5-15 Soemon-cho, Chuo-ku, Osaka-shi,
Osaka

Beneficial interestin trust

27,20027,122

J

48

HOTEL ASCENT FUKUOKA

3-3-14 Tenjin, Chuo-ku, Fukuoka-shi,
Fukuoka

Beneficial interestin trust

5,560

5,187

D

49

Hilton Nagoya

1-3-3 Sakae, Naka-ku, Nagoya-shi, Aichi

Beneficial interestin trust

15,70015,588D50

Hilton Tokyo Narita Airport

456 Kosuge, Narita-shi, Chiba

Beneficial interestin trust

13,40013,383

J

51

International
Narita241-1 Yoshikura, Narita-shi, Chiba

Beneficial interestin trust

9,430

9,258

J

52

Hotel Nikko Nara

8-1 Sanjyohonmachi, Nara-shi, Nara

Beneficial interestin trust

11,20010,558D

439,390317,229

Garden

Hotel

Total

(Note 1)

(Note 2)
(Note 3)(Note 4)(Note 5)

Assessed value at end of period shows appraisal value as of the end of the fiscal period under review as the date ofvaluation, in accordance with JHR’s Articles of Incorporation, the Ordinance on Accounting of Investment
Corporations (Cabinet Office Ordinance No. 47 of 2006) and regulations set forth by The Investment Trusts
Association, Japan.
Book value includes amounts of real estate in trust, machinery and installation, furniture, fixtures and equipment,
construction in progress in trust, and intangible assets.
The letters indicate the appraisers for the properties as follows:
J:
Japan Real Estate Institute
M: Morii Appraisal & Investment Consulting, Inc.
T:
The Tanizawa Sōgō Appraisal Co., Ltd.
R:
Rich Appraisal Institute Co., Ltd.
D:DAIWA REAL ESTATE APPRAISAL CO., LTD.
Due to the lack of a displayed address, “location” in the registration or registration record is shown.
The omitted numbers are the numbers for assets that have been transferred.

26

(2) Transition of real estate leasing business, etc.
An overview of leasing business of real estate, etc. owned by JHR is as follows:
17th period(From January 1, 2016 to December 31, 2016)
PropertyNo.

Name of property, etc.

Number oftenants
at end ofperiod(Note 1)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

18th period(From January 1, 2017 to December 31, 2017)
Number oftenants
at end ofperiod(Note 1)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue(%)

1

Kobe Meriken Park Oriental
Hotel

1

100.0

1,103

5.0

1

100.0

1,195

4.7

2

Oriental Hotel tokyo bay

1

100.0

1,879

8.5

1

100.0

1,729

6.8

3

Namba Oriental Hotel

1

100.0

1,574

7.1

1

100.0

1,600

6.3

4

Hotel Nikko Alivila

1

100.0

1,804

8.2

1

100.0

1,951

7.7

5

Oriental Hotel Hiroshima

1

100.0

469

2.1

1

100.0

498

2.0

6

ibis Tokyo Shinjuku

4

100.0

722

3.3

4

100.0

539

2.1

8

The Beach Tower Okinawa

1

100.0

511

2.3

1

100.0

511

2.0

9

Hakone Setsugetsuka

1

100.0

294

1.3

1

100.0

294

1.2

10

Dormy Inn Kumamoto

1

100.0

194

0.9

1

100.0

194

0.8

12

the b suidobashi

1

100.0

121

0.6

1

100.0

114

0.4

13

Dormy Inn EXPRESS Asakusa

1

100.0

63

0.3

1

100.0

63

0.3

14

Hakata Nakasu Washington
Hotel Plaza

1

100.0

240

1.1

1

100.0

240

0.9

15

Nara Washington Hotel Plaza

2

100.0

151

0.7

2

100.0

151

0.6

16

R&B Hotel Ueno Hirokoji

1

100.0

98

0.4

1

100.0

97

0.4

17

R&B Hotel Higashi Nihonbashi

1

100.0

122

0.6

1

100.0

122

0.5

18

Comfort Hotel Tokyo Higashi
Nihombashi

2

100.0

270

1.2

2

100.0

270

1.1

22

Smile Hotel Nihombashi
Mitsukoshimae

1

100.0

152

0.7

1

100.0

152

0.6

24

Toyoko Inn Hakata-guchi
Ekimae

1

100.0

141

0.6

1

100.0

141

0.6

25

Hotel Vista Kamata Tokyo

1

100.0

115

0.5

1

100.0

109

0.4

26

Chisun Inn Kamata

1

100.0

79

0.4

1

100.0

78

0.3

29

Hotel Keihan Universal City

1

100.0

914

4.1

1

100.0

811

3.2

30

Hotel Sunroute Shinbashi

4

100.0

403

1.8

4

100.0

412

1.6

31

Hilton Tokyo Bay

1

100.0

1,959

8.9

1

100.0

1,929

7.6

32

ibis Styles Kyoto Station

2

100.0

587

2.7

2

100.0

597

2.3

33

ibis Styles Sapporo

5

99.4

635

2.9

5

99.4

707

2.8

34

Mercure Sapporo

14

98.1

745

3.4

14

98.1

818

3.2

35

Mercure Okinawa Naha

1

100.0

475

2.1

1

100.0

491

1.9

36

the b akasaka-mitsuke

2

100.0

285

1.3

2

100.0

249

1.0

37

the b ikebukuro

4

100.0

369

1.7

4

100.0

360

1.4

38

the b ochanomizu

1

100.0

115

0.5

1

100.0

108

0.4

39

the b hachioji

13

100.0

221

1.0

13

100.0

202

0.8

40

the b hakata

2

100.0

230

1.0

2

100.0

252

1.0

41

Hotel Francs

1

100.0

300

1.4

1

100.0

300

1.2

42

Mercure Yokosuka

1

100.0

271

1.2

1

100.0

291

1.1

43

Okinawa Marriott Resort & Spa

1

100.0

1,066

4.8

1

100.0

1,215

4.8

44

ACTIVE-INTER CITYHIROSHIMA

37

99.8

1,378

6.2

37

99.8

1,482

5.8

45

CANDEO HOTELS
UENO-KOEN

1

100.0

309

1.4

1

100.0

350

1.4

46

Hotel Centraza Hakata

1

100.0

599

2.7

1

100.0

865

3.4

47

Holiday Inn Osaka Namba

1

100.0

539

2.4

1

100.0

1,215

4.8

48

HOTEL ASCENT FUKUOKA

6

100.0

158

0.7

6

100.0

436

1.7

49

Hilton Nagoya

4

100.0

430

1.9

4

100.0

1,388

5.4

50

Hilton Tokyo Narita Airport(Note 2)

―

―

―

―

1

100.0

398

1.6

27

17th period(From January 1, 2016 to December 31, 2016)
PropertyNo.

Name of property, etc.

Number oftenants
at end ofperiod(Note 1)

51

International Garden Hotel
Narita (Note 2)

52

Hotel Nikko Nara (Note 3)

Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue
(%)

―

―

―

―

Total

18th period(From January 1, 2017 to December 31, 2017)
Tenantoccupancy
rate
at end ofperiod(%)

Real estate
operatingrevenueduring theperiod(JPY1M)

Ratio tototal realestateoperatingrevenue
(%)

1

100.0

261

1.0

Number oftenants
at end ofperiod(Note 1)

―

―

―

―

1

100.0

272

1.1

128

99.9

22,107

100.0

131

99.9

25,475100.0(Note 1)

Number of tenants indicates the total number of tenants based on the lease contracts for respective real estate in trust(excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, for properties for which master
lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR receives
the same amount of rents, etc. paid by end tenants as is in principle, the number of end tenants is indicated. For
properties with sub-lease-type master lease contracts in which JHR receives predetermined rents despite fluctuations inrents from end tenants, the number of the master lease companies is indicated as tenants.

(Note 2)

Hilton Tokyo Narita Airport and International Garden Hotel Narita were acquired on July 12, 2017.

(Note 3)

Hotel Nikko Nara was acquired on August 1, 2017.

(Note 4)The property numbers of assets that were transferred before the previous fiscal period are intentionally omitted.

4. Details of securities assets
There are no applicable securities held by JHR as of December 31, 2017.
5. Contractual amounts and fair values of specified transactions
The contractual amounts and fair values of specified transactions as of December 31, 2017 were as follows:
Classification

Amounts of contract, etc.
(JPY1M) (Note 1)

Transaction

Fair value(JPY1M)

Over 1 year
Transactions other thanmarket transactions

Interest rate swap transactions
Payable fixed rate / Receivable floating rate
Interest rate cap transactions
Total(Note 1)
(Note 2)

(Note 2)

106,852

92,842

(404)

4,286

-

-

111,139

92,842(404)

Contractual amounts, etc. of interest rate swap transactions and interest rate cap transactions are based on notional
principal amounts, etc.
Fair value is based on the price, etc. provided by counterparty financial institutions.

6. Other assets
All of the beneficial interest in trust mainly invested in real estate held by JHR is included in “3. Details ofproperty assets, etc.” presented above. There were no other major specified assets that are considered to be
JHR’s main investments in the portfolio of JHR as of December 31, 2017.
7. Asset holdings by country and region
There is nothing to be reported on countries and regions other than Japan.

28

Capital Expenditures for Portfolio Properties
1. Planned capital expenditures (Note 1)
The following table shows major estimated capital expenditures for renovation work planned as of the end of the
fiscal period under review for investment real estate properties (in trust) held by JHR. Expenditures are expected
to total ¥3,250 million, which consists of capital expenditures of ¥3,186 million (Note 2) and repair expenses of¥63 million, for the next fiscal period.

Name of property, etc.
(Location)

PurposeScheduled period

Estimated construction costs(JPY1M)
Total amountPayment forthe period

Total amount
paid

Kobe Meriken Park Oriental
Hotel(Kobe-shi, Hyogo)

Renewal of telephoneswitchboard

From April 2018
to May 2018

50

-

-

Oriental Hotel tokyo bay(Urayasu-shi, Chiba)

From October 2018
Splitting of suite guestroom
and relocation of Mama Salon to November 2018

120

-

-

Namba Oriental Hotel(Osaka-shi, Osaka)Renewal of guest rooms on
the 6th floor

From January 2018
to February 2018

78

-

-

Replacement of
air-conditioning facilities forguest rooms

From September
2018 to December
2018

260

-

-

Renewal of guest rooms on
the 6th and 7th floors

From January 2018
to February 2018

58

-

-

Renewal of guest rooms on
the 12th floor

From June 2018
to June 2018

30

-

-

Renewal of drainage forsewage and gray watercheck

From June 2017
to January 2018

55

-

-

Renewal of the entire
building

From October 2018
to March 2019

3,100

-

-

3,753

-

-

Okinawa Marriott Resort & Spa(Nago-shi, Okinawa)
Holiday Inn Osaka Namba(Osaka-shi, Osaka)
Holiday Inn Osaka Namba(Osaka-shi, Osaka)
Hilton Nagoya(Nagoya-shi, Aichi)
Hotel Centraza Hakata(Fukuoka-shi, Fukuoka)

Total(Note 1) For new construction and renewal work, estimated construction costs include those for buildings, annexed installation, etc.
as well as items classified as furniture and fixtures. The scheduled period of the above planned repair work and whether or
not the repair work will be performed may change.
(Note 2) The estimated construction costs for the renewal of the entire building of Hotel Centraza Hakata is not included in thecapital expenditures for the next fiscal period, as the construction work will be completed in March 2019.

