Japan Hotel REIT Investment : Asset Management Report (For the Year Ended December 31, 2019)

April 24, 2020 at 02:53 am EDT

Asset Management Report

For the Year Ended December 31, 2019

Japan Hotel REIT Investment Corporation

Dear Investors,

Thank you for your support and patronage to Japan Hotel REIT Investment Corporation (JHR) and its asset management company, Japan Hotel REIT Advisors Co., Ltd.

Having settled the accounts for the 20th fiscal period (from January 1, 2019 to December 31, 2019) of JHR, we are pleased to present you with the status of management and detail of the settlement of accounts for the period.

In the 20th fiscal period, the number of inbound visitors (hereinafter called "inbound") to Japan from South Korea declined due to the deterioration of Japan-South Korea relations, but the number of inbound to Japan reached an estimated 31.88 million (up 2.2% from the previous year) making a record high, due to the factors including the increase in inbound due to the Rugby World Cup held in Japan. In addition, despite typhoons and other natural disasters, the number of overnight guests at domestic accommodation facilities in 2019 totaled 545 million guest nights (preliminary figures), and demand for accommodations among Japanese people remained firm. On the other hand, accommodation market was weak in the Kansai area and other areas due to the loosening supply-demand balance caused by increase in new supply of hotels and the significant impact of the decline in the inbound from South Korea. Under these circumstances, JHR has been making efforts to improve revenue through the active asset management strategies such as rebranding with large-scale renovation, review of sales measures, and cost management.

As for the external growth in the 20th fiscal period, JHR acquired "Hilton Tokyo Odaiba", which became a flagship property (acquisition price: ¥62,400 million) of JHR and "Hotel Oriental Express Osaka Shinsaibashi" (acquisition price: ¥2,738 million). As a result, JHR grew its asset size to approximately ¥374.5 billion (total acquisition price).

As a result, JHR posted operating revenue of ¥28,278 million, ordinary income of ¥15,291 million and net income of ¥15,290 million for the 20th fiscal period. Dividend per unit came to ¥3,690, minus 5.1% from the previous fiscal period. As dividend per unit in the previous fiscal period included a part of gain from sales of properties, excluding such amount, dividend per unit in the current fiscal period remained at the same level as in the previous fiscal period.

As for the environment surrounding the hotel market, in addition to a decline in the number of inbound to Japan from South Korea since last year, there has been the coronavirus outbreak since the beginning of the year, and there are concerns that demand for hotel accommodations will decline until the outbreak is over. On the other hand, the Tokyo 2020 Olympic and Paralympic Games will be finally held this summer, and the attractiveness of Japan and its tourism resources will be widely disseminated overseas. We believe that the advertising effect of the Olympic Games will be significant, and it will boost the growth of Japan's tourism industry in the mid to long term. Amid expectations for the mid to long term growth in the hotel market, we at JHR, and Japan Hotel REIT Advisors Co., Ltd., its asset management company, will make every effort for JHR's further growth and enhancement of its attractiveness by leveraging the expertise and know-how cultivated to date.

We would appreciate your continued support for us.

Kaname Masuda

Executive Director

Japan Hotel REIT Investment Corporation

Hisashi Furukawa

Representative Director, President and CEO

Japan Hotel REIT Advisors Co., Ltd.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Contents:

I. Asset Management Report

This section (P1-P44) is the translation of the Asset Management Report for the 20th Period released on March 19, 2020 except for I.5.Investment policies and issues to be addressed and I.6. Significant subsequent events and certain other sections which were partially updated based on translation of Securities Report dated March 27, 2020 and other reasons. 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.

Financial Statements
For the Years ended December 31, 2019 and 2018

Balance Sheets	45
Statements of Income	47
Statements of Changes in Net Assets	48
Statements of Cash Flows	49
Notes to Financial Statements	51
Independent Auditor's Report	66

I. ASSET MANAGEMENT REPORT

Outline of Asset Management Operation

1. Operating results and financial position, etc.

	Fiscal period		16th period	17th period	18th period	19th period	20th period
	Account closing date		December 2015	December 2016	December 2017	December 2018	December 2019
Operating revenue	(Note 1)	JPY1M	17,343	22,107	25,475	28,253	28,278
[Real estate operating revenue]	JPY1M	[17,033]	[22,107]	[25,475]	[26,318]	[28,278]
Operating expenses		JPY1M	6,354	8,221	9,717	10,260	11,129
[Real estate operating costs]	JPY1M	[5,002]	[6,589]	[7,911]	[8,344]	[8,997]
Operating income		JPY1M	10,988	13,885	15,757	17,993	17,148
Ordinary income			JPY1M	9,295	12,220	14,006	16,211	15,291
Net income		(Note 2)	JPY1M	9,294	12,123	14,005	16,210	15,290
Total assets			JPY1M	240,356	317,878	352,183	350,556	415,722
[Period-on-period change]	[%]	[27.8]	[32.3]	[10.8]	[(0.5)]	[18.6]
Net assets			JPY1M	129,914	181,989	201,963	203,372	236,522
[Period-on-period change]	[%]	[29.5]	[40.1]	[11.0]	[0.7]	[16.3]
Unitholders' capital		JPY1M	85,470	134,829	153,516	153,516	186,894
Number of investment units issued and	Units	3,144,227	3,761,907	4,010,847	4,010,847	4,462,347
outstanding

Net assets per unit		JPY	41,318	48,376	50,354	50,705	53,004
Net income per unit	(Note 3)	JPY	3,036	3,462	3,606	4,041	3,447
Total dividends			JPY1M	9,354	12,865	14,771	15,602	16,466
Dividend per unit			JPY	2,975	3,420	3,683	3,890	3,690
[Earnings dividend per unit]	JPY	2,975	3,420	3,683	3,890	3,690
[Dividend per unit resulted from	JPY	-	-	-	-	-
excess of earnings]

Ratio of ordinary income to total assets	%	4.3	4.4	4.2	4.6	4.0
		(Note 4)

Return on unitholders' equity	%	8.1	7.8	7.3	8.0	7.0
		(Note 5)

Ratio of net assets to total assets	%	54.1	57.3	57.3	58.0	56.9
		(Note 6)

[Period-on-period change]	[%]	[0.7]	[3.2]	[0.1]	[0.7]	[(1.1)]
Payout ratio		(Note 7)	%	100.6	106.1	105.5	96.2	107.7
[Additional information]
NOI		(Note 8)	JPY1M	14,829	18,829	21,424	22,104	24,087
FFO per unit	(Note 9) (Note 10)	JPY	3,748	4,103	4,454	4,588	4,503
FFO multiple	(Note 10) (Note 11)	Times	23.9	19.2	17.0	17.1	18.0
Debt service coverage ratio	Times	9.1	14.2	15.6	18.0	17.5
	(Note 10) (Note 12)

Interest-bearing debt		JPY1M	102,772	126,179	140,399	136,671	168,754
Ratio of interest-bearing debt to total	%	42.8	39.7	39.9	39.0	40.6
assets		(Note 13)

Number of investment properties	Properties	36	41	44	41	43
Total leasable area		m2	493,758.78	587,481.02	687,124.54	678,714.48	746,329.68
Number of tenants at end of period	Tenants	113	128	131	126	125
		(Note 14)


Occupancy rate at end of period	％	99.9	99.9	99.9	99.9	99.9
		(Note 15)

Depreciation			JPY1M	2,772	3,294	3,725	4,091	4,557
Capital expenditures		JPY1M	1,811	2,619	2,898	3,056	6,767
Number of operating days		Days	365	366	365	365	365

(Note 1) Operating revenue does not include consumption tax, etc.

(Note 2) Net income for the 16th fiscal period includes gain on sale of real estate properties (¥305 million). Net income for the 19th fiscal period includes gain on sale of real estate properties (¥1,934 million).

(Note 3) The computation of net income per unit is based on the weighted-average number of units outstanding during the year.

(Note 4) Ratio of ordinary income to total assets = Ordinary income / ((Total assets at beginning of period + Total assets at end of period) / 2) × 100

(Note 5) Return on unitholders' equity = Net income / ((Net assets at beginning of period + Net assets at end of period) / 2) × 100

(Note 6) Ratio of net assets to total assets = Net assets at end of period / Total assets at end of period × 100 (Note 7) Payout ratio = Total dividends (excess of earnings exclusive) / Net income × 100

(Note 8) NOI = Real estate operating revenue − Real estate operating costs + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations expenses

(Note 9) FFO per unit = (Net income + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss or income (excluding loss on disaster)) / Number of investment units issued and outstanding

(Note 10) For the 16th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding gain on sale of real estate properties (¥305 million). For the 19th fiscal period, FFO per unit, FFO multiple and debt service coverage ratio are calculated excluding gain on sale of real estate properties (¥1,934 million).

(Note 11) FFO multiple = Investment unit price at end of period / Annualized FFO per unit

(Note 12) Debt service coverage ratio = (Income before income taxes + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations expenses ± Loss or gain on sale of real estate properties ± Extraordinary loss or income (excluding loss on disaster) + Amortization of investment corporation bond issuance costs + Amortization of investment unit issuance expenses ± Loss or gain on derivative instruments + Interest expense + Interest expense on investment corporation bonds) / (Interest expense + Interest expense on investment corporation bonds + Total of contractual principal repayments (excluding lump-sum principal repayments))

(Note 13) Ratio of interest-bearing debt to total assets = Interest-bearing debt at end of period / Total assets at end of period × 100

(Note 14) Number of tenants at end of period indicates the total number of tenants based on the lease contracts for respective real estate properties in trust (excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, for properties with pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end tenants as is in principle, the total number of the end tenants (excluding tenants of parking lots, etc.) is indicated.

(Note 15) Occupancy rate at end of period indicates the percentage of leased area to leasable area of respective real estate properties in trust as of the end of each fiscal period.

2. Asset management operation for the fiscal period under review

Brief history and principal activities

Japan Hotel REIT Investment Corporation (hereinafter referred to as "JHR") was established under the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended; hereinafter referred to as the "Investment Trusts Act") on November 10, 2005 and was listed on the Real Estate Investment Trust ("REIT") section of the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006.

JHR entrusts the asset management to Japan Hotel REIT Advisors Co., Ltd. (hereinafter referred to as the "Asset Management Company"). Focusing on the importance of hotels as social infrastructure and their profitability as investment real estate properties, JHR has primarily invested in real estate related assets which are in themselves wholly or partially used as hotels or real estate equivalents of such real estate or which are backed by such real estate or real estate equivalents (hereinafter referred to as the "Real Estate for Hotels, etc.").

JHR, the former Nippon Hotel Fund Investment Corporation (hereinafter referred to as the "former NHF"), merged with the former Japan Hotel and Resort, Inc. (hereinafter referred to as the "former JHR") with an effective date of April 1, 2012 (hereinafter referred to as the "Merger") and changed its name to Japan Hotel REIT Investment Corporation. Since the Merger by the end of the fiscal period, JHR has carried out nine public offerings for capital increase and continuously acquired "highly-competitive hotels" in mainly "strategic investment target areas" where domestic and inbound leisure demand can be expected over the medium to long term.

By implementing the aforementioned growth strategy, JHR has expanded its asset size while improving the quality of its portfolio through new property acquisitions of 26 properties amounting to ¥275,160 million (on an acquisition price basis) in total in approximately a little less than eight years since the Merger. As a result, as of the end of the fiscal period under review, JHR had a portfolio of 43 properties with a combined acquisition price of ¥374,508 million and the total number of investment units issued and outstanding stood at 4,462,347 units.

(2) Investment performance for the fiscal period under review

In 2019, the domestic tourism market has remained strong although the impact of the future course of trade issues on the world economy and the impact of future prospects of the Chinese economy among others were carefully watched. The demand for accommodation remained solid as the cumulative number of overnight guests at domestic accommodation facilities in 2019 totaled 545 million guest nights (preliminary release), surpassing the figure for 2018 when the figure reached record high. The number of foreign visitors to Japan (hereinafter referred to as "inbound") was estimated 31.88 million (up 2.2% from the previous year) during the year marking a record high, due to a large increase in the number of visitors from China, Southeast Asia, the U.S. and Europe offsetting the significant drop in the number of visitors from South Korea. On the other hand, as new supply of hotels increased against the backdrop of strong demand for accommodation, the loosening supply-demand balance resulted in a weak accommodation market particularly in the Kansai area.

The hotel investment market continued to be in a brisk state, with continual attention paid to Japan's tourism industry and hotel industry against the backdrop of the expected growth in demand for accommodation. JHR has continuously expanded its asset size capitalizing on the strengths such as high recognition as Japan's largest J-REIT specializing in hotels, capability to propose various acquisition schemes and cooperation with Hotel Management Japan Co., Ltd. (hereinafter referred to as "HMJ"), a group company of the Asset Management Company.

During the fiscal year under review, JHR acquired Hilton Tokyo Odaiba (acquisition price: ¥62,400 million), a scarce large-scalefull-service hotel positioned as JHR's flagship property; and Hotel Oriental Express Osaka Shinsaibashi (acquisition price: ¥2,738 million), a hotel which HMJ has been involved with since the beginning of development and has managed utilizing its market knowledge and operational know-how. Amid some overheated mood in the hotel investment market, JHR improved the portfolio quality through acquisitions of highly competitive properties that can differentiate themselves from others.

As to the performance of hotels owned by JHR, RevPAR (Note 1) and GOP (gross operating profit) of the 21 hotels with variable rent, etc.(Note 2) fell below the previous year mainly due to a decrease in room sales at some hotels impacted by factors such as the increase in new hotel supply and the decrease of visitors from South Korea.

While taking measures to increase fixed and variable rent through the active asset management strategy, which is the proactive pursuit of greater profitability and asset value of owned hotels such as the large-scale renovation of Oriental Hotel Fukuoka Hakata Station (Note 3) which reopened in April 2019 after the renovation. JHR also has endeavored to generate greater earnings by appropriately reviewing the costs of each item such as real estate operating costs, general and administrative expenses and borrowing costs, etc. through negotiations with relevant parties and other measures. For further details of management indicators for the 21 hotels with variable rent, etc., please refer to " Hotel operation indexes, sales and GOP"in 7. Reference information.

(Note 1) RevPAR: Represents revenue per available room, which is calculated by dividing revenue for rooms for a certain period (including service charges) by the total number of rooms available for sale during the period, and equals the product of average daily rate (ADR) and occupancy rate. The same shall apply hereinafter.

(Note 2) The hotel group combining the hotels which JHR leases to HMJ (Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila and Oriental Hotel Hiroshima, (hereinafter referred to as "The Five HMJ hotels")), with the hotels which JHR leases to HMJ subsidiaries (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 Shinsaibashi and Hilton Tokyo Odaiba) is called the HMJ Group Hotels. 12 Hotels excluding Hotel Oriental Express Osaka Shinsaibashi and Hilton Tokyo Odaiba from the HMJ Group Hotels are called The Twelve HMJ Hotels. The 21 hotels with variable rent, etc. refers to the HMJ Group Hotels excluding Oriental Hotel Fukuoka Hakata Station, Hotel Oriental Express Osaka Shinsaibashi and Hilton Tokyo Odaiba which cannot be compared with the previous fiscal year due to renovation or new acquisition, plus ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha, Mercure Yokosuka, the b suidobashi, the b ikebukuro, the b hachioji and the b hakata. The same shall apply hereinafter.

(Note 3) Former Hotel Centraza Hakata underwent large-scale renovation work accompanying the suspension of hotel operations from October 1, 2018 and has been operated as Oriental Hotel Fukuoka Hakata Station since April 9, 2019. The same shall apply hereinafter.

(3) Funding conditions

JHR took out loans of ¥30,000 million in total in April 2019, in addition to procuring ¥33,378 million by way of capital increase through public offering in January 2019 and third-party allotment in February 2019; and acquired two properties, Hotel Oriental Express Osaka Shinsaibashi and Hilton Tokyo Odaiba in February and April 2019, respectively.

In March 2019, JHR took out loans of ¥6,000 million in total mainly to refinance existing investment corporation bonds that had matured and existing borrowings that were due for repayment. Furthermore, in April 2019, JHR took out loans of ¥1,800 million mainly for renovation of Oriental Hotel Fukuoka Hakata Station. JHR issued investment corporation bonds of ¥8,000 million targeting individual investors in June 2019 and allocated the funds to the early repayment of existing loans.

In addition, in July 2019, JHR issued green bonds (investment corporation bonds for institutional investors) of ¥2,000 million for the first time among J-REITs specializing in hotels mainly for the purpose of repaying existing borrowings allocated to capital expenditures and constructions of equipment which contribute to environment, including reduction of CO2 and water consumption, out of the renovation cost for Oriental Hotel Fukuoka Hakata Station.

Furthermore, JHR took out loans of ¥7,200 million for the refinance and partial early repayment of existing loans in September 2019.

Consequently, as of the end of the fiscal year under review, balance of interest-bearing debt totaled ¥168,754 million, comprised of current portion of long-term loans payable of ¥12,782 million, long-term loans payable of ¥114,372 million and investment corporation bonds of ¥41,600 million, and the ratio of interest-bearing debt to total assets at end of year (Note) stood at 40.6%.

JHR reduced borrowing costs and extended maturity dates through the aforementioned series of fund procurement. Along with such, JHR concluded loans with fixed interest rates as well as interest rate swap contracts to hedge against risks of interest rates rising in the future. These actions brought the fixed rate ratio on total interest-bearing debt at end of year to 97.8%.

(Note) Ratio of interest-bearing debt to total assets at end of period = Balance of interest-bearing debt at end of period / Total assets at end of period x 100

As of December 31, 2019, JHR's issuer ratings were as follows.

As of October 17, 2019, Rating and Investment Information, Inc. (hereinafter referred to as "R&I") changed the outlook of JHR's issuer rating from "A (Stable)" to "A (Positive)."

Rating agency	Rating	Outlook
Japan Credit Rating Agency, Ltd.	A＋	Stable
Rating and Investment Information, Inc.	A	Positive

(4) Financial results

As a result of the abovementioned asset management, operating revenue, operating income and ordinary income were ¥28,278 million, ¥17,148 million and ¥15,291 million, respectively, for the fiscal period under review (12- month period from January 1, 2019 to December 31, 2019). Net income was ¥15,290 million.

With regard to dividends, it was decided that ¥16,466 million was distributed, which was calculated by adding a reversal of reserve for temporary difference adjustment (appropriation for dividends) of ¥1,176 million to unappropriated retained earnings of ¥15,290 million. Consequently, ¥16,466 million was distributed as dividend and the dividend per unit came to ¥3,690.

For details of the appropriation for dividends for the fiscal period under review, please refer to " Dividend per unit and appropriation for dividends" in 7. Reference information.

3. Changes in unitholders' capital, etc.

The table below indicates increases (decreases) in the number of investment units issued and outstanding and unitholders' capital of JHR in the past five years.

		Number of units issued	Unitholders' capital
Date	Capital transaction	(Units)	(JPY1M)	Note
Increase	Balance	Increase	Balance

		(decrease)	(decrease)

January 27,	Capital increase through public	200,000	2,991,281	14,974	73,999	(Note 1)
2015	offering of investment units

February 18,	Capital increase through third-party	9,041	3,000,322	676	74,676	(Note 2)
2015	allotment of investment units

June 22,	Capital increase through public	140,000	3,140,322	10,500	85,177	(Note 3)
2015	offering of investment units

July 23,	Capital increase through third-party	3,905	3,144,227	292	85,470	(Note 4)
2015	allotment of investment units

January 20,	Capital increase through public	170,000	3,314,227	13,986	99,456	(Note 5)
2016	offering of investment units

February 17,	Capital increase through third-party	7,680	3,321,907	631	100,088	(Note 6)
2016	allotment of investment units

July 27,	Capital increase through public	428,260	3,750,167	33,813	133,902	(Note 7)
2016	offering of investment units

August 23,	Capital increase through third-party	11,740	3,761,907	926	134,829	(Note 8)
2016	allotment of investment units

July 5,	Capital increase through public	236,000	3,997,907	17,715	152,544	(Note 9)
2017	offering of investment units

August 2,	Capital increase through third-party	12,940	4,010,847	971	153,516	(Note 10)
2017	allotment of investment units

January 23,	Capital increase through public	447,800	4,458,647	33,104	186,620	(Note 11)
2019	offering of investment units

February 20,	Capital increase through third-party	3,700	4,462,347	273	186,894	(Note 12)
2019	allotment of investment units

(Note 1) New investment units were issued through public offering with an issue price per unit of ¥77,415 (issue value of ¥74,874) in order to raise funds for the acquisition of new properties, etc.

(Note 2) New investment units were issued through third-party allotment with an issue value per unit of ¥74,874 in order to raise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital expenditures to maintain or improve competitiveness of existing properties.

(Note 3) New investment units were issued through public offering with an issue price per unit of ¥77,512 (issue value of ¥75,007) in order to raise funds for the acquisition of new properties, etc.

(Note 4) New investment units were issued through third-party allotment with an issue value per unit of ¥75,007 in order to raise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital expenditures to maintain or improve competitiveness of existing properties.

(Note 5) New investment units were issued through public offering with an issue price per unit of ¥85,020 (issue value of ¥82,273) in order to raise funds for the acquisition of new properties, etc.

(Note 6) New investment units were issued through third-party allotment with an issue value per unit of ¥82,273 in order to raise funds for the acquisition of new properties, etc.

(Note 7) New investment units were issued through public offering with an issue price per unit of ¥81,536 (issue value of ¥78,956) in order to raise funds for the acquisition of new properties, etc.

(Note 8) New investment units were issued through third-party allotment with an issue value per unit of ¥78,956 in order to raise funds for allocation to part of future acquisitions of specified assets, part of other repayment of loans, or capital expenditures to maintain or improve competitiveness of existing properties.

(Note 9) New investment units were issued through public offering with an issue price per unit of ¥77,518 (issue value of ¥75,065) in order to raise funds for the acquisition of new properties, etc.

(Note 10) New investment units were issued through third-party allotment with an issue value per unit of ¥75,065 in order to raise funds for allocation to part of future acquisitions of specified assets, part of repayment of loans, or repair expenses and capital expenditures to maintain or improve competitiveness of existing properties.

(Note 11) New investment units were issued through public offering with an issue price per unit of ¥76,342 (issue value of ¥73,927) in order to raise funds for the acquisition of new properties, etc.

(Note 12) New investment units were issued through third-party allotment with an issue value per unit of ¥73,927 in order to raise funds for allocation to part of the acquisition of new properties.

[Fluctuation in market price of investment units]

The highest and lowest prices (closing price) during each fiscal period of the investment units of JHR on the Tokyo Stock Exchange REIT section are as follows:

					(yen)
Fiscal period	16th period	17th period	18th period	19th period	20th period
Account closing month	December 2015	December 2016	December 2017	December 2018	December 2019

Highest price	93,800	103,400	81,200	85,000	91,800

Lowest price	70,600	70,900	71,100	75,000	75,900
Price at end of period	89,500	78,600	75,600	78,400	81,200

4. Dividends, etc.

Earnings dividend for the period under review was decided in accordance with the monetary distribution policy stipulated in Article 34, paragraph 1 of JHR's Articles of Incorporation. And ¥16,466,060,430, which excludes fractions of less than one yen of dividend per unit from ¥16,466,805,219, which was calculated by adding a reversal of the reserve for temporary difference adjustment of ¥1,176,490,844 to unappropriated retained earnings of ¥15,290,314,375 as of end of the fiscal period under review, was distributed. Consequently, the dividend per unit came to ¥3,690.

