Make The World
More Sustainable[Provisional Translation Only]
This English translation of the original Japanese document is provided solely for information purposes.
Should there be any discrepancies between this translation and the Japanese original, the latter shall prevail.

July 17, 2019
IssuerIchigo Hotel REIT Investment Corporation (“Ichigo Hotel,” 3463)
1-1-1 Uchisaiwaicho, Chiyoda-ku, Tokyo
Representative: Osamu Miyashita, Executive Director
www.ichigo-hotel.co.jp/english
Asset Management Company
Ichigo Investment Advisors Co., Ltd.
Representative: Hiroshi Iwai, President
Inquiries: Hiroto Tajitsu, Head of Administration
Tel: +81-3-3502-4892

Hotel Acquisition (Valie Hotel Hiroshima)
Ichigo Hotel decided today to acquire the Valie Hotel Hiroshima in central Hiroshima.
1. Acquisition Summary
Hotel Name1

Valie Hotel Hiroshima

Hotel Number2

F-5 024

Date Built

August 1985

Form of Ownership

Trust beneficiary interest in real estate (juekiken)

Appraisal Value3

JPY 1,730,000,000

Acquisition Price4

JPY 1,500,000,000

Seller5

Domestic real estate company

Contract Date

July 17, 2019

Closing Date

July 19, 2019

Financing Method

Cash-on-hand and loan6

Settlement Method

Lump-sum payment

Other Terms

Ichigo Estate, which entered a purchase and sales
agreement with the seller to acquire the hotel, hastransferred its rights as the buyer of the hotel to Ichigo
Hotel pursuant to a transfer of rights agreement.

1

Ichigo Hotel plans to rebrand and reopen the hotel as Valie Hotel Hiroshima in
September 2019.
2
The initial letter “F” is Ichigo Hotel’s region code for where the hotel is located, in thiscase the Chugoku/Shikoku region in western Japan. Please see page 10 for region codedetails.
3
Appraisal Value is calculated by Tanizawa Sogo Appraisal as of April 1, 2019, and is1

in compliance with the appraisal guidelines of Ichigo Investment Advisors (“IIA”) as
well as the rules of the Investment Trusts Association of Japan.
4Acquisition Price excludes incidental expenses such as fees and property, city
planning, and consumption taxes.
5
The seller, a domestic real estate company, did not provide consent to disclose its
name.
6
For financing details, please refer to today’s release “New Loan and Interest RateSwap.”
2. Acquisition Rationale
Ichigo Hotel continues to execute on its strategy to grow earnings and dividends for itsshareholders.
As part of that strategy, Ichigo Hotel is today acquiring the Valie Hotel Hiroshima incentral Hiroshima, an area with strong inbound tourism growth. The acquisition is at a
13% discount to appraisal value, and is forecast to increase Ichigo Hotel’s annual NOI
by JPY 117 million. Ichigo Hotel’s forecast post-acquisition LTV is 43.6%.1
The Valie Hotel Hiroshima is a 15-minute walk from the JR Hiroshima Station, thelargest train station in the Chugoku region of western Japan, and a three-minute walkfrom the Jogakuin-mae Station on the Hiroden Tram line. It is located in downtown
Hiroshima in an area with government buildings and offices, and offers convenient
access to the Hatchobori area with offices, retail stores, and restaurants, as well as
tourist spots such as the Hiroshima Peace Memorial. The strong location enables thehotel to capture stable business demand as well as leisure demand.
Tourist demand in Hiroshima has been firm, with inbound demand forecast to continue
increasing due to the popularity of Hiroshima’s historical and cultural attractions.
Ichigo Hotel expects to carry out renovations to increase guest convenience, andrebrand and reopen the hotel as Valie Hotel Hiroshima in September 2019. In order tocapture greater leisure demand, Ichigo Hotel is converting single-bed rooms, the mostcommon room type in the hotel, into double rooms, thus increasing the guest capacity ofall rooms to at least two guests.
The hotel’s operator, The Court, operates 13 hotels across Japan, including Ichigo
Hotel’s Valie Hotel Tenjin and Court Hotel Kurashiki. Ichigo Hotel has a variable-rentlease with The Court, which will allow Ichigo Hotel to benefit from earnings growthfrom increased inbound tourism.
1

Post-Loan LTV = (Post-Loan Total Interest Bearing Liabilities) / (January 2019 Total
Assets – January 2019 Total Dividends + Acquisition Price of Nest Hotel Kumamoto(acquired on April 25, 2019) + Acquisition Price of Valie Hotel Hiroshima)2

3. Description and Location of the Valie Hotel Hiroshima
The Valie Hotel Hiroshima caters to business, leisure, and inbound demand due to its
central Hiroshima location and convenient access to government offices, shopping
districts, and the Hiroshima Peace Memorial.
The hotel is located near the JR Hiroshima Station and the Hiroshima Bus Center, bothof which offer easy access to Hiroshima Airport.
Ichigo Hotel is converting single-bed rooms, currently the most common room type in
the hotel, into double rooms to increase the capacity of all rooms to at least two guests.
This will allow the hotel to more flexibly accommodate the diverse needs of travelers.

