JAPAN HOTEL REIT INVESTMENT CORPORATION October 29, 2014
REIT Issuer:
Japan Hotel REIT Investment Corporation (TSE code: 8985）
Yukio Isa, Executive Director
Asset Management Company:
Japan Hotel REIT Advisors Co., Ltd.
Hisashi Furukawa, Representative Director and President
Contact:Kazuyuki Udo Director and Officer
Management & Planning Office
TEL：+81-3-6422-0530
Notice Concerning Acquisition of Asset (Equity Interest in Silent Partnership)
This is to inform you that Japan Hotel REIT Advisors Co., Ltd. , the asset management company of Japan Hotel REIT Investment Corporation (hereinafter called "JHR") has resolved to acquire the following asset (hereinafter called the "New Asset") today.
1. Summary of New Asset
Name of new asset | Equity interest in silent partnership (tokumei kumiai) which invests in real estate trust beneficiary interest (hereinafter called the "Property"). |
Category of new asset | Equity interest in silent partnership with G.K. Tourism Japan No. 1 |
Real estate in trust | Hotel Francs |
Investment amount | JPY595M |
Date of conclusion of contract | October 30, 2014 |
Date of acquisition | October 31, 2014 |
Acquisition financing | Cash on hand |
2. Rationale for Acquisition
We, JHR, have decided to invest in the New Asset because by acquiring the equity interest in silent partnership, JHR would be able to receive allocation of rental income, etc. from the lessee of the real estate trust beneficiary interest through the business operator of the partnership, and the preferential negotiation rights that are associated with the New Asset will create an opportunity to acquire the property. For detail, please see "4. Summary of New Asset (Plan)."
Hotel Francs, the property held under the real estate trust beneficiary interest, has the characters as explained in the following (1)-(3). We believe that by acquiring the Property in the future, we can improve the quality of the portfolio.
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(1) Improvement in stability
Stable fixed rent is expected due to a 10-year fixed-term lease. (2) Improvement in profitability
The Property's NOI yield exceeds weighted average of NOI yield for JHR's current portfolio.
Improvement in the profitability is expected. (3) Diversification in areas
The Property is located in the suburbs of Tokyo, one of strategic investment areas, and where JHR has no properties in.
Furthermore, JHR would like to turn the acquisition of the New Asset into expansion of the opportunity to acquire the property in the future for the following reasons.
(1) Sale and leaseback
K.K. Live Love Laugh, the seller of the Property, is an affiliated company of K.K. Bridal Produce, one of Japan's leading wedding planning companies, which currently operates Hotel Francs. K.K. Bridal Produce is scheduled to continue its operation of the Property by leasing the Property after the business operator acquires the Property. In general, an operator who needs to off-balance its assets prefers to sell its property to a buyer that understands the operation and can hold the property in mid- to long-term period. This corresponds with JHR's characters and JHR will continue to aim property acquisitions similar to this scheme.
(2) Strengthening sourcing
JHR is in collaboration with RISA Partners, Inc. (hereinafter called "RISA") and Topaz Capital, Inc. (hereinafter called "Topaz") for the formation of the silent partnership. RISA has a strong network with regional financial institutions throughout Japan and RISA is affiliated with over 170 financial institutions. RISA proactively develops operations to support regional growth and revitalization. It also has information on tourism and hotel markets rooted in regions. JHR is confident that strengthening cooperation with RISA, starting with this formation of silent partnership, would contribute to the expansion of property acquisition opportunities. Topaz, on the other hand, is an asset manager of private debt funds. It provides various funding with funds raised from domestic institutional investors and business companies. JHR, therefore, expects to obtain information through formation of similar acquisition cases as well as funding from Topaz, which leads to flexible acquisition of properties.
3. Characteristics of the Property
The Property is located at a 3-minute walk from JR Kaihin-Makuhari Station and about a 5-minute drive from Wangan Narashino Interchange Exit of Higashi-Kanto Expressway. This area, Makuhari New City Center, has the concept of future-oriented cosmopolitan city, and offices, commercial facilities, hotels, etc. are concentrated in this area. The number of visitors to the city is increasing due to an attraction of major companies and opening of Makuhari Messe convention facility and Mitsui Outlet Park Makuhari. The city plays an important role in accommodating such visitors and business people. The city also has a high accessibility, with limousine bus services to and from both Haneda and Narita airports. Moreover, since JR Maihama Station where Tokyo Disney Resort is located is also only 17 minutes by train, Hotel Francs can expect both inbound and leisure demand.