29

2. Capital expenditures during the period (Note)
For investment real estate properties (in trust) held by JHR, major construction work conducted during the fiscal
period under review that represents capital expenditures is as below. Capital expenditures for the fiscal period
under review totaled ¥2,898 million, and repair expenses that were accounted for as expense in the fiscal period
under review totaled ¥49 million. In aggregate, ¥2,948 million of construction work was carried out.
Name of property, etc. (Location)

Purpose

PeriodConstruction costs(JPY1M)

Kobe Meriken Park Oriental Hotel Renewal of disaster prevention
switchboard(Kobe-shi, Hyogo)

From May 2017
to December 201745

Kobe Meriken Park Oriental Hotel
Relocation of bridal salon(Kobe-shi, Hyogo)

From April 2017
to December 201776

Oriental Hotel tokyo bay(Urayasu-shi, Chiba)

Renewal of automatic fire alarm
equipment

From January 2017
to July 201750

Namba Oriental Hotel(Osaka-shi, Osaka)Renewal of guest rooms on the 7th floor,
etc.

From February 2017
to March 2017

77

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of piping

From May 2017
to August 2017

136

ibis Tokyo Shinjuku(Shinjuku-ku, Tokyo)

Replacement of interior fittings andfurniture in guest rooms on the 3rd
through 10th floors

From May 2017
to August 2017

312

Hakone Setsugetsuka

Replacement of air-conditioning facilities
within the building

From June 2017
to June 201799

Renewal of disaster prevention facilities

From May 2017
to July 2017

69

(Ashigarashimogun, Kanagawa)

Hilton Tokyo Bay(Urayasu-shi, Chiba)

867

Total
(Note)For new construction and renewal work, construction costs include those for buildings, annexed installation, etc. as wellas items classified as furniture and fixtures.

30

3. Cash reserves for the long-term repairs and maintenance plan (reserve for repairs and maintenance)
JHR accumulates cash reserves from cash flows for each fiscal period as detailed below to utilize for medium- tolong-term future expenditures on large-scale repairs and maintenance projects based on long-term repairs andmaintenance plans prepared for each property.
(millions of yen)
14th period

15th period

16th period

17th period

18th period(From January 1, 2013
to December 31, 2013)(From January 1, 2014
to December 31, 2014)(From January 1, 2015
to December 31, 2015)(From January 1, 2016
to December 31, 2016)(From January 1, 2017
to December 31, 2017)

Balance at beginning of period

307

454

493

657

791

Provision during the period

184

46

185

133

154

Fiscal period

Reversal during the period

37

7

20

-

-

Amount carried forward

454

493

657

791

946

31

Expenses and Liabilities
1. Details of expenses related to asset management, etc.
(thousands of yen)
17th period(From January 1, 2016 to
December 31, 2016)(a) Asset management fees

(Note 1)

1,307,381

18th period(From January 1, 2017 to
December 31, 2017)(Note 2)

1,501,391(b) Asset custody and administrative service fee (Note 3)

112,811(c) Officers’ compensation

14,40014,150(d) Other operating expenses

197,443

179,110

1,632,036

1,806,078

Total(Note 1)
(Note 2)
(Note 3)

111,425

For asset management fees for the 17th fiscal period, besides the above amounts, there are ¥458,079 thousand of fees
included in the acquisition price of investment properties, etc. in acquiring properties.
For asset management fees for the 18th fiscal period, besides the above amounts, there are ¥245,047 thousand of fees
included in the acquisition price of investment properties, etc. in acquiring properties.
Although asset custody and administrative service fee had previously been presented separately, they have beencombined into a single item due to integration of the fee calculation, starting from the 18th fiscal period.

32

2. Loans Payable
The status of loans by contractual agreement and by financial institution as of December 31, 2017 was asfollows:
Category

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation

February 29,
2016

Subtotal
December 2,
2016

The Higo Bank, Ltd.
Subtotal

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
1,700

－
0.33%

1,700

－

100

－
0.35%

100

－

－

1,125

－

750

－

750

Sumitomo Mitsui Trust Bank,
Limited－375

Subtotal－

3,000

Short-term loans payable – Total

1,800

3,000

1,200

－

390

－

The Tokyo Star Bank, Limited

960－

Subtotal

2,550

－

2,000

－

500

－

4,000

－

6,500

－

Short-term Sumitomo Mitsui Banking
loans Corporation
payable Shinsei Bank, Limited
Mizuho Bank, Ltd.

Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

July 12, 2017

September 19,
2012

Shinsei Bank, Limited
The Tokyo Star Bank, Limited
Sumitomo Mitsui Banking
Corporation

November 15,
2012

Subtotal
Sumitomo Mitsui Trust Bank,
LimitedSubtotalLong-termloans Sumitomo Mitsui Banking
Corporation
payableShinsei Bank, Limited

March 29,2013

April 26, 2013

479

479

－

2,123

2,101

965

955

1,254

1,241

Subtotal

4,342

4,297

1,790

1,771

942

932

2,733

2,704

500

500

1,000

1,000

1,000

1,000

500

500

3,000

3,000

September 30,
2013

Subtotal
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
LimitedMizuho Bank, Ltd.
Shinsei Bank, Limited
Subtotal

October 31,
2013

33

February

Repayment
methodUse

Remarks

28, 2017

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

November30, 2017

Lump-sum
repayment(Note 7)

Unsecured,
unguaranteed

June 29,

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

2018(Note 4)

1.47%
(Note 2)September
19, 2017

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

1.38%(Note 2)

November15, 2017

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed(Note 6)

Unsecured,
unguaranteed(Note 5)

Unsecured,
unguaranteed(Note 6)

Unsecured,
unguaranteed(Note 5)

Unsecured,
unguaranteed－

The Tokyo Star Bank, Limited

Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui Trust Bank,
Limited

0.31%

Maturity
date

0.86%

March 31,
2017

0.96%

April 26,
2018

0.98%
(Note 2)September
30, 2018

0.98%(Note 2)September
30, 2018

Repayment of¥2,250 thousand
every 3 months,
and lump-sum
repayment of theremaining
amountRepayment of¥11,250thousand every 3months, andlump-sum
repayment of theremaining
amountRepayment of¥7,250 thousand
every 3 months,
and lump-sum
repayment of theremaining
amountLump-sum
repaymentCategory

Borrowingdate

LenderBalance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)

Sumitomo Mitsui Banking
Corporation

62

54

Resona Bank, Limited

733

713

Shinsei Bank, Limited

710

702

61

47

Sumitomo Mitsui Trust Bank,
LimitedThe Nomura Trust and Banking
Co., Ltd.

March 31,
2014

678

668

The Chiba Bank, Ltd.

543

535

Sompo Japan Nipponkoa
Insurance Inc.

609

601

3,397

3,321

648

648

2,516

2,516

2,516

2,516

Sumitomo Mitsui Trust Bank,
Limited

1,120

1,120

Subtotal

6,800

6,800

600

600

Mizuho Bank, Ltd.

1,200

1,200

Resona Bank, Limited
Long-termloans
Shinsei Bank, Limited
payableSumitomo Mitsui Trust Bank,
Limited

434

434

720

720

600

600

1,000

1,000

The Nomura Trust and Banking
Co., Ltd.

500

500

The Hiroshima Bank, Ltd.

435

435

Sompo Japan Nipponkoa
Insurance Inc.

328

328

Development Bank of Japan Inc.

500

500

6,317

6,317

800

800

Mizuho Bank, Ltd.

1,600

1,600

Resona Bank, Limited

1,100

1,100

970

970

800

800

Development Bank of Japan Inc.

500

500

The Tokyo Star Bank, Limited

762

762

Aozora Bank, Ltd.

285

285

6,817

6,817

Subtotal
Sumitomo Mitsui Banking
Corporation
Resona Bank, Limited
Shinsei Bank, Limited

March 31,2014

Sumitomo Mitsui Banking
Corporation

The Bank of Fukuoka, Ltd.

September 30,
2014

Subtotal
Sumitomo Mitsui Banking
Corporation

Shinsei Bank, Limited
Sumitomo Mitsui Trust Bank,
LimitedSubtotal

September 30,
2014

34

Maturity
date

Repayment
methodUse

Remarks

0.73%(Note 2)

March 31,
2018

Repayment of¥19,000
thousand every 3months, andlump-sum
repayment of theremaining
amount(Note 6)

Unsecured,
unguaranteed

1.15%(Note 2)

March 31,2021

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

0.60%(Note 3)September
30, 2019

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

0.92%(Note 2)September
30, 2020

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteedCategory

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
600

600

1,200

1,200

850

850

Shinsei Bank, Limited

750

750

Sumitomo Mitsui Trust Bank,
Limited600

600

Subtotal

4,000

4,000

Mitsubishi UFJ Trust and Banking December 30,
Corporation
2014

935

935

Subtotal935

935

Sumitomo Mitsui Banking
Corporation

1,400

1,400

Mizuho Bank, Ltd.

1,500

1,500

500

500

Mizuho Bank, Ltd.
Resona Bank, Limited

Shinsei Bank, Limited
Resona Bank, Limited

September 30,
2014

January 30,
2015

500

500

Sumitomo Mitsui Trust Bank,
Limited500

500

The Chiba Bank, Ltd.

300

300

4,700

4,700

1,700

1,700

3,000

3,000

1,050

1,050

1,000

1,000

Sumitomo Mitsui Trust Bank,
Limited

1,000

1,000

The Tokyo Star Bank, Limited

300

300

Aozora Bank, Ltd.

150

150

8,200

8,200

1,500

1,500

Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Long-termloans
Shinsei Bank, Limited
payableResona Bank, Limited

January 30,
2015

Subtotal
Sumitomo Mitsui Banking
Corporation

March 31,2015

Subtotal

1,500

1,500

1,000

1,000

500

500

1,500

1,500

100

100

992

992

Subtotal

1,092

1,092

Sumitomo Mitsui Trust Bank,
Limited

960

960

960

960

960

960

2,880

2,880

Aozora Bank, Ltd.
Mitsubishi UFJ Trust and Banking
Corporation

July 10, 2015

Subtotal
Sumitomo Mitsui Banking
Corporation
The Hiroshima Bank, Ltd.

Resona Bank, Limited
The Nomura Trust and Banking
Co., Ltd.
Subtotal

September 30,
2015

September 24,
2015

35

Maturity
date

Repayment
methodUse

Remarks

1.04%(Note 2)September
30, 2021

Lump-sum
repayment(Note 8)

Unsecured,
unguaranteed

0.53%

December30, 2020

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

0.38% January 31, Lump-sum(Note 2)2020
repayment(Note 8)

Unsecured,
unguaranteed

0.90% January 31, Lump-sum(Note 2)2022
repayment(Note 8)

Unsecured,
unguaranteed

0.93%(Note 2)

March 31,2022

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

0.95%(Note 2)June 30,2022

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

0.48%

June 30,
2020

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

1.07%(Note 2)September
29, 2023

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteedCategory

Borrowingdate

LenderSumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited

September 30,
2015

Shinsei Bank, Limited
Subtotal
Sumitomo Mitsui Banking
Corporation
The Hiroshima Bank, Ltd.
Shinsei Bank, Limited

February 29,
2016

Mizuho Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited

March 28,
2016

Mizuho Bank, Ltd.