					(yen)

Classification	16th period	17th period	18th period	19th period	20th period
(From January 1, 2015	(From January 1, 2016	(From January 1, 2017	(From January 1, 2018	(From January 1, 2019
	to December 31, 2015)	to December 31, 2016)	to December 31, 2017)	to December 31, 2018)	to December 31, 2019)
Unappropriated retained	9,296,121,922	12,126,057,948	14,005,489,588	16,213,482,816	15,290,314,375
earnings

Retained earnings	2,894,304	411,048	3,048,696	-	744,789
Total cash dividends	9,354,075,325	12,865,721,940	14,771,949,501	15,602,194,830	16,466,060,430
[Dividend per unit]	[2,975]	[3,420]	[3,683]	[3,890]	[3,690]

Of the above, total earnings	9,354,075,325	12,865,721,940	14,771,949,501	15,602,194,830	16,466,060,430
dividends

[Earnings dividend per unit]	[2,975]	[3,420]	[3,683]	[3,890]	[3,690]
Of the above, total return of	-	-	-	-	-
capital contributions

[Return of capital	[-]	[-]	[-]	[-]	[-]
contributions per unit]

Of total return of capital
contributions, total
distributions from allowance	-	-	-	-	-
for temporary difference
adjustment
[Of return of capital
contributions per unit,
distributions from allowance	[-]	[-]	[-]	[-]	[-]
for temporary difference
adjustment per unit]
Of total return of capital
contributions, total
distributions from the	-	-	-	-	-
unitholders' capital for tax
purpose
[Of return of capital
contribution per unit,
distributions from the	[-]	[-]	[-]	[-]	[-]
unitholders' capital for tax
purpose per unit]

5. Investment policies and issues to be addressed General investment outlook

Due to the global spread of the novel coronavirus (COVID-19), the number of infected people in Japan and overseas has been increasing. There have been various events happening due to the spread, such as the request by the government to refrain from holding various events, closures of theme parks, the restrictions on travel from some countries, and the expansion of countries subject to restrictions on entry to Japan from foreign countries, etc. Therefore, travel demand by inbound to Japan from foreign countries including China has been significantly declining, and demand for accommodation and banquets among Japanese people has been also decreasing. As a result, the business environment surrounding hotels has changed dramatically. In the face of such circumstances, concerns have arisen about the impact on the respective hotels owned by JHR. However, the extent of the impact cannot be estimated at present. On the other hand, if the problem of the novel coronavirus settles, the demand for accommodation and banquets is expected to recover, and there is no change in JHR's belief that the tourism industry is a growing industry. For future hotel operations, JHR believes that the location and competitiveness of individual hotels and operator's capability to differentiate their hotels from others and to improve earning capability by controlling costs, etc. are the factors to widen the difference in performance among the hotels. Under recognition of such circumstances, JHR intends to work with the Asset Management Company to implement strategies to differentiate hotels owned by JHR in the market by utilizing experience which JHR has cultivated as J-REIT specializing in hotel investment, and manage assets based on the approach described below.

Internal growth

JHR will work to secure "stability" mainly with fixed rent contracts, while at the same time aim for "upside potential" through implementation of active asset management strategy, which proactively pursues greater profitability and asset value of its properties by way of a variety of measures such as expanding international brands and coordinating with HMJ.

For properties with fixed rent contracts, JHR will focus on setting, maintaining and increasing appropriate rents based on the rent levels in the market where respective hotels are located or each tenant's ability to bear the rent costs, and plans to aim at raising rents (including introduction of revenue sharing structure) in accordance with the conditions of the accommodation market.

For hotels under variable rent contracts and under a management contract structure, JHR is working to increase variable rent and reduce management contract fees by implementing the active asset management strategy.

A. Properties under variable rent contracts

JHR works to enhance the profitability of its properties under variable rent contracts through its active asset management strategy. JHR has adopted world-leading international brands such as Hilton, Marriott, Sheraton, Mercure and Holiday Inn or leading brands in Japan including Oriental Hotel and Hotel Nikko that are operated in various areas throughout the country and, together with excellent operators, aims to increase variable rent through improved performance of these hotels. JHR coordinates with the operators in an effort to enhance the hotel performances by requesting them to implement marketing initiatives to attract a wider range of demand with considerations given to solid domestic leisure demand and increasing leisure demand from inbound, measures to maintain and increase room rates, and realization of the synergy effects like cost reductions from owning multiple properties, among other issues. Moreover, JHR conducts strategic capital expenditure such as renovating guest rooms, etc. for improving property competitiveness primarily for hotels with high growth expectations, in an attempt to further enhance hotel earnings led by the growth in RevPAR. As such, JHR plans to implement large-scale renovation for Hilton Tokyo Odaiba and Namba Oriental Hotel in 2020.

B. Properties under fixed rent contracts

JHR will increase its efforts to appropriately monitor operating conditions of these hotels and, by paying careful attention to each tenant's ability to bear the rent costs, conduct negotiations with the tenants of hotels at which the ability to bear rent costs has been enhanced through better performances so that the improvement in hotel earnings would lead to an increase in JHR's earnings, such as revising rents upward and introducing revenue sharing structure. In addition, JHR will carry out investments for the purpose of continuous maintenance, renewal and improvement to ensure each hotel becomes prominent in the market and to maintain and increase the value of its assets.

External growth

In terms of external growth strategy, JHR will keep target to acquire highly-competitive Real Estate for Hotels, etc. (Hotel Assets) in areas which can expect "domestic and inbound leisure demand" over the medium to long term as JHR has done to date. In addition, JHR will build a portfolio which can secure stable revenues and with future growth potential in mind in order to achieve upside gains.

Upon acquiring properties, JHR will focus on the infrastructure aspects of the relevant Hotel Assets such as buildings and facilities, the services aspects such as the credibility of the hotel lessee and operator (including the ability of the hotel lessee to bear rent costs) as well as operation and management capabilities, and the properties' location superiority that serves as the base for demand stability and growth potential.

Specifically, JHR will target to invest in "full-service hotels" and "resort hotels" that pose barriers to new opening due to such factors as operation and management know-how required for operating the hotels and limitations in terms of invested capital and location. As for "limited-service hotels," JHR emphasizes the credibility and operation capabilities of the hotel lessee and operator as well as the building age, location, guestroom composition and profitability of the properties. Moreover, JHR will take a particularly selective approach to hotels specialized for accommodation and of a budget type (low price zone) that mainly offers single rooms and where the source of competitiveness relies only on prices.

In the hotel investment market, harsh competition over acquisition is ongoing due to competitions with J-REITs and non-listed private J-REITs that invest in hotels, overseas investors and others. JHR will aim for expansion of asset size that accompanies an improvement in the quality of its portfolio by acquiring highly competitive properties while leveraging its strength and advantages and also utilizing the HMJ platform in some cases.

Finance strategy

Under the basic policy of carrying out conservative financial strategy which places importance on securement of financial stability and soundness, JHR intends to maintain and enhance the relationships of trust with existing financial institutions with which it does business while endeavoring to diversify the means of financing. It aims to conduct financial operations by keeping the ratio of interest-bearing debt to total assets at no larger than 50% for the time being as in the past. In addition, when seeking new borrowing for property acquisitions or refinancing existing debt, JHR will work to disperse maturity dates of its debt as well as further reinforce and expand its base of lenders and further diversify funding methods, such as issuance of investment corporation bonds (including green bonds), while considering the balance with the funding costs.

Moreover, while JHR understands that no abrupt change is likely to occur to the interest rate level in the current situation, it aims to further improve its financial foundation by managing risk of interest rates market through extending maturity dates and fixing rates, etc., in preparation for addressing any change in the financial market environment.

Policy on handling of negative goodwill

Starting from the fiscal year ended December 31, 2017 (18th period), JHR started appropriation for dividends through reversal of reserve for temporary difference adjustment in connection with partial amendments to the "Ordinance on Accounting of Investment Corporations" (Cabinet Office Ordinance No. 47 of 2006, as amended; hereinafter referred to as the "Ordinance on Accountings of Investment Corporations") and the "Regulation for Real Estate Investment Trusts and Real Estate Investment Corporations" of The Investment Trusts Association, Japan. JHR stipulated a policy to reverse ¥262 million, which is an amount equivalent to 2% (1/50) of the balance of the reserve for temporary difference adjustment for the fiscal year ended December 31, 2017 (hereinafter called the "50-year amortization amount of negative goodwill"), to pay out as dividends every year, with the balance of the reserve for temporary difference adjustment remaining at the time of reversal set as the maximum reversal amount (Note).

Furthermore, in cases of incurrence of losses caused by property dispositions, impairment loss of assets, dilution of dividend per unit due to the issuance of new investment units through public offerings, etc., loss on retirement of noncurrent assets, and suspension of sales and such due to large-scale renovations with significant impact on revenues, JHR stipulated a policy to reverse additional portion of the negative goodwill on top of the 50-year amortization amount of negative goodwill (¥262 million) (Note).

(Note) The policy may change due to a resolution of the board of directors. etc., and it does not guarantee the method of

reversing the reserve for temporary difference adjustment, and amounts to be reversed, etc., in the future.

Initiatives for Sustainability

In recent years, there has been growing importance of the risks and opportunities of ESG (Environment, Social and Governance) issues in the investment management industry from the standpoint of long-term sustainability. JHR recognizes that conducting real estate investment management based on consideration for ESG is important to enhance unitholder value and to further raise the attractiveness of JHR. In addition, JHR believes that it is indispensable to establish favorable relationships with its stakeholders including unitholders, hotel users (guests), lessees, operators, business partners including property managers, etc., local communities, officers and employees of the Asset Management Company and others and to fulfill our social responsibilities expected from each of them.

In order to put such ideas into practice, JHR, along with the Asset Management Company, has established a "Sustainability Policy" as guidance to ESG initiatives. We have promoted efforts to reduce environmental impact at properties in our portfolio based on this policy, and received the Building-HousingEnergy-efficiency Labeling System (BELS) evaluation for the two properties of Hotel Nikko Alivila and Mercure Okinawa Naha in February 2018 as first such cases for hotel properties owned by J-REITs (Note 1). Furthermore, in September 2018, JHR became the first J-REIT specializing in hotels (Note 1) that was recognized by GRESB for its environmental awareness and sustainability initiatives, and acquired "Green Star," the highest ranking, in the GRESB Real Estate Assessment (Note 2). JHR was evaluated as "3 Stars" in GRESB Rating in September 2019.

Furthermore, JHR issued green bonds in July 2019 to allocate funds mainly to refinance loans procured for funding capital expenditures and constructions cost, etc. which contribute to the environment, including reduction of CO2 and water consumption in the renovation work at Oriental Hotel Fukuoka Hakata Station. It was the first case of a J-REIT specializing in hotels issuing green bonds.

Recognizing its social responsibility towards local communities as a J- REIT specializing in hotels, JHR will proactively carry out social contribution activities capitalizing on the characteristics of the hotel sector and each hotel.

(Note 1) Investigated by the Asset Management Company based on disclosed information

(Note 2) GRESB, which stands for Global Real Estate Sustainability Benchmark, is an annual benchmarking program to evaluate Environment, Social and Governance (ESG) awareness of real estate companies and funds. It evaluates initiatives for sustainability of real estate companies, REITs and real estate funds, not of individual properties. The GRESB Rating makes relative assessment based on total scores, with 5 Stars being the highest ranking.

6. Significant subsequent events

Impact of the novel coronavirus

The global spread of the novel coronavirus infection has caused a significant decrease in the travel demand by Chinese and other foreign tourists visiting Japan. Moreover, domestic demand for travel, parties and banquets, etc. has also decreased as voluntary restraint on going out is spreading among Japanese people due to the request by the Japanese government.

In the face of such circumstances, concerns have arisen about the negative impact on the revenues and valuation of the hotels owned by JHR. However, the overall financial impact and duration cannot be estimated at this time.

7. Reference information

Major indicators of the hotel business for the fiscal year ended December 31, 2019

The following tables indicate the figures related to the hotel business of the HMJ Group Hotels for the operating period from January 1, 2019 through December 31, 2019, based on the data provided by the hotel lessees, etc. Furthermore, while the indicators of the hotels are among the indicators that show the operating status of the rooms departments, they do not necessarily represent the operating revenue and the ability to bear rent, etc. of the respective hotels, as the daily rates of the respective rooms available for sale and profit margins, etc. are not uniform, among other reasons. As such, the indicators are no more than the reference figures.

	Kobe Meriken Park	Oriental Hotel tokyo	Namba Oriental	Hotel Nikko	Oriental Hotel	The Five HMJ
	hotels
	Oriental Hotel	bay	Hotel	Alivila	Hiroshima
	Total/Average

		Ratio to		Ratio to		Ratio to		Ratio to		Ratio to		Ratio to
		total		total		total		total		total		total
		sales		sales		sales		sales		sales		sales
Occupancy rate	84.8%	－	98.1%	－	92.9%	－	84.8%	－	88.5%	－	90.5%	－

ADR (Note 1)	19,337	－	21,230	－	18,602	－	30,614	－	9,932	－	21,067	－

RevPAR (Note 2)	16,397	－	20,837	－	17,290	－	25,961	－	8,788	－	19,066	－

Total sales	5,433	100.0%	6,758	100.0%	2,589	100.0%	6,264	100.0%	2,110	100.0%	23,153	100.0%
(millions of yen)

Rooms department	1,909	35.1%	3,886	57.5%	1,628	62.9%	3,762	60.1%	728	34.5%	11,914	51.5%

Food & beverage	3,256	59.9%	2,322	34.4%	116	4.5%	1,856	29.6%	1,314	62.3%	8,863	38.3%
department

Tenant department	77	1.4%	222	3.3%	796	30.8%	2	0.0%	23	1.1%	1,120	4.8%

Other departments	191	3.5%	328	4.8%	48	1.9%	644	10.3%	45	2.1%	1,256	5.4%
(Note 3)

GOP	1,317	24.2%	2,166	32.1%	1,549	59.8%	2,376	37.9%	384	18.2%	7,793	33.7%
(millions of yen)


	Okinawa Marriott	Sheraton Grand	Oriental Hotel	Holiday Inn Osaka	Hilton Tokyo Narita	International
	Fukuoka Hakata	Garden Hotel
	Resort & Spa	Hiroshima Hotel	Namba	Airport
	Station	Narita

		Ratio to		Ratio to		Ratio to		Ratio to		Ratio to		Ratio
		total	(Note 4)	total	(Note 5)	total		total		total		to total
		sales		sales		sales		sales		sales		sales
Occupancy rate	80.6%	－	91.3%	－	64.4%	－	91.2%	－	88.8%	－	82.5%	－

ADR (Note 1)	21,805	－	20,676	－	18,633	－	16,597	－	12,768	－	8,712	－

RevPAR (Note 2)	17,577	－	18,872	－	11,995	－	15,134	－	11,337	－	7,191	－

Total sales	3,693	100.0%	3,442	100.0%	1,994	100.0%	1,784	100.0%	3,431	100.0%	1,541	100.0%
(millions of yen)

Rooms department	2,316	62.7%	1,639	47.6%	968	48.5%	1,735	97.2%	2,268	66.1%	1,215	78.8%

Food & beverage	961	26.0%	1,706	49.6%	748	37.5%	－	－	1,063	31.0%	315	20.4%
department

Tenant department	58	1.6%	0	0.0%	263	13.2%	37	2.1%	52	1.5%	6	0.4%

Other departments	358	9.7%	97	2.8%	16	0.8%	12	0.7%	48	1.4%	5	0.3%
(Note 3)

GOP	1,131	30.6%	1,097	31.9%	803	40.3%	1,074	60.2%	1,092	31.8%	634	41.1%
(millions of yen)

			Hotel Oriental			The HMJ Group
	Hotel Nikko Nara	Express Osaka	Hilton Tokyo Odaiba	Hotels
			Shinsaibashi			Total/Average
		Ratio to		Ratio to		Ratio to		Ratio
		total		total		total	(Note 6)	to total
		sales		sales		sales		sales
Occupancy rate	79.3%	－	90.5%	－	87.9%	－	86.6%	－

ADR (Note 1)	13,039	－	9,293	－	30,202	－	18,635	－

RevPAR (Note 2)	10,337	－	8,407	－	26,558	－	16,143	－

Total sales	2,874	100.0%	395	100.0%	8,880	100.0%	51,187	100.0%
(millions of yen)

Rooms department	1,245	43.3%	381	96.4%	4,391	49.5%	28,071	54.8%

Food & beverage	1,586	55.2%	14	3.5%	4,093	46.1%	19,348	37.8%
department

Tenant department	26	0.9%	－	－	241	2.7%	1,804	3.5%

Other departments	16	0.6%	0	0.1%	155	1.7%	1,964	3.8%
(Note 3)

GOP	694	24.2%	156	39.5%	2,642	29.8%	17,116	33.4%
(millions of yen)

(Note 1) ADR: Represents average daily rate, which is calculated by dividing total rooms revenue for a certain period (including service charges) by the total number of rooms sold during the period.

Service charges are 10% for Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila, Oriental Hotel Hiroshima, Okinawa Marriott Resort & Spa, ACTIVE-INTER CITY HIROSHIMA (Sheraton Grand Hiroshima Hotel), International Garden Hotel Narita, Hotel Nikko Nara and Oriental Hotel Fukuoka Hakata Station; 12% for Hilton Tokyo Narita Airport; and 13% for Hilton Tokyo Odaiba. Holiday Inn Osaka Namba and Hotel Oriental Express Osaka Shinsaibashi do not request service charges. Described in unit of yen. The same shall apply hereinafter.

(Note 2) RevPAR: Represents revenue per available room, which is calculated by dividing total rooms revenue for a certain period (including service charges) by the total number of rooms available for sale during the period. Revenue per available room equals the product of ADR and occupancy rate. Described in unit of yen. The same shall apply hereinafter.

(Note 3) Figures for the Other departments include sales of the Product sales department.

(Note 4) The indicated figures are for Sheraton Grand Hiroshima Hotel, the main facility of ACTIVE-INTER CITY HIROSHIMA.

(Note 5) While Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata) undertook large-scale renovation work accompanied by suspension of hotel operation from October 1, 2018 through the reopening on April 9, 2019, the occupancy rate is calculated including the suspension period.

(Note 6) For Total/Average of the HMJ Group Hotels, figures are calculated by JHR as reference since no figures have been provided by the hotel lessees, etc.

(Note 7) The occupancy rate is rounded off to one decimal place, while ADR and RevPAR are rounded off to single units. Sales and GOP are rounded off to the nearest million yen. For the ratio to total sales, the ratio of sales in each department to total sales is rounded off to one decimal place.

Hotel operation indexes, sales and GOP

The numerical figures are based on figures obtained from hotel lessees, etc. Please note that these figures have not been audited or gone through other procedures. No guarantee is made as to the accuracy or completeness of the figures and information.

<1> 21 Hotels with Variable Rent

		Fiscal year ended December 31, 2018	Fiscal year ended December 31, 2019
		Actual	Comparison with	Actual	Comparison with
		previous period	previous period

	First half	87.3%	0.3pt	86.5%	(0.7)pt
Occupancy rate	Second half	87.1%	(1.4)pt	86.5%	(0.6)pt
	Full year	87.2%	(0.6)pt	86.5%	(0.7)pt
	First half	14,685	2.2%	14,749	0.4%
ADR	Second half	17,020	0.4%	16,316	(4.1)%
	Full year	15,861	1.1%	15,539	(2.0)%
	First half	12,817	2.6%	12,765	(0.4)%
RevPAR	Second half	14,831	(1.2)%	14,113	(4.8)%
	Full year	13,833	0.5%	13,444	(2.8)%
Sales	First half	22,958	0.8%	23,124	0.7%
Second half	26,257	(1.2)%	25,320	(3.6)%
(millions of yen)
Full year	49,215	(0.3)%	48,444	(1.6)%

GOP	First half	7,715	2.6%	7,709	(0.1)%
Second half	10,196	0.3%	9,561	(6.2)%
(millions of yen)
Full year	17,911	1.3%	17,270	(3.6)%

<2> Oriental Hotel Fukuoka Hakata Station

			Fiscal year ended December 31, 2018	Fiscal year ended December 31, 2019
			Actual	Comparison with	Actual	Comparison with
			previous period	previous period

		First half	94.7%	1.0pt	39.1%	(55.6)pt
Occupancy rate		Second half	47.0%	(48.4)pt	89.2%	42.2pt
		Full year	70.7%	(23.9)pt	64.4%	(6.3)pt
		First half	13,323	8.4%	19,385	45.5%
ADR		Second half	13,343	(1.5)%	18,309	37.2%
		Full year	13,330	3.1%	18,633	39.8%
		First half	12,621	9.6%	7,588	(39.9)%
RevPAR		Second half	6,274	(51.5)%	16,330	160.3%
		Full year	9,422	(22.9)%	11,995	27.3%
Sales		First half	1,199	(5.3)%	673	(43.9)%
	Second half	637	(46.8)%	1,321	107.4%
(millions of yen)
	Full year	1,836	(22.5)%	1,994	8.6%

GOP		First half	494	3.9%	131	(73.4)%
	Second half	141	(69.8)%	671	375.9%
(millions of yen)
	Full year	635	(32.6)%	803	26.3%

(Note)	Oriental Hotel Fukuoka Hakata Station undertook large-scale renovation work accompanied by suspension of hotel operation
	from October 1, 2018 through April 8, 2019.

<3> Hotel Oriental Express Osaka Shinsaibashi

		Fiscal year ended December 31, 2018	Fiscal year ended December 31, 2019
		Actual	Comparison with	Actual		Comparison with
		previous period		previous period

	First half	－	－		92.3%		－

Occupancy rate	Second half	－	－		88.7%		－

	Full year	－	－		90.5%		－

	First half	－	－		9,611		－

ADR	Second half	－	－		8,967		－

	Full year	－	－		9,293		－

	First half	－	－		8,868		－

RevPAR	Second half	－	－		7,954		－

	Full year	－	－		8,407		－

Sales	First half	－	－		205		－

Second half	－	－		190		－
(millions of yen)
Full year	－	－		395		－

GOP	First half	－	－		84		－
Second half	－	－		72		－
(millions of yen)
Full year	－	－		156		－

(Note 1) Hotel Oriental Express Osaka Shinsaibashi was acquired on February 1, 2019. The figures of the fiscal year ended December 2019 are for the full year calculated by adding the figures prior to the acquisition by JHR.

(Note 2) As Hotel Oriental Express Osaka Shinsaibashi opened on April 2, 2018, its figures for the fiscal year ended December 31, 2018 and earlier are not stated.

