Japan Hotel REIT Investment : Notice Concerning Difference Between Operating Forecast and Actual Results for the Midterm of the Fiscal Year Ending December 2022 (23rd Period), and Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2022 (23rd Period)

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

August 24, 2022

REIT Issuer:

Japan Hotel REIT Investment Corporation (TSE code: 8985)

Kaname Masuda, Executive Director

Asset Management Company:

Japan Hotel REIT Advisors Co., Ltd.

Hisashi Furukawa, President & CEO

Contact:

Makoto Hanamura

Director of the Board, Managing Director,

Head of Finance and Planning Division

TEL: [phone]

Notice Concerning Difference Between Operating Forecast and Actual Results for the Midterm of the Fiscal Year Ending December 2022 (23rd Period), and

Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2022 (23rd Period)

Japan Hotel REIT Investment Corporation (hereinafter called "JHR") informs you of the difference between the operating forecast for the midterm of the fiscal year ending December 2022 (January 1, 2022 through December 31, 2022), announced in "Financial Report for the Fiscal Year Ended December 31, 2021 (January 1, 2021 through December 31, 2021)," dated February 25, 2022 and the actual results announced today. JHR also decided to revise the operating forecast and forecast of dividend for the fiscal year ending December 2022 (January 1, 2022 through December 31, 2022) as follows.

1. Difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (January 1, 2022 through June 30, 2022)

Operating

Operating

Ordinary

Dividend per unit

Dividend per unit

Net income

(Excess of

resulting from

revenue

income

income

earnings exclusive)

excess of earnings

Previous forecast

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(A)

TBD

TBD

TBD

TBD

－

－

Announcement this time

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(Actual results)

(B)

5,431

323

(470)

(471)

－

－

Variance

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(C) = (B)－(A)

－

－

－

－

－

－

Variance ratio

%

%

%

%

%

%

(D) = (C) / (A)

－

－

－

－

－

－

Reference

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

Midterm FY2021

4,589

(699)

(1,488)

(1,488)

－

－

Note: This document is intended to serve as a press release to make available the information on the difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (23rd Period) and revisions to the operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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2. Revision of the operating forecast and forecast of dividend for the fiscal year ending December 2022 (January 1, 2022 through December 31, 2022)

Operating

Operating

Ordinary

Dividend per unit

Dividend per unit

Net income

(Excess of earnings

resulting from

revenue

income

income

exclusive)

excess of earnings

Previous forecast

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(A)

TBD

TBD

TBD

TBD

TBD

TBD

Revised forecast

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(B)

13,337

2,827

1,159

1,158

333

－

Variance

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

(C) = (B)－(A)

－

－

－

－

－

－

Variance ratio

%

%

%

%

%

%

(D) = (C) / (A)

－

－

－

－

－

－

Reference

JPY1M

JPY1M

JPY1M

JPY1M

JPY

JPY

Fiscal Year ended

13,633

2,959

1,298

1,296

366

－

December 2021

(*1)

(Reference)

Net income per unit for the full fiscal year: JPY259

(Calculated based on the estimate of average number of investment units during the period (4,467,006 units))

(*1)

Include JPY3,258 million as gain on sale of property

(*2)

Dividend per unit is calculated based on the number of investment units issued as of today: 4,467,006 units.

(*3)

Total dividend is planned to be an amount of net income plus the reversed amount of reserve for temporary difference

adjustment in the amount of JPY332 million.

(*4)

For the assumptions of the operating status and dividend forecast above, please refer to "

Assumptions of the operating forecast for the full fiscal year ending December 2022 (23rd period)" below.

(*5)

Amounts are rounded down to the nearest millions of yen and percentages are rounded off to the nearest first decimal

place. The same shall apply hereinafter in this document.

3. Rational for the revision of the operating forecast and forecast of dividend for the full fiscal year ending December 2022

JHR informs you of revision of operating forecast and forecast of dividend for the full fiscal year ending December 2022 which left undecided due to impact of spread of infection by COVID-19.