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
703

703

1,744

1,744

189

189

2,636

2,636

500

500

1,000

1,000

250

250

250

250

2,000

2,000

480

480

800

800

(Note 6)

Unsecured,
unguaranteed

0.21%

March 31,2019

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

March 31,2019

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

March 31,2019

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

March 31,2023

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed(Note 2)0.19%
(Note 2)

1,760

530

530

270

270

230

230

110

110

1,140

1,140

1,050

1,050

1,750

1,750

0.77%

1,050

1,050

(Note 2)

3,850

3,850

1,200

1,200

600

600

550

550

300

300

2,650

2,650

Sumitomo Mitsui Banking
Corporation

1,200

1,200

Mizuho Bank, Ltd.

1,000

1,000

1,000

1,000

500

500

The Tokyo Star Bank, Limited

500

500

The Nomura Trust and Banking
Co., Ltd.

500

500

4,700

4,700

Long-term Development Bank of Japan Inc.
loans
payable The Bank of Fukuoka, Ltd.

March 31,2016

Subtotal
Sumitomo Mitsui Banking
Corporation
The Tokyo Star Bank, Limited

March 28,
2016

Mizuho Bank, Ltd.
Subtotal
The Nomura Trust and Banking
Co., Ltd.
The Chiba Bank, Ltd.
Development Bank of Japan Inc.

March 31,2016

The Bank of Fukuoka, Ltd.
Subtotal

Shinsei Bank, Limited
Resona Bank, Limited

SubtotalMarch 31,
2016

36

Remarks

Lump-sum
repayment

1,760

The Chiba Bank, Ltd.

Use

September
29, 2023

480

The Nomura Trust and Banking
Co., Ltd.

Repayment
method1.07%(Note 2)480
Subtotal

Maturity
date

0.19%
(Note 2)0.77%
(Note 2)0.68%
(Note 2)Category

Borrowingdate

LenderSumitomo Mitsui Trust Bank,
LimitedMarch 31,2016

Subtotal
Development Bank of Japan Inc.

March 31,2016

Subtotal

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
800

800

800

800

500

500

0.66%

Unsecured,
unguaranteed

March 31,2024

Lump-sum
repayment(Note 6)

Unsecured,
unguaranteed

September
30, 2025

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

September
30, 2024

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

September
30, 2024

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

0.59%

September
30, 2024

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

0.71%

September
30, 2024

Lump-sum
repayment(Note 5)

Unsecured,
unguaranteed

0.31%

March
30,2018

Lump-sum
repayment

Unsecured,(Note 6) unguaranteed

0.44%

June
30,2023

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2026

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

0.57%

2,900

2,900

Shinsei Bank, Limited

1,700

1,700

1,700

1,700

1,000

1,000

0.74%
(Note 2)The Nomura Trust and Banking
Co., Ltd.

500

500

The Chiba Bank, Ltd.

500

500

1,200

1,200

9,500

9,500

1,300

1,300

The Bank of Fukuoka, Ltd.
Subtotal
Sumitomo Mitsui Trust Bank,
Limited

September 1,
2016

0.56%
(Note 2)

Subtotal

1,300

1,300

Mitsubishi UFJ Trust and Banking September 1,
Corporation
2016

2,000

2,000

0.56%

2,000

2,000

(Note 2)

700

700

700

700

500

500

500

500

－

1,700

－

1,700

－

1,750

－

500

－

2,250

－

1,250

－

1,250

Mizuho Bank, Ltd.

－

1,250

Resona Bank, Limited

－

500

－

4,250

－

1,000

0.73%
(Note 2)

Subtotal
Development Bank of Japan Inc.
Long-term
loans
payable Aozora Bank, Ltd.

September 1,
2016

Subtotal
September 1,
2016
Subtotal

Sumitomo Mitsui Banking
Corporation

February 28,
2017

Subtotal
Sumitomo Mitsui Banking
Corporation

July 12,2017

The Chiba Bank, Ltd.
Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

August 1,2017

Subtotal
Sumitomo Mitsui Trust Bank,
LimitedAugust 1,2017

0.85%(Note 2)

Subtotal－

1,000

Mitsubishi UFJ Trust and Banking
August 1,2017
Corporation

－

700

0.68%

－

700

(Note 2)

－

500

－

500

Subtotal
Development Bank of Japan Inc.
SubtotalAugust 1,2017

37

Remarks(Note 6)

Sumitomo Mitsui Banking
Corporation

Resona Bank, Limited

Use

Lump-sum
repayment

500

September 1,
2016

Repayment
methodMarch 31,2024

(Note 2)500

Mizuho Bank, Ltd.

Maturity
date

0.75%

Category

Borrowingdate

Lender

The Fukuoka Bank, Ltd.

August 1,2017

Subtotal
Aozora Bank, Ltd.

August 1,2017

Balance at Balance at Average
beginning
end ofinterestof period
periodrate (%)(JPY1M) (JPY1M) (Note 1)
－

500

0.73%

－

500

(Note 2)

－

500

0.73%
(Note 2)

Subtotal－

500

The Nishi-Nippon City Bank, Ltd. August 1,2017

－

1,000

0.73%

－

1,000

(Note 2)

－

300

0.68%

－

300

(Note 2)

－

1,200

－

500

－

460

－

390

－

2,550

－

2,500

－

1,500

－

4,000

－

1,500

－

500

－

300

－

150

－

2,450

Long-term loans payable – Total

101,779

113,799

Total loans payable

103,579

116,799

Subtotal
Shinsei Bank, Limited

August 1,2017

Subtotal
Sumitomo Mitsui Banking
Corporation
Mizuho Bank, Ltd.
Sumitomo Mitsui Trust Bank,
Long-term
Limitedloans
payable Shinsei Bank, Limited

September
19,2017

Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited

November
15,2017

Subtotal
Sumitomo Mitsui Banking
Corporation
Shinsei Bank, Limited
Development Bank of Japan Inc.

November15, 2017

The Fukuoka Bank, Ltd.
Subtotal

0.65%(Note 2)0.57%
(Note 2)0.65%
(Note 2)

Maturity
date

Repayment
methodUse

Remarks

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

September
30,2025

Lump-sum
repayment

Unsecured,(Note 5) unguaranteed

March
31,2025

Lump-sum
repayment

Unsecured,(Note 6) unguaranteed

March
29,2024

Lump-sum
repayment

Unsecured,(Note 6) unguaranteed

March
31,2025

Lump-sum
repayment

Unsecured,(Note 6) unguaranteed(Note 1)

The average interest rate is a weighted average of interest rates during the period, rounded off to second decimal places.

(Note 2)As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, the interest
rate of loans subject to such interest rate swap transactions is presented as the rate obtained by taking into account theeffect of interest rate swaps, rounded off to second decimal places.

(Note 3)Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225% per annum
for the period from September 30, 2014 through September 30, 2019 due to the execution of an interest rate swap
agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000 million is projected to be,in effect, fixed at around 0.95% per annum for the period from March 30, 2018 through September 30, 2019 due to the
execution of an interest rate swap agreement on September 26, 2014.

(Note 4)

JHR borrowed ¥4,000 million on July 12, 2017, of which it repaid ¥1,000 million on November 30, 2017 as partial early
repayment.

(Note 5)

The funds were appropriated for acquisition of the beneficial interest of real estate in trust and related expenses, etc.

(Note 6)

The funds were appropriated for refinancing of borrowings, etc.

(Note 7)

The funds were appropriated for repairs and maintenance.

(Note 8)The funds were appropriated for acquisition of the beneficial interest of real estate in trust, repayment of borrowings andrelated expenses, etc.

(Note 9)In order to list each loan payable, ¥15,022 million of the current portion of long-term loans payable in the balance sheets
is included in long-term loans payable in the above table.

38

3. Investment corporation bonds
Status of investment corporation bonds as of December 31, 2017 was as follows:
Name

Issuance date

Balance at
beginning of
period(JPY1M)

Third unsecured investment
corporation bonds

March 19,
2014

2,000

2,000

Fourth unsecured investment
corporation bonds

December19, 2014

1,500

Fifth unsecured investment
corporation bonds

October 23,
2015

Sixth unsecured investment
corporation bonds

Balance at
end of period(JPY1M)

Interest
rate

Maturity
date

Repayment
methodUse

Remarks

0.92

March 19,2019

Lump-sum
repayment(Note 1)

Unsecured,
unguaranteed(Note 4)

1,500

0.86

December17, 2021

Lump-sum
repayment(Note 2)

6,000

6,000

0.82

October
21, 2022

Lump-sum
repayment(Note 1)March 22,
2016

3,000

3,000

0.935

March 19,2026

Lump-sum
repayment(Note 1)Seventh unsecured investment
corporation bonds

November29, 2016

9,000

9,000

0.60

November27, 2026

Lump-sum
repayment(Note 3)Eighth unsecured investment
corporation bonds

November29, 2016

1,100

1,100

0.60

November27, 2026

Lump-sum
repayment(Note 3)

Ninth unsecured investment
corporation bonds

November24, 2017

–

1,000

0.53

November24, 2024

Lump-sum
repayment(Note 1)

22,60023,600Total

Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 5)
Unsecured,
unguaranteed(Note 4)
Unsecured,
unguaranteed(Note 4)(Note 1)

The funds were appropriated to partly fund the repayment of existing borrowings.

(Note 2)

The funds were appropriated for repayment of existing borrowings and future acquisition of specified assets, etc.

(Note 3)

The funds were appropriated for redemption of the second unsecured investment corporation bonds, repayment ofexisting borrowings and future acquisition of real estate properties, etc.

(Note 4)A special pari passu clause among specified investment corporation bonds is attached to the bonds.

(Note 5)A special pari passu clause among investment corporation bonds is attached to the bonds.

4. Short-term investment corporation bonds
Not applicable.

5.

(%)

Subscription rights to new investment units
Not applicable.

39

Purchase and Sale during the Period
1. Purchase and sale, etc. of real estate, etc., asset-backed securities, etc. and infrastructure assets, etc., andinfrastructure-related assets
Acquisition
Asset type

Name of property, etc.

Acquisition
date

Sale

Acquisition
price(JPY1M)

Sale date

Sale price(JPY1M)

Book value(JPY1M)

Gain (loss) on
sale(JPY1M)(Note)

Beneficial interest ofreal estate in trust

Hilton Tokyo Narita Airport

July 12,2017

13,175――――

Beneficial interest ofreal estate in trust

International Garden Hotel Narita

July 12,
2017

9,125

―

―

―

―

Beneficial interest ofreal estate in trust

Hotel Nikko Nara

August 1,
2017

10,373

―

―

―

―

–

32,673

―

―

―

―

Total

(Note)

Acquisition price indicates contracted amount of the property in the purchase and sale agreement, etc. excluding related
expenses (brokerage fees, taxes, etc.) incurred on the acquisition of such property.

2. Purchase and sale of other assets, etc.
Assets other than real estate, etc., asset-backed securities, etc., and infrastructure assets, etc. and infrastructurerelated assets are mostly bank deposits and bank deposits in trust.
3. Survey of prices, etc. of specified assets(1) Real estate properties, etc.
Acquisition/
sale

Asset type

Name of property, etc.