<4> Hilton Tokyo Odaiba

			Fiscal year ended December 31, 2018	Fiscal year ended December 31, 2019
			Actual	Comparison with	Actual	Comparison with
			previous period	previous period

		First half	95.2%	0.9pt	85.9%	(9.3)pt
Occupancy rate		Second half	92.9%	(3.0)pt	89.9%	(2.9)pt
		Full year	94.0%	(1.1)pt	87.9%	(6.1)pt
		First half	28,831	6.8%	29,263	1.5%
ADR		Second half	31,396	8.6%	31,085	(1.0)%
		Full year	30,108	7.6%	30,202	0.3%
		First half	27,451	7.7%	25,135	(8.4)%
RevPAR		Second half	29,154	5.3%	27,957	(4.1)%
		Full year	28,309	6.4%	26,558	(6.2)%
Sales		First half	4,591	9.5%	4,258	(7.3)%
	Second half	5,008	7.3%	4,622	(7.7)%
(millions of yen)
	Full year	9,599	8.3%	8,880	(6.9)%

GOP		First half	1,374	21.7%	1,143	(16.9)%
	Second half	1,723	15.2%	1,500	(13.0)%
(millions of yen)
	Full year	3,097	18.0%	2,642	(14.7)%

(Note)	Hilton Tokyo Odaiba was acquired on April 8, 2019. The figures of the fiscal years ended December 31, 2018 and December
	31, 2019 are for the full year calculated by adding the figures prior to the acquisition by JHR.

Dividend per unit and appropriation for dividends

Dividend per unit for the fiscal years ended December 31, 2018 and December 31, 2019 were calculated based on the assumptions described below.

					(millions of yen)
				Fiscal year ended	Fiscal year ended
				December 31, 2018	December 31, 2019
Unappropriated retained earnings			16,213	15,290
Reserve for special advanced depreciation(Note 1)			(1,174)	-
Total of reserve for temporary difference adjustments (Note 2) (negative	563	1,176
goodwill) used

	Negative goodwill - 50-year amortization amount (Note 2)	262	262
	Loss on retirement of noncurrent assets (Note 3)		35	246

	Correspondence to large-scale renovation works (Note 4)		265	357
	Adjustment for dilution (Note 5)			-	310
Total dividends			15,602	16,466
Total number of investment units issued (Units)			4,010,847	4,462,347
Dividend per unit	(JPY)	3,890	3,690

(Note 1) R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b Ochanomizu were sold on August 10, 2018. ¥1,174 million of the gain on sale by the sales was retained as reserve for special advanced depreciation within the limit to maintain conduit status stipulated by Article 67-15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957; as amended; hereinafter called " the Act on Special Measures Concerning Taxation" The same shall apply hereinafter.) by applying "Special provisions for taxation in the case where a special account is set up in connection with transfer of specified assets" (Article 65-8 in the Act on Special Measures Concerning Taxation).

(Note 2) Starting from the fiscal year ended December 31, 2017 (18th period), JHR commenced paying out dividends through reversal of reserve for temporary difference adjustment in connection with partial amendments to the "Ordinance on Accounting of Investment Corporations" and the "Regulation for Real Estate Investment Trusts and Real Estate Investment Corporations" of The Investment Trusts Association, Japan. Specifically, JHR transferred the remaining balance of dividend reserve (¥13,127 million) attributable to the gain on negative goodwill in the cash dividends statements for the fiscal year ended December 31, 2016 (17th period) to "reserve for temporary difference adjustment" and reverses ¥262 million (hereinafter called the "50-year amortization amount of negative goodwill"), which is an amount equivalent to 2% (1/50) of the remaining balance of the reserve for temporary difference adjustment, to payout as dividends, with the remaining balance of the reserve for temporary difference adjustment set as the maximum amount, for every year from the fiscal year ended December 31, 2017 (18th period).

(Note 3) The amount recognized as a loss on retirement of noncurrent assets are appropriated by reserve for temporary difference adjustment (negative goodwill) and have no impact on the dividend per unit.

(Note 4) Former Hotel Centraza Hakata implemented large-scale renovation work accompanied by suspension of hotel operation starting October 1, 2018 and resumed its operation as Oriental Hotel Fukuoka Hakata Station on April 9, 2019. Taking into consideration the impact on dividend by the suspension of hotel operation due to the renovation, reserve for temporary difference adjustment (negative goodwill) is appropriated.

(Note 5) Adjustment for dilution of dividend per unit due to issuance of new investment units.

Balance of reserve for temporary difference adjustment (negative goodwill)

The balance of reserve for temporary difference adjustment (negative goodwill) after appropriation for dividends for the fiscal year ended December 2019 is as follows.

	(millions of yen)
Balance of reserve for temporary difference adjustment as of December 31, 2019	11,794
Appropriation for dividends for the fiscal year ended December 31, 2019	(1,176)
Balance of reserve for temporary difference adjustment after appropriation for dividends for the

fiscal year ended December 31, 2019	10,617

Overview of JHR

1. Unitholders' capital

Account closing date	16th period	17th period	18th period	19th period	20th period
As of	As of	As of	As of	As of
		December 31, 2015	December 31, 2016	December 31, 2017	December 31, 2018	December 31, 2019
Total number of authorized units	20,000,000	20,000,000	20,000,000	20,000,000	20,000,000
	(Units)

Number of investment units issued and	3,144,227	3,761,907	4,010,847	4,010,847	4,462,347
outstanding	(Units)

Unitholders' capital	(JPY1M)	85,470	134,829	153,516	153,516	186,894


Number of unitholders	(Persons)	25,182	31,371	35,046	31,155	30,574

2. Matters regarding investment units

Major unitholders of JHR as of December 31, 2019 were as follows:

Name	Number of units held	Percentage (Note)
(Units)	(%)

The Master Trust Bank of Japan, Ltd. (Trust Account)	697,102	15.62%
Japan Trustee Services Bank, Ltd. (Trust Account)	526,839	11.80%
J.P. Morgan Bank Luxembourg S.A. 384500	334,947	7.50%
The Nomura Trust and Banking Co., Ltd. (Investment Trust Account)	213,302	4.78%
BNYM AS AGT/CLTS 10 PERCENT	140,401	3.14%
Trust & Custody Services Bank, Ltd. (Securities Investment Trust	134,779	3.02%
Account)

STATE STREET BANK WEST CLIENT TREATY 505234	59,918	1.34%
Shikoku Railway Company	56,989	1.27%
JPMorgan Securities Japan Co., Ltd.	52,951	1.18%
Japan Securities Finance Co., Ltd.	46,600	1.04%
Total	2,263,828	50.73%

(Note) The percentage indicates the ratio of the number of units held to the number of units issued and outstanding, rounded down to the two decimal places.

3. Matters regarding officers, etc.

Officers, etc. as of December 31, 2019 were as follows:

			Total amount of remuneration for
Position	Name	Major concurrent post outside	each position during the
JHR	corresponding fiscal period

			(JPY1000)
Executive Director	Kaname Masuda (Note 1)	Representative Partner, Masuda &	6,600
Partners Law Office

Supervisory Director	Tetsuya Mishiku (Note 1)	Representative Attorney, Mishiku	3,600
& Nagamachi Law Office

Supervisory Director	Hiroto Kashii (Note1)	-	3,600
Supervisory Director	Mayumi Umezawa (Note1) (Note2)	Representative of Umezawa	600
Accountant Office
Independent auditor	KPMG AZSA LLC (Note 3)	-	48,600

(Note 1) None of the Executive Director and the Supervisory Directors own investment units of JHR in their own name or another person's name. Moreover, although the Supervisory Directors may be officers in corporations other than those listed above, there are no conflicts of interest between those corporations including those listed above and JHR.

(Note 2) Based on the resolution by the 9th General Meeting of Unitholders of JHR held on November 22, 2019, Mayumi Umezawa newly took office as Supervisory Director of JHR as of the same date.

(Note 3) Remuneration for the independent auditor includes fees for services other than those stipulated in Article 2, paragraph 1 of the Certified Public Accountants Act amounting to ¥22,100 thousand, such as preparation of comfort letters associated with the capital increase through the public offerings and the issuance of investment corporation bonds.

(Note 4) In case the number of Executive Director does not meet the requirement stipulated by laws and regulations, Hisashi Furukawa, Representative Director of the Asset Management Company, was elected as Substitute Executive Director, based on the resolution made by the 9th General Meeting of Unitholders of JHR held on November 22, 2019.

(2) Policy for decisions on dismissal or non-reappointment of independent auditor

We have a policy to determine, at a General Meeting of Unitholders, whether to dismiss the independent auditor pursuant to provisions of the Investment Trusts Act, and to determine whether or not to reappoint the independent auditor taking into comprehensive consideration the audit quality, audit fees and other various matters.

4. Asset management company, custodian and general administrators

The asset management company, etc. as of December 31, 2019 were as follows:

Consignment classification	Name
Asset management company	Japan Hotel REIT Advisors Co., Ltd.

Custodian	Sumitomo Mitsui Trust Bank, Limited
General administrator (administration of the unitholders'
registry, book keeping, tax payments, organizational operations,	Sumitomo Mitsui Trust Bank, Limited
etc., and administration of the special account management
agency)
	Sumitomo Mitsui Trust Bank, Limited
General administrator (administration regarding investment	Mizuho Bank, Ltd.
corporation bonds)	Resona Bank, Limited
	MUFG Bank, Ltd.

General administrator (tax return preparation, etc.)	PwC Tax Japan

Status of Investment Assets 1. Composition of assets

				19th period	20th period
Type of		Prefectural		(As of December 31, 2018)	(As of December 31, 2019)
Hotel Type	Name of property, etc.	Total amount of	Ratio to total	Total amount of	Ratio to total
assets	(Note 1)	location		assets held	assets held
				(JPY1M)	assets (%)	(JPY1M)	assets (%)
				(Note 3)	(Note 3)
				(Note 2)	(Note 2)

			Holiday Inn Osaka Namba	27,033	7.7	26,985	6.5
		Osaka	Namba Oriental Hotel	14,552	4.2	14,539	3.5
			Hotel Oriental Express Osaka Shinsaibashi	-	-	2,817	0.7
			ibis Tokyo Shinjuku	7,940	2.3	7,908	1.9
			CANDEO HOTELS UENO-KOEN	6,681	1.9	6,644	1.6
			the b ikebukuro	6,584	1.9	6,584	1.6
			Sotetsu Fresa Inn Shimbashi-	4,821	1.4	4,801	1.2
			Karasumoriguchi (Note 4)

			Comfort Hotel Tokyo Higashi Nihombashi	3,557	1.0	3,527	0.8
		Tokyo	the b hachioji	2,686	0.8	2,680	0.6
			Smile Hotel Nihombashi Mitsukoshimae	2,030	0.6	2,022	0.5
			R&B Hotel Ueno Hirokoji	1,766	0.5	1,822	0.4
	Limited-		Hotel Vista Kamata Tokyo	1,465	0.4	1,452	0.3
		the b suidobashi	1,198	0.3	1,194	0.3
	service hotel
			dormy inn・global cabin Asakusa (Note 5)	952	0.3	941	0.2

			Chisun Inn Kamata	779	0.2	769	0.2
		Hokkaido	ibis Styles Sapporo	6,620	1.9	6,561	1.6
		Mercure Sapporo	5,853	1.7	5,792	1.4

			HOTEL ASCENT FUKUOKA	5,178	1.5	5,161	1.2
		Fukuoka	the b hakata	2,340	0.7	2,340	0.6
		Hakata Nakasu Washington Hotel Plaza	2,033	0.6	2,022	0.5


			Toyoko Inn Hakata-guchi Ekimae	1,437	0.4	1,419	0.3
		Kyoto	ibis Styles Kyoto Station	6,665	1.9	6,650	1.6
Real estate		Okinawa	Mercure Okinawa Naha	2,860	0.8	2,833	0.7
	Kumamoto	Dormy Inn Kumamoto	2,165	0.6	2,139	0.5
in trust
	Nara	Nara Washington Hotel Plaza	1,802	0.5	1,798	0.4

			Subtotal	119,010	33.9	121,410	29.2
		Tokyo	Hilton Tokyo Odaiba	-	-	63,429	15.3
			Oriental Hotel tokyo bay	17,790	5.1	17,486	4.2
		Chiba	Hilton Tokyo Narita Airport	13,253	3.8	13,205	3.2
		International Garden Hotel Narita	9,195	2.6	9,162	2.2

			Hotel Francs	3,187	0.9	3,178	0.8
			ACTIVE-INTER CITY HIROSHIMA
	Full-service	Hiroshima	(Sheraton Grand Hiroshima Hotel)	17,487	5.0	17,327	4.2
	(Note 6)
	hotel
		Oriental Hotel Hiroshima	4,106	1.2	4,099	1.0

		Aichi	Hilton Nagoya	15,605	4.5	15,650	3.8
		Nara	Hotel Nikko Nara	10,442	3.0	10,355	2.5
		Hyogo	Kobe Meriken Park Oriental Hotel	9,772	2.8	9,678	2.3
		Fukuoka	Oriental Hotel Fukuoka Hakata Station	7,178	2.0	9,560	2.3
		(Note 7)

		Kanagawa	Mercure Yokosuka	1,642	0.5	1,621	0.4
			Subtotal	109,661	31.3	174,756	42.0
			Hotel Nikko Alivila	17,989	5.1	17,904	4.3
		Okinawa	Okinawa Marriott Resort & Spa	14,875	4.2	14,924	3.6
	Resort hotel		The Beach Tower Okinawa	6,677	1.9	6,581	1.6
	Chiba	Hilton Tokyo Bay	26,098	7.4	26,408	6.4

		Osaka	Hotel Keihan Universal City	5,930	1.7	5,905	1.4
		Kanagawa	Hakone Setsugetsuka	3,722	1.1	3,689	0.9
			Subtotal	75,295	21.5	75,413	18.1

					19th period	20th period
Type of		Prefectural			(As of December 31, 2018)	(As of December 31, 2019)
Hotel Type		Name of property, etc.	Total amount of	Ratio to total	Total amount of	Ratio to total
assets	(Note 1)	location			assets held	assets held
					(JPY1M)	assets (%)	(JPY1M)	assets (%)
					(Note 3)	(Note 3)
					(Note 2)	(Note 2)

		Real estate in trust - Total	303,967	86.7	371,580	89.4
	Deposits and other assets (Note 8)	46,589	13.3	44,142	10.6
		Total assets		350,556	100.0	415,722	100.0

(Note 1) Hotels are categorized as limited-service hotels, full-service hotels or resort hotels according to the manner of operation.

(Note 2) For real estate in trust, "Total amount of assets held" shows the amount calculated by deducting accumulated depreciation from acquisition price (including expenses incidental to acquisition).

(Note 3) "Ratio to total assets" shows the ratio of each asset held to total assets, rounded off to one decimal place.

(Note 4) Hotel Sunroute Shinbashi was renamed to Sotetsu Fresa Inn Shimbashi-Karasumoriguchi on April 23, 2019. In this report, the same shall apply hereinafter.

(Note 5) Dormy Inn EXPRESS Asakusa was renamed to dormy inn・global cabin Asakusa on August 4, 2019. In this report, the same shall apply hereinafter.

(Note 6) ACTIVE-INTER CITY HIROSHIMA is classified in accordance with the hotel type of Sheraton Grand Hiroshima Hotel, its main facility.

(Note 7) Hotel Centraza Hakata was renamed to Oriental Hotel Fukuoka Hakata Station on April 9, 2019. In this report, the same shall apply hereinafter.

(Note 8) Includes machinery and equipment, tools, furniture and fixtures, construction in progress in trust, and intangible assets (excluding leasehold rights in trust and fixed-term leasehold rights in trust).

2. Major portfolio assets

An overview of the portfolio assets of JHR (43 properties in total) as of December 31, 2019 are as follows.

					Tenant	Ratio of rental
		Book value	Leasable area	Leased area	revenue to total
Property	Name of property, etc.	occupancy	Major
(JPY1M)	(m2)	(m2)	rental revenue
No.	ratio	use
	(Note 1)	(Note 2)	(Note 3)	(%)
		(%)
					(Note 4)

1	Kobe Meriken Park Oriental Hotel	9,888	32,663.90	32,663.90	100.0	4.4	Hotel
(Note 5)

2	Oriental Hotel tokyo bay	17,699	44,833.11	44,833.11	100.0	6.7	Hotel
3	Namba Oriental Hotel	14,640	19,364.33	19,364.33	100.0	5.0	Hotel
4	Hotel Nikko Alivila (Note 6)	18,168	38,024.98	38,024.98	100.0	7.0	Hotel
5	Oriental Hotel Hiroshima	4,171	13,752.22	13,752.22	100.0	1.7	Hotel
6	ibis Tokyo Shinjuku	8,013	6,801.84	6,801.84	100.0	2.5	Hotel
8	The Beach Tower Okinawa (Note 7)	6,587	20,140.01	20,140.01	100.0	1.8	Hotel
9	Hakone Setsugetsuka	3,696	10,655.03	10,655.03	100.0	1.0	Hotel
10	Dormy Inn Kumamoto	2,139	7,701.19	7,701.19	100.0	0.7	Hotel
12	the b suidobashi	1,213	3,097.25	3,097.25	100.0	0.4	Hotel
13	dormy inn・global cabin Asakusa	941	2,014.90	2,014.90	100.0	0.2	Hotel

14	Hakata Nakasu Washington Hotel Plaza	2,022	5,602.04	5,602.04	100.0	0.9	Hotel
15	Nara Washington Hotel Plaza	1,800	5,271.54	5,271.54	100.0	0.5	Hotel
16	R&B Hotel Ueno Hirokoji	1,822	3,060.31	3,060.31	100.0	0.3	Hotel
18	Comfort Hotel Tokyo Higashi Nihombashi	3,527	5,765.27	5,765.27	100.0	1.0	Hotel
22	Smile Hotel Nihombashi Mitsukoshimae	2,022	3,167.82	3,167.82	100.0	0.5	Hotel
			Main building:	Main building:
24	Toyoko Inn Hakata-guchi Ekimae	1,419	3,581.66	3,581.66	100.0	0.5	Hotel
Annex:	Annex:

			868.36	868.36
25	Hotel Vista Kamata Tokyo	1,453	3,831.80	3,831.80	100.0	0.4	Hotel
26	Chisun Inn Kamata	772	1,499.87	1,499.87	100.0	0.3	Hotel
29	Hotel Keihan Universal City (Note 8)	5,905	16,212.40	16,212.40	100.0	2.6	Hotel
30	Sotetsu Fresa Inn Shimbashi-	4,802	5,246.66	5,246.66	100.0	1.6	Hotel
Karasumoriguchi

31	Hilton Tokyo Bay (Note 9)	26,422	64,928.83	64,928.83	100.0	7.9	Hotel
32	ibis Styles Kyoto Station	6,675	5,003.99	5,003.99	100.0	1.6	Hotel
33	ibis Styles Sapporo	6,601	14,992.49	14,735.17	98.3	2.3	Hotel
34	Mercure Sapporo	5,857	15,189.42	14,483.81	95.4	2.8	Hotel
35	Mercure Okinawa Naha	2,887	10,884.25	10,884.25	100.0	1.2	Hotel
37	the b ikebukuro (Note 10)	6,608	5,650.01	5,650.01	100.0	1.3	Hotel
39	the b hachioji (Note 10)	2,699	7,847.65	7,847.65	100.0	0.7	Hotel
40	the b hakata (Note 10)	2,361	3,986.09	3,986.09	100.0	0.8	Hotel
41	Hotel Francs	3,178	19,213.39	19,213.39	100.0	1.1	Hotel
42	Mercure Yokosuka (Note 11)	1,658	16,881.82	16,881.82	100.0	1.3	Hotel
43	Okinawa Marriott Resort & Spa	15,106	36,430.15	36,430.15	100.0	3.3	Hotel
44	ACTIVE-INTER CITY HIROSHIMA	17,436	31,181.03	31,041.95	99.6	5.7	Hotel
(Note 12)

45	CANDEO HOTELS UENO-KOEN	6,652	7,934.26	7,934.26	100.0	1.2	Hotel
(Note 13)

46	Oriental Hotel Fukuoka Hakata Station	9,847	18,105.42	18,105.42	100.0	2.6	Hotel
47	Holiday Inn Osaka Namba	27,126	11,501.10	11,501.10	100.0	3.4	Hotel
48	HOTEL ASCENT FUKUOKA	5,161	8,238.75	8,238.75	100.0	1.6	Hotel
49	Hilton Nagoya (Note 14)	15,651	47,942.71	47,942.71	100.0	5.1	Hotel
50	Hilton Tokyo Narita Airport	13,499	56,817.28	56,817.28	100.0	3.2	Hotel
51	International Garden Hotel Narita	9,245	21,814.93	21,814.93	100.0	2.1	Hotel
52	Hotel Nikko Nara (Note 15)	10,442	21,011.31	21,011.31	100.0	2.2	Hotel
53	Hotel Oriental Express Osaka Shinsaibashi	2,829	2,710.55	2,710.55	100.0	0.4	Hotel
54	Hilton Tokyo Odaiba	63,652	64,907.76	64,907.76	100.0	8.0	Hotel
	Total	374,314	746,329.68	745,227.67	99.9	100.0

(Note 1) Book value includes real estate in trust, machinery and equipment, tools, furniture and fixtures, construction in progress in trust, and intangible assets.

(Note 2) In principle, leasable area represents leasable area of the building, which does not include leasable area of land (including parking lots on ground), based on a lease contract or plan for each real estate in trust. For properties in which the leased area is not described in the lease contract, leasable area represents the area described in the registration of the building. Furthermore, when the leasable area in the lease contract is indicated in tsubo units, the figure in the table has been converted to the area in metric units (3.30578 square meters per one tsubo).

(Note 3) In principle, leased area represents the leased area described in the lease contract of the building. For properties in which the leased area is not described in the lease contract, leased area shows the area described in the registration of the building. Furthermore, when the leased area in the lease contract is indicated in tsubo units, the figure in the table has been converted to the area in metric units (3.30578 square meters per one tsubo). However, for properties for which master lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR receives the same amount of rents, etc. paid by end tenants as is in principle, the total area for which lease contracts have been concluded with end tenants and which are actually leased is indicated. In this report, the same shall apply hereinafter.

(Note 4) Represents the ratio of rental revenue to total real estate operating revenue for the fiscal period under review. In calculating, the figures are rounded off to one decimal place.

(Note 5) Kobe Meriken Park Oriental Hotel is a building owned in the form of a compartmentalized ownership by two owners (JHR and Kobe City). The area in this table shows the portion owned exclusively by JHR (including an accessory building of 764.83 square meters).

(Note 6) Leasable area and leased area for Hotel Nikko Alivila include an accessory building of 120.10 square meters and exclude a building of 493.50 square meters rented by JHR from Kabushiki Kaisha Okinawa Umi No Sono.

(Note 7) Leasable area and leased area for The Beach Tower Okinawa include the floor area of a warehouse in a two-story light- gauge steel annex building (91.20 square meters).