The Property is also strong in wedding banquets and has a competitiveness which far exceeds the average market in Makuhari area. Since the Property maintains competitiveness in its facility through periodic renovations and high product quality, it has built a strong brand identity as a wedding hotel not only in
Makuhari area but also in Chiba Prefecture.
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4．Summary of New Asset (Plan)
(1) Summary of Silent Partnership Agreement
Name of business operator (eigyosha) | G.K. Tourism Japan No. 1 |
Valid period of silent partnership agreement | October 31, 2016 |
Total amount of silent partnership equity interest | JPY1,195M |
Summary of silent partnership agreement | The summary of the silent partnership is as follows. Calculation period: The calculation period is every three months, from January 1 through the end of March, from April 1 through the end of June, from July 1 through the end of September, and October 1 through the end of December of each year. However, the first calculation period will be from the date of the investment of partnership interest to the end of December 2014. Distribution of profits and losses: If profits arise from the silent partnership operation in each calculation period, silent partners receive profits in accordance with the ratio of the investment as at the end of each calculation period. (*3) If losses arise from the silent partnership operation in each calculation period, silent partners are allocated losses in accordance with the ratio of the investment as at the end of each calculation period. However, if the accumulated amount of the distributed losses exceeds the total investment of the silent partners, all the exceeded amount of losses will be distributed to the business operator. |
Summary of preferential rights granted to JHR | |
Description of preferential rights | JHR is scheduled to receive the "Letter of Intent to Sell" from the business operator. The Letter of Intent to Sell stipulates that JHR has the preferential rights to acquire the Property which business operator plans to acquire on October 31, 2014. The business operator is prohibited to sell (including negotiations, consultations, etc.) the Property to the third party other than JHR until the exercise period of preferential rights is expired. JHR has no obligation in acquiring the Property. |
Exercise period of preferential rights | To October 31, 2015 (scheduled) |
(*1）Real estate trust beneficiary rights, etc. include money reserve, costs to formulate silent partnership, etc. (*2) The silent partnership investment consists of 1st Silent Partner investment (investment amount
JPY600M) and 2nd Silent Partner investment (investment amount JPY595M). RISA and Topaz will
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acquire equity interest in 1st Silent Partner investment. JHR will acquire the whole equity interest in 2nd
Silent Partner investment.
(*3) The allocation of profits for 1st Silent Partners and 2nd Silent Partner may differ from the initial investment ratio due to the timing of the sale of the New Asset.
(*4）MAX-REALTY is scheduled to be the asset management company of G.K. Tourism Japan No. 1.
(2) Details of the Property
Property
No. -
１．Asset summary (*1)
Property
Name Hotel Francs
Asset category Real estate trust beneficiary interest
Acquisition date October 31, 2014
Appraisal value JPY3,460,000,000.- (Please see "Reference 1" for detail.)
２．Summary of real estate (or real estate trust beneficiary interest) (*2)
Intended use of the
property Hotel / Full-serviced hotel
Land Ownership
Ownership
Building Ownership
Plot No. 10-2, Hibino 2-chome, Mihama-ku, Chiba-shi, Chiba Prefecture Address 10-2, Hibino 2-chome, Mihama-ku, Chiba-shi, Chiba Prefecture Acreage 4,828.00㎡
Commercial district. Fire-preventive district. District planning area for
Land
Zoning, etc.
Building-to
Makuhari New City Center area.
-land ratio 80%
Floor area
ratio 400%
Structures and stories
Steel-reinforced concrete building. Thirteen stories above ground with one story below ground.
