Investment
Invincible Corporation

Financial Summary
for the June 2017 Fiscal Period(from January 1, 2017 to June 30, 2017)
August 22, 2017

Name
Representative
Stock Listing
Securities CodeURL
Contact

:
:
:
:
:
:

Invincible Investment Corporation
Naoki Fukuda, Executive Director
Tokyo Stock Exchange8963
http://www.invincible‐inv.co.jp/eng/
Consonant Investment Management Co., Ltd.
(Asset Manager of Invincible Investment Corporation)
Jun Komo, General Manager of Planning Department
Tel. +81‐3‐5411‐2731

Start date fordividend distribution: September 26, 2017

This English language notice is a translation of the Japanese‐language notice released on August 22, 2017 and was prepared solely for theconvenience of, and reference by, non‐Japanese investors. It is not intended as an inducement or solicitation for investment. We caution
readers to undertake investment decisions based on their own investigation and responsibility. This translation of the original
Japanese‐language notice is provided for informational purposes only, and no warranties or assurances are given regarding the accuracy orcompleteness of this English translation. Readers are advised to read the original Japanese‐language notice. In the event of any discrepancy
between this translation and the Japanese original, the latter shall prevail in all respects.

1.

(values are rounded down to the nearest JPY million)
Financial Results for the Fiscal Period ended June 30, 2017 (from January 1, 2017 to June 30, 2017)(1)

Operating Results(Percentages indicate percentage change from the preceding period)
Operating Revenues
JPY million

Fiscal period ended
June 30, 2017

9,260

Fiscal period ended
December 31, 2016

9,511

%

Operating Income

Ordinary Income

Net Income

JPY million%

JPY million%

JPY million

%

(2.6)

5,344

(9.9)

4,702

(13.4)

4,702(13.4)

16.6

5,934

17.0

5,431

24.5

5,431

24.5

Net Income per Unit

Ordinary Income /Total Assets

Net Income /Unitholders’ Equity

Ordinary Income /Operating Revenues

JPY

%

%

%

Fiscal period ended
June 30, 2017

1,241

3.5

1.6

50.8

Fiscal period ended
December 31, 2016

1,477

4.2

1.9

57.1

(Note)(2)“Net Income per Unit” is calculated based on the average number of investment units during the period and is rounded to thenearest yen. Net income per unit calculated based on the number of investment units issued and outstanding at the end of the eachfiscal period ended June 30, 2017 (3,860,824 units) and rounded down to the nearest yen is JPY 1,217.

Distributions
Distribution(Excluding excess profit
distribution)

Per Unit
Fiscal period ended
June 30, 2017
Fiscal period ended
December 31, 2016

Total

Distribution

Excess Profit
Distribution
Per Unit(Including excess profit
distribution)

Total

Per Unit

Total

Dividend
PayoutRatio

Distribution/ Net
AssetsJPY

JPY million

JPY

JPY million

JPY

JPY million

%

%

1,243

4,799

21

81

1,264

4,880

102.1

3.5

1,477

5,429

0

0

1,477

5,429

100.0

4.2

(Note 1) Distribution (excluding excess profit) differs from net income for the fiscal period ended June 2017, since INV distributes almost
all of the profit as defined in Article 136, Paragraph 1 of the Investment Trust and Investment Corporation Act, which includes
deferred gain on hedge of the interest rate swap.
(Note 2) The distribution in excess of profit for the fiscal period ended June 30, 2017 is JPY 81 million, of which JPY 46 million (JPY 12 perunit) is the allowance for temporary differences adjustment arising from different rules and practices in tax and accounting and
JPY 34 million (JPY 9 per unit) is the refund of investment for the purpose of stabilizing distributions.
(Note 3) The “Dividend Payout Ratio” is calculated in accordance with the following formula:
Dividend Payout Ratio = Distribution Amount (Excluding excess profit distribution) ÷ Net Income × 100“Dividend Payout Ratio” is rounded to the nearest one decimal place.
(Note 4) “Distribution/ Net Assets” is calculated based on the figures excluding excess profit distribution.

(3)

Financial Position
Total Assets

Net Assets

JPY million

JPY million

Fiscal period ended
June 30, 2017

306,421

Fiscal period ended
December 31, 2016

277,361(Note)Net Assets / Total

Net Assets per Unit%

JPY

139,06245.4

36,019131,455

47.4

35,762“Net Assets per Unit” is calculated based on the number of investment units issued and outstanding at the end of each period, andis rounded to the nearest yen.

2

(4)

Cash Flows
Cash Flowsfrom
Operating
Activities

Cash Flowsfrom
Investment
Activities

Cash Flows
from
Financing
Activities

Closing Balance of Cashand Cash Equivalents

JPY million

JPY million

JPY million

JPY million

Fiscal period ended
June 30, 2017

6,830

(35,704)

24,257

9,598

Fiscal period ended
December 31, 2016

9,818

(8,457)(3,910)14,2142.

Forecast for the Fiscal Period ending December 31, 2017 (from July 1, 2017 to December 31, 2017)

Operating
IncomeOperating
Revenues

Fiscal Period
endingDecember31, 2017(Percentages indicate percentage change from the preceding period)
Distribution
Distributionper
per
Excess Profit
Unit
Ordinary
Unit
Distribution (including
Net Income(excluding
Incomeexcess profit
per Unit
excess profit
distribution)
distribution)

JPY
million%JPY
million%JPY
million%JPY
million%

10,781(16.4)

6,512(21.8)

5,885(25.1)

5,884(25.1)

JPY

JPY

JPY

1,524

21

1,545

(Reference) Estimated net income per unit for the fiscal period ending December 31, 2017 is JPY 1,524.

※

Others(1) Changes in Accounting Policies, Accounting Estimates or Restatements(a) Changes in Accounting Policies due to Revisions to
Accounting Standards and Other Regulations

None(b) Changes in Accounting Policies due to Other Reasons

None(c) Changes in Accounting Estimates

None(d) Restatements

None(2) Number of Investment Units Issued and Outstanding(a) Number of Units Issued and Outstanding as of the
End of the Fiscal Period (Including Treasury Units)

June 30, 2017

3,860,824

December 31, 2016

3,675,824(b) Number of Treasury Units as of the End of the Fiscal Period June 30, 2017

0

December 31, 2016

0(Note) Please refer to “Notes Related to Per Unit Information” regarding the number of investment units which is the basis for the
calculation of net income per unit.

3ͤThe Implementation Status of Statutory Audit
At the time of this financial report, the audit procedures for the financial statements pursuant to the Financial
Instruments and Exchange Act are yet to be completed.
ͤExplanation on the Appropriate Use of the Forecast of Results and Other Matters of Special Consideration(Explanation on the Appropriate Use of the Forecast of Results)
The forward‐looking statements in this financial report are based on the information currently available to us andcertain assumptions which we believe are reasonable. Actual operating performance may differ significantly due
to factors we cannot predict as of this date, including gains or losses from the disposition of properties, repaymentof borrowings, decreases in rents and changes in operating conditions. Further, there is no guarantee of thepayment of the forecast distribution amount.
Please refer to “Assumptions Underlying the Forecast of Financial Results and Distribution for the Fiscal Period
ending December 31, 2017 (from July 1, 2017 to December 31, 2017),” on page 18 for assumptions used in theforecasts and precautions regarding the use of such forecasts.
Unless otherwise specified herein, amounts less than JPY 1 are rounded down, and ratios are rounded to the nearest
one decimal place.