(Note 8) The building of Hotel Keihan Universal City is a building with compartmentalized ownership for Universal CityWalk Osaka, which comprises two hotel buildings, business facilities, commercial facilities and others, as a single building. For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.

(Note 9) The building of Hilton Tokyo Bay is co-owned with other right holders, and JHR owns co-ownership interest for 64,928.83 square meters (JHR owns 9/10 of co-ownership interest).

(Note 10) The b ikebukuro, the b hachioji and the b hakata are properties with pass-through master lease contracts in which JHR receives the same amount of rents, etc. paid by end tenants as is in principle. In this report, the same shall apply hereinafter.

(Note 11) The building of Mercure Yokosuka is a building with compartmentalized ownership for Bay Square Yokosuka Ichibankan, which comprises a hotel, a theater, stores, apartments, office spaces and parking lots, as a single building. For the leasable area and leased area of the property, the leased area under the lease contract of the hotel is indicated.

(Note 12) The building of ACTIVE-INTER CITY HIROSHIMA is a building with compartmentalized ownership for ACTIVE- INTER CITY HIROSHIMA, which comprises Sheraton Grand Hiroshima Hotel, office spaces, stores, parking lots and bicycle parking lots etc., as a single building. For the leasable area and leased area of the property, the leased area under the lease contracts of the hotel, office spaces and stores are indicated.

(Note 13) Leasable area and leased area of CANDEO HOTELS UENO-KOEN indicate the total floor area described in the certificate of inspection, based on the building lease agreement with the hotel lessee. Furthermore, the figure includes the floor area for the mechanical parking facilities.

(Note 14) The building of Hilton Nagoya is a compartmentalized ownership of AMMNAT SQUARE, which consists of a hotel building (including retail space), office building and car parking space, etc., as a single building. Leasable area and leased area indicate the sum total of the leased area for the hotel building, the office building and the retail space described in the lease agreement.

(Note 15) The building of Hotel Nikko Nara is a compartmentalized ownership of the entire building of Redeveloped Building 1 in front of JR Nara Station, which consists of hotel building, retail space and car parking space, etc. JHR's share of voting right of the building is 223/353 (approximately 63.2%).

(Note 16) The omitted property numbers are the numbers for assets that have been transferred.

3. Details of property assets, etc.

Details of property assets

The details of real estate properties, etc. held by JHR as of December 31, 2019 were as follows:

				Assessed
Property	Name of property, etc.	Location (Displayed address)	Form of ownership	value at end	Book value	Appraisal
of period	(JPY1M)	agency
No.
			(JPY1M)	(Note 2)	(Note 3)

				(Note 1)
1	Kobe Meriken Park Oriental	5-6 Hatobacho, Chuo-ku,Kobe-shi, Hyogo	Beneficial interest	16,200	9,888	JR
Hotel	in trust
2	Oriental Hotel tokyo bay	8-2 Mihama 1-chome,Urayasu-shi, Chiba	Beneficial interest	37,800	17,699	JR
in trust

3	Namba Oriental Hotel	8-17 Sennichimae 2-chome,Chuo-ku,	Beneficial interest	32,900	14,640	JR
Osaka-shi, Osaka	in trust

4	Hotel Nikko Alivila	600 Aza Gima, Yomitan-son, Nakagami-	Beneficial interest	32,900	18,168	JR
gun, Okinawa	in trust

5	Oriental Hotel Hiroshima	6-10 Tanakamachi, Naka-ku, Hiroshima-	Beneficial interest	4,400	4,171	JR
shi, Hiroshima	in trust

6	ibis Tokyo Shinjuku	10-5Nishi-Shinjuku7-chome,Shinjuku-ku,	Beneficial interest	10,200	8,013	JR
Tokyo	in trust

8	The Beach Tower Okinawa	8-6 Aza Mihama, Chatan-cho, Nakagami-	Beneficial interest	10,100	6,587	JR
(Note 4)	gun, Okinawa	in trust

9	Hakone Setsugetsuka	1300 Goura, Hakone-machi,	Beneficial interest	5,310	3,696	JR
Ashigarashimo-gun, Kanagawa	in trust

10	Dormy Inn Kumamoto	3-1 Karashimacho, Kumamoto-shi,	Beneficial interest	3,060	2,139	JM
Kumamoto	in trust

12	the b suidobashi	25-27 Hongo 1-chome,Bunkyo-ku, Tokyo	Beneficial interest	2,440	1,213	JR
			in trust
13	dormy inn・global cabin	3-4 Hanakawado 1-chome,Taito-ku, Tokyo	Beneficial interest	1,330	941	JM
Asakusa	in trust
14	Hakata Nakasu Washington	8-28 Nakasu 2-chome,Hakata-ku,	Beneficial interest	4,520	2,022	JR
Hotel Plaza	Fukuoka-shi, Fukuoka	in trust

15	Nara Washington Hotel Plaza	31-1Shimosanjo-cho,Nara-shi, Nara	Beneficial interest	2,440	1,800	JR
in trust

16	R&B Hotel Ueno Hirokoji	18-8 Ueno 1-chome,Taito-ku, Tokyo	Beneficial interest	2,010	1,822	JM
in trust

18	Comfort Hotel Tokyo Higashi	10-11Nihonbashi-bakurocho1-chome,	Beneficial interest	5,830	3,527	JM
Nihombashi	Chuo-ku, Tokyo	in trust

22	Smile Hotel Nihombashi	4-14Nihonbashi-Honcho1-chome, Chuo-	Beneficial interest	3,160	2,022	JM
Mitsukoshimae	ku, Tokyo	in trust

		Main building: 15-5 Hakataekimae 1-
24	Toyoko Inn Hakata-guchi	chome, Hakata-ku,Fukuoka-shi, Fukuoka	Beneficial interest	2,750	1,419	T
Ekimae	Annex: 1-15 Hakataekimae 1-chome,	in trust

		Hakata-ku,Fukuoka-shi, Fukuoka
25	Hotel Vista Kamata Tokyo	20-11 Nishikamata 8-chome,Ota-ku, Tokyo	Beneficial interest	1,990	1,453	T
in trust
26	Chisun Inn Kamata	23-13 Kamata 4-chome,Ota-ku, Tokyo	Beneficial interest	1,430	772	T
in trust

29	Hotel Keihan Universal City	2-78 Shimaya 6-chome,Konohana-ku,	Beneficial interest	13,900	5,905	R
Osaka-shi, Osaka	in trust

30	Sotetsu Fresa Inn Shimbashi-	10-2 Shinbashi 4-chome,Minato-ku, Tokyo	Beneficial interest	8,950	4,802	D
Karasumoriguchi	in trust
31	Hilton Tokyo Bay	1-33 Maihama, Urayasu-shi, Chiba	Beneficial interest	40,500	26,422	D
in trust

32	ibis Styles Kyoto Station	47-1,47-2 Higashikujo Kamitonodacho,	Beneficial interest	10,900	6,675	D
Minami-ku,Kyoto-shi, Kyoto	in trust

33	ibis Styles Sapporo	10-10 Minami 8-jo Nishi 3 chome, Chuo-ku,	Beneficial interest	11,200	6,601	JR
Sapporo-shi, Hokkaido	in trust

34	Mercure Sapporo	2-4 Minami 4-jo Nishi 2-chome,Chuo-ku,	Beneficial interest	11,000	5,857	JR
Sapporo-shi, Hokkaido	in trust

35	Mercure Okinawa Naha	3-19 Tsubogawa 3-chome,Naha-shi,	Beneficial interest	7,190	2,887	JR
Okinawa	in trust

37	the b ikebukuro	39-4Higashi-ikebukuro1-chome, Toshima-	Beneficial interest	7,350	6,608	JR
ku, Tokyo	in trust

				Assessed
Property	Name of property, etc.	Location (Displayed address)	Form of ownership	value at end	Book value	Appraisal
of period	(JPY1M)	agency
No.
			(JPY1M)	(Note 2)	(Note 3)

				(Note 1)
39	the b hachioji	6-12 Myojincho 4-chome,Hachioji-shi,	Beneficial interest	2,790	2,699	JR
Tokyo	in trust

40	the b hakata	3-9Hakata-eki Minami 1-chome, Hakata-	Beneficial interest	4,610	2,361	JR
ku, Fukuoka-shi, Fukuoka	in trust

41	Hotel Francs	10-2 Hibino 2-chome,Mihama-ku, Chiba-	Beneficial interest	4,140	3,178	D
shi, Chiba	in trust

42	Mercure Yokosuka	27 Honcho 3-chome,Yokosuka-shi,	Beneficial interest	3,590	1,658	D
Kanagawa	in trust

43	Okinawa Marriott Resort &	1490-1 Kise, Nago-shi, Okinawa	Beneficial interest	17,900	15,106	JR
Spa	in trust

44	ACTIVE-INTER CITY	12-1Wakakusa-cho,Higashi-ku,	Beneficial interest	21,900	17,436	D
HIROSHIMA	Hiroshima-shi, Hiroshima	in trust

45	CANDEO HOTELS UENO-	2-13 Negishi 1-chome,Taito-ku, Tokyo	Beneficial interest	7,650	6,652	D
KOEN	in trust

46	Oriental Hotel Fukuoka	4-23Hakata-eki Chuogai, Hakata-ku,	Beneficial interest	15,300	9,847	D
Hakata Station	Fukuoka-shi, Fukuoka	in trust

47	Holiday Inn Osaka Namba	5-15Soemon-cho,Chuo-ku,Osaka-shi,	Beneficial interest	27,200	27,126	JR
Osaka	in trust

48	HOTEL ASCENT FUKUOKA	3-3-14 Tenjin, Chuo-ku,Fukuoka-shi,	Beneficial interest	6,620	5,161	D
		Fukuoka	in trust
49	Hilton Nagoya	1-3-3 Sakae, Naka-ku,Nagoya-shi, Aichi	Beneficial interest	15,700	15,651	D
in trust

50	Hilton Tokyo Narita Airport	456 Kosuge, Narita-shi, Chiba	Beneficial interest	13,700	13,499	JR
in trust

51	International Garden Hotel	241-1 Yoshikura, Narita-shi, Chiba	Beneficial interest	9,660	9,245	JR
Narita	in trust

52	Hotel Nikko Nara	8-1 Sanjyohonmachi, Nara-shi, Nara	Beneficial interest	10,900	10,442	D
in trust

53	Hotel Oriental Express Osaka	2-13 Minamisenba 3-chome,Chuo-ku,	Beneficial interest	2,990	2,829	D
Shinsaibashi	Osaka-shi, Osaka	in trust

54	Hilton Tokyo Odaiba	9-1 Daiba 1-chome,Minato-ku, Tokyo	Beneficial interest	69,500	63,652	JR
in trust

		Total		525,910	374,314

(Note 1) Assessed value at end of period shows appraisal value as of the end of the fiscal period under review as the date of valuation, in accordance with JHR's Articles of Incorporation, the Ordinance on Accounting of Investment Corporations and regulations set forth by The Investment Trusts Association, Japan.

(Note 2) Book value includes amounts of real estate in trust, machinery and equipment, tools, furniture and fixtures, construction in progress in trust, and intangible assets.

(Note 3) The letters indicate the appraisers for the properties as follows: JR: Japan Real Estate Institute

JM: JLL Morii Valuation &Advisory K.K.

The Tanizawa Sōgō Appraisal Co., Ltd.

Rich Appraisal Institute Co., Ltd.

DAIWA REAL ESTATE APPRAISAL CO., LTD.

(Note 4) Due to the lack of a displayed address, "location" in the registration or registration record is shown.

(Note 5) The omitted property numbers are the numbers for assets that have been transferred.

(2) Transition of real estate leasing business, etc.

An overview of leasing business of real estate, etc. owned by JHR is as follows:

			19th period			20th period
		(From January 1, 2018 to December 31, 2018)	(From January 1, 2019 to December 31, 2019)
Property		Number of	Tenant	Real estate	Ratio to	Number of	Tenant	Real estate	Ratio to
Name of property, etc.	occupancy	operating	total real	occupancy	operating	total real
No.	tenants	rate	revenue	estate	tenants	rate	revenue	estate

		at end of	at end of	during the	operating	at end of	at end of	during the	operating
		period	period
		period	period	revenue	period	period	revenue
		(Note 1)	(Note 1)
		(%)	(JPY1M)	(%)	(%)	(JPY1M)	(%)

1	Kobe Meriken Park Oriental	1	100.0	1,210	4.6	1	100.0	1,256	4.4
Hotel

2	Oriental Hotel tokyo bay	1	100.0	1,888	7.2	1	100.0	1,883	6.7
3	Namba Oriental Hotel	1	100.0	1,629	6.2	1	100.0	1,406	5.0
4	Hotel Nikko Alivila	1	100.0	2,048	7.8	1	100.0	1,977	7.0
5	Oriental Hotel Hiroshima	1	100.0	424	1.6	1	100.0	472	1.7
6	ibis Tokyo Shinjuku	4	100.0	660	2.5	4	100.0	704	2.5
8	The Beach Tower Okinawa	1	100.0	511	1.9	1	100.0	511	1.8
9	Hakone Setsugetsuka	1	100.0	294	1.1	1	100.0	294	1.0
10	Dormy Inn Kumamoto	1	100.0	194	0.7	1	100.0	194	0.7
12	the b suidobashi	1	100.0	109	0.4	1	100.0	103	0.4
13	dormy inn・global cabin	1	100.0	63	0.2	1	100.0	63	0.2
Asakusa

14	Hakata Nakasu Washington	1	100.0	240	0.9	1	100.0	240	0.9
Hotel Plaza

15	Nara Washington Hotel Plaza	2	100.0	150	0.6	2	100.0	151	0.5
16	R&B Hotel Ueno Hirokoji	1	100.0	97	0.4	1	100.0	97	0.3
17	R&B Hotel Higashi-nihonbashi	-	-	74	0.3	-	-	-	-
(Note 2)

18	Comfort Hotel Tokyo Higashi	2	100.0	270	1.0	2	100.0	287	1.0
Nihombashi

22	Smile Hotel Nihombashi	1	100.0	153	0.6	1	100.0	154	0.5
Mitsukoshimae

24	Toyoko Inn Hakata-guchi	1	100.0	141	0.5	1	100.0	141	0.5
Ekimae

25	Hotel Vista Kamata Tokyo	1	100.0	115	0.4	1	100.0	112	0.4
26	Chisun Inn Kamata	1	100.0	82	0.3	1	100.0	80	0.3
29	Hotel Keihan Universal City	1	100.0	822	3.1	1	100.0	746	2.6
30	Sotetsu Fresa Inn Shimbashi-	4	100.0	426	1.6	4	100.0	446	1.6
Karasumoriguchi

31	Hilton Tokyo Bay	1	100.0	1,992	7.6	1	100.0	2,220	7.9
32	ibis Styles Kyoto Station	2	100.0	548	2.1	2	100.0	459	1.6
33	ibis Styles Sapporo	4	98.3	662	2.5	4	98.3	661	2.3
34	Mercure Sapporo	14	98.1	820	3.1	12	95.4	797	2.8
35	Mercure Okinawa Naha	1	100.0	456	1.7	1	100.0	342	1.2
36	the b akasaka-mitsuke (Note 2)	-	-	146	0.6	-	-	-	-
37	the b ikebukuro	4	100.0	361	1.4	4	100.0	356	1.3
38	the b ochanomizu (Note 2)	-	-	58	0.2	-	-	-	-
39	the b hachioji	12	100.0	203	0.8	11	100.0	185	0.7
40	the b hakata	2	100.0	250	1.0	2	100.0	228	0.8
41	Hotel Francs	1	100.0	300	1.1	1	100.0	300	1.1
42	Mercure Yokosuka	1	100.0	310	1.2	1	100.0	360	1.3
43	Okinawa Marriott Resort & Spa	1	100.0	1,169	4.4	1	100.0	937	3.3
44	ACTIVE-INTER CITY	39	99.8	1,526	5.8	38	99.6	1,624	5.7
HIROSHIMA

45	CANDEO HOTELS UENO-	1	100.0	349	1.3	1	100.0	349	1.2
KOEN

46	Oriental Hotel Fukuoka Hakata	1	100.0	589	2.2	1	100.0	740	2.6
Station

47	Holiday Inn Osaka Namba	1	100.0	1,114	4.2	1	100.0	967	3.4

			19th period			20th period
		(From January 1, 2018 to December 31, 2018)	(From January 1, 2019 to December 31, 2019)
Property		Number of	Tenant	Real estate	Ratio to	Number of	Tenant	Real estate	Ratio to
Name of property, etc.	occupancy	operating	total real	occupancy	operating	total real
No.	tenants	rate	revenue	estate	tenants	rate	revenue	estate

		at end of	at end of	during the	operating	at end of	at end of	during the	operating
		period	period
		period	period	revenue	period	period	revenue
		(Note 1)	(Note 1)
		(%)	(JPY1M)	(%)	(%)	(JPY1M)	(%)

48	HOTEL ASCENT FUKUOKA	5	96.8	432	1.6	6	100.0	447	1.6
49	Hilton Nagoya	4	100.0	1,390	5.3	4	100.0	1,452	5.1
50	Hilton Tokyo Narita Airport	1	100.0	785	3.0	1	100.0	912	3.2

51	International Garden Hotel	1	100.0	608	2.3	1	100.0	604	2.1
Narita

52	Hotel Nikko Nara	1	100.0	629	2.4	1	100.0	625	2.2
53	Hotel Oriental Express Osaka	-	-	-	-	1	100.0	109	0.4
Shinsaibashi

54	Hilton Tokyo Odaiba	-	-	-	-	1	100.0	2,264	8.0
	Total	126	99.9	26,318	100.0	125	99.9	28,278	100.0

(Note 1) Number of tenants indicates the total number of tenants based on the lease contracts for respective real estate in trust (excluding tenants of parking lots, etc.) as of the end of each fiscal period. However, for properties for which master lease companies have concluded lease contracts with lessees, etc. under the pass-through scheme in which JHR receives the same amount of rents, etc. paid by end tenants as is in principle, the number of end tenants is indicated. For properties with sub-lease-type master lease contracts in which JHR receives predetermined rents despite fluctuations in rents from end tenants, the number of the master lease companies is indicated as tenants.

(Note 2) JHR sold R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu on August 10, 2018.

(Note 3) The property numbers of assets that were transferred before the previous fiscal period are intentionally omitted.

4. Details of securities assets

There are no applicable securities held by JHR as of December 31, 2019.

5. Contractual amounts and fair values of specified transactions

The contractual amounts and fair values of specified transactions as of December 31, 2019 were as follows:

			Amounts of contract, etc.		Fair value
Classification	Transaction	(JPY1M) (Note 1)		(JPY1M)
					Over 1 year		(Note 2)
Transactions other than	Interest rate swap transactions	116,148		104,566		(389)
market transactions	Payable fixed rate / Receivable floating rate

		Total	116,148		104,566		(389)
(Note 1)	Contractual amounts, etc. of interest rate swap transactions are based on notional principal amounts, etc.
(Note 2)	Fair value is based on the price, etc. provided by counterparty financial institutions.

6. Other assets

All of the beneficial interest in trust mainly invested in real estate held by JHR is included in "3. Details of property assets, etc." presented above. There were no other major specified assets that are considered to be JHR's main investments in the portfolio of JHR as of December 31, 2019.

7. Asset holdings by country and region

There is nothing to be reported on countries and regions other than Japan.

Capital Expenditures for Portfolio Properties

1. Planned capital expenditures (Note 1)

The following table shows major estimated capital expenditures items for renovation work planned as of the end of the fiscal period under review for investment real estate properties (in trust) held by JHR. Expenditures are expected to total ¥6,830 million, which consists of capital expenditures of ¥6,775 (Note 2) million and repair expenses of ¥55 million, for the next fiscal period.

			Estimated construction costs
Name of property, etc.	Purpose	Scheduled period	(JPY1M)
(Location)	Total amount	Total amount

			paid

Kobe Meriken Park Oriental	Renovation of prefabricated	From April 2020
Hotel	55	-
bathrooms in guest rooms	to July 2020
(Kobe-shi, Hyogo)


Kobe Meriken Park Oriental	Conversion of back-office to	From June 2020
Hotel	120	-
guest rooms	to July 2020
(Kobe-shi, Hyogo)


Hotel Nikko Alivila	Additional installation of	From March 2020	65	9
(Yomitan-son, Nakagami-
sewage tank	to April 2020
gun, Okinawa)


Hotel Nikko Alivila	Renewal of elevator	From
(Yomitan-son, Nakagami-	December 2020	65	-
controller, etc.
gun, Okinawa)	to December 2020


Dormy Inn Kumamoto	Renewal of air conditioning	From May 2020	70	-
(Kumamoto-shi, Kumamoto)	facilities	to June 2020


Hilton Tokyo Bay	Renewal of air conditioning	From May 2020	68	-
(Urayasu-shi, Chiba)	facilities	to July 2020


HOTEL ASCENT	Renewal of air conditioning	From April 2020
FUKUOKA	89	-
facilities	to April 2020
(Fukuoka-shi, Fukuoka)


Hilton Nagoya	Work on plumbing	From March 2020	57	-
(Nagoya-shi, Aichi)	equipment	to March 2020


Hilton Nagoya	Renewal of elevators	From
February 2020	57	-
(Nagoya-shi, Aichi)
	to December 2020

Hilton Tokyo Narita Airport	Renewal of telephone	From
November 2020	50	-
(Narita-shi, Chiba)	switchboard
to November 2020

Hilton Tokyo Narita Airport	Renovation of guest rooms	From
(guestrooms on the 11th	November 2020	120	-
(Narita-shi, Chiba)
floor)	to November 2020

International Garden Hotel	Renewal of air conditioning	From March 2020
Narita	55	-
units	to October 2020
(Narita-shi, Chiba)


Hilton Tokyo Odaiba	Renovation of banquet rooms	From
December 2019	92	-
(Minato-ku, Tokyo)
	to February 2020

Hilton Tokyo Odaiba	Renewal of central	From July 2020	64	-
(Minato-ku, Tokyo)	monitoring device	to July 2020


Hilton Tokyo Odaiba		From
Renewal of guest rooms, etc.	September 2020	3,000	22
(Minato-ku, Tokyo)
	to December 2020

			Estimated construction costs
Name of property, etc.	Purpose	Scheduled period	(JPY1M)
(Location)	Total amount	Total amount

			paid

Namba Oriental Hotel	Large-scale renovation works	From
November 2020	2,600	6
(Osaka-shi, Osaka)	for entire property
to March 2021

	Total		6,628	38

(Note 1) New construction and renewal work includes that for buildings, attached facilities, etc. as well as items classified as furniture and fixtures. The scheduled period of the above planned renovation work and whether or not the renovation work will be performed may change.

(Note 2) The estimated construction costs for the large-scale renovation works for entire property of Namba Oriental Hotel is not included in the capital expenditures for the next fiscal period, as the construction work will be completed in March 2021.

2. Capital expenditures during the period (Note)

For investment real estate properties (in trust) held by JHR, major construction work conducted during the fiscal period under review that represents capital expenditures is as below. Capital expenditures for the fiscal period under review totaled ¥6,767 million, and repair expenses that were accounted for as expense in the fiscal period under review totaled ¥41 million. In aggregate, ¥6,809 million of construction work was carried out.