In 2022, while impact by COVID-19 variants were continued from the beginning of the year, measures to ease movement restrictions were expanded and we saw some sign of recovery on domestic leisure demand. For inbound leisure demand, we saw some initiatives to normalization by easing entry restrictions such as allowing entry for visitors for tourism is allowed in June. Although forecast of the market is still not clear due to epidemic of COVID-19 variants, we expect trend of recovery on demand for accommodation will continue mainly by domestic demand for travel. Under the circumstance mentioned above, in operating forecast for fiscal year ending December 2022, we expect real estate operating revenue will increase JPY2,962 million from last year due to increase of variable rent and income from management contract. Moreover, we expect reduction of operating expense by JPY163 million and reduction of non- operating expense by JPY67 million due to reduction of financial cost. As a result, we expect JPY1,158 million as net income. Net income will be reduced by JPY138 million in comparison to last fiscal year when we recognized JPY3,258 million as gain on sale of real estate properties.

For detail of operating forecast, please see "4. Highlight of operational forecast and forecast of dividend" below. For detail of operating result of hotels with variable rent structure, please see " Hotel operation indexes, sales and GOP".

Note: This document is intended to serve as a press release to make available the information on the difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (23rd Period) and revisions to the operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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4. Highlight of operating forecast and forecast of dividend

The following is the operating forecast and forecast of dividend for the full fiscal year ending December 2022 and comparison and the major factors causing the variance with operating result and dividend for the full fiscal year ended December 2021.

										Unit	︓	JPY MM	）
										（
			FY2021/12	FY2022/12		Comparison with the
				）		）		Previous Year
			(22nd Period	(23rd Period		Factors Causing Variance
				Result	Forecast
				(A)		(B)		(B)-(A)	Variance
Properties		No. of Properties		41		41		－	―
	Acquisition Price		363,542		363,542		－	―
		Operating Revenue		13,633		13,337		(296)	(2.2%)
		Real Estate		10,374		13,337		2,962	28.6%
		Operating Revenue
		Fixed Rent	Composition	Composition		(140)	(2.2%)	・The Ishin Group Hotels: increase by JPY114 MM
			The Two HMJ Rebranded Hotels: decrease by JPY168 MM
										・
										Other hotels and tenants: increase by JPY6 MM
			61.8%	6,413	47.0%	6,273				・Impact of property sold in 2021: decrease by JPY92 MM
										・
		Other Income	8.4%	872	6.9%	918		46	5.3%
										・
								3,056		The 14 HMJ Hotels: increase by JPY2,895 MM
		Variable Rent	29.8%	3,088	46.1%	6,145		99.0%	・The Accor Group Hotels: increase by JPY152 MM
						・
Profit										The Ishin Group Hotels: decrease by JPY51 MM
									Other hotels and tenants: increase by JPY93 MM
and										・
									・Impact of property sold in 2021: decrease by JPY33 MM
Loss
		Gain on Sale of		3,258				(3,258)
		Real Estate			－		(100.0%)
		Properties, etc.
		NOI (*1)		6,366		9,452		3,085	48.5%
		NOI Yield		1.8%		2.6%
		NOI after Depreciation (*1)		1,544		4,703		3,159	204.6%
		NOI Yield after		0.4%		1.3%
		Depreciation
		Operating Income		2,959		2,827		(132)	(4.5%)
		Ordinary Income		1,298		1,159		(138)	(10.6%)
		Net Income		1,296		1,158		(138)	(10.7%)
	Amount of Reversal from
		Reserve for Temporary		335		332		(2)	(0.8%)	Amount of reversal from reserve for temporary difference
		Difference Adjustments
									adjustments (*2)
		(Negative Goodwill)
									2021︓
		Total Dividends		1,634		1,487		(147)	(9.0%)	50-year negative goodwill amortization: JPY262 MM,
Dividend					Loss on retirement of noncurrent assets: JPY16 MM,
								Amortization of trademark rights: JPY56 MM
		Number of Units Issued								2022
			4,467,006		4,467,006		－	―	︓
		(Unit)				50-year negative goodwill amortization: JPY262 MM,
										Loss on retirement of noncurrent assets: JPY13 MM,
		Dividend per Unit (JPY)		366		333		(33)	(9.0%)	Amortization of trademark rights: JPY56 MM

(*1) NOI (Net Operating Income) = Real estate operating revenue - Real estate operating costs + Depreciation

• Loss on retirement of noncurrent assets + Asset retirement obligations expenses NOI yield = NOI ÷ acquisition price
  NOI after depreciation = Real estate operating revenue - Real estate operating costs NOI yield after depreciation = NOI after depreciation ÷ acquisition price

(*2) For the detail of amount to be reversed from reserve for temporary difference adjustments please see "Assumptions of the operating forecast for the full fiscal year ending December 2022 (23rd period)" below. The same shall apply hereinafter.