Building
Intended use Hotel
Completion August 1991
Total floor
space 19,213.39㎡
Designer Kumagai Gumi Co., Ltd. (first-class registered architect office) Constructor Kumagai Gumi Co., Ltd. (Tokyo branch)
Institute that
confirmed building
Chiba City
Present owner K.K. Live Love Laugh
Three-minute walk from the Kaihin Makuhari Station on the JR Keiyo Line
4. Lease status
Total number of tenants 1 (*4) Rentable area 19,213.39 ㎡ Rented area 19,213.39 ㎡
Fixed rent Non-disclosure (*5)
Annual contractual rent
Deposit and guarantee
Variable rent ―
money Non-disclosure (*5)
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Change in occupancy rate for the past five years based on area | January 2010 to December 2010 | January 2011 to December 2011 | January 2012 to December 2012 | January 2013 to December 2013 | January 2014 to September 2014 |
Change in occupancy rate for the past five years based on area | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
5. Related parties for hotel operation (*6) | |||||
Hotel lessee | K.K. Bridal Produce | ||||
Property manager | Jones Lang LaSalle | ||||
6. Hotel website (*7) | |||||
http://www.francs.co.jp/ | |||||
7. Summary of the building inspection report | |||||
Investigation company | Tokio Marine & Nichido Risk Consulting Co., Ltd. | ||||
Investigation date | July 15, 2014 | ||||
Repair cost | Urgently required | JPY0.- | |||
Repair cost | Required within one year | JPY0.- | |||
Repair cost | Total amount for another 12 years | JPY615,625,000.- | |||
Earthquake PML value (*8) | 2.5% | ||||
8. Special remark (*9) | |||||
None |
(*1) Asset summary
・Asset category indicates category of real estate, etc. as specified asset. (*2) Real estate (or real estate trust beneficiary interest) summary
・Structure and stories, intended use of the building, and completion of the building are taken from the real property registry. However, if erroneous information is identified by investigation, correct information is stated.
・Zoning, etc. (zoning, special zoning, fire preventive district, and semi-fire preventive district) are stated based on Article 8, Clause 1-1, Clause 2, and Clause 5 of City Planning Act.
・The current owner of the Property is K.K. Live Love Laugh. As of October 31, 2014, a Real Estate Trust Agreement for
Administration and Disposition will be executed between K.K. Live Love Laugh (trustor) and Mitsubishi UFJ Trust and Banking
Corporation (trustee). (*3) Transportation
It is according to the information on the present hotel operator's website.
(*4) Total number of tenants
・The number indicates direct tenant that the trustee is the counterpart of the lease agreement. (*5) "Fixed rent" and "Deposit and guarantee money"
"Fixed rent" and "Deposit and guarantee money" are not disclosed as hotel lessee does not agree with disclosure. (*6) Related parties for hotel operation
・Hotel lessee indicates a lessee whose trustee has scheduled to lease to. Property manager indicates property manager contracted by trustee.
(*7) Hotel website
・It is a website address of the present hotel lessee. (*8) PML
・PML (Probable Maximum Loss) is the anticipated damage ratio resulted from an earthquake. Since no uniform definition has been made yet on PML, we used the following method. Probability and anticipated loss amount caused by the various
earthquakes that may occur in another 475 years are evaluated and statistically processed to identify the anticipated percentage of
loss amount against the building replacement cost. It has been calculated based on site inspection, assessment of building condition, confirmation of the consistency with the design document, ground investigation, local factors and structural investigation. Indicated PML is the PML on valuation detail (Phase 2) of the investigation company.
(*9) Special remarks
・In principle, following is stated: (1) Right or restriction based on the right of the third party except for tenant of the building. (2) Important matters stipulated by the management rules, agreement or memoranda concluded with other co-owners of the strata-titled building and shared land. (3) Important restrictions stipulated by the administrative laws to this property.
(*10) All numbers less than JPY1,000 is rounded down.
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(3) External Appearance and Interior of the Property
External Appearance
Executive Twin Bedroom Aqua Belle (Banquet Room)
(4) Map around the Property
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5. Summary of Business Operator of Silent Partnership
Name | G.K. Tourism Japan No. 1 |
Headquarter | c/o Tokyo Kyodo Accounting Office 1-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo |
Representative | Representative partner general incorporated association TS1 Executor of representative partner Masakazu Hongo |
Capital | JPY2,000.- |
Establishment | March 31, 2014 |
Major business | 1. Acquisition, possession, disposition, leasing, and management of real estate 2. Acquisition, possession, and disposition of real estate trust beneficiary interest 3. Incidental or related businesses for above |
Relationship between JHR, its asset management company, and business operator | |
Capital relationship Human relationship Business relationship | JHR and its asset management company do not have any capital, human, and business relationships that should be statutory reported with the business operator. The related parties of JHR and its asset management company do not have any capital, human, and business relationships that should be specifically reported with the related parties of the business operator. |
Related parties | The business operator does not come under the related parties of JHR and its asset management company. Related parties of the business operator do not come under the related parties of JHR and its asset management company. |
6. Transaction with Interested Parties
Not applicable.