Name of property, etc. (Location)	Purpose	Period	Construction costs
(JPY1M)

R&B Hotel Ueno Hirokoji	Renewal of air conditioning units	From October 2018	53
(Taito-ku, Tokyo)	to January 2019


Hilton Tokyo Bay	Land preparation for parking lot	From December 2018	419
(Urayasu-shi, Chiba)	to May 2019


Hilton Tokyo Bay	Renewal of disaster prevention facilities	From September 2019	33
(Urayasu-shi, Chiba)	to December 2019


Okinawa Marriott Resort & Spa	Renovation of restaurants	From May 2019	298

(Nago-shi, Okinawa)	to July 2019


Okinawa Marriott Resort & Spa	Replacement of air-conditioning facilities	From November 2019	12

(Nago-shi, Okinawa)	for guestrooms	to December 2019


Oriental Hotel Fukuoka Hakata
Station (former Hotel Centraza	Large-scale renovation work for entire	From October 2018	3,147
Hakata)	property	to April 2019

(Fukuoka-shi, Fukuoka)

Holiday Inn Osaka Namba	Renovation of guest rooms (guestrooms	From May 2019	72
(Osaka-shi, Osaka)	on the 10th and 11th floors)	to May 2019


Holiday Inn Osaka Namba	Renovation of guest rooms (guestrooms	From December 2019	72
(Osaka-shi, Osaka)	on the 8th and 9th floors)	to December 2019


Hilton Nagoya	Renewal of water supply piping	From August 2018	16
(Nagoya-shi, Aichi)	to March 2019


Hilton Nagoya	Renewal of water supply piping	From July 2019	25
(Nagoya-shi, Aichi)	to November 2019


	Total		4,149

(Note) New construction and renewal work includes that for buildings, attached facilities, etc. as well as items classified as furniture and fixtures.

3. Cash reserves for the long-term repairs and maintenance plan (reserve for repairs and maintenance)

JHR accumulates cash reserves from cash flows for each fiscal period as detailed below to utilize for medium- to long-term future expenditures on large-scale repairs and maintenance projects based on long-term repairs and maintenance plans prepared for each property.

					(millions of yen)
Fiscal period	16th period	17th period	18th period	19th period	20th period
(From January 1, 2015	(From January 1, 2016	(From January 1, 2017	(From January 1, 2018	(From January 1, 2019
	to December 31, 2015)	to December 31, 2016)	to December 31, 2017)	to December 31, 2018)	to December 31, 2019)
Balance at beginning of period	493	657	791	946	951

Provision during the period	185	133	154	15	116
Reversal during the period	20	-	-	9	8

Amount carried forward	657	791	946	951	1,060

Expenses and Liabilities

1. Details of expenses related to asset management, etc.

(thousands of yen)

		19th period	20th period
		(From January 1, 2018 to	(From January 1, 2019 to
		December 31, 2018)	December 31, 2019)
(a)	Asset management fees	(Note 1)	1,577,515	(Note 2)	1,781,691
(b)	Asset custody and administrative service fee		110,273		119,138
(c)	Officers' compensation		13,400		14,400
(d)	Other operating expenses		214,828		217,357
	Total		1,916,017		2,132,586

(Note 1) For asset management fees for the 19th fiscal period, besides the above amounts, there are ¥60,750 thousand of fees deducted from the gain on sale of real estate properties in selling properties.

(Note 2) For asset management fees for the 20th fiscal period, besides the above amounts, there are ¥488,535 thousand of fees included in the acquisition price of investment properties, etc. in acquiring properties.

2. Loans payable

The status of loans by contractual agreement and by financial institution as of December 31, 2019 was as follows:

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	Sumitomo Mitsui Banking		648	648
	Corporation

	Resona Bank, Limited	March 31,	2,516	2,516
				1.15%	March 31,	Lump-sum		Unsecured,
	Shinsei Bank, Limited	2014	2,516	2,516	(Note 6)
		(Note 2)	2021	repayment	unguaranteed
	Sumitomo Mitsui Trust Bank,		1,120	1,120
	Limited

	Subtotal		6,800	6,800

	Sumitomo Mitsui Banking		600	－
	Corporation

	Mizuho Bank, Ltd.		1,200	－

	Resona Bank, Limited		434	－

	Shinsei Bank, Limited		720	－

	Sumitomo Mitsui Trust Bank,		600	－
	Limited	September 30,
				September	Lump-sum		Unsecured,
	The Bank of Fukuoka, Ltd.	2014	1,000	－	(Note 3)	(Note 7)
		30, 2019	repayment	unguaranteed
	The Nomura Trust and Banking		500	－
	Co., Ltd.

	The Hiroshima Bank, Ltd.		435	－

	Sompo Japan Nipponkoa		328	－
	Insurance Inc.

	Development Bank of Japan Inc.		500	－

Long-term	Subtotal		6,317	－

loans	Sumitomo Mitsui Banking		800	800
payable	Corporation

	Mizuho Bank, Ltd.		1,600	1,600

	Resona Bank, Limited		1,100	1,100
		September 30,					Lump-sum
	Shinsei Bank, Limited	970	970	0.92%	September		Unsecured,
	2014
				repayment	(Note 7)
	Sumitomo Mitsui Trust Bank,		800	800	(Note 2)	30, 2020	unguaranteed
	Limited				(Note 4)

	Development Bank of Japan Inc.		500	500

	Aozora Bank, Ltd.		285	285

	Subtotal		6,055	6,055

	Sumitomo Mitsui Banking		600	600
	Corporation

	Mizuho Bank, Ltd.		1,200	1,200
		September 30,
	Resona Bank, Limited	850	850	1.04%	September	Lump-sum		Unsecured,
	2014	(Note 7)

	Shinsei Bank, Limited		750	750	(Note 2)	30, 2021	repayment	unguaranteed


	Sumitomo Mitsui Trust Bank,		600	600
	Limited

	Subtotal		4,000	4,000

	MUFG Bank, Ltd.	December 30,	935	935
	2014		December	Lump-sum		Unsecured,
				0.57%	(Note 6)
	Subtotal		935	935	30, 2020	repayment	unguaranteed

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	Sumitomo Mitsui Banking		1,400	1,400
	Corporation

	Mizuho Bank, Ltd.		1,500	1,500

	Shinsei Bank, Limited	January 30,	500	500
				0.38%	January 31,	Lump-sum		Unsecured,
	Resona Bank, Limited	2015	500	500	(Note 7)
		(Note 2)	2020	repayment	unguaranteed
	Sumitomo Mitsui Trust Bank,		500	500
	Limited

	The Chiba Bank, Ltd.		300	300

	Subtotal		4,700	4,700

	Sumitomo Mitsui Banking		1,700	1,700
	Corporation

	Mizuho Bank, Ltd.		3,000	3,000

	Shinsei Bank, Limited	January 30,	1,050	1,050			Lump-sum
				0.90%	January 31,		Unsecured,
		2015
	Resona Bank, Limited	1,000	1,000	repayment	(Note 7)
		(Note 2)	2022	unguaranteed
							(Note 4)
	Sumitomo Mitsui Trust Bank,		1,000	1,000
	Limited

	Aozora Bank, Ltd.		150	150

	Subtotal		7,900	7,900

	Sumitomo Mitsui Banking	March 31,	1,500	1,500	0.93%	March 31,	Lump-sum		Unsecured,
	Corporation	2015	(Note 8)

					(Note 2)	2022	repayment	unguaranteed
	Subtotal		1,500	1,500


	Aozora Bank, Ltd.	July 10, 2015	1,000	1,000
Long-term				0.95%	June 30,	Lump-sum		Unsecured,
MUFG Bank, Ltd.	500	500	(Note 8)
loans		(Note 2)	2022	repayment	unguaranteed
payable	Subtotal		1,500	1,500


	Sumitomo Mitsui Banking	September 30,	100	100
	Corporation
				June 30,	Lump-sum		Unsecured,
	The Hiroshima Bank, Ltd.	2015	992	992	0.52%	(Note 6)
		2020	repayment	unguaranteed
	Subtotal		1,092	1,092

	Sumitomo Mitsui Trust Bank,		960	960
	Limited

	Resona Bank, Limited	September 24,	960	960
	2015	1.07%	September	Lump-sum	(Note 6)	Unsecured,

	The Nomura Trust and Banking		960	960	(Note 2)	29, 2023	repayment	unguaranteed
	Co., Ltd.

	Subtotal		2,880	2,880

	Sumitomo Mitsui Banking		703	703
	Corporation	September 30,
					Lump-sum
		2015			1.07%	September		Unsecured,
	Shinsei Bank, Limited	189	189	repayment	(Note 6)
		(Note 2)	29, 2023	unguaranteed
							(Note 4)
	Subtotal		892	892


	Sumitomo Mitsui Banking		500	－
	Corporation

	The Hiroshima Bank, Ltd.	February 29,	1,000	－
				0.21%
	Shinsei Bank, Limited	2016	250	－	March 29,	Lump-sum	(Note 8)	Unsecured,
		(Note 2)	2019	repayment	unguaranteed
	Mizuho Bank, Ltd.		250	－

	Subtotal		2,000	－

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	Sumitomo Mitsui Banking		480	－
	Corporation	March 28,			Lump-sum
			0.19%
		2016			March 29,		Unsecured,
	Mizuho Bank, Ltd.	480	－	repayment	(Note 6)
		(Note 2)	2019	unguaranteed
		(Note 4)
	Subtotal		960	－


	The Nomura Trust and Banking		530	－
	Co., Ltd.

	The Chiba Bank, Ltd.	March 31,	270	－	0.19%
				March 29,	Lump-sum		Unsecured,
		2016			(Note 6)
	Development Bank of Japan Inc.	230	－
		(Note 2)	2019	repayment	unguaranteed

	The Bank of Fukuoka, Ltd.		110	－

	Subtotal		1,140	－

	Sumitomo Mitsui Banking	March 28,	1,050	1,050
	Corporation			Lump-sum
			0.77%	March 29,		Unsecured,
		2016			repayment	(Note 6)
	Mizuho Bank, Ltd.	1,050	1,050
		(Note 2)	2024	(Note 4)	unguaranteed
	Subtotal		2,100	2,100


	The Nomura Trust and Banking		1,200	1,200
	Co., Ltd.

	The Chiba Bank, Ltd.	March 31,	600	600	0.77%
				March 29,	Lump-sum		Unsecured,
		2016			(Note 6)
	Development Bank of Japan Inc.	550	550
		(Note 2)	2024	repayment	unguaranteed
	The Bank of Fukuoka, Ltd.		300	300

	Subtotal		2,650	2,650

	Sumitomo Mitsui Banking		1,200	1,200
	Corporation

Long-term	Mizuho Bank, Ltd.	March 31,	1,000	1,000
loans	Shinsei Bank, Limited	1,000	1,000	0.68%	March 31,	Lump-sum		Unsecured,
payable		2016			repayment	(Note 6)
	Resona Bank, Limited		500	500	(Note 2)	2023	(Note 4)	unguaranteed

	The Nomura Trust and Banking		500	500
	Co., Ltd.

	Subtotal		4,200	4,200

	Sumitomo Mitsui Trust Bank,	March 31,	800	800	0.66%
	Limited	2016	March 29,	Lump-sum	(Note 6)	Unsecured,

	Subtotal		800	800	(Note 2)	2024	repayment	unguaranteed


	Development Bank of Japan Inc.	March 31,	500	500
	2016	0.57%	March 29,	Lump-sum	(Note 6)	Unsecured,

	Subtotal		500	500	2024	repayment	unguaranteed


	Sumitomo Mitsui Banking		2,900	2,900
	Corporation

	Shinsei Bank, Limited		1,700	1,700

	Mizuho Bank, Ltd.		1,700	1,700
		September 1,
	Resona Bank, Limited	1,000	1,000	0.74%	September	Lump-sum		Unsecured,
	2016	(Note 8)
	The Nomura Trust and Banking		500	500	(Note 2)	30, 2025	repayment	unguaranteed
	Co., Ltd.

	The Chiba Bank, Ltd.		500	500

	The Bank of Fukuoka, Ltd.		1,200	1,200

	Subtotal		9,500	9,500

	Sumitomo Mitsui Trust Bank,	September 1,	1,300	1,300	0.56%
	Limited	2016	September	Lump-sum	(Note 8)	Unsecured,

	Subtotal		1,300	1,300	(Note 2)	30, 2024	repayment	unguaranteed

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	MUFG Bank, Ltd.	September 1,	2,000	2,000	0.56%	September	Lump-sum		Unsecured,
	2016	(Note 8)
	Subtotal		2,000	2,000	(Note 2)	30, 2024	repayment	unguaranteed


	Development Bank of Japan Inc.	September 1,	700	700		September	Lump-sum		Unsecured,
	2016	0.59%	(Note 8)

					30, 2024	repayment	unguaranteed
	Subtotal		700	700


	Aozora Bank, Ltd.	September 1,	500	500		September	Lump-sum		Unsecured,
	2016	0.71%	(Note 8)

					30, 2024	repayment	unguaranteed
	Subtotal		500	500


	Sumitomo Mitsui Banking		1,750	1,750
	Corporation	July 12, 2017
				June 30,	Lump-sum		Unsecured,
	The Chiba Bank, Ltd.	500	500	0.47%	(Note 8)

		2023	repayment	unguaranteed
	Subtotal		2,250	2,250

	Sumitomo Mitsui Banking		1,250	1,250
	Corporation

	Shinsei Bank, Limited	August 1,	1,250	1,250	0.85%
				September	Lump-sum		Unsecured,
		2017			(Note 8)
	Mizuho Bank, Ltd.	1,250	1,250
		(Note 2)	30, 2026	repayment	unguaranteed
	Resona Bank, Limited		500	500

	Subtotal		4,250	4,250

	Sumitomo Mitsui Trust Bank,	August 1,	1,000	1,000	0.73%	September	Lump-sum		Unsecured,
	Limited	2017	(Note 8)
					(Note 2)	30, 2025	repayment	unguaranteed
	Subtotal		1,000	1,000


	MUFG Bank, Ltd.	August 1,	700	700	0.68%	September	Lump-sum		Unsecured,
	2017	(Note 8)
Long-term	Subtotal		700	700	(Note 2)	30, 2025	repayment	unguaranteed

loans
Development Bank of Japan Inc.	August 1,	500	500
payable		September	Lump-sum		Unsecured,
2017	0.75%	(Note 8)

					30, 2025	repayment	unguaranteed
	Subtotal		500	500


	The Fukuoka Bank, Ltd.	August 1,	500	500	0.73%	September	Lump-sum		Unsecured,
	2017	(Note 8)
	Subtotal		500	500	(Note 2)	30, 2025	repayment	unguaranteed


	Aozora Bank, Ltd.	August 1,	500	500	0.73%	September	Lump-sum		Unsecured,
	2017	(Note 8)
					(Note 2)	30, 2025	repayment	unguaranteed
	Subtotal		500	500


	THE NISHI-NIPPON CITY	August 1,	1,000	1,000	0.73%	September	Lump-sum		Unsecured,
	BANK, LTD.	2017	(Note 8)
	Subtotal		1,000	1,000	(Note 2)	30, 2025	repayment	unguaranteed


	Shinsei Bank, Limited	August 1,	300	300	0.68%	September	Lump-sum		Unsecured,
	2017	(Note 8)
					(Note 2)	30, 2025	repayment	unguaranteed
	Subtotal		300	300


	Sumitomo Mitsui Banking		1,200	1,200
	Corporation

	Mizuho Bank, Ltd.	September 19,	500	500
				0.65%	March 31,	Lump-sum		Unsecured,
	Sumitomo Mitsui Trust Bank,	2017	460	460	(Note 6)
	Limited		(Note 2)	2025	repayment	unguaranteed
	Shinsei Bank, Limited		390	390

	Subtotal		2,550	2,550

	Sumitomo Mitsui Banking	November 15,	2,500	2,500
	Corporation
			0.57%	March 29,	Lump-sum		Unsecured,
		2017			(Note 6)
	Shinsei Bank, Limited	1,500	1,500
		(Note 2)	2024	repayment	unguaranteed
	Subtotal		4,000	4,000

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	Sumitomo Mitsui Banking		1,500	1,500
	Corporation

	Shinsei Bank, Limited	November 15,	500	500	0.65%
				March 31,	Lump-sum		Unsecured,
		2017			(Note 6)
	Development Bank of Japan Inc.	300	300
		(Note 2)	2025	repayment	unguaranteed
	The Fukuoka Bank, Ltd.		150	150

	Subtotal		2,450	2,450

	Sumitomo Mitsui Banking	March 30,	1,700	1,700		March 31,	Lump-sum		Unsecured,
	Corporation	2018	0.42%	(Note 6)

					2023	repayment	unguaranteed
	Subtotal		1,700	1,700


	Sumitomo Mitsui Banking		650	650
	Corporation

	Shinsei Bank, Limited		950	950

	The Chiba Bank, Ltd.	April 26, 2018	500	500	0.42%	March 31,	Lump-sum	(Note 6)	Unsecured,

	THE NISHI-NIPPON CITY		250	250	2023	repayment	unguaranteed
	BANK, LTD.

	Sompo Japan Nipponkoa		500	500
	Insurance Inc.

	Subtotal		2,850	2,850

	The Hiroshima Bank, Ltd.	April 26, 2018	500	500	0.52%	March 31,	Lump-sum	(Note 6)	Unsecured,

					2023	repayment	unguaranteed
	Subtotal		500	500


	The Shizuoka Bank, Ltd.	September 28,	500	500		September	Lump-sum		Unsecured,
	2018	0.55%	(Note 6)

					29, 2023	repayment	unguaranteed
	Subtotal		500	500


	Sumitomo Mitsui Banking		1,700	1,700
Long-term	Corporation

Sumitomo Mitsui Trust Bank,
loans	September 28,	1,400	1,400
Limited
payable			0.95%	September	Lump-sum		Unsecured,
	2018			(Note 6)
Shinsei Bank, Limited	500	500
		(Note 2)	30, 2027	repayment	unguaranteed
	Mizuho Bank, Ltd.		300	300

	Subtotal		3,900	3,900

	The Bank of Fukuoka, Ltd.	November 30,	350	－		December	Lump-sum
	2018			Unsecured,
				0.34%	repayment	(Note 9)
					30, 2019	unguaranteed
	Subtotal		350
		－	(Note 5)


	THE NISHI-NIPPON CITY	November 30,	350	－		December	Lump-sum		Unsecured,
	BANK, LTD.	2018	0.34%	(Note 9)

					30, 2019	repayment	unguaranteed
	Subtotal		350	－


	The Bank of Fukuoka, Ltd.		－	500

	The Chiba Bank, Ltd.	April 8, 2019	－	500

	THE NISHI-NIPPON CITY	－	500	0.38%	March 29,	Lump-sum	(Note 8)	Unsecured,

	BANK, LTD.		2024	repayment	unguaranteed
	Sompo Japan Nipponkoa		－	1,000
	Insurance Inc.

	Subtotal		－	2,500

	Sumitomo Mitsui Banking		－	2,500
	Corporation

	Shinsei Bank, Limited		－	1,500

	Mizuho Bank, Ltd.	April 8, 2019	－	1,500	0.72%	March 31,	Lump-sum	(Note 8)	Unsecured,
	Sumitomo Mitsui Trust Bank,		－	1,000	(Note 2)	2027	repayment	unguaranteed
	Limited

	Development Bank of Japan Inc.		－	1,000

	Subtotal		－	7,500

			Balance at	Balance at	Average
Category	Lender	Borrowing	beginning	end of	interest	Maturity	Repayment	Use	Remarks
date	of period	period	rate (%)	date	method

			(JPY1M)	(JPY1M)	(Note 1)

	Sumitomo Mitsui Banking		－	4,000
	Corporation

	Shinsei Bank, Limited		－	3,000

	Mizuho Bank, Ltd.		－	3,000

	Sumitomo Mitsui Trust Bank,		－	2,500
	Limited

	Resona Bank, Limited	April 8, 2019	－	1,000
				0.82%	March 31,	Lump-sum		Unsecured,
	The Nomura Trust and Banking	－	500	(Note 8)
	Co., Ltd.		(Note 2)	2028	repayment	unguaranteed
	Development Bank of Japan Inc.		－	1,000

	The Bank of Fukuoka, Ltd.		－	1,000

	Aozora Bank, Ltd.		－	1,000

	THE NISHI-NIPPON CITY		－	1,000
	BANK, LTD.

	Subtotal		－	18,000
Long-term
The Chiba Bank, Ltd.	September 30,	－	200
loans					September	Lump-sum		Unsecured,
	2019
payable	The Hiroshima Bank, Ltd.	－	1,400	0.23%	(Note 10)
	30, 2024	repayment	unguaranteed
	Subtotal		－	1,600

	Sumitomo Mitsui Banking		－	550
	Corporation

	Shinsei Bank, Limited		－	450

	Mizuho Bank, Ltd.		－	1,400

	Sumitomo Mitsui Trust Bank,	September 30,	－	200
	Limited
			0.68%	September	Lump-sum		Unsecured,
		2019			(Note 10)
	Resona Bank, Limited	－	200
		(Note 2)	30, 2027	repayment	unguaranteed
	Development Bank of Japan Inc.		－	700

	The Bank of Fukuoka, Ltd.		－	1,100

	The Nomura Trust and Banking		－	1,000
	Co., Ltd.

	Subtotal		－	5,600

	Long-term loans payable - Total	103,071	127,154

	Total loans payable		103,071	127,154

(Note 1) The average interest rate is a weighted average of interest rates during the period, rounded off to second decimal places.

(Note 2) As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, the interest rate of loans subject to such interest rate swap transactions is presented as the rate obtained by taking into account the effect of interest rate swaps, rounded off to second decimal places.

(Note 3) Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225% per annum for the period from September 30, 2014 through September 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000 million is in effect, fixed at 0.94875% per annum for the period from March 30, 2018 through September 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014.

(Note 4) JHR made partial early repayment of the loan on April 26, 2018.

(Note 5) JHR additionally borrowed ¥900 million loan on April 26, 2019 and made early repayment of ¥450 million on June 17, 2019 and ¥800 million on July 31, 2019, respectively.

(Note 6) The funds were appropriated for refinancing of borrowings and related expenses, etc.

(Note 7) The funds were appropriated for acquisition of the beneficial interest of real estate in trust, repayment of borrowings and related expenses, etc.

(Note 8) The funds were appropriated for acquisition of the beneficial interest of real estate in trust and related expenses, etc.

(Note 9) The funds were appropriated for renovation of Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata) and related expenses, etc.

(Note 10) The funds were appropriated for refinancing and early repayment of borrowings.

(Note 11) In order to list each loan payable, ¥12,782 million of the current portion of long-term loans payable in the balance sheets is included in long-term loans payable in the above table.