(*3) The Five HMJ hotels refers to following five hotels which JHR leases to Hotel Management Japan. Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila and Oriental Hotel Hiroshima.

The 14 HMJ hotels refers to The Five HMJ Hotels plus following 9 hotels which JHR leases to subsidiaries of HMJ. Oriental Hotel Okinawa 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, Hilton Tokyo Odaiba.

The Two HMJ Rebranded Hotels refers to following two hotels which rebranded in 2021 after lessee have changed to subsidiaries of HMJ. Hotel Oriental Express Fukuoka Tenjin and Oriental Hotel Universal City.

The 16 HMJ Hotels refers to The 14 HMJ Hotels plus The Two HMJ Rebranded Hotels. The same shall apply hereinafter.

Note: This document is intended to serve as a press release to make available the information on the difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (23rd Period) and revisions to the operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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(*4) The Accor Group Hotels refers to following 5 hotels. ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha, Mercure Yokosuka. The same shall apply hereinafter.

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

(*6) The 25 Hotels with Variable Rent, etc. refers to The 16 HMJ Hotels plus Accor Group Hotels plus Ishin Group Hotels. The same shall apply hereinafter.

(Note)

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

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

Note: This document is intended to serve as a press release to make available the information on the difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (23rd Period) and revisions to the operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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Assumptions of the operating forecast for the full fiscal year ending December 2022

	(23rd period)
Item	Assumptions
Calculation	・ Full fiscal year ending December 2022 (23rd Period): January 1, 2022 through December 31, 2022
Period	(365 days)

	・ The 41 properties owned by JHR as of today are assumed.
Assets under	・ It is assumed that there will be no change (acquisition of new property or disposition of the existing
Management	properties, etc.) in assets under management through the end of the fiscal year ending December 2022
(23rd period). However, the actual results may fluctuate depending on the changes in assets under
	management that may take place.

• Operating revenue is calculated based on the conditions of the lease and other effective contracts, taking into consideration the competitiveness of hotels, market environment, and other factors. If there are lease contracts with facilities other than hotels, such as commercial facilities and offices, operating revenue calculated based on the said lease contracts is included. Moreover, operating forecast may fluctuate significantly due to the impact of COVID-19.
• Rents, etc. of the main hotels are calculated based on the following assumptions.

1. The 14 HMJ Hotels

JHR concluded a memorandum of understanding for the fixed-term building lease contract for The 14 HMJ Hotels on February 25, 2022. From January 1, 2022 through December 31, 2022, the rent is only variable rent and is calculated by multiplying the hotel AGOP (*1) by the variable rent ratio for each hotel. However, if AGOP is less than 0 (zero), the variable rent will be 0 (zero).

						(Unit: millions of yen)
				AGOP of		Variable rent ratio		Variable rent
				each hotel
		Kobe Meriken Park	Midterm	92	86.0%		79
		Oriental Hotel	Full year	447		384
		Oriental Hotel tokyo bay	Midterm	276	79.0%		218
		Full year	809		639
		Namba Oriental Hotel	Midterm	183	91.0%		166
		Full year	402		366
Operating		Hotel Nikko Alivila	Midterm	63	74.0%		47
	Full year	977		723
Revenue
	Oriental Hotel Hiroshima	Midterm	332	89.0%		295
		Full year	584		520
		Oriental Hotel Okinawa	Midterm	(154)	89.0%		－
		Resort & Spa	Full year	244		217
		Sheraton Grand Hiroshima	Midterm	106	93.0%		98
		Hotel (*2)	Full year	331		308
		Oriental Hotel Fukuoka	Midterm	193	97.0%		187
		Hakata Station	Full year	591		574
		Holiday Inn Osaka Namba	Midterm	109	98.0%		106
		Full year	151		148
		Hilton Tokyo Narita Airport	Midterm	68	95.0%		65
		Full year	102		97
		International Garden Hotel	Midterm	117	95.0%		111
		Narita	Full year	188		179
		Hotel Nikko Nara	Midterm	8	95.0%		8
		Full year	172		164

Note: This document is intended to serve as a press release to make available the information on the difference between operating forecast and actual results for the midterm of the fiscal year ending December 2022 (23rd Period) and revisions to the operating forecast and forecast of dividend for the fiscal year ending December 2022 (23rd period). This document should not be construed as an offer to sell or solicitation of an offer to purchase any investment units or other investment of JHR. Prospective investors are advised to make any investment decisions at their own risk and responsibility.

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