semi-annualreport 7th fiscal period hoshino resorts...
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Semi-Annual Report7th Fiscal Period
Hoshino Resorts REIT, Inc.3-6-18 Kyobashi, Chuo-ku, Tokyo
(from May 1, 2016 to October 31, 2016)
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I. Asset Management Report1. Overview of asset management
(1) Trend in key indicators
Fiscal period
3rd fiscal period(From May 1,
2014to October 31,
2014)
4th fiscal period(From November
1, 2014to April 30, 2015)
5th fiscal period(From May 1,
2015to October 31,
2015)
6th fiscal period(From November
1, 2015to April 30, 2016)
7th fiscal period(From May 1,
2016to October 31,
2016)
Operating revenue (millions of yen) 1,563 1,599 1,926 3,559 3,981
Of the above, operating revenue from real estate leasing
(millions of yen) 1,563 1,599 1,926 3,559 3,981
Operating expenses (millions of yen) 667 780 892 1,645 1,884
Of the above, operating expenses from real estate leasing
(millions of yen) 484 531 628 1,303 1,428
Operating income (millions of yen) 895 818 1,034 1,914 2,097
Ordinary income (millions of yen) 716 734 909 1,601 1,816
Net income (millions of yen) 715 733 908 1,600 1,815
Total assets (millions of yen) 38,530 37,421 48,412 101,941 105,709
(Change from previous period) (%) 121.9 (2.9) 29.4 110.6 3.7
Net assets (millions of yen) 27,721 27,739 37,022 69,507 74,407
(Change from previous period) (%) 172.2 0.1 33.5 87.7 7.0
Interest-bearing liabilities
(millions of yen) 8,784 7,693 9,001 28,385 27,160
Unitholders’ capital (millions of yen) 27,006 27,006 36,113 67,906 72,591
Total number of investment units issuedand outstanding
(units) 42,969 42,969 49,689 78,008 81,757
Net assets per unit (net asset value) (Note 3) (yen) 645,151 645,577 745,077 445,516 455,052
Total distributions (millions of yen) 715 733 908 1,600 1,815
Distributions per unit (yen) 16,649 17,075 18,289 20,520 22,209Of the above, distributions of earnings per unit
(yen) 16,649 17,075 18,289 20,520 22,209
Of the above, distributions in excess of earnings per unit
(yen) – – – – –
Ratio of ordinary income to total assets (Note 4) (%) 2.6 1.9 2.1 2.1 1.7
(Annualized) (Note 5) (%) 5.1 3.9 4.2 4.3 3.5Return on equity (Note 4) (%) 3.8 2.6 2.8 3.0 2.5(Annualized) (Note 5) (%) 7.5 5.3 5.6 6.0 5.0
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Fiscal period
3rd fiscal period(From May 1,
2014to October 31,
2014)
4th fiscal period(From November
1, 2014to April 30, 2015)
5th fiscal period(From May 1,
2015to October 31,
2015)
6th fiscal period(From November
1, 2015to April 30, 2016)
7th fiscal period(From May 1,
2016to October 31,
2016)
Unitholders’ equity to total assets (Note 4) (%) 71.9 74.1 76.5 68.2 70.4
(Change from previous period) (%) 13.3 2.2 2.3 (8.3) 2.2
Payout ratio (Note 4) (%) 100.0 100.0 100.0 100.0 100.0[Other Information]Number of operating days (days) 184 181 184 182 184
Number of properties at end of period (properties) 30 30 39 46 47
Depreciation during period
(millions of yen) 338 339 410 735 831
Capital expendituresduring period
(millions of yen) 134 135 170 635 1,037
Rental NOI (Net Operating Income) (Note 4)
(millions of yen) 1,416 1,407 1,708 2,992 3,384
FFO (Funds from Operation) (Note 4)
(millions of yen) 1,054 1,074 1,319 2,337 2,647
FFO per unit (Note 4) (yen) 24,533 24,996 26,564 29,958 32,384Total distributions / FFO ratio (Note 4) (%) 67.9 68.3 68.8 68.5 68.6
Ratio of interest-bearing liabilities to total assetsat end of period (LTV)
(%) 22.8 20.6 18.6 27.8 25.7
(Note 1) The amounts of operating revenue, etc. do not include consumption taxes.(Note 2) Unless otherwise stated, monetary amounts are rounded down to the nearest indicated unit and percentage figures are
rounded to one decimal place in this report.(Note 3) A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of
November 1, 2016. Net assets per unit is calculated based on the assumption that the split of investment units was implemented at the beginning of the 6th fiscal period.
