Japan Hotel REIT Investment : Notice Concerning Revision of Operating Forecast and Forecast of Dividend for the Fiscal Year Ended December 2020 (21st Period)

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, 2021

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, President & CEO

Contact:

Makoto Hanamura

Executive Director

Head of Planning Group, Operations Division

TEL: [phone]

Notice Concerning Revision of Operating Forecast and Forecast of Dividend

for the Fiscal Year Ended December 2020 (21st Period)

Japan Hotel REIT Investment Corporation (hereinafter called "JHR") informs you of the revision of the operating forecast and forecast of dividend for the full fiscal year ended December 2020 (January 1, 2020 through December 31, 2020), which was announced in the "Notice Concerning Revision of the Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2020 (21st Period)," dated October 26, 2020 as follows.

1. Revision of the operating forecast for the full fiscal year ended December 2020 (January 1, 2020 through December 31, 2020)

Dividend per

Dividend per

Operating

Operating

Ordinary

Net income

unit (Excess of

unit resulting

revenue

income

income

earnings

from excess of

exclusive)

earnings

Previous forecast

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(A)

13,318

2,283

442

571

199

－

Revised forecast

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(B)

13,818

3,094

1,306

1,435

390

－

Variance

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(C) = (B)－(A)

499

810

863

863

191

－

Variance ratio

%

%

%

%

%

%

(D) = (C) / (A)

3.8

35.5

195.3

151.3

96.0

－

(Reference) Forecast of net income per unit for the full fiscal year: ¥321

(Calculated based on the average number of investment units during the period (4,462,347 units))

(*1) Dividend per unit is calculated based on the number of investment units issued as of today: 4,462,347 units.

(*2) Total dividend is planned to be an amount of net income plus the reversed amount of reserve for temporary difference adjustment in the amount of ¥305 million.

(*3) For the assumptions of the operating forecast and dividend forecast above, please refer to " Assumptions of the operating forecast for the full fiscal year ended December 2020 (21st period)" below.

(*4) Amounts are rounded down to the nearest millions of yen and percentages are rounded off to the nearest first decimal place. The same shall apply hereinafter.

Note: This document is intended to serve as a press release to make available the information on the revision of operating forecast and forecast of dividend for the fiscal year ended December 2020 (21st period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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2. Rationale for the revision of the operating forecast for the full fiscal year ended December 2020 (January 1, 2020 through December 31, 2020)

With regard to the performance of the hotels owned by JHR, the rent for the full fiscal year ended December 2020 was expected to significantly reduce due to the impact of the spread of the COVID-19 infections. However, the number of accommodation reservations increased due to the addition of Tokyo to the "Go to Travel" campaign in October, and in some hotels, there were signs of recovery in leisure accommodation demand, including signs of recovery in school trip and group travel, etc. in some hotels.

Although the sales at the end of the year were affected by the nationwide suspension of "Go to Travel" campaign from December 28, 2020, the variable rent of the HMJ Group Hotels (Note 1) for the second half of the fiscal year ended December 2020 is expected to increase by ¥655 million from the previous forecast.

In addition, JHR received a request from the lessees of the Ishin Group Hotels (Note 2) to reduce rent, and as a result, JHR has decided to reduce ¥320 million of the fixed rent. On the other hand, JHR will receive the income after adjustment by accepting COVID-19 patients with no or mild symptoms at the b ikebukuro and the b hachioji as variable rent. Therefore, the variable rent is expected to increase by ¥130 million.

Furthermore, an increase in fixed rent of ¥26 million for office and commercial tenants, an increase in variable rent of ¥79 million yen for other hotels with variable rent including the Accor Group Hotels (Note 3), and a decrease in utilities income, etc. of ¥72 million are expected. As the result, operating revenue is expected to increase by ¥499 million from the previous forecast,

Regarding operating expenses, ¥200 million was expected as a risk of rent reduction in the previous forecast. However, in this forecast, no risk of a rent reduction is expected for any lessee in the fiscal year ended December 2020. The operating expenses are expected to decrease by ¥311 million in conjunction with the review of various expenses related to properties and other operating expenses, etc. Moreover, finance costs and other costs are expected to decrease by ¥53 million. As a result, net income is expected to increase by ¥863 million from the precious forecast.

For the detailed information of the operating result for The 24 Hotels with Variable Rent, etc. (*4), please refer to " Hotel operation indexes, sales and GOP (*5)" below.