3

Legal Form of Asset
Trustee
Period of Trust Contract
Location
Property RightAreaLandZoning
Coverage Ratio
Floor Area Ratio
Property Right
Use
Building Structure1
Total Floor Area
Date Built
Appraiser
Appraisal Value

Hotel Details
Trust beneficiary interest in real estate (juekiken)
Mizuho Trust & Banking Co., Ltd.
February 20, 2004 – July 31, 2029 (Expected)
7-25 Kamihatchobori, Naka-ku, Hiroshima
Freehold
1,091.58m2
Commercial
100%
500%
Freehold
Hotel
Reinforced Concrete B1F/8F
4,473.91m2
August 2, 1985
Tanizawa Sogo Appraisal Co., Ltd.
JPY 1,730,000,000
April 1, 2019

Appraisal Date
Value by Direct Capitalization
JPY 1,780,000,000
MethodNumber of Guest Rooms171Taisei Corporation, Hiroshima Branch, First-Class RegisteredArchitect2
Architects Office2
BuilderTaisei Corporation, Hiroshima Branch
2
Structural Designer
Taisei Corporation, First-Class Registered Architects Office2
Inspection Agency
Hiroshima City
PML (Assessor)
4.46% (Sompo Risk Management & Health Care Inc.)
Collateral
None
Lease Details
Tenant Overview
1
Number of Tenants
Minimum Guaranteed Rent*: JPY 32,655,612 p.a.
Variable Rent: Monthly GOP (Gross Operating Profit) –(Monthly Minimum Guaranteed Rent + Percentage ofRental Income3
Monthly GOP)
* Minimum Guaranteed Rent from September 1, 2019, theforecast reopening date, to August 31, 2020
DepositNo lease or guarantee deposit
Leasable Area
4,473.91m2
Leased Area
4,473.91m2
February
MarchAprilMayJune2019
201920192019
2019
Occupancy
100%
100%100%100%–4Property Management
Company
Master Lease Company
Master Lease TypeAppraisal NOI Yield4
Post-Depreciation NOI Yield5

Uniho Co., Ltd.
Ichigo Hotel REIT Investment Corporation
Pass-through
7.1%
4.5%
Special Items

A report by Earth-Appraisal Co., Ltd. indicates that although asbestos was detected in thepaint coating used for the interior wall on the first floor, there is no risk of the asbestos
becoming airborne during normal use given that there are no significant damages and thecoating is in good condition. Ichigo Hotel expects to incur c. JPY 5 million in expenses toremove the asbestos as part of future building renovations, which will be booked as a liability
for asset retirement obligation for the July 2019 fiscal period.
1

Building Structure refers to the structure described in the real estate registry.
Names of the architect, builder, structural designer, and inspection agency are those as ofwhen the building was built.
3
Rental Income includes all rent from hotel facilities. Ichigo Hotel expects to start booking
Rental Income for the Valie Hotel Hiroshima in September 2019 at the hotel’s reopening.
4
Appraisal NOI Yield = Appraisal NOI (Net Operating Income) in the real estate appraisal
report divided by the Acquisition Price. This figure is independently calculated by IIA
based upon the above data and is therefore not in the real estate appraisal report itself.
5
Post-Depreciation NOI Yield = Appraisal NOI in the real estate appraisal report minus
Depreciation, divided by the Acquisition Price. Depreciation is independently calculated
by IIA using the straight-line method, and the Post-Depreciation NOI Yield is calculated
by IIA based upon the above data and are therefore not in the real estate appraisal report
itself.
25Hotel Name
Appraisal Value
Appraiser
Appraisal Date

Appraisal Value
Value by Direct
Capitalization Method
IncomeMaximum
Obtainable Rental
IncomeVacancy Loss
Expenses
Administrative &MaintenanceExpensesUtility Expenses
Repair Expenses
PM FeeLeasingBrokerage Fees
Taxes

Appraisal Details
Valie Hotel Hiroshima
JPY 1,730,000,000
Tanizawa Sogo Appraisal Co., Ltd.
April 1, 2019
AmountNote
Based on a DCF valuation, and verified
JPY 1,730,000,000 using a direct capitalization valuation
and DCF valuation
JPY 1,780,000,000
JPY 124,200,000
JPY 124,200,000–
JPY 18,427,930– Borne by tenant– Borne by tenant
Based on the average of the past 12
JPY 7,920,000 years of engineering reports and past
expenses at similar assets
JPY 1,440,000 Based on estimates–
JPY 8,420,600