41. Related Companies of the Investment Corporation
Disclosure is omitted because there have been no material changes in the “Structure of the Investment
Corporation” section of the latest securities report (filed on March 27, 2017).

2. Management Policy and Operating Conditions(1) Management Policy
Disclosure o f “Investment Policies,” “Investment Targets,” “Distribution Policies” and the “Investment
Restriction” is omitted because there have been no material changes from the relevant sections of the latest
securities report (filed on March 27, 2017)(2) Operating Conditionsa

Overview of the Fiscal Period Ended June 2017 (“Reporting Period”)(a)Main Trends of INV

INV was established in January 2002 in accordance with the Investment Trust and Investment Corporation Act(Act No. 198 of 1951, as amended; the “Investment Trust Act”). In May 2004, INV was listed on the Osaka
Securities Exchange (application for delisting was made in August 2007), and in August 2006 was listed on theReal Estate Investment and Trust Securities Section of the Tokyo Stock Exchange (Ticker Code: 8963).
After the absorption‐type merger with LCP Investment Corporation (“LCP”) was implemented on February 1,
2010, as specified in Article 147 of the Investment Trust Act, with LCP as the absorbed corporation, INV issued
new investment units through a third‐party allotment on July 29, 2011 and refinanced its debt. Calliope Godo
Kaisha (“Calliope”), an affiliate of the Fortress Investment Group LLC (“FIG” and together with Calliope andother affiliates of FIG, collectively the “Fortress Group”) was the main allottee, and the sponsor changed to theFortress Group.
Ever since the commencement of sponsorship from the Fortress Group, INV has been focusing its efforts on
improving the profitability of its portfolio and establishing a revenue base in order to secure stable distributions,and has strengthened the lender formation through new borrowings and the refinancing of existing bankborrowings, thereby creating a financial base for external growth. With this platform as a base, in June 2014,
Consonant Investment Management Co., Ltd., the asset manager to which INV entrusts the management of its
assets (the “Asset Manager”) revised the Investment Guidelines for INV, and positioned hotels as a core asset
class alongside residential properties with a view towards expanding investments in the hotel sector in which
demand is forecasted to rise going forward. As a result of the external growth efforts, INVʹs portfolio at the endof the previous period ended December 2016 comprised of 124 properties (48 hotels, 68 residential properties
and eight others) with a total acquisition price of JPY 266,619 million. The acquisition price of the portfolio has
increased a significant 3.7x, compared to the period as of May 22, 2014, which is the period immediately prior to
INV’s initial investment in hotels.
In the Reporting Period, INV determined an issuance of new investment units (the “Public Offering”) andsecondary offering on February 22, 2017 in order to acquire two residential properties on March 14, 2017with funds raised through the Public Offering and new borrowings. One of the two residential properties,
Royal Parks Tower Minami‐Senju, is now the largest residential asset and second largest asset in theportfolio. INV believes that Royal Parks Tower Minami‐Senju has upside in NOI growth through INV’s rent
increase program, which has the steady recent track record, and that the transaction added both stability
and upside to the portfolio.
In addition, INV acquired Hotel MyStays Premier Hamamatsucho utilizing cash on hand and a new loan on
May 29, 2017. The hotel is one of MyStays’ five Premier hotels (Note 1) and has 120 large rooms with a room
size of 28.5 m2 to comfortably accommodate three to five guests, as well as 14 serviced apartment units. As aresult, INVʹs portfolio comprised of 127 properties (49 hotels, 70 residential properties and eight others) with a
total acquisition price of JPY 299,181 million at the end of the Reporting Period.
Moreover, after the Reporting Period, INV announced a portfolio rebalance, including the future acquisition5

of additional 49 rooms at Hotel MyStays Gotanda Station at an estimated 7.3% NOI cap rate and the sale oftwo non‐core assets at a 3.8% NOI cap rate, which improves the overall NOI yield of the portfolio (see “2 (2)b Outlook for the Fiscal Period Ending December 31, 2017” and “c. Significant Subsequent Events” below for
the detail of the portfolio rebalance.)
The sale of the two non‐core assets closed on July 31, 2017 and the acquisition of the additional rooms is
expected to be completed on October 31, 2017 after the satisfactory completion of office space to hotel room
conversion.
INV has signed a Memorandum of Understanding (the “MOUʺ) with affiliates of Fortress Group with respect topreferential negotiating rights regarding the acquisition of hotels and residential properties, which will continue
to provide INV with considerable opportunities for external growth. As of the end of the Reporting Period,
there are 21 hotels (6,007 rooms) and nine residential properties (743 units) in the MOU.
(Note 1) Five Premier hotels are Hotel MyStays Premier Akasaka, Hotel MyStays Premier Omori, Hotel
MyStays Premier Sapporo Park, Hotel MyStays Premier Kanazawa and Hotel MyStays Premier
Hamamatsucho, of which INV owns Hotel MyStays Premier Kanazawa and Hotel MyStays
Premier Hamamatsucho.
(b)Operational Environment and Performance

For the June 2017 period, the portfolio NOI increased by 12.4% or JPY 886 million to JPY 8,023 million
compared to the same period in the previous year (the June 2016 period), with a 5.4% increase from the hotel
portfolio and a 6.8% increase from the residential portfolio.
In addition, the portfolio maintained a high average occupancy rate (Note 1) of 97.9%. Commentary on hotel
and residential performance in the first half of 2017 is described below.
The NOI at the 40 hotels owned by INV (Note 2) increased by 1.8% for the period compared to the same
period in the previous year, with a strong showing for the second quarter (from April 2017 to June 2017). The
NOI for the second quarter rebounded, gaining 5.0% compared to the same period in the previous year, after
declining 1.8% in the first quarter (from January 2017 to March 2017). The 40 hotels recorded an occupancy
rate (Note 3) of 89.0% (‐0.8 points YoY), ADR (Note 4) of JPY 9,345 (+0.7% YoY), and RevPAR (Note 5) of JPY
8,320 (‐0.2% YoY). The overseas sales ratio (Note 6) at the 38 hotels (Note 7) increased to 33.1% (+4.9 points
YoY). Of the total hotel revenue, fixed rents accounted for 47.1% (JPY 2,613 million) and variable rents
accounted for 52.9% JPY 2,932 million at the 49 hotels.
Inbound visitors reached a record high of 24.0 million (+21.8% YoY) in 2016 and the increasing trend
continues in 2017 (+17.4% YoY as of June, 2017) while government targets are 40 million in 2020 and 60
million in 2030. Japan’s GDP has achieved continuous growth with positive signs in consumer confidence,
improvement of domestic employment, as well as wage increase. The hotel segment has been impacted by anincrease in supply, however the continued growth in inbound visitors to Japan is much higher than the
supply in new hotel rooms. Cancelations of hotel rooms are also a concern, but MyStays Hotel Management
Co., Ltd. (“MHM”), a hotel operator in the sponsor group, has increased the level of overbookings to help
mitigate this issue. Under these circumstances, INV is working closely with the operators of the hotels,
primarily MHM, to proactively address the issues at hand. Specifically, MHM is taking various actions basedon extensive operational analysis and customer feedback through TrustYou (Note 8) Analytics to improvethe customer experience. MHM expects to increase direct bookings and maximize revenue at time of highdemand through promotional campaigns, an improved website and enhanced revenue management
analytics. MHM is also focused on the following initiatives such as increasing overbooking ratios
strategically in order to offset cancelations, converting a select number of smoking rooms to non‐smoking to
generate higher ADRs for non‐smoking rooms, saving cost for linen and cleaning, increasing services for
Chinese speaking guests, and strengthening relations with travel agents, airlines and OTAs (online travel
agents) based in China, Hong Kong , Taiwan and Korea to diversify and improve distribution channel. INV
believes that these initiatives, along with the continued growth in inbound visitors to Japan will help increase
portfolio NOI.
In addition, INV decided to change the hotel operator for one hotel (Note 9) on June 26, 2017.