3. Investment corporation bonds

Status of investment corporation bonds as of December 31, 2019 was as follows:

		Balance at	Balance at	Interest
Name	Issuance	beginning of	end of	Maturity	Repayment	Use	Remarks
rate
date	period	period	date	method
	(%)
		(JPY1M)	(JPY1M)

Third unsecured investment	March 19,				March 19,	Lump-sum		Unsecured,
2,000	-	0.920	(Note 1)	unguaranteed
corporation bonds	2014	2019	repayment
				(Note 5)


Fourth unsecured investment	December	1,500	1,500	0.860	December	Lump-sum	(Note 2)	Unsecured,
unguaranteed
corporation bonds	19, 2014	17, 2021	repayment
				(Note 5)

Fifth unsecured investment	October 23,	6,000	6,000	0.820	October	Lump-sum	(Note 1)	Unsecured,
unguaranteed
corporation bonds	2015	21, 2022	repayment
				(Note 6)

Sixth unsecured investment	March 22,				March 19,	Lump-sum		Unsecured,
3,000	3,000	0.935	(Note 1)	unguaranteed
corporation bonds	2016	2026	repayment
				(Note 5)


Seventh unsecured	November	9,000	9,000	0.600	November	Lump-sum	(Note 3)	Unsecured,
unguaranteed
investment corporation bonds	29, 2016	27, 2026	repayment
				(Note 6)

Eighth unsecured investment	November	1,100	1,100	0.600	November	Lump-sum	(Note 3)	Unsecured,
unguaranteed
corporation bonds	29, 2016	27, 2026	repayment
				(Note 5)

Ninth unsecured investment	November	1,000	1,000	0.530	November	Lump-sum	(Note 1)	Unsecured,
unguaranteed
corporation bonds	24, 2017	22, 2024	repayment
				(Note 5)

Tenth unsecured investment	February 21,				February	Lump-sum		Unsecured,
10,000	10,000	0.840	(Note 2)	unguaranteed
corporation bonds	2018	21, 2028	repayment
				(Note 6)


Eleventh unsecured	June 14,				June 14,	Lump-sum		Unsecured,
-	8,000	0.854	(Note 1)	unguaranteed
investment corporation bonds	2019	2029	repayment
				(Note 6)


Twelfth unsecured investment	July 31,				July 31,	Lump-sum		Unsecured,
corporation bonds (green	-	2,000	0.400	(Note 4)	unguaranteed
2019	2024	repayment
bonds)					(Note 5)


Total		33,600	41,600

(Note 1) The funds were appropriated to partly fund the repayment of existing borrowings.

(Note 2) The funds were appropriated for repayment of existing borrowings and acquisition of real estate or the beneficial interest of real estate in trust, etc.

(Note 3) The funds were appropriated for redemption of the second unsecured investment corporation bonds, repayment of existing borrowings and acquisition of real estate or the beneficial interest of real estate in trust, etc.

(Note 4) The funds were appropriated for repayment of existing borrowings that were appropriated for capital expenditures and constructions costs which contribute to environment, including reduction of CO2 and water consumption.

(Note 5) A special pari passu clause among specified investment corporation bonds is attached to the bonds.

(Note 6) A special pari passu clause among investment corporation bonds is attached to the bonds.

Short-terminvestment corporation bonds Not applicable.
Subscription rights to new investment units Not applicable.

Purchase and Sale during the Period

1. Purchase and sale, etc. of real estate, etc., asset-backed securities, etc. infrastructure assets, etc., and infrastructure-related assets

			Acquisition				Sale
Asset type	Name of property, etc.	Acquisition	Acquisition			Sale price		Book value	Gain (loss) on
price
Sale date			sale
			date	(JPY1M)		(JPY1M)		(JPY1M)
						(JPY1M)
				(Note)

Beneficial interest of	Hotel Oriental Express Osaka	February 1,	2,738	―		―		―	―
real estate in trust	Shinsaibashi	2019


Beneficial interest of	Hilton Tokyo Odaiba	April 8,	62,400	―		―		―	―
real estate in trust	2019


		Total	―	65,138	―		―		―	―

(Note)	Acquisition price indicates contracted amount of the property in the purchase and sale agreement, etc. excluding related
	expenses (brokerage fees, taxes, etc.) incurred on the acquisition of such property.

2. Purchase and sale of other assets, etc.

Assets other than real estate, etc., asset-backed securities, etc., infrastructure assets, etc. and infrastructure- related assets are mostly bank deposits and bank deposits in trust.

3. Investigation into prices, etc. of specified assets

Real estate properties, etc.

				Acquisition/	Appraisal
Acquisition/	Asset type	Name of property, etc.	Acquisition/	sale price	value	Date of	Appraisal agency
sale	sale date	(JPY1M)	(JPY1M)	appraisal

				(Note 1)	(Note 2)

							DAIWA REAL
Acquisition	Beneficial interest of	Hotel Oriental Express	February 1,	2,738	3,050	October 1,	ESTATE
real estate in trust	Osaka Shinsaibashi	2019	2018	APPRAISAL CO.,

							LTD.

Acquisition	Beneficial interest of	Hilton Tokyo Odaiba	April 8,	62,400	65,800	October 1,	Japan Real Estate
	real estate in trust		2019			2018	Institute

(Note 1) Acquisition price and sale price indicate contracted amount of the property in the purchase and sale agreement, etc.

excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of such property.

(Note 2) The above appraisals were evaluated by applying the "Real Estate Appraisal Standards, Chapter 3: Valuation for price of real estate for securitization."

Transaction of securities Not applicable.
Other

Name of the party that conducted the investigation

KPMG AZSA LLC

Overview of results and method of the investigation

For the period from January 1, 2019 to December 31, 2019, JHR requested an investigation of three interest rate swap transaction. Based on Article 201-2 of the Investment Trusts Act, JHR entrusted the investigation to KPMG AZSA LLC with regard to such information as the comparable price, counterparty's name, contract amounts and transaction period, and received a report on the agreed upon procedures as a result of the investigation based on the "Practical Guidelines on the Agreed Upon Procedures for the Investigation into Prices, Etc. of Specified Assets for Investment Trusts and Investment Corporations"

(Professional Practice Guidelines 4460) issued by The Japanese Institute of Certified Public Accountants.

This investigation does not constitute a part of the audit of the financial statements, nor provide any assurance or guarantee on the appropriateness of the price or the effectiveness of the internal control system.

4. Transactions with interested parties, etc. (Note 1)

Transactions

						(millions of yen)
Category				Price, etc. (Note 2) (Note 3)
	Acquisition price, etc.	Sale price, etc.		Real estate operating revenue

Total amount			65,138		-		28,278
Breakdown of transactions with interested parties, etc.
Hotel Management Japan Co., Ltd.		-	[-%]	-	[-%]	6,996	[24.7%]
Tokyo Humania Enterprise KK		-	[-%]	-	[-%]	2,264	[8.0%]

Kyoritsu Maintenance Co., Ltd.		-	[-%]	-	[-%]	1,063	[3.8%]
K.K. A.I.C Hiroshima Management		-	[-%]	-	[-%]	1,063	[3.8%]
OW Hotel Operations KK		-	[-%]	-	[-%]	967	[3.4%]
Lagoon resort Nago Co., Ltd.		-	[-%]	-	[-%]	937	[3.3%]
KK Narita Kosuge Operations		-	[-%]	-	[-%]	912	[3.2%]
Hotel Centraza Co., Ltd.		-	[-%]	-	[-%]	740	[2.6%]
Hotel Management Co., Ltd.		-	[-%]	-	[-%]	625	[2.2%]
KK Narita Yoshikura Operations		-	[-%]	-	[-%]	604	[2.1%]
Hotel Oriental Express Co., Ltd.		-	[-%]	-	[-%]	109	[0.4%]

Total		-	[-%]	-	[-%]	16,285	[57.6%]

(Note 1) Interested parties, etc. are the Asset Management Company's interested parties, etc. stipulated in Article 201, paragraph 1 of the Investment Trust Act (hereinafter referred to as "interested parties, etc."). The amounts in "(1) Transactions" above and "(2) Amounts of fees paid, etc." below include transactions with those interested parties, etc. as well as major transactions with sponsor-related parties stipulated in the Asset Management Company's company code for transactions with sponsor-related parties, which include 1. Interested parties, etc., 2. The Asset Management Company's shareholders,

Companies, etc. that take a 50% or more stake in a shareholder that holds 50% or more of the shares in the Asset Management Company, 4. Companies in which a shareholder of the Asset Management Company have a 50% or more stake, 5. Companies with which the Asset Management Company has concluded an asset management agreement, a discretionary investment agreement or an investment advisory agreement, 6. Entity or persons who ceased to fall under

or 5. within 3 months, and 7. Entity or persons who are deemed appropriate by the compliance officer of the Asset Management Company to be treated as sponsor-related parties in light of the company code for transactions with sponsor- related parties and the purpose of these rules.

(Note 2) Acquisition price, etc. and sale price, etc. indicate contracted amounts of the property in the purchase and sale agreement, etc. excluding related expenses (brokerage fees, taxes, etc.) incurred on the acquisition or sale of such property.

(Note 3) The figures in brackets show the ratio of the relevant amount to the total amount, rounded off to one decimal place.

Amount of fees paid, etc.

				(thousands of yen)
	Total amounts	Breakdown of transactions with	Ratio to total
	of fees paid,	interested parties, etc.
Classification		amount
etc.		Amount of payment
	Counter party	B/A (%)
	(A)	(B)

Outsourcing	653,041	Hotel Management Japan Co., Ltd.	5,760	0.9
expenses (Note)	Tokyo Humania Enterprise KK	87	0.0

(Note) Includes base fees under the property management agreement as well as outsourcing expenses related to routine maintenance and management of buildings and facilities and management contract fees, etc.

5. Transactions with the Asset Management Company in other businesses of the Asset Management Company

The Asset Management Company does not concurrently conduct any of the class 1 financial instruments transaction business, class 2 financial instruments transaction business, building lots and buildings transaction business, or real estate specified joint enterprise business, and there are no applicable transactions.

II. Financial Information

1. Assets, liabilities, equity, and profit and loss

For the status of assets, liabilities, equity (contribution), and profit and loss, please refer to "Balance Sheets," "Statements of Income," "Statements of Changes in Net Assets," and "Notes to Financial Statements."

2. Changes in calculation method of depreciation Not applicable.

3．Changes in evaluation method of real estate, etc. and infrastructure assets, etc.

Not applicable.

Status of beneficiary certificates of investment trusts set up by asset management company, etc.

Japan Hotel REIT Advisors Co., Ltd., the asset management company of JHR, has acquired JHR's investment units as indicated below.

(1) Status of acquisition, etc.

Date	Number of units acquired	Number of units disposed	Number of units held
(units)	(units)	(units)


January 20, 2016	2,500	―	2,500

July 5, 2017	1,200	―	3,700

Accumulated total	3,700	―	3,700

(2) Status of holding units

		Number of	Total investment	Ratio to total units	(Reference)
		at end of period	Total number of units
		units held at	issued
		(thousands of	issued at end of period
		end of period	(%)
		yen)	(units)
		(units)	(Note 2)
		(Note 1)


17th	From January 1, 2016 to
fiscal	2,500	212,550	0.06	3,761,907
December 31, 2016
period


18th	From January 1, 2017 to
fiscal	3,700	305,571	0.09	4,010,847
December 31, 2017
period


19th	From January 1, 2018 to
fiscal	3,700	305,571	0.09	4,010,847
December 31, 2018
period


20th	From January 1, 2019 to
fiscal	3,700	305,571	0.08	4,462,347
December 31, 2019
period

(Note 1) Total investment at end of period indicates the acquisition price.

(Note 2) Ratio to total units issued is percentage of investment units held at end of period to the total investment units issued at end of period and is rounded down to second decimal place.

Other

(1) Announcements

The following shows the summary of major conclusions, changes, etc. of the principal agreements that were approved or reported at meetings of JHR's Board of Directors during the fiscal period under review.

Approval date	Item	Summary

		Due to the issuance of new investment units, general administration for
		offering the investment units in Japan was entrusted to SMBC Nikko
	Conclusion of an underwriting	Securities Inc., Daiwa Securities Co. Ltd., Mizuho Securities Co., Ltd.,
	Goldman Sachs Japan Co., Ltd., Nomura Securities Co., Ltd., FFG
	agreement for new investment
	Securities Co., Ltd., Nishi-Nippon City Tokai Tokyo Securities Co., Ltd.
January 16, 2019	units in association with the
and Chibagin Securities Co., Ltd. Moreover, general administration for
	issuance of new investment
	offering the investment units overseas was entrusted to SMBC Nikko
	units
	Capital Markets Limited, Goldman Sachs International, Mizuho

		International plc and Daiwa Capital Markets Europe Limited as joint
		lead managers for the overseas offering.
		A comprehensive resolution was made on the issuance of investment
	Shelf registration and	corporation bonds with the issuance period between May 9, 2019 and
	comprehensive resolution on the	May 8, 2021 with the total amount issued of within ¥100.0 billion. At
April 24, 2019	issuance of investment	the same time, a resolution was made on the issuance of investment
corporation bonds and	corporation bonds of within ¥20 billion, and the decision on matters

	entrustment of accompanying	regarding the issuance of investment corporation bonds, including the
	administration	administration related to issuance and entrustment of operations, was
		left to the discretion of the Executive Director.
		In accordance with the modifications to the Articles of Incorporation
		resolved at the 9th General Meeting of Unitholders of JHR, partial
		modifications were made to the asset management agreement as follows:
November 22, 2019	Partial amendment to the asset	・In view of the expansion of opportunities to invest in securities and
monetary claims, etc., necessary amendments were made to enable
management agreement
	investments to be made on an opportune basis.

		・Necessary amendment were made to add certain assets other than real
		estate-related assets to the calculation of the acquisition fee and the
		transfer fee; and others.

The 9th General Meeting of Unitholders of JHR was held on November 22, 2019. The major items approved at the General Meeting of Unitholders are summarized below.

Agenda	Summary

	Partial amendments were made to the Articles of Incorporation due to the following reasons.
	・In view of the expansion of opportunities to invest in securities and monetary claims, etc.,
Partial amendments to the Articles	necessary amendments were made to enable investments to be made on an opportune
of Incorporation	basis.
	・Necessary amendment were made to add certain assets other than real estate-related assets
	to the calculation of the acquisition fee and the transfer fee; and others.

	Kaname Masuda was again elected as Executive Director. His term of office commences on
	November 22, 2019 and continues until the end of the general meeting of unitholders which
Election of one Executive Director	will be held within 30 days from the day immediately following the day on which two years
	have passed since his election and at which a vote will be held on the election of Executive
	Director(s).

Agenda	Summary

	Tetsuya Mishiku, Hiroto Kashii and Mayumi Umezawa were elected as Supervisory Directors.
Election of three Supervisory	The term of office of the elected Supervisory Directors commences on November 22, 2019 and
continues until the end of the general meeting of unitholders which will be held within 30 days
Directors
from the day immediately following the day on which two years have passed since their election

	and at which a vote will be held on the election of Supervisory Directors.

Election of one Substitute Executive	Hisashi Furukawa, Representative Director of the Asset Management Company, was again
Director	elected as Substitute Executive Director.

Status, etc. of corporation owning foreign real estate Not applicable.
Status, etc. of real estate owned by foreign real property holding corporations Not applicable.
Other

Unless otherwise noted, amounts and ratios in this report are rounded down and rounded off to the stated unit, respectively.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Balance Sheets

As of December 31, 2019 and 2018

		Thousands of yen
		As of		As of
		December 31,		December 31,
ASSETS	2019	2018

Current assets:
Cash and deposits (Notes 5 and 6)	¥ 22,449,911	¥ 25,706,559
Cash and deposits in trust (Notes 5 and 6)	11,894,019	11,478,156
Operating accounts receivable (Note 6)	2,779,730	2,474,121
Prepaid expenses	550,281	527,491
Income taxes receivable	54	34
Derivative assets (Notes 6 and 18)	573	2,229
Other current assets	88,045	77,987
Total current assets		37,762,616		40,266,582
Property and equipment, at cost (Notes 17 and 19):
Machinery and equipment	579,731	398,134
Tools, furniture and fixtures	4,211,971	3,121,628
Buildings in trust (Note 14)	136,930,501	122,605,307
Structures in trust	2,721,962	2,535,539
Machinery and equipment in trust	675,362	598,790
Tools, furniture and fixtures in trust	136,526	136,526
Land in trust	219,901,119	163,151,369
Construction in progress in trust	18,384	765,363
		365,175,561		293,312,661
Less: Accumulated depreciation	(24,652,749)	(20,423,041)
Net property and equipment	340,522,811		272,889,620
Intangible assets:
Software	227,600	199,563
Leasehold rights in trust (Note 19)	28,532,362	28,532,362
Fixed-term leasehold rights in trust (Note 19)	5,036,941	5,175,217
Other intangible assets (Note 19)	7,756	8,436
Total intangible assets	33,804,661		33,915,580
Other assets:
Security deposits	12,520	12,520
Leasehold and security deposits in trust	150,223	150,223
Long-term prepaid expenses	2,766,474	2,687,996
Derivative assets (Notes 6 and 18)	43,870	45,125
Reserve fund for repairs and maintenance	307,513	292,508
Investment unit issuance costs	140,631	124,220
Investment corporation bond issuance costs	211,194	172,390
Total other assets	3,632,429		3,484,984
Total assets	¥415,722,517	¥350,556,767
				(Continued)

JAPAN HOTEL REIT INVESTMENT CORPORATION

Balance Sheets

As of December 31, 2019 and 2018

		Thousands of yen
		As of			As of
	December 31,		December 31,
LIABILITIES AND NET ASSETS		2019			2018

Current liabilities:
Operating accounts payable	¥	1,485,375	¥	1,941,008
Current portion of investment corporation bonds (Notes 6 and 8)		-			2,000,000
Current portion of long-term loans payable (Notes 6, 7 and 18)		12,782,000			11,117,000
Accrued expenses		651,435			530,377
Income taxes payable		1,210			1,210
Consumption taxes payable		661,048			496,921
Advances received		909,293			882,052
Dividends payable		15,852			18,275
Deposits received		8,696			7,315
Derivative liabilities (Notes 6 and 18)		17,229			17,608
Other current liabilities		95,331			9,013
Total current liabilities		16,627,473			17,020,784
Long-term liabilities:
Investment corporation bonds (Notes 6 and 8)		41,600,000			31,600,000
Long-term loans payable (Notes 6, 7 and 18)		114,372,000			91,954,000
Tenant leasehold and security deposits (Note 6)		1,040,520			1,041,016
Tenant leasehold and security deposits in trust (Note 6)		4,681,825			4,593,946
Derivative liabilities (Notes 6 and 18)		416,600			514,339
Deferred tax liabilities (Note 15)		13,981			14,838
Asset retirement obligations (Note 9)		447,677			445,622
Total long-term liabilities		162,572,605			130,163,763
Total liabilities		179,200,079			147,184,548
Net assets (Note 10):
Unitholders' equity:
Unitholders' capital		186,894,169			153,516,129
Units authorized: 20,000,000 units
Units issued and outstanding; 4,462,347 units and 4,010,847 units as
of December 31, 2019 and 2018, respectively
Surplus:
Capital surplus		21,746,398			21,746,398
Voluntary reserve:
Reserve for temporary difference adjustment (Note 11)		11,794,071			12,357,644
Reserve for special advanced depreciation		1,174,860			-
Total voluntary reserve		12,968,932			12,357,644
Unappropriated retained earnings		15,290,314			16,213,482
Total surplus		50,005,645			50,317,525
Total unitholders' equity		236,899,815			203,833,655
Valuation and translation adjustments:
Deferred gains (losses) on hedges (Note 18)		(377,376)			(461,435)
Total valuation and translation adjustments		(377,376)			(461,435)
Total net assets		236,522,438			203,372,219
Total liabilities and net assets	¥	415,722,517		¥	350,556,767

See notes to financial statements.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Statements of Income

For the years ended December 31, 2019 and 2018

	Thousands of yen
	For the year		For the year
	ended		ended
	December 31,		December 31,
	2019	2018
Operating revenue:
Real estate operating revenue (Note 12)	¥ 27,107,988	¥ 25,140,735
Other real estate operating revenue (Note 12)	1,170,561	1,178,141
Gain on sale of real estate properties (Note 13)	-	1,934,974
Total operating revenue	28,278,550		28,253,850
Operating expenses:
Real estate operating costs (Note 12)	8,997,408	8,344,364
Asset management fee	1,781,691	1,577,515
Asset custody and administrative service fee	119,138	110,273
Directors' compensation	14,400	13,400
Other operating expenses	217,357	214,828
Total operating expenses	11,129,995		10,260,381
Operating income	17,148,555	17,993,469
Non-operating income:
Interest income	357	225
Gain on forfeiture of unclaimed dividends	4,361	3,583
Gain on insurance claims	28,063	4,627
Refunded taxes on property and equipment	1,239	10,354
Interest on tax refunds	549	118
Gain on derivative instruments	12,382	12,843
Total non-operating income	46,953		31,752
Non-operating expenses:
Interest expense	940,789	818,631
Interest expense on investment corporation bonds	284,524	246,329
Borrowing costs	483,761	525,031
Amortization of investment corporation bond issuance costs	30,298	27,751
Amortization of investment unit issuance costs	151,922	147,887
Loss on derivative instruments	378	39,417
Other	12,309	8,529
Total non-operating expenses	1,903,983		1,813,577
Ordinary income	15,291,524		16,211,644
Income before income taxes
15,291,524	16,211,644
Income taxes (Note 15):	1,210	1,210
Current
Total income taxes	1,210		1,210
Net income	¥ 15,290,314		¥ 16,210,434

See notes to financial statements.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Statements of Changes in Net Assets

For the years ended December 31, 2019 and 2018

														Thousands of yen
														Unitholders' equity
														Surplus
											Voluntary reserve
									Reserve for			Reserve for
									temporary			special
		Unitholders'							difference			advanced	Total voluntary			Unappropriated			Total unitholders'
		capital		Capital surplus		adjustment			depreciation			reserve			retained earnings		Total surplus		equity
Balance, January 1, 2018	¥	153,516,129	¥	21,746,398		¥	13,127,153		¥	-			¥	13,127,153		¥	14,005,489	¥	48,879,041	¥	202,395,170
Changes of items during the year:
Reversal of reserve for temporary
difference adjustment		-			-				(769,508)				-				(769,508)				769,508			-			-
Dividends paid		-			-				-				-				-				(14,771,949)			(14,771,949)			(14,771,949)
Net income		-			-				-				-				-				16,210,434			16,210,434			16,210,434
Net changes in items other than		-			-				-				-				-				-			-			-
unitholders' equity
Total changes in amount during the		-			-				(769,508)				-				(769,508)				2,207,993			1,438,484			1,438,484
year
Balance, December 31, 2018	¥	153,516,129		¥	21,746,398		¥	12,357,644			¥	-			¥	12,357,644			¥	16,213,482		¥	50,317,525		¥	203,833,655
Changes of items during the year:
Issuance of new investment units		33,378,040			-				-				-				-				-			-			33,378,040
Reversal of reserve for temporary
difference adjustment		-			-				(563,572)				-				(563,572)				563,572			-			-
Provision of reserve for special
advanced depreciation		-			-				-				1,174,860			1,174,860				(1,174,860)			-			-
Dividends paid		-			-				-				-				-				(15,602,194)			(15,602,194)			(15,602,194)
Net income		-			-				-				-				-				15,290,314			15,290,314			15,290,314
Net changes in items other than		-			-				-				-				-				-			-			-
unitholders' equity
Total changes in amount during the		33,378,040			-				(563,572)				1,174,860			611,287				(923,168)			(311,880)			33,066,160
year
Balance, December 31, 2019	¥	186,894,169		¥	21,746,398		¥	11,794,071			¥	1,174,860			¥	12,968,932		¥	15,290,314		¥	50,005,645		¥	236,899,815
					Thousands of yen
	Valuation and translation adjustments
		Deferred gains			Total valuation
		(losses) on			and translation
		hedges			adjustments		Total net assets