Based on FY2018 actual amounts(including depreciable asset tax)

InsurancePremiums

JPY 274,730 Based on insurance estimates

Other Expenses

JPY 372,600

Net Operating
Income (NOI)
Income on
Investment ofDeposits Received
CapitalExpenditure
Net Profit

0.3% of rental income (accounted for asa variable expense)

JPY 105,772,070–
Based on the average of the past 12
JPY 18,480,000 years of engineering reports and past
expenditures at similar assets
JPY 87,292,070
Based on transactions of similar assets
and comprehensive assessment of the4.9%
asset’s location, its individual
characteristics, and property rights

Cap Rate6Value via DCF Method

JPY 1,710,000,000

Discount Rate

Based on transactions of similar assets
and the yields of financial assets with
5.0%
the asset’s individual characteristics
taken into account

Terminal Cap Rate

5.1% Based upon risk-adjusted NOI

Value via Cost ApproachLand

JPY 1,550,000,000
56.2%
Sum of building and FF&E values
43.8% divided by sum of building, FF&E, andland values

Building

Notes
Expenses to remove the asbestos are reflected in the appraisal calculation.
4. Seller Profile
Name

Domestic real estate company

Relationship withIchigo Hotel or IIA

The seller does not have any capital, personnel, or business
relationship of note with Ichigo Hotel or IIA. In addition, theseller is not a related party as defined in the Enforcement
Ordinance of the Investment Trust and Investment Corporation
Law or the internal rules of the Asset Management Company.

5. Ownership History
The Valie Hotel Hiroshima was not acquired from a related-party seller.
6. Broker Profile
N/A
7. Related-Party Transaction
Because Ichigo Hotel did not have sufficient time to complete its internal processes andenter a sales and purchase agreement with the seller, Ichigo Hotel asked Ichigo Estate, arelated party as defined in the Enforcement Ordinance of the Investment Trust andInvestment Corporation Law, to enter on Ichigo Hotel’s behalf a sales and purchaseagreement with the seller. Ichigo Estate then agreed to transfer its rights as the buyer ofthe hotel to Ichigo Hotel after the acquisition.
Ichigo Estate thus entered a sales and purchase agreement with the seller as requested
by Ichigo Hotel, and agreed to transfer its rights as the buyer to Ichigo Hotel. Ichigo
Hotel will pay JPY 15 million to Ichigo Estate as a compensation for its role.
The compensation was determined to be appropriate upon consideration of 1) thebenefits gained by Ichigo Hotel in securing the acquisition opportunity; 2) the risks
borne by Ichigo Estate to enter the sales and purchase agreement before transferring its
rights as the buyer; 3) the expenses incurred by Ichigo Estate in entering bothagreements; 4) a comparison with the expected profitability and costs that would haveresulted from using an alternative method of acquisition such as a bridge fund; and 5)
the fact that hotel’s appraisal value of JPY 1.73 billion is greater than the sum of theacquisition price and the compensation amount.
7

Because Ichigo Estate, which entered a sales and purchase agreement with the seller, isa related party as defined in the Ordinance of the Investment Trust and Investment
Corporation Law and IIA’s internal rules, Ichigo Hotel obtained prior approval fromIIA’s Board of Directors as a related-party transaction.
8. Acquisition Schedule
Contract Date
Acquisition and Settlement Date

July 17, 2019
July 19, 2019 (Expected)

9. Earnings Outlook
The impact of the acquisition of the Valie Hotel Hiroshima on Ichigo Hotel’s July 2019
and January 2020 fiscal period earnings is minimal because the acquisition date is close
to the July 2019 period-end and because the earnings contribution is largely offset by
the hotel renovation, rebranding, and reopening costs in the January 2020 period. While
the forecasts announced on March 14, 2019 are therefore unchanged, Ichigo Hotelbelieves the acquisition will contribute to long-term growth in earnings and shareholder
value.

8Appendix A: Engineering Report Summary
Inspector Name
Inspection Date
Short-Term Repair Expenses1
Long-Term Repair Expenses2
Current Replacement Cost

Tokio Marine & Nichido Risk Consulting Co., Ltd.
April 2019–JPY 286,631,000
JPY 1,324,800,000

1Short-Term Repair Expenses are defined as repair expenses considered necessary
beyond the scope of ordinary maintenance within a year from the time of inspection.
2Long-Term Repair Expenses are defined as cumulative repair expenses considerednecessary for the maintenance of the hotel within twelve years from the time ofinspection.