6

The NOI (Note 10) of the 70 residential properties (Note 11) increased 2.4% compared to the same period in
the previous year, and the average occupancy rate achieved a stable 95.2%, a decrease of 0.9 points comparedto the same period in the previous year.
As a continued focus on proactive asset management INV changed the master lessee (“ML”) and property
manager (“PM”) for one residential property on April 27, 2017 (Note 12) in order to further improve its
operational efficiency and property performance. In addition, INV decided on June 26, 2017 to change
ML/PM for four residential properties (Note 13) aiming to increase NOI by JPY 39 million per year on an
estimated basis. The change of ML/PM at the four residential properties was determined after the acquisitionof Royal Parks Tower Minami‐Senju, a flagship residential asset where the role of the property manager ishighly sought after. INV was therefore able to negotiate this assignment to reduce the rate of property
management fees at the property from 2.7% to 1.5% for Royal Parks Tower Minami‐Senju, as well as improvethe economics at Royal Parks Seasir Minami‐Senju and Royal Parks Momozaka. As a result, the number of
ML/PM was consolidated from 10 to nine for 70 residential portfolio.
Trends for rent at city‐center residential properties with small‐type rooms maintain a moderate increase.
Under the positive circumstances in the macro environment, INV continues to focus on its rent increaseprogram for new leases and renewals as well as initiatives to reduce residential leasing costs based on amarket analysis of each unit and property. In the Reporting Period, INV realized a rent increase for 61.6%(based on the number of contracts) of the new residential lease contracts for an average rent increase of 3.2%
compared to the previous rent across all new leases (Note 14). Specifically, at Royal Parks Tower
Minami‐Senju, which was acquired during the Reporting Period, INV achieved strong results with a rent
increase for 97.6% (based on the number of contracts) of the new lease contracts with an average rent increaseof 12.7% compared to the previous rent across all new leases (Note 14).
INV achieved a rent increase for 51.2% (based on the number of contracts) of contract renewals for an
average rent increase of 2.1% compared to the previous rent across all renewal leases (Note 14), while
maintaining a high contract renewal rate of 81.0% (Note 15). There was a notable increase in rent in the
Sendai, Saitama, Kyoto, Osaka and Hyogo areas, which achieved a rent increase for 47.6% (based on thenumber of contracts) of renewal contracts for an average rent increase of 1.9% compared to the previous rent
(Note 14) across all renewal leases in these areas, even though these areas did not achieve rent increases forcontract renewals in the previous year. These areas particularly benefited from the change of ML/PM for 16
residential properties in December 2016 and one residential property in January 2017.
The total appraisal value of 127 properties at the end of the Reporting Period was JPY 363,502 million. The
portfolio has an unrealized gain of JPY 70,964 million (Note 16) and an unrealized gain ratio of 24.3% (Note16). Due to the internal growth and trends in the real estate investment and rental market, the total appraisal
value of 124 properties, which were owned as of the end of December 2016 period, increased by 0.6% from
JPY 328,192 million at the end of December 2016 period to JPY 330,102 million at the end of the Reporting
Period .
Key Performance Indicators of 40 Hotel Properties (Note 2)
Occupancy Rate
ADR (JPY)
RevPAR (JPY)GOP (JPY million) (Note 17)

June 2017 fiscal period
89.0%
9,345
8,320
5,365

Year‐on‐year change‐0.8pt
+0.7%
‐0.2%
+1.6%

Key Performance Indicators of 70 Residential Properties (Note 11)
Occupancy Rate (Note 1)
Average Rent per Tsubo per Month(JPY) (Note 18)
NOI (JPY million) (Note 10)

June 2017 fiscal period
95.2%

Year‐on‐year change‐0.9pt

9,595

+1.6%

2,597

+2.4%

(Note 1) “Occupancy Rate” for the entire portfolio and for the residential properties is calculated by dividing