7. Settlement Method
JHR is scheduled to make a lump-sum payment to the business operator with cash on hand for the whole investment amount for the silent partnership.
8. Schedule of Acquisition
Resolution for the acquisition | October 29, 2014 |
Conclusion of silent partnership agreement (scheduled) | October 30, 2014 |
Equity investment in silent partnership (scheduled) Transfer of real estate trust beneficiary interest (scheduled) to the business operator | October 31, 2014 |
9. Future prospect
The impact of the scheduled acquisition is minor and no change is required for the operating forecast for the fiscal year December 2014 (January 1, 2014 through December 31, 2014).
* Website of Japan Hotel REIT Investment Corporation: http://www.jhrth.co.jp/http://www.jhrth.co.jp/
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(Reference 1) Appraisal report summary
Hotel Francs
Appraiser Daiwa Real Estate Appraisal Co., Ltd. Date of appraisal August 31, 2014
Appraisal value JPY3,460,000,000.-
Price based on income JPY3,460,000,000.- Price by direct capitalization method JPY3,350,000,000.- Gross income JPY300,000,000.-
Rent income JPY300,000,000.- Fixed rent JPY300,000,000.- Variable rent JPY0
Other income JPY0
Total cost JPY84,261,000.- Net operating income (NOI) JPY215,738,000.- Net cash flow (NCF) JPY181,142,000.- Cap rate 5.4%
Price by DCF method JPY3,510,000,000.-
Discount rate 5.2% Terminal cap rate 5.6%
Price based on the integrated value JPY3,870,000,000.- Land price JPY2,206,835,000.-
Building price JPY1,660,915,000.-
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(Reference 2) The portfolio list after acquisition of the new asset
No. | Hotel | Ty p e | Grade | No. of guest rooms (*1) | Area (*2) | Comp letion | Acquisition p rice (p lan) (JPY1M )(*3) | Investment ratio (*4) |
1 | Kobe M eriken Park Oriental Hotel | Full-service | Up p er-middle | 319 | Kansai | July 1995 | 10,900 | 6.3% |
2 | Oriental Hotel t oky o bay | Full-service | M id-p rice | 503 | Kanto (excluding Toky o) | M ay 1995 | 19,900 | 11.5% |
3 | Namba Oriental Hotel | Limited-service | M id-p rice | 257 | Kansai | M arch 1996 | 15,000 | 8.6% |
4 | Hotel Nikko Alivila | Resort | Luxury | 396 | Okinawa | Ap ril 1994 | 18,900 | 10.9% |
5 | Oriental Hotel Hiroshima | Full-service | Up p er-middle | 227 | Other | Sep tember 1993 (Extended in Sep tember 2006) | 4,100 | 2.4% |
6 | ibis Toky o Shinjuku | Limited-service | M id-p rice | 206 | Toky o | Sep tember 1980 | 7,243 | 4.2% |
8 | The Beach Tower Okinawa | Resort | M id-p rice | 280 | Okinawa | M arch 2004 (Extended in June 2005 and M ay 2006) | 7,610 | 4.4% |
9 | Hakone Setsugetsuka | Resort | M id-p rice | 158 | Kanto (excluding Toky o) | October 2006 | 4,070 | 2.3% |
10 | Dormy Inn Kumamoto | Limited-service | M id-p rice | 294 | Other | January 2008 | 2,334 | 1.3% |
12 | Dormy Inn Suidobashi | Limited-service | Economy | 99 | Toky o | August 1986 (Extended in Sep tember 1989 | 1,120 | 0.6% |
13 | Dormy Inn EXPRESS Asakusa | Limited-service | Economy | 77 | Toky o | M arch 1997 | 999 | 0.6% |
14 | Hakata Nakasu Washington Plaza | Limited-service | M id-p rice | 247 | Other | M arch 1995 | 2,130 | 1.2% |