Acquisition/
sale date

Acquisition/
sale priceAppraisalvalue(JPY1M)(JPY1M)(Note 1)

(Note 2)

Date ofappraisal

Appraisal agency

Acquisition

Beneficial interest of Hilton Tokyo Narita
real estate in trust
AirportJuly 12,2017

13,175

13,400April 1, 2017

Japan Real Estate
Institute

Acquisition

Beneficial interest of International Garden Hotelreal estate in trust
NaritaJuly 12,
2017

9,125

9,430

April 1, 2017

Japan Real Estate
Institute

Acquisition

Beneficial interest of
Hotel Nikko Nara
real estate in trust

August 1,
2017

May 1, 2017

DAIWA REALESTATEAPPRAISAL
CO.,LTD.

10,373

11,200(Note 1)

Acquisition price and sale price indicate contracted amount of the property in the purchase and sale agreement, etc.
excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of such property.

(Note 2)

The above appraisals were valuated by applying the “Real Estate Appraisal Standards, Chapter 3: Valuation for price ofreal estate for securitization.”(2)

Transaction of securities

Not applicable.
(3) Other
For transactions made by JHR that require research on price, etc. pursuant to the provisions of Article 201 of
the Investment Trusts Act, except for transactions described in “(1) Real estate properties, etc.” above, theresearch activities were entrusted to KPMG AZSA LLC.
JHR has received from KPMG AZSA LLC a research report on four interest rate swap transactions executedduring the period from January 1, 2017 to December 31, 2017.

40

4. Transactions with interested parties, etc. (Note 1)(1) Transactions(millions of yen)
Category

Price, etc. (Note 2) (Note 3)
Acquisition price, etc.

Total amountSale price, etc.

Real estate operating revenue–

32,67325,475

Breakdown of transactions with interested parties, etc.
Hotel Management Japan Co., Ltd.

–

[–%]

–

[–%]

6,973

[27.4%]

Lagoon resort Nago Co., Ltd.

–

[–%]

–

[–%]

1,215

[4.8%]OW Hotel Operations KK

–

[–%]

–

[–%]

1,215

[4.8%]

Kyoritsu Maintenance Co., Ltd.

–

[–%]

–

[–%]

1,063

[4.2%]

K.K. A.I.C Hiroshima Management

–

[–%]

–

[–%]

948

[3.7%]

Hotel Centraza Co., Ltd.

–

[–%]

–

[–%]

865

[3.4%]KK NaritaKosuge Operations

–

[–%]

–

[–%]

398

[1.6%]

Hotel Management Co., Ltd.

–

[–%]

–

[–%]

272

[1.1%]KK NaritaYoshikura Operations

–

[–%]

–

[–%]

261

[1.0%]

–

[–%]

–

[–%]

13,213[51.9%]

Total(Note 1)

(Note 2)

(Note 3)

Interested parties, etc. are the Asset Management Company’s interested parties, etc. stipulated in Article 201, paragraph
1 of the Investment Trust Act (hereinafter referred to as “interested parties, etc.”). The amounts in “(1) Transactions”
above and “(2) Amounts of fees paid, etc.” below include transactions with those interested parties, etc. as well as
major transactions with sponsor-related parties stipulated in the Asset Management Company’s company code fortransactions with sponsor-related parties, which include 1. Interested parties, etc., 2. The Asset Management
Company’s shareholders, 3. Companies, etc. that take a 50% or more stake in a shareholder that holds 50% or more of
the shares in the Asset Management Company, 4. Companies in which a shareholder of the Asset Management
Company have a 50% or more stake, 5. Entity or persons who ceased to fall under 1. or 4. within 3 months, and 6.
Entity or persons who are deemed appropriate by the compliance officer of the Asset Management Company to betreated as sponsor-related parties in light of the company code for transactions with sponsor-related parties and the
purpose of these rules.
Acquisition price, etc. and sale price, etc. indicate contracted amounts of the property in the purchase and saleagreement, etc. excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of suchproperty.
The figures in brackets show the ratio of the relevant amount to the total amount, rounded off to one decimal place.

41

(2) Amount of fees paid, etc.
(thousands of yen)Classification
Outsourcing expenses(Note)(Note)

Total amountsof fees paid, etc.
(A)703,933

Breakdown of transactions withinterested parties, etc.
Counter party
Hotel Management Japan Co., Ltd.

Amount of payment
(B)
5,760

Ratio to total amount
B/A (%)
0.8

Includes basic fees under the property management agreement as well as outsourcing expenses related to routine
maintenance and management of buildings and facilities.

5. Transactions with the Asset Management Company in other businesses of the Asset Management
Company
The Asset Management Company only engages in asset management and does not engage in any businesses
related to the financial instruments trading business, building lots and buildings transactions, or real estate
specified joint enterprise business. There are no applicable transactions.

42II. Financial Information
1. Assets, liabilities, equity, and profit and loss
For the status of assets, liabilities, equity (contribution), and profit and loss, please refer to “Balance Sheets”,“Statements of Income”, “Statements of Changes in Net Assets”, “Statements of Cash Flows” and “Notes toFinancial Statements”.

2. Changes in calculation method of depreciation
Not applicable.

3．Changes in evaluation method of real estate, etc. and infrastructure assets, etc.
Not applicable.

Status of beneficiary certificates of investment trusts set up by asset management company, etc.
Japan Hotel REIT Advisors Co., Ltd., the asset management company of JHR, has acquired JHR’s investment
units as indicated below.
(1) Status of acquisition, etc.
Date

Number of units acquired

Number of units disposed

Number of units held

(units)(units)(units)January 20, 2016

2,500

―

2,500

July 5, 2017

1,200

―

3,700

Accumulated total

3,700

―

3,700

(2) Status of holding units
Total investment
at end of period

Number ofunits held at
end of period(units)(thousands ofyen)

Ratio to total units
issued(%)(Reference)
Total number of units
issued at end of period(units)17th
fiscalperiodFrom January 1, 2016 to
December 31, 2016

2,500

212,5500.06

3,761,907

18thfiscalperiodFrom January 1, 2017 to
December 31, 2017

3,700

305,5710.09

4,010,847(Note) Ratio to total units issued is percentage of investment units held at end of period to the total investment units issued at
end of period and is rounded down to second decimal place.

43

Other(1) Announcements
The following shows the summary of major conclusions, changes, etc. of the principal agreements that wereapproved or reported at meetings of JHR’s Board of Directors.
Approval date

Item

Summary

June 28, 2017Conclusion of an underwriting
agreement for new investment
units in association with theissuance of new investment
units

Due to the issuance of new investment units, general administration foroffering the investment units in Japan was entrusted to SMBC Nikko
Securities Inc., Daiwa Securities Co. Ltd., Mizuho Securities Co., Ltd.,
Goldman Sachs Japan Co., Ltd. and Nomura Securities Co., Ltd.
Moreover, general administration for offering the investment units
overseas was entrusted to SMBC Nikko Capital Markets Limited,
Goldman Sachs International, Daiwa Capital Markets Europe Limited
and Mizuho International plc as joint lead managers for the overseas
offering.

July 25, 2017

Shelf registration andcomprehensive resolution on
the issuance of investment
corporation bonds andentrustment of accompanying
administration

A comprehensive resolution was made on the issuance of investment
corporation bonds with the issuance period between August 2, 2017 andAugust 1, 2019 with the total amount issued of within ¥100.0 billion. At
the same time, a resolution was made on the issuance of investment
corporation bonds of within ¥20 billion, and the decision on mattersregarding the issuance of investment corporation bonds, including theadministration and entrustment of operations, was left to the discretionof the Executive Director.

November 22, 2017

Partial amendment to the asset
management agreement

In accordance with the modifications to the Articles of Incorporation
resolved at the 8th General Meeting of Unitholders of JHR, partial
modifications were made to the asset management agreement as follows:
・Changing the cycles of payment of the asset management fees to theasset management company, and others.

The 8th General Meeting of Unitholders of JHR was held on November 22, 2017. The major items approved at theGeneral Meeting of Unitholders are summarized below.
AgendaSummary
Partial amendments were made to the Articles of Incorporation due to the following reasons.
・Added a new provision to make the period in which a resolution for appointment of a
substitute director is in force and effect consistent with the term of office of thesubstituted director.
・With respect to the payment of the accounting auditor’s remuneration, amended theprovision to clarify that the due date of payment is counted from upon request from theaccounting auditor.

Partial amendments to the Articles
of Incorporation

・Amended the relevant provisions in order that the assets in which JHR invests include
shares or equity interests in foreign real property holding corporations in line with thepartial amendments made to the regulations of The Investment Trusts Association, Japan,
and in order that the assets in which JHR invests clearly include monetary claims such asloan claims against foreign real property holding corporations and easements governed bylaws and regulations of foreign jurisdictions.
・Amended the relevant provisions to change the cycles of payment of the asset management
fees to be paid by JHR to the asset management company, for the purpose of ensuring thefinancial stability of the asset management company.
･ And others.

44

Election of one Executive Director

Kaname Masuda was again elected as Executive Director. His term of office commences on
November 22, 2017 and continues until the end of the general meeting of unitholders which
will be held within 30 days from the day immediately following the day on which two years
have passed since his election and at which a vote will be held on the election of Executive
Director(s).

Election of two Supervisory
Directors

Tetsuya Mishiku and Hiroto Kashii were elected as Supervisory Directors. The term of officeof the elected Supervisory Directors commences on November 22, 2017 and continues until
the end of the general meeting of unitholders which will be held within 30 days from the day
immediately following the day on which two years have passed since their election and atwhich a vote will be held on the election of Supervisory Directors.

Election of one Substitute Executive
Director

Hisashi Furukawa, Representative Director of the Asset Management Company, was again
elected as Substitute Executive Director.

(2) Status, etc. of corporation owning foreign real estate
Not applicable.
(3) Status, etc. of real estate owned by foreign real property holding corporations
Not applicable.
(4) Other
Unless otherwise noted, amounts and ratios in this report are rounded down and rounded off to the stated unit,
respectively.