7

the sum of total leased area by the sum of total leasable area at the end of each month during therelevant period.
(Note 2) Of the 49 acquired hotels, the following nine hotels with fixed‐rent lease agreements are excluded:
Super Hotel Shinbashi/ Karasumoriguchi, Comfort Hotel Toyama, Super Hotel Tokyo‐JR
Tachikawa Kitaguchi, Super Hotel JR Ueno‐iriyaguchi, Comfort Hotel Kurosaki, Comfort Hotel
Maebashi, Comfort Hotel Tsubame‐Sanjo, Comfort Hotel Kitami and Takamatsu Tokyu REI Hotel.
The figures assume that all properties acquired in and after 2016 by INV had been owned since
January 1, 2016. The actual results before acquisition by INV are based on the data provided by thesellers.
(Note 3) “Occupancy rate” for the hotel properties is calculated in accordance with the following formula:
Occupancy rate = total number of occupied rooms during a certain period ÷ total number ofrooms available during the same period (number of rooms x number of days)
Hereinafter the same shall apply.
(Note 4) “ADR” means average daily rate, and is calculated by dividing total room sales (excluding service
fees) for a certain period by the total number of days per room for which each room was occupied
during the same period. Hereinafter the same shall apply.
(Note 5) “RevPAR” means revenues per available room per day, and is calculated by dividing total room
sales for a certain period by total number of rooms available (number of rooms x number of days)
during the same period, and is the same as the figure obtained by multiplying ADR by occupancy
rates. Hereinafter the same shall apply.
(Note 6) “Overseas sales ratio” is the ratio of sales amount through overseas web agents to revenues.
(Note 7) Of the 49 acquired hotels, 11 hotels, APA Hotel Yokohama‐Kannai, Super Hotel Shinbashi/
Karasumoriguchi, Comfort Hotel Toyama, Super Hotel Tokyo‐JR Tachikawa Kitaguchi, Super Hotel
JR Ueno‐iriyaguchi, Comfort Hotel Kurosaki, Comfort Hotel Maebashi, Comfort Hotel
Tsubame‐Sanjo, Comfort Hotel Kitami and Takamatsu Tokyu REI Hotel, the tenants of which do
not disclose the overseas sales ratio; and Hotel MyStays Kanda, which was not fully operating fromMay 20, 2016 through August 22, 2016 due to renovation in 2016, are excluded. The figures assume
that all hotels acquired in and after 2016 by INV had been owned since January 1, 2016. The actual
results before acquisition by INV are based on the data provided by the sellers.
(Note 8) “TrustYou” analyzes hundreds of millions of travel reviews and is one of the world’s largest guest
feedback platforms.
(Note 9) The operator of Hotel Vista Premio Dojima was changed to MHM on August 1, 2017. In connection
with the change, the property name was changed from Hotel Vista Premio Dojima to Hotel MyStays
Dojima.
(Note 10) For the comparison of NOI of the 70 properties, insurance income and related repair expenses,
which are temporary items, are excluded.
(Note 11) The figures assume that all residential properties acquired in and after 2016 by INV had been
owned since January 1, 2016. The actual results before acquisition by INV are based on the data
provided by the sellers.
(Note 12) ML and PM for Belle Face Ueno‐Okachimachi were changed on May 1, 2017.
(Note 13) ML and PM for Royal Parks Shinden and Royal Parks Momozaka were changed on July 1, 2017 andAugust 1, 2017 respectively, and will be changed for both Royal Parks Tower Minami‐Senju andRoyal Parks Seasir Minami‐Senju on December 1, 2017.
(Note 14) Increase or decrease in the sum of monthly rents on new or renewal contracts, or the total of both,compared with the sum of previous rents.
(Note 15) Renewal rate is calculated by the number of renewed contracts during the relevant period divided
by the number of contracts due up for renewal during the relevant period(Note 16) The unrealized gain is calculated using the following formula: the appraisal value as of the end of8the Reporting Period ‐ book value as of the end of the Reporting Period.
The unrealized gain ratio is calculated using the following formula: the unrealized gain ÷ bookvalue as of the end of the Reporting Period.
(Note 17) “GOP,” means the gross operating profit, and is the amount remaining after deducting costs ofhotel operations (the personnel, utility and advertising expenses and other expenses) and the
management services fee to operators (if any) from the hotel’s revenues . Hereinafter the same shallapply.
(Note 18) “Average Rent per Tsubo per Month” is calculated by dividing the total rental revenue includingcommon area charges for each month by the sum of total leased area at the end of each month
during the relevant period.
(c)Overview of Fund Raising
As a result of the measures described below, INV’s interest‐bearing debt outstanding balance was JPY
163,990 million and the Interest‐Bearing Debt ratio (Note 1) and LTV (Note 2) were 53.5% and 45.1%
respectively, as of the end of the Reporting Period, with an average interest rate (Note 3) of 0.50%.

(i) Equity Finance
INV executed a Public Offering which closed on March 13, 2017 (number of new investment units
issued: 185,000; total issue value: JPY 8,393 million) in order to procure part of the funds for theacquisition of two residential properties.
(ii) Debt FinanceIn tandem with the equity finance as described in (i) above, INV borrowed a new loan, New Syndicate
Loan (G) (amount borrowed: JPY 11,250 million; interest rate: variable interest rate of 1‐month JPY
TIBOR plus 0.4%, 0.5% and 0.6% for durations of three, four and five years), which was arranged by
Mizuho Bank, Ltd., and Term Loan (F) (amount borrowed: JPY 3,000 million; interest rate: variableinterest rate of 1‐month JPY TIBOR plus 0.45% for duration of three and a half years) on March 14, 2017
in order to pay a portion of the acquisition price and related expenses for the acquisition of two
residential properties.
As a result of New Syndicate Loan (G), the number of INV’s lenders increased to 22, with The Towa
Bank, Ltd., The Dai‐ichi Life Insurance Company, Limited and The Gunma Bank, Ltd. added to thebank formation.
INV also borrowed a new loan, Term Loan (G) (amount borrowed: JPY 7,321 million; interest rate:variable interest rate of 1‐month JPY TIBOR plus 0.55% for duration of four and a half years) from
Mizuho Bank, Ltd. on May 29, 2017 in order to pay a portion of the acquisition price and related
expenses for the acquisition of one hotel.
(Note 1) Interest‐Bearing Debt ratio uses the calculation formula below:
Interest‐Bearing Debt ratio = total outstanding interest‐bearing debt/total assets x 100(Note 2) LTV uses the calculation formula below:
LTV = total outstanding interest‐bearing debt/total appraisal value x 100(Note 3) The average interest rate (annual rate) is calculated by the weighted average based on theoutstanding balance of borrowings and rounded to two decimal places.

9

(d)

Overview of Acquisition of Assets
The overview of two residential properties acquired on March 14, 2017 is as follows:

Property
numberUse

Property nameLocation

Acquisition
price(JPY million)(Note 1)

Appraisal
value(JPY million)(Note 2)

Seller

A105

Royal Parks Tower Arakawa‐ku,
Minami‐Senju
Tokyo

21,87922,100

Sakura Tokutei
Mokuteki Kaisha

A106

Royal Parks Seasir Arakawa‐ku,
Minami‐Senju
Tokyo

2,683

2,710

Momo Tokutei
Mokuteki Kaisha

Total

24,562

24,810Residential

Categoryof specified
asset

Trust
beneficiaryinterest(Note 1) Acquisition price does not include property taxes, city planning taxes, national or local consumption
taxes; hereinafter the same.
(Note 2) The appraisal value is as of December 1, 2016 based on the appraisal reports by Japan Real Estate
Institute.

