Japan Hotel REIT Investment : Notice Concerning Acquisition and Lease of New Assets (Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi)

This English translation is provided for information purposes only. If any discrepancy is identified between this translation and the Japanese original, the Japanese original shall prevail.

January 8, 2019

REIT Issuer:

Japan Hotel REIT Investment Corporation (TSE code: 8985) Kaname Masuda, Executive Director

Asset Management Company: Japan Hotel REIT Advisors Co., Ltd.

Hisashi Furukawa, Representative Director and President Contact:

Makoto Hanamura General Manager

Investor Relations Department, Operations Division TEL: [phone]

Notice Concerning Acquisition and Lease of New Assets (Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi)

This is to inform you that Japan Hotel REIT Advisors, Co., Ltd. (hereinafter called the "Asset Management Company"), the asset management company of Japan Hotel REIT Investment Corporation (hereinafter called "JHR"), has resolved to acquire and lease the properties below (hereinafter called the "Assets for Anticipated Acquisition") today on behalf of JHR.

The lessees of Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi fall under an "Interested Party, etc." as stipulated in the Act on Investment Trust and Investment Corporation (Act No. 198 of 1951, as amended; hereinafter called the "Investment Trust Act"). Therefore, the leasing of Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi has been approved by JHR based on resolution at JHR's Board of Directors meeting pursuant to the Investment Trust Act and the internal codes for transactions with Sponsor-Related Parties stipulated by the Asset Management Company (Please see "8. Transaction with Interested Party" below).

1. Summary of the Assets for Anticipated Acquisition

Name of the Assets for Anticipated Acquisitions	Asset type (*1)	Rent type	Anticipated acquisition price (*2)	Anticipated acquisition date (*3)	Collateral
Hilton Tokyo Odaiba	Full-service hotel	Fixed rent and Variable rent	JPY62,400,000,000	April 8, 2019	Unsecured
Hotel Oriental Express Osaka Shinsaibashi	Limited-service hotel	Fixed rent and Variable rent (*4)	JPY2,738,000,000	February 1, 2019
Total			JPY65,138,000,000

• (*1) JHR categorizes hotels into three types, "limited-service hotel" (hotels specialized in selling guest rooms), "full-service hotel" (hotels providing comprehensive services, not only selling guest rooms) and "resort hotel" (among full-service hotels, hotels located in vacation resorts, which are areas with rich natural environment or tourist attractions such as hot spring resorts and scenic spots, or areas surrounding famous leisure facilities, leisure facilities attracting customers, etc.) according to the manner of operation provided. The same shall apply below.

• (*2) The anticipated acquisition price is the price set forth in the purchase and sale agreement for beneficial interest in trust for acquisition of the relevant Assets for Anticipated Acquisition, etc. (hereinafter called the "PSA") and other related agreements. The anticipated acquisition price does not include expenses for acquisition, property taxes, city planning taxes and consumption tax, etc.

• (*3) The PSA for each real estate beneficial interest in trust has been concluded with the relevant seller to acquire the relevant Assets for Anticipated Acquisition. The PSA for Hilton Tokyo Odaiba, among the Assets for Anticipated Acquisition, falls under forward Note: This document is intended to serve as a press release to make available the information on acquisition and lease of new assets of

  JHR. The document should not be considered as an offer to sell or solicitation of an offer to purchase any investment unit or other investment of JHR. Prospective investors are advised to make any investment decision at their own risk and responsibility.

  This press release does not constitute an offer of securities in the United States. The securities referred to above have not been, and will not be, registered under the United States Securities Act of 1993, as amended (hereinafter called the "Securities Act"). The securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. The securities referred to above will not be publicly offered or sold in the United States.

commitment. See "9. Matters on Forward Commitment, etc." below for details on the PSA.

• (*4) The rent type is fixed rent from April 2, 2018 to June 30, 2019 and will be a combination of fixed and variable rent on and after July 1, 2019.

• (*5) See "5. Summary of the Sellers" below for the sellers.

2. Rationale for Acquisition and Lease

JHR aims to provide investors with attractive investment opportunities in hotels that can realize both stability and upside potential (*). The Asset Management Company has made the determination to acquire the Assets for Anticipated Acquisition as they benefit JHR for the following reasons.