45

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2017 and 2016
Thousands of yen
As ofDecember 31,
2017
ASSETS
Current assets:
Cash and deposits (Notes 4 and 5)
Cash and deposits in trust (Notes 4 and 5)
Operating accounts receivable (Note 5)
Prepaid expenses
Income taxes receivable
Other current assets
Total current assets

As ofDecember 31,
2016¥ 16,179,716 ¥ 15,141,393
11,740,634
11,232,472
2,411,837
2,071,152
573,439586,700
32
294
14,205
18,33930,919,866
29,050,353

Property and equipment, at cost (Notes 16 and 18):
Machinery and equipment
Tools, furniture and fixtures
Construction in progress
Buildings in trust (Note 12)
Structures in trust
Machinery and equipment in trust
Tools, furniture and fixtures in trust
Land in trust
Construction in progress in trust

278,899
2,438,070
122,414,147
2,493,765
580,867
137,266
171,618,110
1,512
299,962,640(16,896,044)
283,066,595

220,174
1,983,010
3,240
104,284,116
2,100,930
534,100
137,266
154,841,633
4,085
264,108,558(13,417,931)
250,690,627

Intangible assets:
SoftwareLeasehold rights in trust (Note 18)
Fixed-term leasehold rights in trust (Note 18)
Other intangible assets (Note 18)
Total intangible assets

200,001
28,648,457
5,313,494
9,116
34,171,069

168,345
28,648,457
5,451,770
9,796
34,278,369

Other assets:
Security deposits
Leasehold and security deposits in trust
Long-term prepaid expenses
Derivative assets (Notes 5 and 17)
Reserve fund for repairs and maintenance
Investment unit issuance costs
Investment corporation bond issuance costs
Total other assets

12,520158,323
3,008,327
123,334
319,058
272,107132,059
4,025,731

12,520158,323
3,090,505
146,585
64,130243,615
143,5893,859,270¥352,183,262¥317,878,620

Less: Accumulated depreciation
Net property and equipment

Total assets(Continued)

46

JAPAN HOTEL REIT INVESTMENT CORPORATION
Balance Sheets
As of December 31, 2017 and 2016
Thousands of yen
As ofDecember 31,
2017

As of
December 31,
2016¥909,9713,000,000
15,022,750
650,568
1,210
560,170
900,259
16,40022,09823,471
54,903
21,161,802¥

Long-term liabilities:
Investment corporation bonds (Notes 5and 7)
Long-term loans payable (Notes 5, 6 and 17)
Tenant leasehold and security deposits (Note 5)
Tenant leasehold and security deposits in trust (Note 5)
Derivative liabilities (Notes 5 and 17)
Deferred tax liabilities (Note 14)
Asset retirement obligations (Note 8)
Total long-term liabilities

23,600,000
98,777,000
1,041,016
4,653,410
504,179
38,954
443,577
129,058,138

22,600,000
92,099,750
1,041,032
4,619,744
676,488
46,233
441,542
121,524,790

Total liabilities

150,219,940

135,889,508

153,516,129

134,829,448

21,746,398

21,746,398

13,127,153
13,127,153
14,005,489
48,879,041
202,395,170

13,867,228
13,867,228
12,126,057
47,739,684
182,569,132(431,849)(431,849)(580,019)(580,019)

Total net assets

201,963,321

181,989,112

Total liabilities and net assets¥352,183,262¥317,878,620

LIABILITIES AND NET ASSETS
Current liabilities:
Operating accounts payable
Short-term loans payable (Notes 5 and 6)
Current portion of long-term loans payable (Notes 5, 6 and 17)
Accrued expenses
Income taxes payable
Consumption taxes payable
Advances received
Dividends payable
Deposits received
Derivative liabilities (Notes 5 and 17)
Other current liabilities
Total current liabilities

Net assets (Note 9):Unitholders’ equity:
Unitholders’ capital
Units authorized: 20,000,000 units
Units issued and outstanding; 4,010,847 units and 3,761,907 units asof December 31, 2017 and 2016, respectively
Surplus:Capital surplus
Voluntary reserve:
Dividend reserve
Reserve for temporary difference adjustment (Note 10)
Total voluntary reserve
Unappropriated retained earnings
Total surplus
Total unitholders’ equity
Valuation and translation adjustments:
Deferred gains (losses) on hedges (Note 17)
Total valuation and translation adjustments

See notes to financial statements.

47

666,3151,800,000
9,679,250
610,3441,210
496,373
899,290
15,101
117,949
24,37954,50314,364,717

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Income
For the years ended December 31, 2017 and 2016
Thousands of yen
For the year
For the year
ended
ended
December 31, December 31,
2016
2017
Operating revenue:
Real estate operating revenue (Note 11)
Other real estate operating revenue (Note 11)
Total operating revenue¥ 24,318,307
1,157,246
25,475,553¥ 21,165,085
942,384
22,107,470

Operating expenses:
Real estate operating costs (Note 11)
Asset management fee
Asset custody and administrative service fee (Note 3)
Directors’ compensation
Other operating expenses
Total operating expenses

7,911,653
1,501,391
111,425
14,150179,110
9,717,731

6,589,908
1,307,381
112,811
14,400
197,443
8,221,945

Operating income

15,757,821

13,885,524

212
3,624
648
391
22,381
27,258

1,924
2,296
472
610
1,872
7,176

904,000
169,584
522,774
20,748141,962
13,306
6,414
1,778,791
14,006,288

862,943
128,071
561,927
19,04381,361
16,4452,673
1,672,466
12,220,234-

95,86095,860

Income before income taxes

14,006,288

12,124,373

Income taxes (Note 14):
Current
Total income taxes

1,210
1,210

1,210
1,210

¥ 14,005,078¥ 12,123,163

Non-operating income:Interest income
Gain on forfeiture of unclaimed dividends
Gain on insurance claims
Interest on tax refunds
Gain on derivative instruments
Total non-operating income
Non-operating expenses:
Interest expense
Interest expense on investment corporation bonds
Borrowing costs
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Loss on derivative instruments
Other
Total non-operating expenses
Ordinary income
Extraordinary losses
Loss on disaster (Note 13)
Total extraordinary losses

Net income

See notes to financial statements.

48

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Changes in Net Assets
For the years ended December 31, 2017 and 2016

Unitholders’capital¥ 21,746,398¥ 153,516,129¥ 21,746,398

Balance, December 31, 2017

Dividend
reserve

Capital surplus¥ 85,470,541
Balance, January 1, 2016
Changes of items during the year:
Issuance of new investment units
49,358,906
Reversal of dividend reserve
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during the49,358,906
year¥ 134,829,448
Balance, December 31, 2016
Changes of items during the year:
Issuance of new investment units
18,686,681
Reversal of dividend reserve
Provision of Reserve fortemporary difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during the
18,686,681
year(526,660)-(60,847)-

60,847(9,354,075)
12,123,163(9,354,075)
12,123,163

49,358,906(9,354,075)
12,123,163

-

-

-

-

-

-

-

¥ 21,746,398(60,847)¥ 13,867,228-(60,847)¥ 13,867,228

2,769,088
47,739,684

52,127,994¥ 182,569,132-(13,867,228)-(13,867,228)

13,867,228-

18,686,681---

13,127,153-

13,127,153-(13,127,153)(12,865,721)
14,005,078(12,865,721)
14,005,078(12,865,721)
14,005,078

-

-

-

-

-

-

-

-

(13,867,228)

13,127,153(740,075)

1,879,431

1,139,356

19,826,037-¥ 13,127,153¥ 13,127,153¥¥(526,660)

Total net assets¥

129,914,477-

49,358,906(9,354,075)
12,123,163(53,359)(53,359)(53,359)¥(53,359)(580,019)¥

52,074,635
181,989,112--

18,686,681---(12,865,721)
14,005,078

148,170

148,170

148,170

148,170(431,849)¥ 130,441,137(60,847)-¥

148,170(431,849)¥

19,974,208
201,963,321

See notes to financial statements.

49¥

2,829,936
12,126,057

14,005,489¥

44,970,596-¥

9,296,121

Total unitholders’equity¥ 13,928,075¥¥

Total surplus--(53,359)(580,019)

Unappropriatedretained earnings¥ 13,928,075 ¥Thousands of yen
Valuation and translation adjustments
Deferred gains
Total valuation(losses) on
and translation
hedgesadjustments¥
Balance, January 1, 2016
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear¥
Balance, December 31, 2016
Changes of items during the year:
Issuance of new investment units
Reversal of dividend reserve
Provision of Reserve fortemporary difference adjustment
Dividends paid
Net income
Net changes in items other thanunitholders’ equity
Total changes in amount during theyear¥
Balance, December 31, 2017

Thousands of yen
Unitholders’ equity
Surplus
Voluntary reserve
Reserve fortemporary
Total voluntary
difference
reserveadjustment¥¥

48,879,041¥

202,395,170

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2017and 2016
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2016
2017
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on disposal of property and equipment(Gain) Loss on derivative instruments
Amortization of investment corporation bond issuance costs
Amortization of investment unit issuance costs
Interest income
Interest expense
Interest on tax refunds(Increase) decrease in operating accounts receivable(Increase) decrease in consumption taxes receivable(Increase) decrease in prepaid expenses(Increase) decrease in long-term prepaid expenses
Increase (decrease) in operating accounts payable
Increase (decrease) in accrued expenses
Increase (decrease) in consumption taxes payable
Increase (decrease) in advances received
Increase (decrease) in deposits received
Other
SubtotalInterest received
Interest paid
Interest received on tax refunds
Income taxes – refunded (paid)
Net cash provided by operating activities¥ 14,006,288
3,725,775
132,908(9,074)
20,748141,962(212)
1,073,584(391)(340,685)
13,261
82,178(6,949)43,44963,796969(95,850)(11,075)
18,840,684
166(1,076,810)
391
(947)
17,763,484¥ 12,124,373
3,294,081
16,662
14,572
19,04381,361(1,924)
991,014(610)(801,580)
245,509(176,458)(2,095,775)
102,258
112,854496,373
206,495
46,506
4,862
14,679,620
1,862(994,383)
610
1,553
13,689,262

Cash flows from investing activities:
Purchase of property and equipment in trust
Purchase of property and equipment
Purchase of intangible assets
Payments of reserve fund for repairs and maintenance
Proceeds from tenant leasehold and security deposits in trust
Repayment of tenant leasehold and security deposits in trust
Proceeds from tenant leasehold and security deposits
Repayment of tenant leasehold and security deposits
Net cash used in investing activities(35,256,102)(557,756)(46,379)(258,870)
70,297(35,130)(16)¥ (36,083,958)(49,582,657)(659,879)(14,535,928)(14,911)
1,756,161(43,325)
7,000(1,001,800)¥ (64,075,340)(Continued)

50

JAPAN HOTEL REIT INVESTMENT CORPORATIONStatements of Cash Flows
For the years ended December 31, 2017 and 2016
Thousands of yen
For the year
For the year
ended
ended
December 31,
December 31,
2016
2017
Cash flows from financing activities:
Proceeds from short-term loans payable
Repayments of short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from investment corporation bonds
Repayments of investment corporation bondProceeds from issuance of investment units
Payments for investment corporation bond issuance costs
Dividends paid
Net cash provided by financing activities¥

4,000,000(2,800,000)
21,700,000(9,679,250)
1,000,000
18,516,225(9,218)(12,860,798)
19,866,959¥

8,800,000(16,000,000)
31,400,000(11,393,603)
13,100,000(2,500,000)
49,100,858(94,251)(9,351,356)
63,061,647

Net increase (decrease) in cash and cash equivalents

1,546,484

12,675,569

Cash and cash equivalents at beginning of year

26,373,866

13,698,296

Cash and cash equivalents at end of year (Note 3)¥ 27,920,350¥ 26,373,866

See notes to financial statements.