The overview of one hotel acquired on May 29, 2017 is as follows:

Use

Property
number

Property nameLocation

Acquisition
price(JPY million)

Hotel

D49

Hotel MyStays
Premier
Hamamatsucho

Minato‐ku,
Tokyo

8,000

Appraisal
value(JPY million)(Note 1)

SellerCategoryof specified
asset

8,090

Septentrio 2
Tokutei
Mokuteki Kaisha

Trust
BeneficiaryInterest(Note 1) The appraisal value is as of April 30, 2017 based on the appraisal report by Japan Real Estate
Institute.
(e)Overview of Results of Operations and Distributions

As a result of the operations mentioned above, operating revenues for the Reporting Period decreased by
JPY 250 million from the previous period (‐2.6%) to JPY 9,260 million, and net income decreased by JPY 728
million from the previous period (‐13.4%) to JPY 4,702 million. The distribution per unit (“DPU”) for theReporting Period was JPY 1,264, an decrease of JPY 213 (‐14.4%) compared to the previous period.
The majority of INV’s owned hotels use a variable rent scheme linked to performance of the relevant hotel.
Hotel demand is affected by seasonal factors and the December ending fiscal periods (from July to
December) which include summer holiday and autumn outing seasons tend to record higher revenue thanthe June ending fiscal periods (from January to June). Accordingly, INV’s rental revenues tend to be higher inthe December ending fiscal periods than in the June ending fiscal periods.
INV aims to include maximum profit distributions (excluding excess profit distribution) in deductible
expenses in accordance with Section 1 of Article 67‐15 of the Act on Special Taxation Measures Law (Act No.
26 of 1957; as amended), and decided to distribute almost all of the profit as defined in Article 136,
Paragraph 1 of the Investment Trust Act, except for fractional distribution per unit less than JPY 1.
INV believes maintaining the stability of cash distributions over the medium term is one of the mostimportant factors in determining the amount of distribution for a given fiscal period, and therefore, INV has
adopted the policy to make distributions in excess of profits in order to stabilize distributions, in cases
where dilution of investment units or significant expenses are to be recorded in connection with, among
other things, the acquisition of assets or the raising of capital, leading to a temporary decrease in10

distribution, taking into consideration the level of distribution per unit assuming such acquisition of assets
or capital raising had contributed for a full fiscal period. INV may also consider making distributions inexcess of profits for the purpose of mitigating the impact of corporate tax increase arising from different
rules and practices in tax and accounting, such as treatment on depreciation of fixed term land lease or asset
retirement obligation.
With respect to the June 2017 period, INV intends to make distributions in excess of profits for JPY 46
million (JPY 12 per unit) in order to cope with the discrepancy between tax and accounting treatment for
the June 2017 period. INV also intends to make distributions in excess of profits for JPY 34 million (JPY 9
per unit) in order to stabilize distributions since net income per unit decreases temporarily due to one‐off
expenses in connection with the Public Offering and borrowings in March 2017. As a result, the DPU(including excess profit distribution) for the June 2017 period is JPY 1,264.

b

Outlook for the Fiscal Period Ending December 31, 2017

The DPU (including excess profit distribution) for the December 2017 period is forecast to be JPY 1,545(+4.6% YoY); the full year DPU (including excess profit distribution) for calendar year 2017 is forecast to
provide steady growth of JPY 2,809 (+5.5% YoY).
Future operational policy and issues to be addressed
Since July 2011, INV has enhanced unitholder value by significantly increasing DPU and financial stability
with the Fortress Group as its sponsor. Going forward, INV will continue to implement various strategies tomaintain further growth and financial stability, including the following measures.
•••

Continuous acquisition of properties from large pipeline provided by the sponsor and third
parties
Further internal growth at hotel and residential properties
Diversification of financing measures including the issuance of investment corporation bonds andextension and diversification of loan maturities

Details of the future growth strategy are as follows.
(i)

External growth strategy
New Property Acquisitions
As its basic strategy, INV will move forward with the acquisition of new properties focusing on hotels,
where continued growth in portfolio revenues is anticipated, and residential properties especially whererental growth can be achieved. Rent revenue from residential assets and other assets as well as the fixed
rent portion from hotels will also contribute to more stable revenue, which was 69.7% of total revenue(Note 1). This acquisition strategy will enable INV to build a portfolio with a good balance between
growth and stability.
In regards to hotels, INV will take into consideration the trends in foreign travelers visiting Japan,
demands of business and leisure customers in nearby areas, and leasing contract types when making
investment decisions, with the aim of acquiring properties where growth and stability of GOP and rental
revenue are forecasted to increase. On July 25, 2017, INV decided to acquire a portion ((i) a portion of thefirst floor and (ii) the entire of the second and third floor) of the annex building of Hotel MyStays
Gotanda Station, after considering its attractive yield which is expected to improve the profitability ofoverall portfolio as well as the Hotel MyStays Gotanda Station. The acquisition of the 49 additionalrooms at Hotel MyStays Gotanda Station is to be made on condition precedent that the conversion workfrom office space to new hotel rooms is completed, with the anticipated closing date of October 31, 2017
In regards to residential properties, INV will analyze occupancy rates, rental market trends, the presenceof competing properties among other factors, and consider acquiring properties that have mainly
small‐type rooms with strong competitiveness in large cities, in which it believes it can achieve increases
in rent.
INV has achieved steady external growth via the sponsor pipeline from the Fortress Group, as follows.

11

Properties Acquired from affiliates of the Fortress Group (as of the date of this document)
Date

Properties acquired

Total acquisition price

September 2012
May 2014
July 2014
February 2015

24 residential properties
Two hotels
18 hotels
Two hotels
11 hotels andthree residential properties
One hotel
Five hotels andone residential property
Four hotels andone residential property
Two hotels
Two residential properties
One hotel
77 properties(of which 46 are hotels and 31 areresidential properties)

JPY 14,043 million
JPY 5,435 million
JPY 39,938 million
JPY 4,911 million

July 2015
August 2015
January 2016
March 2016
June 2016
March 2017
May 2017
Total

JPY 35,258 million
JPY 5,069 million
JPY 10,207 million
JPY 66,697 million
JPY 15,900 million
JPY 24,562 million
JPY 8,000 million
JPY 230,020 million(of which hotels: JPY 178,382 million;
residential: JPY 51,638 million)

The Fortress Group manages four dedicated Japanese real estate funds, including the Fortress Japan
Opportunity Funds I, II, and III. The Fortress Group’s committed equity is over JPY 300 billion and thenumber of properties that the Fortress Group is invested in exceeds 1,400. In order to ensure future
growth options for the portfolio, INV entered into an updated MOU with affiliates of the Fortress Group
that provides preferential negotiation rights with respect to the acquisition of 21 hotels and nineresidential properties (see the table below) (Note 2). In addition, by utilizing the property transaction
information available through the Fortress Group and INV’s own network, INV will continuously
consider and implement the acquisitions of properties from third parties that will contribute to stability
and growth in revenue and cash flow and an increase in DPU.
No.

Asset name

Asset type (Note 3)

Location

No. of rooms

1

Hotel MyStays Premier Akasaka

Limited Service Hotel

Minato‐ku,Tokyo

327

2

Hotel MyStays Yokohama Kannai

Limited Service Hotel

Yokohama‐shi, Kanagawa

165

3

RIHGA Royal Hotel Kyoto

Full Service Hotel

Kyoto‐shi, Kyoto

489

4

Narita Excel Hotel Tokyu

Full Service Hotel

Narita‐shi, Chiba

706

5

Hotel MyStays Premier Sapporo
Park

Full Service Hotel

Sapporo‐shi, Hokkaido

418

6

Hotel MyStays Sapporo Station

Limited Service Hotel

Sapporo‐shi, Hokkaido

242

7

Hotel MyStays Oita

Limited Service Hotel

Oita‐shi, Oita

145

8

Art Hotel Hirosaki City

Full Service Hotel

Hirosaki‐shi, Aomori

134

9

Beppu Kamenoi Hotel

Resort Hotel

Beppu‐shi, Oita

322

10 Fusaki Resort Village

Resort Hotel

Ishigaki‐shi, Okinawa

195

Full Service Hotel

Urayasu‐shi, Chiba

1,016

Limited Service Hotel

Osaka‐shi, Osaka

397

Full Service Hotel

Asahikawa‐shi, Hokkaido

265

Limited Service Hotel

Kanazawa‐shi, Ishikawa

206

15 Hotel MyStays Matsuyama

Full Service Hotel

Matsuyama‐shi, Ehime161

16 Hotel MyStays Ueno East

Limited Service Hotel

Taito‐ku, Tokyo150

11 Sheraton Grande Tokyo Bay Hotel
12

Hotel MyStays Shin Osaka
Conference Center

13 Art Hotel Asahikawa
14 Hotel MyStays Kanazawa Castle

12Asset name

No.