9Appendix B: Post-Acquisition Portfolio
Hotel Name

Prefecture

Nest Hotel Sapporo Ekimae
Nest Hotel Sapporo Odori
Comfort Hotel Kushiro
Grandpark-Inn Yokohama
Smile Hotel Tokyo Asagaya
Hotel Livemax NihombashiHakozaki
Comfort Hotel Hamamatsu
Hotel Wing InternationalNagoya
Comfort Hotel Central
International Airport
Comfort Hotel Suzuka
Smile Hotel Kyoto Shijo
Hotel Vista Premio Kyoto
Chisun Inn Osaka
HommachiHotel Wing International
Kobe Shin Nagata Ekimae
Nest Hotel Osaka
Shinsaibashi
Comfort Hotel Okayama
Nest Hotel Matsuyama
Urbain Hiroshima Executive

Hokkaido
Hokkaido
Hokkaido
Kanagawa
Tokyo

Variable Rent
Variable Rent
Fixed Rent
Fixed Rent
Variable Rent

Acquisition
Price2(JPY million)
2,160
1,450
300
1,4903,910

Tokyo

Fixed Rent

1,360

2.5

Shizuoka

Fixed Rent

1,550

2.8

Aichi

Variable Rent

2,670

4.9

Aichi

Fixed Rent

5,308

9.7

MieKyoto
Kyoto

Fixed Rent
Variable Rent
Variable Rent

300
4,480
3,600

0.6
8.2
6.6

Osaka

Variable Rent

1,630

3.0

Hyogo

Variable Rent

1,490

2.7

Osaka

Variable Rent

7,600

13.9

Okayama
Ehime
Hiroshima
Okayama
Hiroshima
Fukuoka
Okinawa
Kumamoto

Fixed Rent
Variable Rent
Fixed Rent
Variable Rent
Variable Rent
Variable Rent
Variable Rent
Variable Rent

1,200
1,610
1,8001,725
1,500
1,380
3,750
2,220
54,483

2.2
3.0
3.3
3.2
2.8
2.5
6.9
4.1
100.0

Hotel
No.1
A-1 004
A-2 008
A-3 018B-1 020
C-1 012
C-3 016
D-1 006
D-2 003
D-3 011
D-4 019E-1 001E-2 002
E-3 005
E-4 007
E-5 010F-1 017
F-2 015
F-3 021F-4 022
F-5 024
G-1 009G-2 013
G-3 023
1Court Hotel Kurashiki
Valie Hotel Hiroshima
Valie Hotel Tenjin
Nest Hotel Naha
Nest Hotel Kumamoto
Total 23 Hotels

LeaseTerms% ofPortfolio3
4.0
2.70.62.7
7.2

The initial letter (A, B, etc.) is a region code which identifies the area in which the hotel is located.

CodeARegion
Hokkaido/Tohoku

BKantoCDEF

Tokyo
Hokuriku/TokaiKinki
Chugoku/Shikoku

Prefectures
Hokkaido, Aomori, Iwate, Miyagi, Akita, Yamagata, Fukushima
Ibaraki, Tochigi, Gunma, Saitama, Chiba, Kanagawa, Yamanashi,Nagano, Niigata
Tokyo
Toyama, Ishikawa, Fukui, Gifu, Shizuoka, Aichi, MieOsaka, Hyogo, Kyoto, Shiga, Nara, Wakayama
Tottori, Shimane, Okayama, Hiroshima, Yamaguchi, Kagawa,Tokushima, Kochi, Ehime

10

GKyushu/Okinawa

Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki, Kagoshima,Okinawa

2Acquisition Price is the price as indicated in the purchase and sales agreement for the hotel(excluding fees and incidental expenses such as property, city planning, and consumption taxes).
3% of Portfolio is the Acquisition Price of each hotel as a percentage of the Total Acquisition Price forthe portfolio, rounded to the nearest tenth.

11Annual Hotel Guests in Hiroshima Prefecture(million)
3.0

15.0Japanese Guests (Left Axis)

10.0
8.1

8.7

Inbound Guests (Right Axis)

8.8

8.6

2.0

8.6
1.2

5.0

0.7

0.8

1.0

1.0

0.4

0.00.02014

20152016

20172018

Note: Data prepared by IIA based on the Japan Tourism Agency’s “Statistical Survey ofTravelers,” 2014 – 2018.
Annual Tourists Visiting Hiroshima City(million)
15.0

10.0

Tourists Visiting Hiroshima (Left Axis)

11.7

12.0

12.6

Inbound Tourists (Right Axis)
13.4

3.0

13.4
1.8

2.0

1.5
1.0
5.0

1.2
1.0

0.7

0.0

0.0
2014

2015

2016

2017

2018

Note: Data prepared by IIA based on Hiroshima City’s “Number of Tourists Visiting
Hiroshima City in 2018.”

12