51

JAPAN HOTEL REIT INVESTMENT CORPORATION
Notes to Financial Statements
For the years ended December 31, 2017 and 2016
1. Organization and Basis of Presentationa. Organization
Japan Hotel REIT Investment Corporation (“JHR”), formerly known as Nippon Hotel Fund Investment Corporation(the “Former NHF”), was established under the Act on Investment Trusts and Investment Corporations (the“Investment Trust Act”) on November 10, 2005 and was listed on the Real Estate Investment Trust (“REIT”) Section
on the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006. JHR is externally managed by a licensed
asset management company, Japan Hotel REIT Advisors Co., Ltd.
Focusing on the importance of hotels as social infrastructure and their profitability, JHR primarily invests in realestate related assets that are in themselves real estate which are wholly or partially used as hotels or real estate
equivalents of such real estate or that are backed by such real estate or real estate equivalents.
In the fiscal period ended December 31, 2012, the Former NHF, as the surviving entity, merged with Japan Hotel andResort, Inc. (the “Former JHR”), as the dissolved entity, with an effective date of April 1, 2012 (the “Merger”). In
conjunction with the Merger, the Former NHF changed its name to Japan Hotel REIT Investment Corporation.
Through the Merger, nine properties held by the Former JHR were succeeded by JHR. As a result, as of the effective
date of the Merger, JHR’s property portfolio expanded to 28 properties. As of December 31, 2017, JHR has
ownership interests in 44 properties.
b. Basis of presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the
Financial Instruments and Exchange Law and their related accounting regulations, and in conformity with accounting
principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying financial statements have been reformatted and translated into English (with certain
reclassifications and expanded descriptions) from the financial statements of JHR prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese
language financial statements, but not necessarily required for fair presentation, is not presented in the accompanying
financial statements. JHR has not prepared consolidated financial statements, as JHR has no consolidating
subsidiaries or entities.
As permitted by the regulations under the Financial Instruments and Exchange Law of Japan, the amounts arerounded down to the nearest thousands or millions. As a result, the totals shown in the accompanying financial
statements do not necessarily agree with the sums of the individual amounts.
2. Summary of Significant Accounting Policies
a. Cash and cash equivalents
Cash and cash equivalents in the statements of cash flows consist of cash on hand, cash in trust accounts, bankdeposit and trust deposit, which can be withdrawn at any time, and short-term investments with a maturity of threemonths or less when purchased, which can easily be converted to cash and subject to minimal risk of change in value.
b. Property and equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line
method over their estimated useful lives. The useful lives of major property and equipment components are as
follows:
Machinery and equipment:
Tools, furniture and fixtures:
Buildings in trust:
Structures in trust:
Machinery and equipment in trust:Tools, furniture and fixtures in trust:

2 to 17 years
2 to 20 years
2 to 62 years
2 to 62 years
4 to 32 years
2 to 27 years52

c. Intangible assets
Intangible assets are stated at cost and amortized using the straight-line method. The amortization period of major
intangible assets is as follows.
Software (internal use):
5 years
Fixed-term leasehold rights in trust: 41 or 49 years (remaining contractual period at the time of acquisition)
Leasehold rights in trust are intangible assets with indefinite useful lives.
d. Investment unit issuance costs
Investment unit issuance costs are capitalized and amortized using the straight-line method over three years.
Underwriting fees, which usually form a part of investment unit issuance costs, have not incurred in the offerings
executed during both years ended December 31, 2017 and 2016 due to the reason below;
The issuance of new investment units through public offerings on January 20, 2016, July 27, 2016 and July 5, 2017
was consummated under underwriting agreements in which underwriting securities companies committed to purchaseall of the investment units being offered at an issue value and selling them at an offering price different from such
issue value to general investors (the “spread method”). No underwriting fees were paid by JHR under the spreadmethod since the underwriters were compensated by the underwriting spread, which amounted to ¥578,908 thousand
for the year ended December 31, 2017 and ¥1,571,900 thousand for the year ended December 31, 2016 respectively,
representing the difference between the offering price and the issue value of all new investment units issued.
e. Investment corporation bond issuance costs
Investment corporation bond issuance costs are capitalized and amortized using the effective interest rate method
over the respective term of the bond.
f. Taxes on property and equipment
Taxes imposed on properties such as property taxes, city planning taxes, and depreciable asset taxes are allocated to
the respective reporting period and expensed as “Real estate operating costs.” Cash paid for those properties related
taxes to the transferor of real properties at acquisition is not recorded as “Real estate operating costs” but capitalized
as part of the acquisition cost of the relevant property. The amount of such taxes capitalized in the acquisition cost ofreal properties was ¥75,557 thousand for the year ended December 31, 2017 and ¥101,229 thousand for the year
ended December 31, 2016.
g. Derivatives and hedging activities
JHR enters into certain derivative transactions in accordance with its financial policy in order to manage risks, which
are defined in the Articles of Incorporation, mainly arising from adverse fluctuations in interest rates on loans payable.
Derivative financial instruments are carried at fair value with changes in the unrealized gain or loss charged or
credited to operations, except for those which meet the criteria for hedge accounting in which case the unrealized gainor loss is deferred as a component of net assets.
JHR evaluates hedge effectiveness by comparing the cumulative changes in cash flow of hedging instruments and thehedged items and assessing the ratio between the changes.
h. Beneficial interests of real estate in trust
For beneficial interests of real estate in trust, all assets and liabilities held in trust accounts as well as all income
generated and expenses incurred from assets in trust are presented in the relevant balance sheet and statement ofincome accounts.
i. Consumption taxes
Consumption taxes are excluded from the transaction amounts.
3.

Change in Presentation“Asset custody fee” and “Administrative service fee” that had been separately presented under the “Operating
expenses” in the statements of income were combined to “Asset custody and administrative service fee” from theyear ended December 31, 2017 due to integration of the fee calculation during the fiscal year. In order to keepcomparability of presentation, relative items in the statement of income for the year ended December 31, 2016 werealso reclassified.

53

As a result, ¥21,029 thousand for “Asset custody fee” and ¥91,782 thousand for “Administrative service fee” for theyear ended December 31, 2016 have been reclassified to ¥112,811 thousand of “Asset custody and administrative
service fee”.
4.

Cash Flow Informationa. Cash and cash equivalents as of December 31, 2017 and 2016 in the statements of cash flows consisted of
the following:Thousands of yen
As of December
As of December
31, 2017
31, 2016
Cash and deposits¥
16,179,716¥ 15,141,393
11,740,634
11,232,472
Cash and deposits in trust¥
27,920,350¥
26,373,866
Cash and cash equivalents
b. Significant non-cash transactions
There was no significant transaction for the year ended December 31, 2017.
For the year ended December 31, 2016, JHR recognized asset retirement obligations as it is obliged to restore the landof Hotel Centraza Hakata, acquired on April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August 19,
2016, to the original state in accordance with each of the fixed-term land leasehold agreements. As a result, eachbalance of the buildings in trust and the asset retirement obligations increased by ¥440,168 thousand.

5. Financial Instruments
a. Status of financial instruments(1) Policy for financial instruments
JHR is an investment corporation set forth in Article 2, paragraph 12 of the Investment Trust Act, managing
investments mainly in specified assets as prescribed in the Investment Trust Act. As a policy, JHR procures funds
through issuance such as investment units, etc. and loans from financial institutions in order to make investmentsin specified assets. JHR does not utilize surplus funds to invest in financial instruments except for short-term
deposits and other equivalent short-term financial instruments. JHR may enter into derivative transactions in orderto hedge against interest rate risk, but not for speculative trading purposes.
(2) Details of financial instruments, their risks, and risk management system
Operating accounts receivable are exposed to credit risks of customers. To address the risks, JHR monitors
payment dates and balances by customers in order to detect and mitigate any suspicious accounts in a timely
manner.
The floating rate loans payable are exposed to risks of interest rate fluctuations. In order to mitigate interest raterisks, JHR may enter into derivative transactions, if necessary.
Derivative transactions are conducted principally in accordance with rules prescribed by JHR and risk
management rules applied by the asset management company. Derivative transactions are arranged by the financesection of the asset management company by using financial institutions with high credit ratings through approval
and resolution by authorized personnel and a meeting committee structure set forth in its decision-making
standards and resolution of JHR’s board of directors.
Loans payable expose JHR to liquidity risks. The finance section of the asset management company prepares andupdates projections and actual cash flows on a monthly basis to manage liquidity risks and monitors compliancewith restrictive covenants set forth in the loan agreements. JHR manages liquidity risks by managing the ratio ofshort-term and long-term loans payable considering the current financial environment through approval andresolution by authorized personnel and meeting committee structure in the asset management company andresolution of JHR’s board of directors.
b. Fair Value of Financial Instruments
Carrying amounts of financial instruments on the balance sheets, their fair values, and the differences as of December
31, 2017 and 2016 were as follows. Financial instruments whose fair values are difficult to estimate are not includedin the table. See Note (2) below.

54

(i) Cash and deposits(ii) Cash and deposits in trust(iii) Operating accounts receivable
Total

Thousands of yen
As of December 31, 2017
Carrying amount
Fair value¥
16,179,716¥
16,179,716 ¥
11,740,634
11,740,634
2,411,837
2,411,837¥
30,332,188¥
30,332,188 ¥(iv) Short-term loans payable(v) Current portion of long-term loans payable(vi) Investment corporation bonds(vii) Long-term loans payable
Total

¥

(viii) Derivative transactions (*)¥(i) Cash and deposits(ii) Cash and deposits in trust(iii) Operating accounts receivable
Total

Thousands of yen
As of December 31, 2016
Carrying amount
Fair value¥
15,141,393¥
15,141,393 ¥
11,232,472
11,232,472
2,071,152
2,071,152¥ 28,445,019¥
28,445,019 ¥¥(iv) Short-term loans payable(v) Current portion of long-term loans payable(vi) Investment corporation bonds(vii) Long-term loans payable
Total

¥

(viii) Derivative transactions (*)¥¥

3,000,000
15,022,750
23,600,000
98,777,000
140,399,750¥(404,316) ¥1,800,000
9,679,250
22,600,000
92,099,750
126,179,000¥

Difference-

3,000,000
15,022,750
23,621,270
98,777,000
140,421,020¥¥

21,27021,270(404,316)¥-

Difference-¥¥

1,800,000
9,679,250
22,629,640
92,099,750
126,208,640¥

29,64029,640(554,282) ¥(554,282)¥-(*) Receivables and payables arising from derivative transactions are presented on a net basis and amounts in parenthesis denote net payables.

Notes:(1) Methods to measure fair value of financial instruments(i) Cash and deposits, (ii) Cash and deposits in trust, (iii) Operating accounts receivable, (iv) Short-term loans
payableThe carrying value is deemed to approximate the fair value since the instruments are scheduled to be settled in ashort period of time.
(v) Current portion of long-term loans payable, (vii) Long-term loans payable
The carrying value is deemed to approximate the fair value since the interest rate on long-term loans payable arefloating interest rates which are adjusted periodically to reflect market interest rates.
(vi) Investment corporation bonds
The fair value of this instrument is measured based on the market price.
(viii) Derivative transactions
The information on the fair value of derivative transactions is presented in Note 17.

55

(2) Information on financial instruments whose fair values are difficult to estimate as of December 31, 2017 and 2016
was as follows:
Thousands of yen
As of December
As of December
31, 2017
31, 2016
Carrying amount¥
1,041,016 ¥
1,041,032
4,653,410
4,619,744¥
5,694,426 ¥5,660,776

Tenant leasehold and security deposits
Tenant leasehold and security deposits in trust
Total

Tenant leasehold and security deposits / Tenant leasehold and security deposits in trust
Tenant leasehold and security deposits (in trust) are not subject to fair value measurement because they have nomarket price and their actual deposit periods from a tenant’s move-in to move-out are not estimable, thus making
a reasonable estimate of future cash flows difficult.
(3) Redemption schedule for monetary claims as of December 31, 2017 and 2016:

As of December 31, 2017
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
Total

As of December 31, 2016
Cash and deposits
Cash and deposits in trust
Operating accounts receivable
Total

Due within
one year¥16,179,716
11,740,634
2,411,837¥30,332,188

Due after
one to two
years
¥
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
¥
- ¥
-

Due after
four to five
years
¥
¥
-

Due after
five years¥¥-

Due within
one year¥15,141,393
11,232,472
2,071,152¥28,445,019

Due after
one to two
years
¥
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
¥
- ¥
-

Due after
four to five
years
¥
¥
-

Due after
five years¥¥-(4) Schedule for repayment of loans payable and redemption of investment corporation bonds as of December 31,
2017 and 2016.