Asset type (Note 3)

Location

No. of rooms

17(Tentative) Hotel MyStays
Honmachi 3‐chome (Note 4)

Limited Service Hotel

Osaka‐shi, Osaka

120

18

Hotel MyStays Sapporo Nakajima
Park

Limited Service Hotel

Sapporo‐shi, Hokkaido

86

19 Flexstay Inn Sakuragicho

Limited Service Hotel

Yokohama‐shi, Kanagawa

70

MyCUBE by MYSTAYS Asakusa
20
Kuramae

Limited Service Hotel

Taito‐ku, Tokyo

161

21 Hotel MyStays Premier Omori

Limited Service Hotel

Shinagawa‐ku, Tokyo

232

Hotel subtotal

6,007

22 Gran Charm Hiroo

Residential/Small TypeShibuya‐ku, Tokyo

121

23 Plestay Win Kinshicho

Residential/Small Type

Sumida‐ku, Tokyo92

24 Gran Charm Kichijoji

Residential/Small TypeMusashino‐shi, Tokyo28

25 Green Patio Noda

Residential/Small TypeNoda‐shi, Chiba

240

26 Dainichi F‐45

Residential/Small Type

Urayasu‐shi, Chiba

54

27 Gran Charm Urayasu

Residential/Small Type

Urayasu‐shi, Chiba

54

28 Gran Charm Urayasu 5

Residential/Small Type

Urayasu‐shi, Chiba

54

29 Gran Charm Minami Gyotoku I

Residential/Small Type

Ichikawa‐shi, Chiba

52

30 Gran Charm Minami Gyotoku II

Residential/Small Type

Ichikawa‐shi, Chiba

48

Residential property subtotal

743(Note 1)The percentage indicates composition of annual rent revenue based on the 2016 actual results ofannual rent revenue for all of the properties owned by INV and on the assumption that all
properties acquired in and after 2016 by INV had been owned since January 1, 2016. The actual
results before acquisition by INV are based on the data provided by the sellers. With regard to
Hotel MyStays Premier Hamamatsucho, the 2017 revenue forecast (January‐April: Actual /May‐December: Forecast) estimated by INV is used, as the revenue in 2016 temporarily declined
due to the renovation work from August 2016 to November 2016.

(Note 2)The term of validity of the MOU is from December 22, 2016, the date of execution of the updated
MOU, to December 21, 2017. Regarding the 30 properties listed above, there is no guarantee that
INV will be granted an opportunity for considering acquisition of the properties or be able toacquire the properties.

(Note 3)

Each “Asset Type” above is as follows:“Limited Service Hotel” refers to a hotel focusing on revenues from room stay and offer limited
service regarding foods and beverages, banquet, spa or gymnasium facilities.
“Full Service Hotel” refers to a hotel having segments of stay, foods and beverages, and banquet.
“Resort Hotel” refers to a hotel located at tourist destinations or recreational lots, having segmentsof stay, foods and beverages, and incidental facilities.
“Small Type” refers to a residential property in which the majority of dwelling units are less than
30 m2.

(Note 4)

(Tentative) Hotel MyStays Honmachi 3‐chome is scheduled to be completed in November 2017 andopen in December 2017.

Property Sales
While INV places priority on increasing unitholders’ value through external growth by taking into accountthe increased level of activity in the real estate trading market, it also considers the possibility of portfolio
optimization upon consideration of the portfolio sector composition, geographic distribution andcompetitiveness of each property, as appropriate.
On July 25, 2017, INV decided to sell one office building (Kindai Kagaku Sha Building) and one parking

13

lot (Times Kanda‐Sudacho 4th). The portfolio rebalance, whereby acquiring the an additional portion ofHotel MyStays Gotanda Station at an estimated NOI cap rate of 7.3% (Note 1) and selling two non‐core
assets at a 3.8% NOI cap rate, is expected to improve the overall NOI yield for the portfolio. The sale ofthe two non‐core assets, which were sold at prices exceeding both the book and appraisal values, wascompleted on July 31, 2017, and the acquisition of an additional portion of Hotel MyStays Gotanda
Station as described above, is expected to be closed on October 31, 2017.
(Note 1) Calculated by dividing the NOI of Hotel MyStays Gotanda Station to be increased after the
additional acquisition as estimated by INV as of the time of acquisition decision by the
anticipated acquisition price, which is rounded to one decimal place. As the anticipatedacquisition price may change as described below in “c. Significant Subsequent Events”, theestimated NOI cap may vary.
(ii)

Strategy for internal growth(Hotels)
Of the 49 hotels owned by INV as of the end of the Reporting Period, 40 hotels use a variable rent
scheme. In the variable rent scheme, in principle, INV receives all of gross operating profit (GOP) after
deducting management fees for the hotel operator as rents, and as a result INV can directly enjoy thehotel revenue upside. In the case where GOP enters into a downward trend, INV could take advantage
from the fixed rent portion or downside floor to protect itself from further loss. For 35 hotels (Note 1),
MHM has implemented sophisticated revenue management seeking to maximize revenue. INV willcontinue to accurately ascertain and analyze operating conditions of its hotels, the conditions of nearby
hotels, market trends and other factors through operation meetings and other contact with hotel
operators and will focus on operations that maximize rent income.
(Residential properties and others)
INV will continue to strengthen its collaborative ties with PM and brokers to further boost occupancy
rates and earning capabilities of its properties. With respect to INV’s residential properties, while
keeping in mind the off‐season in the residential rental market that occurs during the December 2017
period, INV will focus on increasing the occupancy rate and rent for both new lease contracts and leaserenewals for each of its properties as well as formulating net leasing cost reduction policies in order tocontinue maximizing profits.
Further, the implementation of appropriate maintenance and repair plans is of the utmost importance inmaintaining and enhancing the competitiveness and market value of the properties as well as ensuring
stable operations and high tenant satisfaction. Therefore, INV will continue to monitor current strategicplans with flexible implementation as it sees fit. Especially for hotels, INV will carefully execute theplans for renovations and replacement of fixtures and fittings in order to maintain and increase
revenues.
(Note 1) Hotel MyStays Dojima (former Hotel Vista Premio Dojima), whose operator was changed
effective on August 1, 2017, is included.