Balance, January 1, 2018

Changes of items during the year: Reversal of reserve for temporary

difference adjustment Dividends paid

Net income

Net changes in items other than unitholders' equity

Total changes in amount during the year

Balance, December 31, 2018 Changes of items during the year:

Issuance of new investment units Reversal of reserve for temporary

difference adjustment Provision of reserve for special

advanced depreciation Dividends paid

Net income

Net changes in items other than unitholders' equity

Total changes in amount during the year

Balance, December 31, 2019

¥	(431,849)	¥	(431,849)	¥	201,963,321
	-			-			-
	-			-			(14,771,949)
	-			-			16,210,434
	(29,586)			(29,586)			(29,586)
	(29,586)			(29,586)			1,408,897
¥	(461,435)		¥	(461,435)		¥	203,372,219
	-			-			33,378,040
	-			-			-
	-			-			-
	-			-			(15,602,194)
	-			-			15,290,314
	84,059			84,059			84,059
	84,059			84,059			33,150,219
¥	(377,376)		¥	(377,376)		¥	236,522,438

See notes to financial statements.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Statements of Cash Flows

For the years ended December 31, 2019 and 2018

	Thousands of yen
	For the year		For the year
	ended		ended
	December 31,		December 31,
	2019	2018
Cash flows from operating activities:
Income before income taxes	¥ 15,291,524	¥ 16,211,644
Depreciation and amortization	4,557,414	4,091,929
Loss on disposal of property and equipment	246,890	35,972
(Gain) Loss on derivative instruments	(12,004)	26,574
Amortization of investment corporation bond issuance costs	30,298	27,751
Amortization of investment unit issuance costs	151,922	147,887
Decrease of property and equipment due to sale	-	19,104
Decrease of property and equipment in trust due to sale	-	9,995,677
Decrease of intangible assets due to sale	-	117,138
Interest income	(357)	(225)
Interest expense	1,225,314	1,064,961
Interest on tax refunds	(549)	(118)
(Increase) decrease in operating accounts receivable	(305,608)	(62,284)
(Increase) decrease in prepaid expenses	(22,789)	44,621
(Increase) decrease in long-term prepaid expenses	(78,478)	320,330
Increase (decrease) in operating accounts payable	(240,644)	286,480
Increase (decrease) in accrued expenses	116,600	(139,228)
Increase (decrease) in consumption taxes payable	164,127	(63,249)
Increase (decrease) in advances received	27,240	(18,206)
Increase (decrease) in deposits received	1,380	(14,782)
Other	69,494	(106,639)
Subtotal	21,221,777		31,985,341
Interest received	482	170
Interest paid	(1,220,857)	(1,045,923)
Interest received on tax refunds	549	118
Income taxes - refunded (paid)	(1,230)	(1,211)
Net cash provided by operating activities	20,000,722		30,938,494
Cash flows from investing activities:
Purchase of property and equipment	(1,332,712)	(536,481)
Purchase of property and equipment in trust	(71,102,935)	(2,399,742)
Purchase of intangible assets	(89,263)	(87,074)
Payments of reserve fund for repairs and maintenance	(40,453)	(40,330)
Refunds of leasehold and security deposits in trust	-	8,100
Repayment of tenant leasehold and security deposits	(496)	-
Proceeds from tenant leasehold and security deposits in trust	329,120	59,743
Repayment of tenant leasehold and security deposits in trust	(228,114)	(115,020)
Net cash used in investing activities	¥ (72,464,854)		¥ (3,110,806)

(Continued)

JAPAN HOTEL REIT INVESTMENT CORPORATION

Statements of Cash Flows

For the years ended December 31, 2019 and 2018

		Thousands of yen
		For the year			For the year
		ended			ended
	December 31,		December 31,
		2019			2018
Cash flows from financing activities:
Proceeds from short-term loans payable	¥	8,000,000	¥	5,000,000
Repayments of short-term loans payable		(8,000,000)			(8,000,000)
Proceeds from long-term loans payable		37,000,000			10,150,000
Repayments of long-term loans payable		(12,917,000)			(20,878,750)
Proceeds from investment corporation bonds		10,000,000			10,000,000
Repayments of investment corporation bond		(2,000,000)			-
Payments for investment corporation bond issuance costs		(69,102)			(68,082)
Proceeds from issuance of investment units		33,209,706			-
Dividends paid		(15,600,256)			(14,766,490)
Net cash provided by (used in) financing activities		49,623,347			(18,563,322)
Net increase (decrease) in cash and cash equivalents		(2,840,785)			9,264,365
Cash and cash equivalents at beginning of year		37,184,716			27,920,350
Cash and cash equivalents at end of year (Note 5)		¥ 34,343,930			¥ 37,184,716

See notes to financial statements.

JAPAN HOTEL REIT INVESTMENT CORPORATION

Notes to Financial Statements

For the years ended December 31, 2019 and 2018

1. Organization and Basis of Presentation

a. Organization

Japan Hotel REIT Investment Corporation ("JHR"), formerly known as Nippon Hotel Fund Investment Corporation (the "Former NHF"), was established under the Act on Investment Trusts and Investment Corporations (the "Investment Trust Act") on November 10, 2005 and was listed on the Real Estate Investment Trust ("REIT") Section on the Tokyo Stock Exchange (Securities code: 8985) on June 14, 2006. JHR is externally managed by a licensed asset management company, Japan Hotel REIT Advisors Co., Ltd. (hereinafter referred to as the "Asset Management Company").

Focusing on the importance of hotels as social infrastructure and their profitability as investment real estate properties, JHR has primarily invested in real estate related assets which are in themselves wholly or partially used as hotels or real estate equivalents of such real estate or which are backed by such real estate or real estate equivalents.

In the fiscal period ended December 31, 2012, the Former NHF, as the surviving entity, merged with Japan Hotel and Resort, Inc. (the "Former JHR"), as the dissolved entity, with an effective date of April 1, 2012 (the "Merger"). In conjunction with the Merger, the Former NHF changed its name to Japan Hotel REIT Investment Corporation.

Through the Merger, nine properties held by the Former JHR were succeeded by JHR. As a result, as of the effective date of the Merger, JHR's property portfolio expanded to 28 properties. As of December 31, 2019, JHR has ownership interests in 43 properties.

b. Basis of presentation

The accompanying financial statements have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law and their related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.

The accompanying financial statements have been reformatted and translated into English (with certain reclassifications and expanded descriptions) from the financial statements of JHR prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese language financial statements, but not necessarily required for fair presentation, is not presented in the accompanying financial statements. JHR has not prepared consolidated financial statements, as JHR has no consolidating subsidiaries or entities.

As permitted by the regulations under the Financial Instruments and Exchange Law of Japan, the amounts are rounded down to the nearest thousands or millions. As a result, the totals shown in the accompanying financial statements do not necessarily agree with the sums of the individual amounts.

2. Summary of Significant Accounting Policies

a. Cash and cash equivalents

Cash and cash equivalents in the statements of cash flows consist of cash on hand, cash in trust accounts, bank deposit and trust deposit, which can be withdrawn at any time, and short-term investments with a maturity of three months or less when purchased, which can easily be converted to cash and subject to minimal risk of change in value.

b. Property and equipment

Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives. The useful lives of major property and equipment components are as follows:

Machinery and equipment:	2 to 17 years
Tools, furniture and fixtures:	2 to 20 years
Buildings in trust:	2 to 64 years
Structures in trust:	2 to 64 years
Machinery and equipment in trust:	3 to 32 years
Tools, furniture and fixtures in trust:	2 to 27 years

c. Intangible assets

Intangible assets are stated at cost and amortized using the straight-line method. The amortization period of major intangible assets is as follows.

Software (internal use): 5 years

Fixed-term leasehold rights in trust: 41 or 49 years (remaining contractual period at the time of acquisition) Leasehold rights in trust are intangible assets with indefinite useful lives.

d. Investment unit issuance costs

Investment unit issuance costs are capitalized and amortized using the straight-line method over three years.

e. Investment corporation bond issuance costs

Investment corporation bond issuance costs are capitalized and amortized using the effective interest rate method over the respective term of the bond.

f. Taxes on property and equipment

Taxes imposed on properties such as property taxes, city planning taxes, and depreciable asset taxes are allocated to the respective reporting period and expensed as "Real estate operating costs." Cash paid for those properties related taxes to the transferor of real properties at acquisition is not recorded as "Real estate operating costs" but capitalized as part of the acquisition cost of the relevant property. The amount of such taxes capitalized in the acquisition cost of real properties was ¥249,415 thousand for the year ended December 31, 2019 and not applicable for the year ended December 31, 2018.

g. Derivatives and hedging activities

JHR enters into certain derivative transactions in accordance with its financial policy in order to manage risks, which are defined in the Articles of Incorporation, mainly arising from adverse fluctuations in interest rates on loans payable. Derivative financial instruments are carried at fair value with changes in the unrealized gain or loss charged or credited to operations, except for those which meet the criteria for hedge accounting in which case the unrealized gain or loss is deferred as a component of net assets.

JHR evaluates hedge effectiveness by comparing the cumulative changes in cash flow of hedging instruments and the hedged items and assessing the ratio between the changes.

h. Beneficial interests of real estate in trust

For beneficial interests of real estate in trust, all assets and liabilities held in trust accounts as well as all income generated and expenses incurred from assets in trust are presented in the relevant balance sheet and statement of income accounts.

i. Consumption taxes

Consumption taxes are excluded from the transaction amounts.

3. Change in Presentation Method

JHR adopted "Partial Amendments to 'Accounting Standard for Tax Effect Accounting'" (ASBJ Statement No. 28, February 16, 2018) from the beginning of the fiscal year ended December 31, 2019. The method of presentation has been changed, whereby deferred tax assets are presented under other assets and deferred tax liabilities are presented under long-term liabilities.

As a result, deferred tax liabilities (¥583 thousand) that had previously been presented under current liabilities in the balance sheet as of December 31, 2018 was reclassified and included in deferred tax liabilities (¥14,838 thousand) under long-term liabilities to conform to the current fiscal year's presentation.

4. Accounting Standards Issued but Not Yet Applied

・"Accounting Standard for Revenue Recognition" (Accounting Standards Board of Japan (ASBJ) Statement No. 29 issued on March 30, 2018)

・"Implementation Guidance on Accounting Standard for Revenue Recognition" (ASBJ Guidance No. 30 issued on March 30, 2018)

(1) Overview

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in the United States have jointly developed comprehensive accounting standards for revenue recognition and issued "Revenue from Contracts with Customers" (IFRS 15 by IASB and Topic 606 by FASB) in May 2014. Given the situation where IFRS 15 is applied from fiscal years beginning on or after January 1, 2018 and that Topic 606 is applied from fiscal years beginning after December 15, 2017, the ASBJ has developed comprehensive accounting standards for revenue recognition and issued them together with the implementation guidance.

The basic policy for the ASBJ when it developed the accounting standards for revenue recognition was to establish the standards by incorporating the basic principles of IFRS 15 as a starting point, from the perspective of comparability between financial statements, which is one of the benefits of maintaining consistency with IFRS 15. The basic policy also allowed to add alternative treatments to the extent that comparability is not impaired, if consideration should be given to current practices that have been used thus far in Japan.

Scheduled date of application
The above standards will be applied from the beginning of the fiscal year ending December 31, 2022.
Impact of applying the accounting standards

The impact on the financial statements of applying the standards is currently under review.

5. Cash Flow Information

Cash and cash equivalents as of December 31, 2019 and 2018 in the statements of cash flows consisted of the following:

			Thousands of yen
		As of December		As of December
Cash and deposits			31, 2019			31, 2018
¥	22,449,911		¥	25,706,559
Cash and deposits in trust			11,894,019		11,478,156
Cash and cash equivalents		¥	34,343,930		¥	37,184,716

6. Financial Instruments

a. Status of financial instruments

Policy for financial instruments
JHR is an investment corporation set forth in Article 2, paragraph 12 of the Investment Trust Act, managing investments mainly in specified assets as prescribed in the Investment Trust Act. As a policy, JHR procures funds through issuance of investment units, etc. and loans from financial institutions in order to make investments in specified assets. JHR does not utilize surplus funds to invest in financial instruments except for short-term deposits and other equivalent short-term financial instruments. JHR may enter into derivative transactions in order to hedge against interest rate risk, but not for speculative trading purposes.
Details of financial instruments, their risks, and risk management system
Operating accounts receivable are exposed to credit risks of customers. To address the risks, JHR monitors payment dates and balances by customers in order to detect and mitigate any suspicious accounts in a timely manner.
The floating rate loans payable are exposed to risks of interest rate fluctuations. In order to mitigate interest rate risks, JHR may enter into derivative transactions, if necessary.

Derivative transactions are conducted principally in accordance with rules prescribed by JHR and risk management rules applied by the Asset Management Company. Derivative transactions are arranged by the finance section of the

Asset Management Company by using financial institutions with high credit ratings through approval and resolution by authorized personnel and a meeting committee structure set forth in its decision-making standards and resolution of JHR's board of directors.

Loans payable expose JHR to liquidity risks. The finance section of the Asset Management Company prepares and updates projections and actual cash flows on a monthly basis to manage liquidity risks and monitors compliance with restrictive covenants set forth in the loan agreements. JHR manages liquidity risks by managing the ratio of short-term and long-term loans payable, etc. considering the current financial environment and other conditions through approval and resolution by authorized personnel and meeting committee structure in the Asset Management Company and resolution of JHR's board of directors.

b. Fair value of financial instruments

Carrying amounts of financial instruments on the balance sheets, their fair values, and the differences as of December 31, 2019 and 2018 were as follows. Financial instruments whose fair values are difficult to estimate are not included in the table. See Note (2) below.

Thousands of yen

As of December 31, 2019

Cash and deposits
Cash and deposits in trust
Operating accounts receivable Total
Current portion of investment corporation bonds
Current portion of long-term loans payable
Investment corporation bonds
Long-termloans payable Total
Derivative transactions (*)

Carrying amount		Fair value				Difference
¥	22,449,911		¥	22,449,911			¥	-
	11,894,019				11,894,019				-
	2,779,730				2,779,730				-
¥	37,123,661			¥	37,123,661				¥	-

¥	-		¥	-	¥	-
	12,782,000				12,782,000				-
	41,600,000				41,480,400				(119,600)
	114,372,000				114,372,000				-
¥	168,754,000			¥	168,634,400				¥	(119,600)

¥	(389,386)	¥	(389,386)			¥	-

Thousands of yen

			As of December 31, 2018
		Carrying amount			Fair value			Difference
(i)	Cash and deposits	¥	25,706,559			¥	25,706,559				¥	-
(ii)	Cash and deposits in trust		11,478,156					11,478,156					-
			2,474,121
(iii)	Operating accounts receivable				2,474,121			-
	Total	¥	39,658,838			¥	39,658,838		¥	-

(iv)	Current portion of investment corporation
	bonds		2,000,000				2,002,200				2,200
(v)	Current portion of long-term loans payable		11,117,000				11,117,000				-
(vi)	Investment corporation bonds		31,600,000				31,785,870				185,870
(vii) Long-term loans payable		91,954,000				91,954,000				-
	Total	¥	136,671,000			¥	136,859,070				¥	188,070
(viii)Derivative transactions (*)	¥	(484,593)		¥	(484,593)		¥	-

(*) Receivables and payables arising from derivative transactions are presented on a net basis and amounts in parenthesis denote net payables.

Notes:

(1) Methods to measure fair value of financial instruments

(i) Cash and deposits, (ii) Cash and deposits in trust, (iii) Operating accounts receivable

The carrying value is deemed to approximate the fair value since the instruments are scheduled to be settled in a short period of time.

Current portion of investment corporation bonds, (vi) Investment corporation bonds The fair value of these instruments is measured based on the market price.
Current portion of long-term loans payable, (vii) Long-term loans payable

The carrying value is deemed to approximate the fair value since the interest rate on long-term loans payable are floating interest rates which are adjusted periodically to reflect market interest rates.

(viii) Derivative transactions

The information on the fair value of derivative transactions is presented in Note 18.

Information on financial instruments whose fair values are difficult to estimate as of December 31, 2019 and 2018 was as follows:

Thousands of yen

As of December	As of December
31, 2019	31, 2018

Carrying amount

Tenant leasehold and security deposits Tenant leasehold and security deposits in trust

Total

	¥	1,040,520		¥	1,041,016
		4,681,825				4,593,946
¥	5,722,345		¥	5,634,962

Tenant leasehold and security deposits / Tenant leasehold and security deposits in trust

Tenant leasehold and security deposits (in trust) are not subject to fair value disclosure because they have no market price and their actual deposit periods from a tenant's move-in to move-out are not estimable, thus making a reasonable estimate of future cash flows difficult.

(3) Redemption schedule for monetary claims as of December 31, 2019 and 2018:

									Thousands of yen
					Due after			Due after		Due after			Due after
			Due within		one to two		two to three		three to four		four to five		Due after
As of December 31, 2019	one year		years				years		years			years			five years
Cash and deposits			¥22,449,911		¥	-		¥	-		¥	-		¥	-		¥	-
Cash and deposits in trust	11,894,019			-			-			-			-			-
Operating accounts receivable		2,779,730			-			-			-			-			-
Total		¥37,123,661		¥	-		¥	-		¥	-		¥	-		¥	-
									Thousands of yen
					Due after			Due after		Due after			Due after
			Due within		one to two		two to three		three to four		four to five		Due after
As of December 31, 2018	one year		years				years		years			years			five years
Cash and deposits		¥25,706,559		¥	-		¥	-		¥	-		¥	-		¥	-
Cash and deposits in trust	11,478,156			-			-			-			-			-
Operating accounts receivable		2,474,121			-			-			-			-			-
Total		¥39,658,838		¥	-		¥	-		¥	-		¥	-		¥	-

Schedule for repayment of loans payable and redemption of investment corporation bonds as of December 31, 2019 and 2018.

												Thousands of yen
							Due after				Due after			Due after				Due after
			Due within			one to two				two to three			three to four			four to five			Due after
As of December 31, 2019			one year			years					years			years					years		five years
Current portion of investment			¥	-	¥	-	¥	-	¥	-	¥	-	¥	-
corporation bonds
Current portion of long-term	12,782,000				-				-				-				-			-
loans payable
Investment corporation bonds		-	1,500,000				6,000,000				-				3,000,000	31,100,000
Long-term loans payable			-		10,800,000		10,900,000		15,772,000		18,650,000		58,250,000
Total		¥12,782,000		¥12,300,000		¥16,900,000		¥15,772,000		¥21,650,000		¥89,350,000

												Thousands of yen
			Due within			Due after				Due after			Due after				Due after
					one to two				two to three			three to four			four to five			Due after
As of December 31, 2018		one year			years					years			years				years		five years
Current portion of investment
corporation bonds	¥	2,000,000	¥	-	¥	-	¥	-	¥	-	¥	-
Current portion of long-term
loans payable		11,117,000				-				-				-				-		-
Investment corporation bonds		-				-				1,500,000	6,000,000				-	24,100,000
Long-term loans payable			-		12,782,000		10,800,000		10,900,000		15,772,000		41,700,000
Total		¥	13,117,000		¥12,782,000		¥12,300,000		¥16,900,000		¥15,772,000		¥65,800,000

7. Long-Term Loans Payable

long-term loans payable as of December 31, 2019 and 2018 consisted of the following:

					Millions of yen
				As of December		As of December
		Maturity date	31, 2019			31, 2018
Long-term loans payable:		Amount

1.15%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2021	¥	6,800	¥	6,800
Unsecured loan, payable in a lump-sum at maturity (*2)	September 30, 2019		-			6,317
0.92%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	September 30, 2020		6,055			6,055
1.04%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2021		4,000			4,000
0.57%	Unsecured loan, payable in a lump-sum at maturity	December 30, 2020		935			935
0.38%	Unsecured loan, payable in a lump-sum at maturity (*1)	January 31, 2020		4,700			4,700
0.90%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	January 31, 2022		7,900			7,900
0.93%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2022		1,500			1,500
0.95%	Unsecured loan, payable in a lump-sum at maturity (*1)	June 30, 2022		1,500			1,500
0.52%	Unsecured loan, payable in a lump-sum at maturity	June 30, 2020		1,092			1,092
1.07%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 29, 2023		2,880			2,880
1.07%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	September 29, 2023		892			892
0.21%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 29, 2019		-			2,000
0.19%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	March 29, 2019		-			960
0.19%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 29, 2019		-			1,140
0.77%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	March 29, 2024		2,100			2,100
0.77%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 29, 2024		2,650			2,650
0.68%	Unsecured loan, payable in a lump-sum at maturity (*1,3)	March 31, 2023		4,200			4,200
0.66%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 29, 2024		800			800
0.57%	Unsecured loan, payable in a lump-sum at maturity	March 29, 2024		500			500
0.74%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		9,500			9,500
0.56%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2024		1,300			1,300
0.56%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2024		2,000			2,000
0.59%	Unsecured loan, payable in a lump-sum at maturity	September 30, 2024		700			700
0.71%	Unsecured loan, payable in a lump-sum at maturity	September 30, 2024		500			500
0.47%	Unsecured loan, payable in a lump-sum at maturity	June 30, 2023		2,250			2,250
0.85%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2026		4,250			4,250
0.73%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		1,000			1,000
0.68%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		700			700
0.75%	Unsecured loan, payable in a lump-sum at maturity	September 30, 2025		500			500
0.73%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		500			500
0.73%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		500			500
0.73%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		1,000			1,000
0.68%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2025		300			300
0.65%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2025		2,550			2,550
0.57%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 29, 2024		4,000			4,000
0.65%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2025		2,450			2,450
0.42%	Unsecured loan, payable in a lump-sum at maturity	March 31, 2023		1,700			1,700
0.42%	Unsecured loan, payable in a lump-sum at maturity	March 31, 2023		2,850			2,850
0.52%	Unsecured loan, payable in a lump-sum at maturity	March 31, 2023		500			500
0.55%	Unsecured loan, payable in a lump-sum at maturity	September 29, 2023		500			500
0.95%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2027		3,900			3,900
0.34%	Unsecured loan, payable in a lump-sum at maturity (*4)	December 30, 2019		-			350
0.34%	Unsecured loan, payable in a lump-sum at maturity (*4)	December 30, 2019		-			350
0.38%	Unsecured loan, payable in a lump-sum at maturity	March 29, 2024		2,500			-
0.72%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2027		7,500			-
0.82%	Unsecured loan, payable in a lump-sum at maturity (*1)	March 31, 2028		18,000			-
0.23%	Unsecured loan, payable in a lump-sum at maturity	September 30, 2024		1,600			-
0.68%	Unsecured loan, payable in a lump-sum at maturity (*1)	September 30, 2027		5,600			-
Sub-total				127,154			103,071
Total of long-term loans payable			¥	127,154		¥	103,071

Stated interest rate, which is a rate per annum, represents the weighted average rate during the year ended December 31, 2019, or the most recent year, based on the number of days and outstanding balance of the loans payable. The interest rate is rounded off to the nearest second decimal place.