(*1) HMJ Group Hotels refers to 14 hotels: Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila, and Oriental Hotel Hiroshima, which JHR leases to HMJ, (hereinafter called "the Five HMJ Hotels"), plus Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel (main facility of ACTIVE-INTER CITY HIROSHIMA), Oriental Hotel Fukuoka Hakata Station, Holiday Inn Osaka Namba, Hilton Tokyo Narita Airport, International Garden Hotel Narita, Hotel Nikko Nara, Hotel Oriental Express Osaka Shinsaibash, and Hilton Tokyo Odaiba, which JHR leases to subsidiaries of HMJ. HMJ stands for Hotel Management Japan Co., Ltd. The same shall apply hereinafter.

(*2) Ishin Group Hotels refers to 4 hotels: the b suidobashi, the b ikebukuro, the b hachioji, and the b hakata. The same shall apply hereinafter.

(*3) Accor Group Hotels refers to 6 hotels: ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha, Mercure Yokosuka. The same shall apply hereinafter.

(*4) The 24 Hotels with Variable Rent, etc. represents 24 hotels comprising the HMJ Group Hotels, the Ishin Group Hotels and the Accor Group Hotels. The same shall apply hereinafter.

(*5) GOP (gross operating profit) and GOL (gross operating loss) are the remainder after expenses, such as personnel costs and general and administrative expenses, etc. incurred in hotel operation, are deducted from total sales. The same shall apply hereinafter.

Note: This document is intended to serve as a press release to make available the information on the revision of operating forecast and forecast of dividend for the fiscal year ended December 2020 (21st period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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3. Highlights of the operating forecast and forecast of dividend

The following is the comparison and the major factors causing the variance between the operating forecast and forecast of dividend for the full fiscal year ended December 2020 (January 1, 2020 through December 31, 2020) (previous forecast), which was announced in the "Notice Concerning Revision of the Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2020 (21st Period)," dated October 26, 2020, and the operating forecast and forecast of dividend for the full fiscal year ended December 2020 announced this time.

									(Unit: millions of yen)
		FY2019		FY2020
		(20th Period)		(21st Period)			Comparison
			Previous	Forecast This	Annualized		with the	Factors Causing Variance
		Actual	Forecast This		Previous Period
		Forecast	Time
			Time
			(A)	(B)	(Note 1)		(B)-(A)	%
Properties	No. of Properties	43	42	42	42		-	-
Acquisition Price	374,508	370,031	370,031	370,031		-	-

	Operating Revenue	28,278		13,318		13,818		10,222
	Real Estate	28,278		9,977		10,475		10,222
	Operating Revenue
		Composition	Composition		Composition		Composition
	Fixed Rent	56.3% 15,931	79.5%	7,931	72.9%	7,636	73.2%	7,487
	Other Income	4.1% 1,170	10.0%	997	8.8%	924	8.7%	887
	Variable Rent	39.5% 11,176	10.5%	1,049	18.3%	1,914	18.1%	1,848
Profit
and
Loss
	Gain on Sale of	-		3,341		3,343		-
	Real Estate
	Properties, etc.
	NOI (Note 2)	24,087		5,626		6,476		6,195
	NOI Yield	6.4%		1.5%		1.8%		1.7%
	NOI after Depreciation	19,281		854		1,709		1,427
	(Note 2)
	NOI Yield after	5.1%		0.2%		0.5%		0.4%
	Depreciation
	Operating Income	17,148		2,283		3,094		(511)
	Ordinary Income	15,291		442		1,306		(2,299)
	Net Income	15,290		571		1,435		(2,300)

499 3.8%

497 5.0%

1. 1. Decrease in fixed rent from the Ishin Group Hotels
2. (3.7%) by JPY320 MM
3. 1. Increase in fixed rent from other tenants by JPY26 MM

1. (7.3%) Mainly decrease in utilities income

1. Increase in variable rent, etc. from The 24 Hotels with Variable Rent, etc. by JPY786 MM

(Of these, increase in variable rent from the HMJ Group Hotels

865 82.5% by JPY655 MM and increase in variable rent from the Ishin Group Hotels by JPY130 MM)

2. Increase in variable rent from other hotels with variable rent by JPY78 MM)

1 0.1%

849 15.1%

0.2%

854 100.0%

0.2%

1. 35.5%

1. 195.3%

1. 151.3%

									Amount to be reversed from reserve for temporary difference
	Reserve for Temporary	1,176	319	305	324		(13)		adjustments (Note 3)
	Difference Adjustments		(4.2%)	2019：
	(Negative Goodwill)								50-year amortization amount of negative goodwill: JPY262 MM
									Correspondence to loss on retirement of noncurrent
									assets:JPY246 MM
Dividend	Total Dividends	16,466	888	1,740	-		852	96.0%	Correspondence to large-scale renovation works at Oriental
								Hotel Fukuoka Hakata Station: JPY357 MM
									Correspondence to dilution: JPY310 MM
	Number of Units Issued	4,462,347	4,462,347	4,462,347	4,462,347		-	-	2020：
	(Unit)
								50-year negative goodwill amortization: JPY262 MM,
									Loss on retirement of noncurrent assets: JPY5 MM,
	Dividend per Unit (JPY)	3,690	199	390	-		191 96.0%	Amortization of trademark rights: JPY37 MM
									(annualized effect: JPY56 MM)

(*1) For the assumptions of the annualized effect for the forecast this time, please refer to " Assumptions of the annualized effect (full-year effect) for the forecast for the fiscal year ended December 2020 (21st period)" below.