(iii) Financial strategy
In the Reporting Period, INV has added new lenders and strengthened its relationship with existing
lenders through the Public Offering and new borrowings in March 2017, in order to further stabilize its
financial base. Going forward, INV will work on diversifying financing measures including issuinginvestment corporation bonds. Also, INV seeks to maximize unitholders’ value by way of extension ofloan tenor, diversification of loan maturity dates, further reduction of borrowing costs and improvementof its credit rating.
(iv) Compliance risk management
While the executive officer of INV concurrently serves as the representative director at the Asset Manager,
two supervisory directors (an attorney and a certified public account) oversee the execution of the executive
officer’s duties via the Board of Directors of INV. In addition, the compliance officer of the Asset Manager

14attends each meeting of the Board of Directors in the capacity of an observer.
The Asset Manager has a compliance officer who is responsible for compliance with laws, regulations andother relevant matters as well as overall management of transactions with sponsor related parties.
Moreover, it has in place a compliance committee which, chaired by such compliance officer, is in charge ofdeliberating on compliance with laws, regulations and other relevant matters as well as transactions withsponsor related parties. Compliance committee meetings are attended by an outside expert (an attorney)
who, sitting in as a compliance committee member, conducts rigorous deliberations on the existence of
conflicts of interest in transactions with sponsor related parties as well as strict examinations with respect to
INV’s compliance with laws and regulations.
INV intends to continually take steps to strengthen its compliance structure.
c

Significant Subsequent Events
On July 25, 2017, INV decided to sell one office building and one parking lot (the “Sale of Assets”) and toacquire a portion ((i) a portion of the first floor and (ii) the entire of the second and third floor) of the annex
building of Hotel MyStays Gotanda Station (the “Additional Acquisition”) with cash on hand including thesale proceeds from the Sale of Assets. The Additional Acquisition will add 49 hotel rooms to Hotel MyStays
Gotanda after the completion of the conversion work from office space to new hotel rooms. The Sale of Assets
closed on July 31, 2017. As a result, INVʹs portfolio comprises of 125 properties (49 hotels, 70 residential
properties and six others) with a total acquisition price of JPY 297,781 million as of the date of this document.
The total acquisition price is expected to increase to JPY 299,661 million after the Additional Acquisition whichis expected to close on October 31, 2017.

(a)Property Sales

The Asset Manager decided to sell one office building and one parking lot, and Sales of Assets has beenclosed on July 31, 2017 as follows:

Use

OfficeBuilding

Parking Lot

Property
number

Property
name

B08

Kindai Kagaku
Sha Building

C01

Times
Kanda‐Sudacho
4th

Total

Acquisition
price(JPY million)

1,301

Book value(JPY million)(Note 1)

1,201

Sales price(JPY million)(Note 2)

1,361

Difference
b/w sales
price andbook value(Note 1)

Transferee

Categoryof specified
asset

159

Undisclosed(Note 3)Trust
BeneficiaryInterest(Note 4)

WastecHOLDINGS
Co., Ltd.

Real
Property

97

100

130

29

1,398

1,301

1,491

188

(Note 1) The book values are anticipated amount as of July 31, 2017. The difference between sales price andbook value is provided for reference purpose. INV estimates to recognize a gain on sales of JPY 120
million (of which, JPY 96 million for Kindai Kagaku Sha Building, and JPY 23 million for Times
Kanda‐Sudacho 4th) in the December 2017 period, after deducting sales‐related expenses.
(Note 2) Sales prices do not include adjustments for fixed asset taxes or city planning taxes, or national or
local consumption taxes.
(Note 3) The name of the transferee is not disclosed, as the transferee’s consent has not been obtained fordisclosure.
(Note 4) The trust beneficiary interest of Kindai Kagaku Sha Building was integrated in a single trust accountwith other trust accounts when INV procured funds through debt financing backed by trust assets inJuly 2011. In transferring the sole trust beneficiary interest of Kindai Kagaku Sha Building by itself,
INV incurred some expenses to detach the asset from the integrated trust account.

15

(b)

Property Acquisition

The Asset Manager decided to acquire an additional portion of a hotel (Note 1) with the anticipated closing
date of October 31, 2017 as follows:

Use

Hotel

Property
numberD43

Property nameLocation

Anticipatedacquisition
price(JPY million)(Note 3)

Appraisal
value(JPY million)(Note 4)

SellerCategoryof specified
asset

1,880

2,600

Undisclosed(Note 5)Trust
beneficiaryinterest

Hotel MyStays
Gotanda Station
Shinagawa‐ku,(Additional
Tokyo
Acquisition Portion)(Note 2)

(Note 1) INV will conduct Additional Acquisition by assuming the buyerʹs position in the “Purchase and Sale
Agreement of Trust Beneficiary Interest” dated May 12, 2017 (the “PSA”), between the seller above
and Gotanda Godo Kaisha, the original buyer.
(Note 2) Hotel MyStays Gotanda Station, INV’s portfolio property, comprises two buildings adjacent to eachother, the Main Building and the Annex Building, and INV currently owns the entire portion of theMain Building and a portion of the Annex Building. The hotel (the “Existing Hotel Portion”) has
been operated as a portion of each of the Main Building and the Annex Building that are owned by
INV. The portion INV will acquire this time is (i) a portion of the first floor of the Annex Buildingand (ii) the entire second and third floor of the Annex Building (collectively, the “Floor Expansion
Portion”), totaling 1,385.46 m2. Conversion work to convert office space to hotel rooms (the“Conversion”) has been implemented by the seller in an aim to add 49 hotel rooms. Upon thecompletion of the Conversion, INV will complete the Additional Acquisition and thus aims tooperate the Existing Hotel Portion and the Floor Expansion Portion together in an efficient manner.
(Note 3) Anticipated acquisition price is the total of (i) purchase price set forth in the PSA, (ii) expenses withregard to the Conversion, (iii) transfer price of the furniture, fixture and equipment (FF&E), andother expenses. Expenses with regard to the Conversion and transfer price of the furniture, fixture
and equipment (FF&E) are estimated amount as of the date of the acquisition decision, and are
subject to change. Moreover, the anticipated acquisition price does not include adjustments for fixed
asset taxes or city planning taxes, as well as national or local consumption taxes.
(Note 4) As the Floor Expansion Portion is under construction, the appraisal value shows the research value
set forth in the research report on the valuation date of June 30, 2017, issued by Morii Appraisal &Investment Consulting, Inc. The research value shows the difference between (i) the research value of
Existing Hotel Portion and Floor Expansion Portion combined, assuming the completion of theConversion (JPY 27,400 million) and (ii) the research value for the Existing Hotel Portion before theAdditional Acquisition (JPY24,800 million).
(Note 5) The name of the seller is not disclosed, as the seller’s consent has not been obtained for disclosure.