Notes:

(*1) As JHR has conducted interest rate swap transactions in order to hedge against interest rate fluctuation risks, the interest rate of loans subject to such interest rate swap transactions is presented as the rate obtained by taking into account the effect of interest rate swaps (interest rate fixation), rounded off to second decimal places.

(*2) Of these loans payable, the interest rate on the portion totaling ¥1,317 million is, in effect, fixed at 0.80225% per annum for the period from September 30, 2014 through September 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014. Moreover, the interest rate on the portion totaling ¥5,000 million is, in effect, fixed at 0.94875% for the period from March 30, 2018 through September 30, 2019 due to the execution of an interest rate swap agreement on September 26, 2014.

(*3) JHR made partial early repayment of these loans payable on April 26, 2018.

(*4) JHR additionally borrowed ¥900 million loan payable on April 26, 2019 and made early repayment of ¥450 million on June 17, 2019 and ¥800 million on July 31, 2019, respectively.

8. Investment Corporation Bonds

Investment corporation bonds as of December 31, 2019 and 2018 consisted of the following:

		Millions of yen
		As of		As of
	December 31,	December 31,
Unsecured 3rd investment corporation bond at interest rate of 0.92%, due		2019			2018

on March 19, 2019	¥	-	¥	2,000
Unsecured 4th investment corporation bond at interest rate of 0.86%, due
on December 17, 2021		1,500		1,500
Unsecured 5th investment corporation bond at interest rate of 0.82%, due
on October 21, 2022		6,000		6,000
Unsecured 6th investment corporation bond at interest rate of 0.935%, due
on March 19, 2026		3,000		3,000
Unsecured 7th investment corporation bond at interest rate of 0.60%, due
on November 27, 2026		9,000		9,000
Unsecured 8th investment corporation bond at interest rate of 0.60%, due
on November 27, 2026		1,100		1,100
Unsecured 9th investment corporation bond at interest rate of 0.53%, due
on November 22, 2024		1,000		1,000
Unsecured 10th investment corporation bond at interest rate of 0.84%, due
on February 21, 2028		10,000			10,000
Unsecured 11th investment corporation bond at interest rate of 0.854%, due
on June 14, 2029		8,000		-
Unsecured 12th investment corporation bond (green bonds) at interest rate		2,000		-
of 0.40%, due on July 31, 2024

Total	¥	41,600		¥	33,600

9. Asset Retirement Obligations

a. Outline of the asset retirement obligations

JHR recognized asset retirement obligations as it is obliged to restore the land of Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata), acquired on April 1, 2016, and HOTEL ASCENT FUKUOKA, acquired on August 19, 2016, to the original state in accordance with each of the fixed-term land leasehold agreements.

b. Calculation method of the asset retirement obligations

The amount of asset retirement obligations for Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata) and HOTEL ASCENT FUKUOKA was calculated by using the discount rates of 0.484% and 0.394%, respectively, and estimating the expected periods of use based on the remaining useful lives of the related buildings (34 years and 48 years, respectively).

c. Changes in the total amount of the asset retirement obligations
		Thousands of yen
	For the year ended		For the year ended
	December 31, 2019		December 31, 2018
Balance at beginning of year	¥	445,622	¥	443,577
Adjustment due to accretion expense		2,054			2,045
Balance at end of year	¥	447,677		¥	445,622

10. Net Assets

JHR maintains at least ¥50,000 thousand as the minimum net assets as required by the Investment Trust Act.

Dividends and other movements in unappropriated retained earnings related to each period that were decided after the balance sheet date are summarized as follows:

									Yen
				For the year ended						For the year ended
				December 31, 2019						December 31, 2018
I	Unappropriated retained			Total			Per unit					Total			Per unit

	earnings	¥	15,290,314,375							¥	16,213,482,816
II	Reversal of voluntary reserve
	Reversal of reserve for
	temporary difference adjustment
	(*1)			1,176,490,844		¥	263					563,572,972			¥	140
	Reversal of reserve for special
	advanced depreciation(*3)			1,174,860,958			¥	263					-			¥	-
III Dividends			16,466,060,430		¥	3,690					15,602,194,830			¥	3,890
IV Voluntary reserve
	Provision of reserve for special
	advanced depreciation (*2)			-									1,174,860,958
	Provision of reserve for
	advanced depreciation(*3)			1,174,860,958									-
V	Retained earnings carried	¥	744,789								¥	-
	forward (I+II-III-IV)

Notes:

(*1) JHR applied the transitional measures of Paragraph 3 of the Supplementary Provisions of the "Ordinance on Accounting of Investment Corporations" (Cabinet Office Ordinance No. 27 of 2015) from 2016. As a result, ¥13,127,153,216 of the dividend reserve, representing the remaining balance of the gain on negative goodwill recorded in a prior fiscal period, was transferred to the "Reserve for temporary difference adjustment" account through the appropriation of profit for the year ended December 31, 2016. Starting from the year ended December 31, 2017, JHR plans to reverse the reserve every fiscal year in an amount that shall be at least 2% of the transferred amount (¥262,543,065) but not exceeding the remaining amount of the reserve at that point in conformity with applicable rules and regulations.

For the year ended December 31, 2018, reversal of reserve for temporary difference adjustment of ¥563,572,972 was decided, which was calculated as ¥262,600,000 of the basic reversal plus ¥35,972,972 equivalent to loss on disposal of property and equipment and ¥265,000,000 for the large-scale renovation at Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata).

For the year ended December 31, 2019, reversal of reserve for temporary difference adjustment of ¥1,176,490,844 was decided, which was calculated as ¥262,600,000 of the basic reversal plus ¥246,890,844 equivalent to loss on disposal of property and equipment and ¥357,000,000 for the large-scale renovation at Oriental Hotel Fukuoka Hakata Station (former Hotel Centraza Hakata) and ¥310,000,000 for adjustment to dilution of dividend per unit due to capital increase through public offering.

(*2) For the year ended December 31, 2018, based on Article 65-8 of the Special Taxation Measures Act of Japan, JHR decided to provide for the "Reserve for special advanced depreciation" in the amount of ¥1,174,860,958 in relation to the gain on sale of real estate properties recorded during the year.

(*3) For the year ended December 31, 2019, JHR decided to reverse the "Reserve for special advanced depreciation"

in the amount of ￥1,174,860,958 and to provide the same amount for the "Reserve for advanced depreciation" based on Article 65-7 of the Special Taxation Measures Act of Japan, following the acquisition of applicable assets during the year.

11. Provision and Reversal of Reserve for Temporary Difference Adjustment

Changes in the balance of reserve for temporary difference adjustment during the years ended December 31, 2019 and

2018 consisted of the following (yen in thousand):

	Original	Balance as	Provision	Reversal	Balance as of	Rationale for provision or
Source	of January	during the	during the	December
amount	reversal
	1, 2019	year	year	31, 2019

Dividend	13,127,153	12,357,644	-	563,572	11,794,071	Allocation for dividend
reserve


	Original	Balance as	Provision	Reversal	Balance as of	Rationale for provision or
Source	of January	during the	during the	December
amount	reversal
	1, 2018	year	year	31, 2018

Dividend	13,127,153	13,127,153	-	769,508	12,357,644	Allocation for dividend
reserve

(Note) See (*1) of Note 10 above for further descriptions.

12. Real Estate Operating Revenue and Costs

The components of "Real estate operating revenue" and "Real estate operating costs" for the years ended December 31, 2019 and 2018 were as follows:

							Thousands of yen
		For the year ended		For the year ended
			December 31,				December 31,
Operating revenue:				2019					2018

Real estate operating revenue:
Fixed rent	¥	15,931,097	¥	13,610,785
Variable rent				8,675,885				8,851,482
Income from management contract (*1)				2,501,004				2,678,467
Sub-total					27,107,988					25,140,735
Other real estate operating revenue:
Parking lots				161,660				173,453
Other incidental revenue				63,016				62,693
Utilities				803,012				804,915
Other				142,873				137,078
Sub-total						1,170,561					1,178,141

Total operating revenue					28,278,550					26,318,876
Real estate operating costs:
Land lease and other rent expenses				898,207				907,621
Property taxes				1,658,930				1,630,178
Outsourcing expenses (*2)				653,041				714,663
Nonlife insurance				51,030					47,798
Depreciation and amortization				4,557,414				4,091,929
Loss on disposal of property and equipment				246,890				35,972
Repairs				41,410				46,405
Utilities				818,290					813,911
Trust fees				44,679				42,537
Other				27,511				13,345
Total real estate operating costs				8,997,408				8,344,364
Net real estate operating income		¥	19,281,141			¥	17,974,512

Notes:

(*1) Pursuant to management contracts with a certain hotel operator, JHR receives revenue in the amount equivalent to the properties' gross operating profit, or GOP, while it pays management contract fees to the operator. In the

event a property's GOP for the relevant period is a negative number, then JHR is required to pay an amount equal to such negative number to the operator. Even though some of the revenue JHR receives under management contracts is variable, it recognizes such revenue as income from management contracts and not as variable rent.

(*2) Outsourcing expenses include management contract fees of ¥296,029 thousand for the year ended December 31, 2019 and ¥337,442 thousand for the year ended December 31, 2018.

13. Gain on Sale of Real Estate Properties

There was no gain or loss on sale of real estate properties for the year ended December 31, 2019.

The components of "Gain on sale of real estate properties" for the year ended December 31, 2018 were as follows:

Proceeds from sale of properties Costs of sale of properties

Other selling expenses

Gain on sale of real estate properties

Thousands of yen

For the year ended December 31, 2018

R&B Hotel Higashi-			the b			the b
	nihonbashi		akasaka-mitsuke			ochanomizu
¥	3,050,000	¥	6,600,000		¥	2,500,000
	1,483,749			6,294,221			2,353,951
	22,955			41,508			18,639
¥	1,543,295		¥	264,270			¥	127,408

14. Advanced Depreciation of Property and Equipment

The accumulated advanced depreciation of property and equipment deducted from acquisition costs due to government subsidies received as of December 31, 2019 and 2018 were as follows:

		Thousands of yen
		As of			As of
Buildings in trust	December 31, 2019		December 31, 2018
¥	24,921		¥	24,921

15. Income Taxes

Significant components of deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:

			Thousands of yen
		As of December	As of December
Deferred tax assets		31, 2019			31, 2018

Valuation difference on assets acquired by merger	¥	1,712,010		¥	1,728,216
Amortization of fixed-term leasehold rights		162,810			119,491
Asset retirement obligations		14,951			11,259
Deferred losses on hedges		128,306			156,203
Subtotal deferred tax assets		2,018,079			2,015,170
Valuation allowance		(2,018,079)		(2,015,170)
Total deferred tax assets		¥	-		¥	-
Deferred tax liabilities		13,981			14,838
Deferred gains on hedges
Total deferred tax liabilities		¥	13,981		¥	14,838

Reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in the accompanying statements of income for the years ended December 31, 2019 and 2018 was as follows:

	For the year		For the year
	ended December		ended December
Effective statutory tax rate	31, 2019	31, 2018
31.51%		31.74%
Deduction for dividends paid	(31.72)	(29.63)
Reserve for special advanced depreciation	-	(2.30)
Change in valuation allowance	0.20	0.10
Other - net	0.03	0.09
Actual effective tax rate	0.01%		0.01%

16. Amounts per Unit

Net income per unit for the years ended December 31, 2019 and 2018 was as follows:

			Thousands		Number of
			of yen		units	Yen
			Net		Weighted-	Net income
For the year ended December 31, 2019			income		average units	per unit
Basic net income per unit - Net income attributable to
common unitholders	¥	15,290,314	4,434,849	¥	3,447
For the year ended December 31, 2018
Basic net income per unit - Net income attributable to
common unitholders	¥	16,210,434	4,010,847	¥	4,041

Notes:

The computation of net income per unit is based on the weighted-average number of units outstanding during the year.
Diluted net income per unit is not presented since there are no potentially dilutive units for the years ended December 31, 2019 and 2018.

Net assets per unit as of December 31, 2019 and 2018 were as follows:
		Yen
	As of December		As of December
Net assets per unit		31, 2019			31, 2018
¥	53,004		¥	50,705

17. Leases

As Lessor:

JHR leases its real estate properties to third parties under non-cancellable operating leases. Minimum rental revenue under the non-cancellable operating leases as of December 31, 2019 and 2018 were as follows:

					Thousands of yen
			As of December			As of December
Due within one year			31, 2019					31, 2018
	¥	1,459,034				¥	1,666,631
Due after one year				2,106,234					3,562,086

Total			¥	3,565,268			¥	5,228,717

18. Derivatives and Hedging Activities

a. Derivative transactions to which hedge accounting is not applied

Derivative transactions to which hedge accounting was not applied as of December 31, 2019 and 2018 were as follows:

Thousands of yen

Contract

amount

due after one

Fair value

As of December 31, 2019

Classification

(*1)

year

(*2)

Interest rate swaps

Transactions

other than

(fixed rate payment,

3,494,000

(25,992)

market

floating rate receipt)

transactions

Thousands of yen

Contract

amount

due after one

Fair value

As of December 31, 2018

Classification

(*1)

year

(*2)

Interest rate swaps

Transactions

other than

(fixed rate payment,

6,088,000

3,494,000

(37,996)

market

floating rate receipt)	transactions

b. Derivative transactions to which hedge accounting is applied

Derivative transactions to which hedge accounting was applied as of December 31, 2019 and 2018 were as follows: Thousands of yen

Contract

amount

As of December 31,

Method of hedge

amount

due after one

Fair value

2019

accounting

Hedged item

(*1)

year

(*2)

Interest rate swaps

Long-term

(fixed rate payment,

Deferral method

¥ 112,654,000

¥ 101,072,000

(363,394)

loans payable

floating rate receipt)

Thousands of yen

Contract

amount

As of December 31,

Method of hedge

amount

due after one

Fair value

2018

accounting

Hedged item

(*1)

year

(*2)

Interest rate swaps

Long-term

(fixed rate payment,

Deferral method

¥ 90,654,000

¥ 81,554,000

(446,597)

loans payable

floating rate receipt)

Notes:

(*1) The contract amounts of the interest rate swap is presented based on the notional principal amounts. Also, the contract amounts of derivative transactions do not indicate market risk exposure related to derivative transactions.

(*2) The fair value is measured at the quoted price obtained from the counterparty financial institutions.

19. Investment and Rental Properties

JHR owns rental properties for hotels to earn lease income and income from management contracts. The carrying amounts, changes in such balances, and fair values of such properties were as follows:

				Thousands of yen
			Carrying amount			Fair value (*2)
	January 1,						December 31,		December 31,
Hotels	2019		Net increase (*1)	2019	2019
¥ 306,789,379		¥	67,525,119		¥	374,314,498		¥ 525,910,000

Notes:

(*1) Increase during 2019 principally represents the acquisition of Hotel Oriental Express Osaka Shinsaibashi for ¥2,841 million and Hilton Tokyo Odaiba for ¥63,468 million.

(*2) Fair value of properties as of December 31, 2019 is generally the appraisal value determined by outside licensed real estate appraisers.

			Thousands of yen
			Carrying amount			Fair value (*2)
	January 1,					December 31,		December 31,
Hotels	2018		Net decrease (*1)	2018	2018
¥ 317,229,208		¥ (10,439,828)		¥	306,789,379		¥ 437,510,000

Notes:

(*1) Decrease during 2018 principally represents the sale of R&B Hotel Higashi-nihonbashi for ¥1,483 million, the b akasaka-mitsuke for ¥6,294 million and the b ochanomizu for ¥2,353 million.

(*2) Fair value of properties as of December 31, 2018 is generally the appraisal value determined by outside licensed real estate appraisers.

Real estate operating revenue and costs for the years ended December 31, 2019 and 2018 related to the rental properties were as follows:

				Thousands of yen
		For the year ended December 31, 2019
		Real estate			Real estate
	operating revenue		operating costs			Net real estate
Hotels		(*)			(*)	operating income
¥	28,278,550		¥	8,997,408		¥	19,281,141
				Thousands of yen
		For the year ended December 31, 2018
		Real estate			Real estate
	operating revenue		operating costs			Net real estate
Hotels		(*)			(*)	operating income
¥	26,318,876		¥	8,344,364		¥	17,974,512

Note:

"Real estate operating revenue" and "Real estate operating costs" are income from real estate operation (including other real estate operating revenue) and corresponding expenses (such as depreciation, property taxes, trust fees, and repairs and maintenance expenses), and are included in "Operating revenue" and "Real estate operating costs," respectively.

20. Segment Information

a. Segment information

The segment information has been omitted because JHR has only one segment, which is the investment and management business of hotel real estate.

Related information

Information about products and services for the years ended December 31, 2019 and 2018
Information about products and services has been omitted because operating revenue from external customers in a single product/service category accounted for more than 90% of total operating revenue.

(2) Information about geographical areas for the years ended December 31, 2019 and 2018

(i) Operating revenue

Information about geographical areas has been omitted because operating revenue in Japan accounted for more than 90% of total operating revenue.

(ii) Property and equipment

Information about property and equipment has been omitted because the amount of property and equipment located in Japan accounted for more than 90% of net property and equipment.

Information about major customers

Name of customer

Hotel Management Japan Co., Ltd. (*)

AAPC Japan K.K.

Name of customer

Hotel Management Japan Co., Ltd. (*)

AAPC Japan K.K.

Segment	Thousands of yen
Operating revenue
Hotel real estate
investment and management	¥	15,221,983
Hotel real estate
investment and management	¥	2,996,251
Segment	Thousands of yen
Operating revenue
Hotel real estate
investment and management	¥	13,093,017
Hotel real estate
investment and management	¥	3,121,263

Note:

Operating revenue includes the operating revenue from customers belonging to the business group of the said customer.

21. Subsequent Events

Impact of the novel coronavirus

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Japan Hotel REIT Investment Corporation published this content on 24 April 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 April 2020 06:52:05 UTC

Market Closed - Japan Exchange Other stock markets 02:00:00 2024-04-26 am EDT			5-day change	1st Jan Change
82,700 ^JPY	+1.47%		+4.68%	+19.51%

Mar. 28	Japan Hotel REIT Investment Fixes Rates for Two Loans; Executes Interest Rate Swaps	MT
Mar. 25	Japan Hotel REIT Investment Corporation Reports Sales Results for the Month and Year to Date Ended February 2024	CI

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Japan Hotel REIT Investment Fixes Rates for Two Loans; Executes Interest Rate Swaps	Mar. 27	MT
Japan Hotel REIT Investment Corporation Reports Sales Results for the Month and Year to Date Ended February 2024	Mar. 25	CI
Japan Hotel Reit Investment Corporation Announces Operating Results for the Month and Year to Date Ended February 2024	Mar. 25	CI
Japan Hotel REIT Investment Gets New Borrowings Worth 30.99 Billion Yen	Mar. 21	MT
Japan Hotel REIT Investment Corporation Announces New Loans	Mar. 21	CI
3,700 Units of Japan Hotel REIT Investment Corporation are subject to a Lock-Up Agreement Ending on 20-MAR-2024.	Mar. 19	CI
Japan Hotel REIT Investment Corporation Reports Earnings Results for the Full Year Ended December 31, 2023	Feb. 21	CI
Japan Hotel REIT Investment Establishes Green Finance Framework	Feb. 01	MT
Japan Hotel REIT Investment Raises 2023 Earnings Forecast	Jan. 24	MT
Japan Hotel REIT Investment Terminates Unitholder Benefit Program	Jan. 24	MT
Japan Hotel REIT Secures 800 Million Yen Refinancing	Jan. 24	MT
Japan Hotel REIT Investment Corporation Announces Notice Concerning New Loan (Refinancing)	Jan. 23	CI
Japan Hotel REIT Investment Corporation Revises Dividend Guidance for the Year Ended December 31, 2023 and Provides Dividend Guidance for the Year Ending December 31, 2024	Jan. 23	CI
Japan Hotel REIT Investment Corporation Revises Earnings Guidance for the Fiscal Year Ended December 31, 2023	Jan. 23	CI
Japan Hotel REIT Investment Corporation Provides Earnings Guidance for the Six Months and Full Year of Fiscal Year Ending December 31, 2024	Jan. 23	CI
Japan Hotel REIT Investment Corporation Reports Sales Results for the Month and Year to Date Ended December 2023	Jan. 23	CI
Japan Hotel REIT Completes Acquisition of Yokohama Property	Dec. 26	MT
Japan Hotel REIT Investment Corporation acquired Hotel JAL City Kannai Yokohama.	Dec. 21	CI
Certain Units of Japan Hotel REIT Investment Corporation are subject to a Lock-Up Agreement Ending on 21-DEC-2023.	Dec. 20	CI
Japan Hotel REIT to Borrow 4 Billion Yen to Fund Yokohama Hotel Transaction	Dec. 17	MT
Japan Hotel REIT Investment Corporation Announces New Loans	Dec. 15	CI
Japan Hotel REIT Clarifies Scope of Yokohama Property Acquisition	Dec. 12	MT
Increased International Visitors Boost Revenue for Japan Hotel REIT Investment Amid Pandemic Recovery	Nov. 26	MT
Japan Hotel REIT Investment Corporation Announces Operating Results for the Month and Year to Date Ended October 2023	Nov. 24	CI
Japan Hotel REIT Investment Corporation signed a purchase and sale agreement to acquire Hotel JAL City Kannai Yokohama for ¥4 billion.	Nov. 06	CI

	1st Jan change	Capi.
JAPAN HOTEL REIT INVESTMENT CORPORATION	+19.51%	2.43B
VICI PROPERTIES, INC.	-10.45%	29.78B
HOST HOTELS & RESORTS, INC.	-2.98%	13.29B
GAMING AND LEISURE PROPERTIES, INC.	-12.00%	11.79B
RYMAN HOSPITALITY PROPERTIES, INC.	-2.82%	6.33B
APPLE HOSPITALITY REIT, INC.	-9.69%	3.64B
PARK HOTELS & RESORTS INC.	+6.73%	3.44B
CAPITALAND ASCOTT TRUST	-9.09%	2.5B
COVIVIO HOTELS	-8.84%	2.37B
SUNSTONE HOTEL INVESTORS, INC.	-4.10%	2.1B