15 | Nara Washington Hotel Plaza | Limited-service | M id-p rice | 204 | Kansai | M arch 2000 | 2,050 | 1.2% |
16 | R&B Hotel Ueno-Hirokoji | Limited-service | Economy | 187 | Toky o | Ap ril 2002 | 1,720 | 1.0% |
17 | R&B Hotel Higashi-Nihombashi | Limited-service | Economy | 203 | Toky o | M arch 1998 | 1,534 | 0.9% |
18 | Comfort Hotel Toky o Higashi-Nihombashi | Limited-service | Economy | 259 | Toky o | January 2008 | 3,746 | 2.2% |
19 | Comfort Hotel Shin Yamaguchi | Limited-service | Economy | 139 | Other | August 2007 | 866 | 0.5% |
21 | Daiwa Roy net Hotel Akita | Limited-service | Economy | 221 | Other | June 2006 | 1,760 | 1.0% |
22 | Smile Hotel Nihombashi-M itsukoshimae | Limited-service | Economy | 164 | Toky o | M arch 1997 | 2,108 | 1.2% |
23 | Hotel Sunroute Niigata | Limited-service | M id-p rice | 231 | Other | August 1992 | 2,105 | 1.2% |
24 | Toy oko Inn Hakataguchi Ekimae | Limited-service | Economy | 257 | Other | Sep tember 2001 | 1,652 | 1.0% |
25 | Hotel Vista Kamata Toky o | Limited-service | Economy | 106 | Toky o | January 1992 | 1,512 | 0.9% |
26 | Chisan Inn Kamata | Limited-service | Economy | 70 | Toky o | Ap ril 2003 | 823 | 0.5% |
29 | Hotel Keihan Universal City | Resort | M id-p rice | 330 | Kansai | June 2001 | 6,000 | 3.5% |
30 | Hotel Sunroute Shimbashi | Limited-service | M id-p rice | 220 | Toky o | M arch 2008 | 4,800 | 2.8% |
31 | Hilton Toky o Bay Hotel | Resort | Luxury | 818 | Kanto (excluding Toky o) | June 1988 | 26,050 | 15.0% |
32 | ibis Sty les Ky oto Station | Limited-service | M id-p rice | 215 | Kansai | M arch 2009 | 6,600 | 3.8% |
33 | Best Western Hotel Sap p oro Nakajima Koen | Limited-service | M id-p rice | 278 | Hokkaido | July 2010 | 6,797 | 3.9% |
34 | M ercure Hotel Sap p oro | Limited-service | M id-p rice | 285 | Hokkaido | Ap ril 2009 | 6,000 | 3.5% |
35 | M ercure Hotel Okinawa Naha | Limited-service | M id-p rice | 260 | Okinawa | August 2009 | 3,000 | 1.7% |
Total | － | － | 7,510 | － | － | 173,429 | 100.0% |
(*1) No. of rooms available to sell as of today (rooms occupied by hotel itself for a long term is excluded).
(*2) Tokyo is Tokyo Metropolitan area. Kanto (excluding Tokyo) represents Kanagawa, Chiba, Saitama, Ibaragi, Gunma, Tochigi and Yamanashi prefectures. Kansai represents Kyoto, Osaka, Shiga, Hyogo, Nara and Wakayama prefectures. Okinawa represents Okinawa prefecture.
(*3) The purchase prices stated on the Purchase and Sales Agreement for the Trust Beneficiary Interest or Real Estate Purchase and Sale Agreement are indicated (Consumption tax, local consumption tax and the acquisition expense such as broker's fee are not included). The acceptance prices are indicated for the assets that have been accepted through the merger.
(*4) The percentage of each purchase price to the total purchase price is indicated and the numbers are rounded off to one decimal place. (*5) Numbers for the disposed assets (No. 7, No. 11, No. 20, No. 27, and No. 28) are missing numbers.
(*6) In addition to the abovementioned properties, JHR is scheduled to invest on a silent partnership with G.K. Tourism Japan No. 1 as a
business operator on October 31, 2014.
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