16

dOperational Outlook

The forecast of financial results for the fiscal period ending December 31, 2017 is as follows.
Fiscal period ending December 31, 2017 (from July 1, 2017 to December 31, 2017)
Operating Revenues

JPY 10,781 million

Operating Income

JPY 6,512 million

Ordinary Income

JPY 5,885 million

Net Income

JPY 5,884 million

Total Distribution Amount (Including excess profit distribution)

JPY 5,964 million

Net Income per Unit

JPY 1,524

Distribution per Unit (Excluding excess profit distribution)

JPY 1,524

Excess Profit Distribution per Unit

JPY 21

Distribution per Unit (Including excess profit distribution)

JPY 1,545

For the assumptions underlying the operational outlook for the fiscal period ending December 31, 2017,
please see “Assumptions Underlying the Forecast of Financial Results and Distribution for the Fiscal
Period ending December 31, 2017 (from July 1, 2017 to December 31, 2017) .”(Cautionary Note regarding Forward Looking Statements)
Forward looking statements such as the forecasts set forth herein are based on information currently
available and certain assumptions that are deemed reasonable. Actual operating performance may varysignificantly due to factors not foreseen at the time of this present notice, such as the occurrence of gains
and losses associated with the sale of properties, repayment of borrowings and a decrease in rent received.
Also, this forecast is not a guarantee of distribution amounts.

17

<Assumptions Underlying the Forecast of Financial Results and Distribution for the Fiscal Period ending December
31, 2017 (from July 1, 2017 to December 31, 2017) >Item
Fiscal period

Assumptions
The 29th fiscal period: from July 1, 2017 to December 31, 2017 (184 days)
Properties held as of the end of the 29th fiscal period: 125 properties

Assets undermanagement

The assets under management are based on the 125 properties held by INV as of today
and INV assumes that there will be no change such as acquisition of new properties ordisposition of properties held by INV through the end of the fiscal period ending
December 2017, except for the acquisition of an additional portion of Hotel MyStays
Gotanda Station expected to be closed on October 31, 2017.
As of the end of the 29th fiscal period: 3,860,824 units

Units outstanding

INV assumes that there will be no additional issuance of units through the end of the
fiscal period ending December 2017.
Balance as of the end of the 29th fiscal period: JPY 163,990 mn

Interest‐bearing liabilities

INV assumes that there will be no other borrowings or prepayments through the end of
the fiscal period ending December 2017.
INV expects to record rental revenues as follows:・Rental revenues(of these, hotel rents)(fixed hotel rents)(variable hotel rents)
Operating revenues

December 2017 Fiscal Period
JPY 10,781 mn(JPY 6,604 mn)(JPY 3,340 mn)(JPY 3,264 mn)

Rental revenues for the fiscal period ending December 2017 are calculated based on
estimates as of today from July 2017 to December 2017. In addition, INV assumes there
will be no delinquencies or non‐payment of rent by tenants.
The majority of INV’s owned hotels use a variable rent scheme linked to performance ofthe relevant hotel. Hotel demand is affected by seasonal factors and the December
ending fiscal periods (from July to December) which include summer holiday andautumn outing seasons tend to record higher revenue than the June ending fiscal
periods (from January to June). Accordingly, INV’s rental revenues tend to be higher inthe December ending fiscal periods than in the June ending fiscal periods.

18

Item

Assumptions
INV expects to incur property related expenses as follows:

Operating expenses

December 2017 fiscal period
・Facility management fees
JPY 506 mn(of these, repair costs)(JPY 31 mn)
・Taxes and other public charges (Note 1)
JPY 465 mn
・Insurance expenses
JPY 10 mn
・Depreciation expenses
JPY 2,436 mn
・Other expenses
JPY 395 mn
Total property related expenses
JPY 3,815 mn(Note 1) Property taxes and city planning taxes, etc. are prorated by the number ofdays and settled between seller and buyer and capitalized as acquisition
costs for the properties which were, or expected to be, acquired in 2017, andthus not recorded as expenses in December 2017 fiscal period. These
expenses will be recorded from June 2018 fiscal period onward.
INV expects to incur operating expenses other than the property related expenses asfollows:
December 2017 fiscal period
・Other operating expenses

JPY 454 mn(of these, asset management fees)(JPY 250 mn)

INV expects to record net operating income as follows:
December 2017 fiscal period
NOI

・NOI
(of these, hotel NOI)(of these, residential NOI)JPY 9,283 mn(JPY 6,270 mn)(JPY 2,648 mn)

NOI calculation method in the above table is as follows
・NOI＝ Rental Revenues ‐ Property Related Expenses + Depreciation Expenses

INV expects to incur non‐operating expenses as follows:
Non‐operating expenses

・Interest expense
・Finance related costs
Total non‐operating expenses

19

December 2017 fiscal period
JPY 422 mn
JPY 204 mn
JPY 627 mn

Item

Assumptions
The distribution per unit is calculated in accordance with the cash distribution policy as
set forth in INV’s Articles of Incorporation.
With respect to the distribution for the fiscal period ending December 2017, INV
expects to distribute an aggregate amount of JPY5,964 million (distribution per unit:
JPY 1,545) based on the assumption that excess profit distribution will be paid (JPY 81
million), in addition to net income for the fiscal period ending December 2017 (JPY5,884 million) which will be used as funds.

Distribution per unit

For the fiscal period ending December 2017, INV expects to record deferred gain on
hedge of the interest rate swap as the valuation and conversion adjustments, etc. of JPY
92 million, which is equal to the amount for the fiscal period ended June 2017. The
distribution per unit is calculated based on the assumption that fluctuation of themarket value of the interest rate swap does not affect the distribution per unit.
Distribution per unit may vary due to various factors, including changes of the assets
under management, fluctuation of rent income associated with reasons such as changeof tenants and occurrences of unexpected repairs.

INV believes maintaining the stability of cash distributions over the medium term is
one of the most important factors in determining the amount of distribution for agiven fiscal period, and therefore, INV has adopted the policy to make distributions inexcess of profits in order to stabilize distributions, in cases where dilution of
investment units or significant expenses are to be recorded in connection with, among
other things, the acquisition of assets or the raising of capital, leading to a temporary
decrease in distribution, taking into consideration the level of distribution per unit
assuming such acquisition of assets or capital raising had contributed for a full fiscal
period.
Excess profit distribution
per unit

INV may also consider making distributions in excess of profits for the purpose of
decreasing the impact from corporate tax increase arising from different rules in tax
and accounting practices, such as treatment on depreciation of fixed term land leaseor asset retirement obligation.
INV intends to make distributions in excess of profits (JPY 21 per unit for the fiscal
period ending December 2017) in order to cope with the discrepancy between tax andaccounting treatment for the fiscal period ending December 2017.

December 2017 fiscal period
Excess profit distribution per unit

Other

JPY 21

INV assumes there will be no amendments to applicable laws and regulations, thetaxation system, accounting standards and other regulations that would affect theforegoing forecasts.
In addition, INV assumes there will be no unforeseen material changes in general
economic trends, real estate market conditions and other trends and conditions.

20