(*) Upside means an increase in income from variable rent, etc. resulting from improvement in hotels' performance. Upside potential is the possibility of upside. The same shall apply below.

The Assets for Anticipated Acquisition are Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi.

Hilton Tokyo Odaiba is a large-scale full-service hotel located in Minato-ku, Tokyo with a 4-star rating (*1), which is a highly rare asset in Japan's property market and the first hotel with such characteristics for JHR. The hotel, which will be the largest hotel property held by a J-REIT in terms of the anticipated acquisition price (*2), will become a trophy asset for JHR. In addition to good access to renowned tourist spots in Tokyo such as Ginza, Asakusa and Shibuya, many leisure and commercial facilities and other facilities such as Tokyo Big Sight, one of the biggest international convention centers in Japan, are located nearby. Therefore, JHR believes that it can expect to attract active demand for both leisure and business purposes.

Hotel Oriental Express Osaka Shinsaibashi is a newly-built hotel (completed in January 2018) in Osaka's Minami area, where JHR has abundant experience of managing hotels. HMJ Group (*3) participated in the planning of the hotel from the development phase as the operator (An operator is a trustee of a hotel operation. The same shall apply below). As HMJ Group's management expertise was utilized since the planning, all of the hotel's guest rooms can accommodate at least two people, which provides an advantage in meeting inbound demand.

Each of the Assets for Anticipated Acquisition is a high quality property located in areas where stable accommodation demand and steady growth can be expected going forward, and JHR believes that the acquisitions of these properties will enhance the quality of its portfolio.

JHR sets its criteria to select hotel lessees combining credibility and hotel management capability. JHR believes each of the lessees of the Assets for Anticipated Acquisition satisfies its criteria to select hotel tenants mentioned in "Report on the Management Structure and System of the Issuer, etc. of Real Estate Investment Trust Securities and Related Parties" which was disclosed on March 30, 2018 (available in Japanese only).

• (*1) According to the data on Five Star Alliance as of November 30, 2018. The same shall apply below.

• (*2) Based on the (anticipated) acquisition price as of November 30, 2018. The same shall apply below.

• (*3) HMJ is an abbreviated name of Hotel Management Japan Co., Ltd. HMJ Group consists of HMJ and its subsidiaries (joint-stock corporations in which over 50% of total shares issued and outstanding are held by HMJ). The same shall apply below.

3. Features of the Assets for Anticipated Acquisition

I. Hilton Tokyo Odaiba

(1) Odaiba Market

As a representative tourist spot in Tokyo, Odaiba allows easy access from JR Tokyo Station and Tokyo International Airport (hereinafter called "Haneda Airport"), gateways to Tokyo, and it is located approximately 15 minutes away by car from Ginza, one of Tokyo's most famous tourist spots. It also enjoys good access to other renowned tourist spots like Asakusa and Shibuya. In addition, there are many leisure and commercial facilities as well as business facilities such as Tokyo Big Sight, which is one of the biggest international convention centers in Japan, in the area. Therefore, JHR believes further growth can be expected in this market due to stable demand for leisure and business and demand from inboundvisitors.

(2) Features of the Assets for Anticipated Acquisition a. Superiority in location

According to the market report prepared by KPMG FAS Co., Ltd. (hereinafter called the "MR"), the hotel is directly linked to Daiba Station of the Yurikamome Line and located approximately 20 minutes away from Haneda Airport by limousine bus. Moreover, the hotel is a large-scale full-service hotel with a 4-star rating, a rare feature shared by few other hotels. Furthermore, it provides good access to major stations in Tokyo and airports as free shuttle buses engage in a regular transport service from the hotel to Shinagawa and Tamachi Stations, and direct limousine buses serve a regular route between the hotel and Narita International Airport. In addition, many leisure and commercial facilities and other facilities such as Tokyo Big Sight, one of the biggest international convention centers in Japan, are located nearby. Therefore, the hotel is believed to be able to attract robust demand for both leisure and business purposes.