As of December 31, 2017
Short-term loan payable
Current portion of long-termloans payable
Investment corporation bonds
Long-term loans payable
Total

As of December 31, 2016
Short-term loan payable
Current portion of long-termloans payable
Investment corporation bonds
Long-term loans payable
Total

Due within
one year¥ 3,000,000

Due after
one to two
years
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
-

Due after
four to five
years
¥
-

Due after
five years¥-

15,022,750¥18,022,750

2,000,000
11,217,000¥13,217,000

13,544,000¥13,544,000

1,500,000
10,800,000¥12,300,000

6,000,000
11,200,000¥17,200,000

14,100,000
52,016,000¥66,116,000

Due within
one year¥ 1,800,000

Due after
one to two
years
¥
-

Thousands of yen
Due after
Due after
two to three three to four
years
years
¥
- ¥
-

Due after
four to five
years
¥
-

Due after
five years¥-

9,679,250¥11,479,250

13,322,750¥13,322,750

2,000,000
11,217,000¥13,217,000

1,500,000
10,800,000¥12,300,000

19,100,000
43,216,000¥62,316,000

56

13,544,000¥13,544,000

6. Short-Term and Long-Term Loans Payable
Short-term and long-term loans payable as of December 31, 2017 and 2016 consisted of the following:

Maturity date
Short-term loans payable:
0.33% Unsecured loan, payable in a lump-sum at maturity
0.35% Unsecured loan, payable in a lump-sum at maturity
0.31% Unsecured loan, payable in a lump-sum at maturity (*3)
Sub-total
Long-term loans payable:
1.47% Unsecured loan, payable in a lump-sum at maturity (*1)
1.38% Unsecured loan, payable in a lump-sum at maturity (*1)
0.86% Unsecured loan, payable ¥2,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
0.96% Unsecured loan, payable ¥11,250 thousand quarterly andthe remaining balance in a lump-sum at maturity
0.98% Unsecured loan, payable ¥7,250 thousand quarterly andthe remaining balance in a lump-sum at maturity (*1)
0.98% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable ¥19,000 thousand quarterly andthe remaining balance in a lump-sum at maturity (*1)
1.15% Unsecured loan, payable in a lump-sum at maturity (*1)
0.60% Unsecured loan, payable in a lump-sum at maturity (*2)
0.92% Unsecured loan, payable in a lump-sum at maturity (*1)
1.04% Unsecured loan, payable in a lump-sum at maturity (*1)
0.53% Unsecured loan, payable in a lump-sum at maturity
0.38% Unsecured loan, payable in a lump-sum at maturity (*1)
0.90% Unsecured loan, payable in a lump-sum at maturity (*1)
0.93% Unsecured loan, payable in a lump-sum at maturity (*1)
0.95% Unsecured loan, payable in a lump-sum at maturity (*1)
0.48% Unsecured loan, payable in a lump-sum at maturity
1.07% Unsecured loan, payable in a lump-sum at maturity (*1)
1.07% Unsecured loan, payable in a lump-sum at maturity (*1)
0.21% Unsecured loan, payable in a lump-sum at maturity (*1)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1)
0.19% Unsecured loan, payable in a lump-sum at maturity (*1)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1)
0.77% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.66% Unsecured loan, payable in a lump-sum at maturity (*1)
0.57% Unsecured loan, payable in a lump-sum at maturity
0.74% Unsecured loan, payable in a lump-sum at maturity (*1)
0.56% Unsecured loan, payable in a lump-sum at maturity (*1)
0.56% Unsecured loan, payable in a lump-sum at maturity (*1)
0.59% Unsecured loan, payable in a lump-sum at maturity
0.71% Unsecured loan, payable in a lump-sum at maturity
0.31% Unsecured loan, payable in a lump-sum at maturity
0.44% Unsecured loan, payable in a lump-sum at maturity
0.85% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.75% Unsecured loan, payable in a lump-sum at maturity
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.73% Unsecured loan, payable in a lump-sum at maturity (*1)
0.68% Unsecured loan, payable in a lump-sum at maturity (*1)
0.65% Unsecured loan, payable in a lump-sum at maturity (*1)
0.57% Unsecured loan, payable in a lump-sum at maturity (*1)

February 28, 2017
November 30, 2017
Jun 29,2018

0.65% Unsecured loan, payable in a lump-sum at maturity (*1)
Sub-total
Total of short-term and long-term loans payable

Millions of yen
As of December
As of December
31, 2017
31, 2016
Amount
¥

3,000
3,000

¥

1,700
100
1,800

September 19, 2017
November 15, 2017

-

2,550
6,500

March 31, 2017-

479

April 26, 2018

4,297

4,342

September 30, 2018

2,704

2,733

September 30, 2018

3,000

3,000

March 31, 2018

3,321

3,397

March 31, 2021
September 30, 2019
September 30, 2020
September 30, 2021
December 30, 2020
January 31, 2020
January 31, 2022
March 31, 2022
June 30, 2022
June 30, 2020
September 29, 2023
September 29, 2023
March 31, 2019
March 31, 2019
March 31, 2019
March 31, 2024
March 31, 2024
March 31, 2023
March 31, 2024
March 31, 2024
September 30, 2025
September 30, 2024
September 30, 2024
September 30, 2024
September 30, 2024
March 30, 2018
June 30, 2023
September 30, 2026
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
September 30, 2025
March 31, 2025
March 29, 2024
March 31, 2025

6,800
6,317
6,817
4,000
935
4,700
8,200
1,500
1,500
1,092
2,880
2,636
2,000
1,760
1,140
3,850
2,650
4,700
800
500
9,500
1,300
2,000
700
500
1,700
2,250
4,250
1,000
700
500
500
500
1,000
300
2,550
4,000
2,450
113,799
116,799

6,800
6,317
6,817
4,000
935
4,700
8,200
1,500
1,500
1,092
2,880
2,636
2,000
1,760
1,140
3,850
2,650
4,700
800
500
9,500
1,300
2,000
700
500
101,779
103,579¥¥

Stated interest rate, which is a rate per annum, represents the weighted average rate during the year ended December 31, 2017, or the most recent year, basedon the number of days and outstanding balance of the loans payable. The interest rate is rounded to the nearest second decimal place.

57

Notes:(*1) As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, theinterest rate of loans subject to such interest rate swap transactions is presented as the rate obtained by taking
into account the effect of interest rate swaps (interest rate fixation), rounded off to second decimal places.
(*2) Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225%
per annum for the period from September 30, 2014 through September 30, 2019 due to the execution of aninterest rate swap agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000
million is projected to be, in effect, fixed at around 0.95% for the period from March 30, 2018 throughSeptember 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014.
(*3) JHR borrowed ¥4,000 million on July 12, 2017, of which it repaid ¥1,000 million on November 30, 2017 aspartial early repayment.

7. Investment Corporation Bonds
Investment corporation bonds as of December 31, 2017 and 2016 consisted of the following:
Millions of yen
As of
As of
December 31,
December 31,
2017
2016
Unsecured 3rd investment corporation bond at interest rate of 0.92%, dueon March 19, 2019
Unsecured 4th investment corporation bond at interest rate of 0.86%, dueon December 17, 2021
Unsecured 5th investment corporation bond at interest rate of 0.82%, dueon October 21, 2022
Unsecured 6th investment corporation bond at interest rate of 0.935%, dueon March 19, 2026
Unsecured 7th investment corporation bond at interest rate of 0.60%, dueon November 27, 2026
Unsecured 8th investment corporation bond at interest rate of 0.60%, dueon November 27, 2026
Unsecured 9th investment corporation bond at interest rate of 0.53%, dueon November 22, 2024

¥

¥

Total

2,000

¥

2,000

1,500

1,500

6,000

6,000

3,000

3,000

9,000

9,000

1,100

1,100

1,000

-

23,600¥22,6008. Asset Retirement Obligations
a. Outline of the asset retirement obligations
JHR recognized asset retirement obligations as it is obliged to restore the land of Hotel Centraza Hakata, acquired on
April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August 19, 2016, to the original state in accordancewith each of the fixed-term land leasehold agreements.
b. Calculation method of the asset retirement obligations
The amount of asset retirement obligations for Hotel Centraza Hakata and HOTEL ASCENT FUKUOKA wascalculated by using the discount rates of 0.484% and 0.394%, respectively, and estimating the expected periods of use
based on the remaining useful lives of the related buildings (34 years and 48 years, respectively).
c.

Changes in the total amount of the asset retirement obligations
Thousands of yen
For the year ended
For the year ended
December 31, 2017
December 31, 2016

Balance at beginning of year
Increase due to acquisition of property and equipment
Adjustment due to accretion expense
Balance at end of year

¥
¥

58

441,5422,035
443,577¥¥

440,168
1,373
441,542

9. Net Assets
JHR maintains at least ¥50,000 thousand as the minimum net assets as required by the Investment Trust Act.
Dividends and other movements in unappropriated retained earnings related to each period that were decided after thebalance sheet date are summarized as follows:Yen
For the year ended
For the year ended
December 31, 2017
December 31, 2016
Total
Per unit
Total
Per unit
I Unappropriated retained
earnings¥
14,005,489,588¥ 12,126,057,948
II Reversal of voluntary reserve
Reversal of dividend reserve
Reversal of reserve fortemporary difference adjustment(*2)
III Dividends
IV Provision of voluntary reserve
Provision of reserve fortemporary difference adjustment(*1)
V Retained earnings carried¥forward (I+II-III-IV)-

13,867,228,256

769,508,609¥

14,771,949,501

¥

19
1
3,683

3,686

12,865,721,940

¥

3,420

13,127,153,216

¥

3,489

-

3,048,696¥¥

411,048

Notes:(*1) JHR applied the transitional measures of Paragraph 3 of the Supplementary Provisions of the “Ordinance on
Accounting of Investment Corporations” (Cabinet Office Ordinance No. 27 of 2015) from 2016. As a result,¥13,867,228,256 of the dividend reserve, representing the remaining balance of the gain on negative goodwill
recorded in a prior fiscal period, was reversed to retained earnings, of which ¥13,127,153,216 was transferredto the “reserve for temporary difference adjustment” account through the appropriation of profit for the year
ended December 31, 2016. Starting from the year ended December 31, 2017, JHR plans to reverse the reserve
every fiscal year in an amount that shall be at least 2% of the transferred amount (¥262,543,065) but notexceeding the remaining amount of the reserve at that point in conformity with applicable rules andregulations.
(*2) For the year ended December 31, 2017, reversal of reserve for temporary difference adjustment of¥769,508,609 was decided, which was calculated as ¥262,600,000 of the basic (minimum) reversal plus
¥374,000,000 as a compensation for dilution of dividend per unit due to capital increase through public
offerings and ¥132,908,609 corresponding to loss on disposal of property and equipment during the year.
10. Provision and reversal of reserve for temporary difference adjustment
Changes in the balance of reserve for temporary difference adjustment during the year ended December 31, 2017consisted of the following (yen in thousand):SourceDividend
reserve(Note)

Original
amount13,127,153

Balance asof January
1,2017-

Provision
during theyear

Reversalduring theyear

13,127,153-(Note) See Note 9 above for further descriptions.