(*2) Each is calculated using the following formula. The same shall apply hereinafter.

NOI (Net Operating Income) = Real estate operating revenue - Real estate operating costs + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations expenses

NOI yield = NOI ÷ acquisition price

NOI after depreciation = Real estate operating revenue - Real estate operating costs NOI yield after depreciation = NOI after depreciation ÷ acquisition price

(*3) For the details of the reversed amount of the reserve for temporary difference adjustment, please refer to " Assumptions of the operating forecast for the full year of the fiscal year ended December 2020 (21st period)" below.

(Note)

The above is the forecast based on status of operation as of today, and actual dividend per unit may fluctuate. This forecast does not guarantee the amount of dividend shown above.

* Website of Japan Hotel REIT Investment Corporation: https://www.jhrth.co.jp/en/

Note: This document is intended to serve as a press release to make available the information on the revision of operating forecast and forecast of dividend for the fiscal year ended December 2020 (21st period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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Assumptions of the operating forecast for the full fiscal year ended December 2020 (21st period)

Item	Assumptions
Calculation	・ Full fiscal year ended December 2020 (21st Period): January 1, 2020 through December 31, 2020
Period	(366 days)
Assets under	・ The 42 properties owned by JHR as of today after the sale of Sotetsu Fresa Inn Shimbashi
Management	Karasumoriguchi (hereinafter called the "Sale") on July 1, 2020 are assumed.

• Gain on sale of real estate properties of ¥3,158 million is recognized due to the Sale.
• Gain on exchange on real estate, etc. of ¥184 million is recognized due to the exchange of a part of site of Hotel Ascent Fukuoka on October 29, 2020.
• Operating revenue is calculated based on the conditions of the lease and other contracts effective as of today, taking into consideration the competitiveness of hotels, market environment, and other factors. If there are lease contracts with facilities other than hotels, such as retail facilities and offices, operating revenue calculated based on the said lease contracts is included.
• For lessees who had been in discussion on temporary rent reductions, rent is recognized in accordance with the contract with the relevant lessees. It is assumed that there is no risk of rent reduction due to delay of rent payment or non-payment of rent by the lessees, including other lessees, in the fiscal year ended December 2020.
• Rents, etc. of the main hotels are calculated based on the following assumptions.

1. The HMJ Group Hotels
   JHR concluded a memorandum of understanding for the fixed-term lease contract with the HMJ Group Hotels on August 25, 2020. The assumptions of the fixed and variable rent from January 1, 2020 through December 31, 2020 are as follows.

	Total rent = Fixed rent + Variable rent
	Fixed rent = ¥794 million (equivalent to monthly fixed rent for one month)
	Variable rent = Total GOP of the hotels × Variable rent ratio (%) - Fixed rent
Operating	Variable rent is calculated separately for each hotel, and is set as 0 (zero) when GOL arises.
			(Unit: millions of yen)
Revenue	Total GOP of	Variable	Variable	Fixed	Total
	the hotel(s)	rent ratio	rent	rent	rent

The Five HMJ Hotels	Midterm	(120)	89.78%	‐	268	268
Full year	666	329	268	598
Okinawa Marriott	Midterm	(149)	82.92%	‐	45	45
Resort & Spa	Full year	(76)	‐	45	45
Sheraton Grand	Midterm	86	79.03%	39	29	68
Hiroshima Hotel (*1)	Full year	231	153	29	182
Oriental Hotel	Midterm	170		130	35	165
Fukuoka Hakata	Full year	394	96.98%	347	35	382
Station
Midterm
Holiday Inn	63	90.15%	‐ (*2)	48	48
Osaka Namba	Full year	26	‐	48	48
Hilton Tokyo Narita	Midterm	91	83.59%	‐ (*2)	37	37
Airport	Full year	142	82	37	119
International Garden	Midterm	49	95.35%	19	28	47
Hotel Narita	Full year	134	100	28	128
Hotel Nikko Nara	Midterm	(175)	90.05%	‐	35	35
Full year	(116)	‐	35	35

Note: This document is intended to serve as a press release to make available the information on the revision of operating forecast and forecast of dividend for the fiscal year ended December 2020 (21st period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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