b. Superiority in infrastructure

According to the MR, the hotel has high visibility due to the unique curving shape of its building designed after an image of sailing ship. As the 14-story hotel (with 1-story below ground) is located on Tokyo's water front with few neighboring buildings that obstruct its view, it provides a beautiful ocean panorama of the Tokyo Bay front. Each guest room is at least 33m2 wide, providing adequate space for use by two or more persons. In addition, the hotel is also equipped with various facilities including Japanese, Western and Chinese restaurants, a lounge, conference rooms, wedding halls, a fitness gym, a swimming pool and a spa, as well as large and small banquet halls, such as "Pegasus" that can accommodate up to 1,600 people, meeting the demand of the various business and leisure events, and providing convenience with respect to both business and leisure purposes as a full-service hotel that provides Hilton Hotel's sophisticated services.

c. Superiority in operations

The strongest selling point of the hotel is that it is a large-scale full-service hotel located in an urban resort and operated under an international brand, "Hilton". The Hilton brand strongly appeals to middle and higher-class inbound guests who come on business associated with international listed companies and leisure use. According to the MR, inbound guests accounted for 56% in terms of the number of guest rooms sold from January to April 2018, which is a relatively high proportion. The hotel is designated as a "good neighbor hotel" of the Tokyo Disney Resort (hereinafter called "TDR"), providing up-to-date information on TDR, such as opening / closing hours and events, and the free "good neighbor hotel shuttle", a regular transport service between the hotel and bus terminals of the two TDR parks, Tokyo Disneyland and Tokyo DisneySea.

The hotel will be the largest hotel property held by a J-REIT in terms of the anticipated acquisition price and will become a trophy asset for JHR. As it will account for a substantial part of JHR's portfolio, JHR has decided to set the rent structure with a large fixed-rent portion and an added smaller variable-rent component to share upside for the first two years and nine months until December 2021. With this rent structure, JHR can enjoy stability of its revenue while retaining upside potential driven by the Tokyo Olympics and Paralympics in 2020, etc. Starting January 2022, when HMJ Group's management of the hotel is expected to get on the right track, the rent structure will become a more balanced combination of fixed rent and variable rent, similar to other JHR's properties under HMJ group's management, and the proportion of variable rent will be increased.

II. Hotel Oriental Express Osaka Shinsaibashi

(1) Osaka Market

JHR believes that Osaka is a market where it can expect an increase of inbound visitors and further growth. Osaka's Minami area, which includes mainly Namba and Shinsaibashi, is a representative entertainment and shopping district in Osaka City, and provides convenient access to the major neighboring tourist areas as the nearby Shinsaibashi Station of Osaka Metro's Midosuji Line is approximately 50 minutes to each of JR Kyoto Station, JR Nara Station, JR Kobe Station, etc. In addition, Namba Station is a gateway to Kansai International Airport, approximately 45 minutes away by Nankai Airport Line rapid train. As many lowcost carriers launched regular flights between Kansai International Airport and mainly Asian cities, JHR believes Osaka is a market where further growth in lodging demand from tourists can be expected in line with the increase of inbound tourist demand.

(2) Features of the Assets for Anticipated Acquisition a. Superiority in location

The hotel is located in Osaka's Minami area, one of the most famous tourist spots in the Kansai area, and approximately 4 minutes on foot from Shinsaibashi Station of Osaka Metro's Midosuji Line and Nagahori Tsurumi-ryokuchi Line. Osaka Metro's Midosuji Shinsaibashi intersection is the end point of the Shinsaibashi shopping arcade starting from Namba Dotonbori, and there are many luxury brand shops and famous stores concentrated in surrounding areas. Therefore, JHR believes the hotel can attract leisure guests, mainly inbound visitors. The subway's Shinsaibashi Station is approximately 6 minutes away from Umeda Station and approximately 13 minutes away from Shin-Osaka Station, by the Midosuji Line. Using Osaka Metro's Nagahori Tsurumi-ryokuchi Line gives access to the Osaka Business Park and the Kyobashi district.

b. Superiority in infrastructure

The hotel is a newly-built hotel opened in April 2018, which is dedicated to lodging. As all of the hotel's guest rooms are double or twin rooms (*) with high twin room ratio of 86.3%, the hotel is able to accommodate multiple people in all rooms, and therefore, JHR believes the hotel is well-positioned to meet increasing demand from inbound visitors. Moreover, as guest rooms are equipped with the Handy Phone, guests have free access to Wi-Fi, telephone and the Web, and there is a laundromat and a cafe area exclusively for use by guests. As such, the hotel provides convenient facilities dedicated to guests and meets various needs from domestic and inbound guests.