59

Balance asofDecember31, 2017

Rationale for provision andreversalApplication of the transitional
measures of Paragraph 3 of the
Supplementary Provisions of the
13,127,153 “Ordinance on Accounting ofInvestment Corporations”(Cabinet Office Ordinance No.
27 of 2015)

11. Real Estate Operating Revenue and Costs
The components of “Real estate operating revenue” and “Real estate operating costs” for the years ended December
31, 2017 and 2016 were as follows:
Thousands of yen
For the year
For the year
ended December
ended December
31, 2017
31, 2016
Operating revenue:
Real estate operating revenue:
Fixed rent
Variable rent
Income from management contract (*1)
Sub-total
Other real estate operating revenue:
Parking lots
Other incidental revenue
Utilities
Other
Sub-total
Total operating revenue
Real estate operating costs:
Land lease and other rent expenses
Property taxes
Outsourcing expenses (*2)
Nonlife insurance
Depreciation and amortization
Loss on disposal of property and equipment
Repairs
Utilities
Trust fees
Other
Total real estate operating costs
Net real estate operating income¥¥

13,064,351
8,572,121
2,681,834
24,318,307¥

11,772,386
6,808,433
2,584,265
21,165,085

179,054
62,597
781,934
133,660
1,157,246
25,475,553

158,750
40,775545,754
197,104
942,384
22,107,470

922,891
1,476,156
703,933
47,0303,725,775
132,908
49,747790,728
43,655
18,825
7,911,653
17,563,899

710,456
1,216,710
609,823
41,944
3,294,081
16,662
68,632541,127
41,764
48,706
6,589,908
15,517,561¥

Notes:(*1) Pursuant to management contracts with a certain hotel operator, JHR receives revenue in the amount equivalent
to the properties’ gross operating profit, or GOP, while it pays management contract fees to the operator. In theevent a property’s GOP for the relevant period is a negative number, then JHR is required to pay an amountequal to such negative number to the operator. Even though some of the revenue JHR receives undermanagement contracts is variable, it recognizes such revenue as income from management contracts and not as
variable rent.
(*2) Outsourcing expenses include management contract fees of ¥343,712 thousand for the year ended December 31,
2017 and ¥318,587 thousand for the year ended December 31, 2016.
12. Advanced Depreciation of Property and Equipment
The accumulated advanced depreciation of property and equipment deducted from acquisition costs due togovernment subsidies received as of December 31, 2017 and 2016 were as follows:
Thousands of yen
As of
As of
December 31, 2017
December 31, 2016¥
24,921¥
24,921

Buildings in trust6013. Loss on disaster
Restoration costs for assets damaged by the 2016 Kumamoto Earthquake were recorded as extraordinary losses forthe year ended December 31, 2016.
14. Income Taxes
Significant components of deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:
Thousands of yen
As of December
As of December
31, 2017
31, 2016
Deferred tax assets
Valuation difference on assets acquired by merger¥
1,756,833 ¥
1,775,942
Amortization of fixed-term leasehold rights
76,47532,589Asset retirement obligations
7,603
3,087
165,776
221,352
Deferred losses on hedges
Subtotal deferred tax assets
2,006,688
2,032,972(2,006,688)(2,032,972)
Valuation allowance¥- ¥Total deferred tax assets
Deferred tax liabilities
Deferred gains on hedges
Total deferred tax liabilities

38,95438,954¥

46,233
46,233¥

Reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in the accompanying
statements of income for the years ended December 31, 2017 and 2016 was as follows:
For the year
ended December
31, 2017
31.74%(31.92)
0.18
0.01
0.01%

Effective statutory tax rate
Deduction for dividends paid
Change in valuation allowance
Other – net
Actual effective tax rate

For the year
ended December
31, 2016
32.31%(32.37)(0.21)
0.28
0.01%

15. Amounts per Unit
Net income per unit for the years ended December 31, 2017 and 2016 was as follows:

For the year ended December 31, 2017
Basic net income per unit - Net income attributable tocommon unitholders

Thousandsof yenNet
incomeNumber ofunits
Weightedaverage units¥ 14,005,078

3,883,679

¥

3,606

¥ 12,123,163

3,501,175

¥

3,462

Yen
Net income
per unit

For the year ended December 31, 2016
Basic net income per unit - Net income attributable tocommon unitholders

Notes:(1) The computation of net income per unit is based on the weighted-average number of units outstanding during theyear.
(2) Diluted net income per unit is not presented since there are no potentially dilutive units for the years ended
December 31, 2017 and 2016.

61

Net assets per unit as of December 31, 2017 and 2016 were as follows:
Yen
As of December
31, 2017¥
50,354

Net assets per unit

As of December
31, 2016¥
48,376

16. Leases
As Lessor:
JHR leases its real estate properties to third parties under non-cancellable operating leases. Minimum rental revenue
under the non-cancellable operating leases as of December 31, 2017 and 2016 were as follows:
Thousands of yen
As of December
As of December
31, 2017
31, 2016¥
1,520,073 ¥
1,709,333
4,685,123
5,889,179¥
6,205,197 ¥7,598,512

Due within one year
Due after one year
Total
17. Derivatives and Hedging Activities

a. Derivative transactions to which hedge accounting is not applied
Derivative transactions to which hedge accounting was not applied as of December 31, 2017 and 2016 were as
follows:

As of December 31, 2017
Interest rate swaps(fixed rate payment,
floating rate receipt)

As of December 31, 2016
Interest rate swaps(fixed rate payment,
floating rate receipt)

Interest rate caps

Classification
Transactions
other thanmarkettransactions

Classification
Transactions
other thanmarkettransactions
Transactions
other thanmarkettransactions

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year¥ 6,794,000¥ 1,794,000

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year¥ 6,794,000¥ 6,794,000¥(38,033)

¥

¥

¥

-

848,250

62-

Fair value(*2)¥(15,651)

Fair value(*2)

b. Derivative transactions to which hedge accounting is applied
Derivative transactions to which hedge accounting was applied as of December 31, 2017 and 2016 were as follows:
Thousands of yen
Contract
Contract
amount
Method of hedge
amountdue after one
Fair value
As of December 31, 2017accounting
Hedged item
(*1)
year
(*2)
Interest rate swaps
Long-term(fixed rate payment,
Deferral method¥ 100,058,750¥ 91,048,000 ¥ (388,665)
loans payable
floating rate receipt)
Long-term
Interest rate caps
Deferral method
4,286,250
loans payable

As of December 31, 2016
Interest rate swaps(fixed rate payment,
floating rate receipt)
Interest rate caps

Method ofaccounting

Hedged item

Contract
amount(*1)

Thousands of yen
Contract
amountdue after one
year

Deferral method

Long-termloans payable¥ 92,428,750¥ 82,808,750

Deferral method

Long-termloans payable

4,286,250

4,286,250

Fair value(*2)¥(516,439)
190

Notes:(*1) The contract amounts of the interest rate swap and interest rate cap are presented based on the notional principal
amounts. Also, the contract amounts of derivative transactions do not indicate market risk exposure related toderivative transactions.
(*2) The fair value is measured at the quoted price obtained from the counterparty financial institutions.
18. Investment and Rental PropertiesJHR owns rental properties for hotels to earn lease income and income from management contracts. The carrying
amounts, changes in such balances, and fair values of such properties were as follows:

HotelsJanuary 1,
2017¥284,965,547

Thousands of yen
Carrying amount
December 31,
Net increase (*1)
2017¥
32,263,660 ¥ 317,229,208

Fair value (*2)
December 31,
2017¥ 439,390,000

Notes:(*1) Increase during 2017 principally represents the acquisition of Hilton Tokyo Narita Airport for ¥13,376 million,
International Garden Hotel Narita for ¥9,237 million and Hotel Nikko Nara for ¥10,589 million.
(*2) Fair value of properties as of December 31, 2017 is generally the appraisal value determined by licensed realestate appraisers.

HotelsJanuary 1,
2016¥
222,362,750

Thousands of yen
Carrying amount
December 31,
Net increase (*1)
2016¥
62,602,797 ¥ 284,965,547

Fair value (*2)
December 31,
2016¥ 398,770,000

Notes:(*1) Increase during 2016 principally represents the acquisition of CANDEO HOTELS UENO-KOEN for ¥6,784
million, Hotel Centraza Hakata for ¥7,614 million, Holiday Inn Osaka Namba (HOTEL VISTA GRANDEOSAKA) for ¥27,245 million, HOTEL ASCENT FUKUOKA for ¥5,222 million and Hilton Nagoya for¥15,488 million.
(*2) Fair value of properties as of December 31, 2016 is generally the appraisal value determined by licensed realestate appraisers.

63

Real estate operating revenue and costs for the years ended December 31, 2017 and 2016 related to the rental
properties were as follows:

HotelsThousands of yen
For the year ended December 31, 2017
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income¥
25,475,553¥
7,911,653¥
17,563,899

HotelsThousands of yen
For the year ended December 31, 2016
Real estate
Real estate
operating revenue
operating costs
Net real estate(*)(*)
operating income¥
22,107,470 ¥
6,589,908¥
15,517,561

Note:(*) “Real estate operating revenue” and “Real estate operating costs” are income from real estate operation (including
other real estate operating revenue) and corresponding expenses (such as depreciation, property taxes, trust fees,and repairs and maintenance expenses), and are included in “Operating revenue” and “Real estate operating
costs,” respectively.
19. Segment Informationa. Segment information
The segment information has been omitted because JHR has only one segment, which is the investment andmanagement business of hotel real estate.
b. Related information(1) Information about products and services for the years ended December 31, 2017 and 2016
Information about products and services has been omitted because operating revenue from external customers in asingle product/service category accounted for more than 90% of total operating revenue.
(2) Information about geographical areas for the years ended December 31, 2017 and 2016(i) Operating revenue
Information about geographical areas has been omitted because operating revenue in Japan accounted for morethan 90% of total operating revenue.
(ii) Property and equipment
Information about property and equipment has been omitted because the amount of property and equipment
located in Japan accounted for more than 90% of net property and equipment.
(3) Information about major customers<For the year ended December 31, 2017>
Name of customer

Segment
Hotel real estate
investment and management
Hotel real estate
investment and management

Hotel Management Japan Co., Ltd.
AAPC Japan K.K.

64

Thousands of yen
Operating revenue¥

6,973,259¥

3,098,069

<For the year ended December 31, 2016>
Name of customer

Segment
Hotel real estate
investment and management
Hotel real estate
investment and management

Hotel Management Japan Co., Ltd.
AAPC Japan K.K.

Thousands of yen
Operating revenue¥

6,825,199¥

2,980,712

20. Subsequent Events
Issuance of investment corporation bonds
JHR issued investment corporation bonds under the following terms and conditions.
Category

Tenth unsecured investment corporation bonds

Total amount of bonds¥10,000 million

Issue price¥100 for ¥100 of each bondInterest rate

0.840% per year

Issue dateFebruary 21, 2018

Maturity

February 21, 2028

CollateralNone
The proceeds will be partially used to prepay the existing loans by the endof February, 2018. The residual funds will be used for future acquisition of
specified assets, for repayment of loans or for repair cost and/or capital
expenditure to maintain or improve competitiveness of the existing
properties.

Use of proceed65