(*) Twin rooms include Universal rooms. A "Universal room" is a barrier-free room type designed for use of a wheel-chair.

c. Superiority in operations

The hotel has been operated by HMJ group since its opening, and it is the third hotel operated by HMJ group in Osaka's Minami area. HMJ group can utilize its expertise gained in the operations of two hotels, Namba Oriental Hotel and Holiday Inn Osaka Namba, which it already operates. As the hotel is in a different grade and price range from the other two hotels, it can attract demand of a different segment. JHR will aim at growth through its "Active Asset Management" strategy using HMJ group's platform including cost management by the synergy effect through optimization of staffing of operators, cost reduction through integration of back offices and joint purchases of goods, etc. by leveraging economies of scale of operating the three properties in the same area, as well as enjoying upside of revenue through referring guests to our other hotels nearby and mitigating the effects of double booking.

4. Details of the Assets for Anticipated Acquisitions (1) Hilton Tokyo Odaiba

Property No.

54

Property NameHilton Tokyo Odaiba

1. Asset summary (*1)
Asset category	Real estate beneficial interest in trust
Anticipated acquisition date	April 8, 2019
Anticipated acquisition price	JPY62,400,000,000
Appraisal value	JPY65,800,000,000 (See "13. Appraisal Report Summary" below for details.)

2. Summary of real estate (or trusted real estate) (*2) Intended use of the property Hotel / Full-service hotel

OwnershipLand Building Plot No. Address AcreageOwnership Ownership

1-2, Daiba, Minato-ku, Tokyo 1-9-1, Daiba, Minato-ku, Tokyo 18,825.30 m2

LandZoning, etc. Building-to-land ratio

Commercial district, fire preventive district, district plan for Tokyo Waterfront Subcenter City's Daiba Area

Floor area ratio Structure and stories

100% 300%

S and SRC with flat roof, Fourteen stories above ground with one story below groundIntended use HotelBuildingCompletion Total floor space (*3)

January 1996 64,907.76 m2

Designer Constructor Institute that confirmed buildingK.K. YAMAGI SEKKEI, others Sato Kogyo Co., Ltd., others

Building official, Tokyo Metropolitan

Present owner

Trustee: Mitsubishi UFJ Trust and Banking Corporation (Trust period expires on April 30, 2028) Beneficiary: Hulic Co., Ltd.

3. Transportation (*4)

1 minute by foot from "Daiba" Station of Tokyo Waterfront New Transit Waterfront Line (Yurikamome)

4. Lease status

Total number of tenants Leasable area (*5) Leased area (*5)

1 64,907.76 m2 64,907.76 m2

From April 8, 2019 to December 31, 2021

Fixed rentJPY258,300,000 /month (JPY258,700,000 for December)

Contractual rentVariable rent

Until December 31, 2019: In case AGOP (*6) exceeds AGOP base amount (JPY2,450,000,000), the amount arrived by multiplying 30% to the exceeded amount

On and after January 1, 2020: In case AGOP exceeds AGOP base amount (JPY2,970,000,000 a year), the amount arrived by multiplying 30% to the exceeded amount

From January 1, 2022 to December 31, 2029

Fixed rentJPY133,300,000 /month (JPY133,700,000 for December)

Variable rent

In case AGOP exceeds AGOP base amount (JPY1,660,000,000 a year), the amount arrived by multiplying 98% to the exceeded amount

Terms of lease From April 8, 2019 to December 31, 2029 Deposit and guarantee money JPY0

Change in occupancy rate for the past five years based on area

End of	End of	End of	End of	End of
December 2014	December 2015	December 2016	December 2017	December 2018
100%	100%	100%	100%	100%

5. Related parties for hotel operation