(Note 4) The following formulas are used for the calculation:
Ratio of ordinary income to total assets
Ordinary income / ((Total assets at beginning of period + Total assets at end of period) /2) × 100
Return on equity Net income / ((Net assets at beginning of period + Net assets at end of period) /2) × 100
Unitholders’ equity to total assets Net assets at end of period / Total assets at end of period × 100
Payout ratio Distributions per unit (excluding distributions in excess of earnings) / Net income per unit × 100Payout ratio for the 3rd fiscal period, 5th fiscal period, 6th fiscal period, and 7th fiscal period is calculated by the following formula due to the issuance of new investment units:Total distributions (excluding distributions in excess of earnings) / Net income × 100
Rental NOI (Net Operating Income) Operating revenue from real estate leasing - Operating expenses from real estate leasing + Depreciation
FFO (Funds from Operation) Net income + Depreciation + Loss on disposal of property and equipment -Gains (losses) from sales of properties
FFO per unit FFO / Total number of investment units issued and outstanding
Total distributions / FFO ratio Total distributions (including distribution in excess of earnings) / FFO × 100
(Note 5) Annualized portion of the calculation assumes a fiscal period of 184 days for the 3rd fiscal period, 181 days for the 4th fiscal period, 184 days for the 5th fiscal period, 182 days for the 6th fiscal period, and 184 days for the 7th fiscal period.
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(2) Performance review of HRR for the fiscal period under review
i) Brief history of HRRHoshino Resorts REIT, Inc. (“HRR”) invests in hotels, ryokans (Japanese-style inns) and ancillary facilities that serve at the core of the tourism industry and for which stable use is expected for the medium to long term.
HRR was established under the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, including amendments thereto) (hereinafter the “Investment Trusts Act”) with Hoshino Resort Asset Management Co., Ltd. (hereinafter, the “Asset Management Company”) as the organizer and with investments in capital of 150 million yen (300 investment units) on March 6, 2013. An issuance of new investment units through public offering (19,000 units) was implemented with July 11, 2013 as the payment due date, and the investment securities were listed on the Real Estate Investment Trust Securities Market of Tokyo Stock Exchange, Inc. (securities code: 3287) on July 12, 2013. HRR has been steadily expanding asset size since then, and the assets held by HRR at the end of the fiscal period under review was 47 properties (sum total of acquisition price: 93,182 million yen).
ii) Investment environment and business performanceIn the Japanese economy in the fiscal period under review, although stagnation in improvement of corporate earnings was observed due to rising uncertainty regarding the overseas economy, specifically, slowdowns in China and other Asian emerging countries and the issue of the UK leaving the EU, a mild recovery continued owing to such factors as a trend of improvement in the employment and income environments. For the tourism market, the Japanese government has set goals to increase inbound tourists number to 40 million by 2020 and inbound tourists’ spending amount to 8 trillion yen by 2020 considering tourism as one of the pillars of its growth strategies. The increase rate of the tourists has nevertheless decreased mainly due to the yen appreciation. However, in the environment described above, the hotels/ryokans held by HRR were managed with a goal of securing stable earnings in the fiscal period under review, resulting in stable operational results in the fiscal period ended October 2016.
iii) Overview of fund procurementIn the fiscal period under review, in addition to procuring 4,461 million yen from the issuance of new investment units through public offering on May 2, 2016 and 223 million yen from the issuance of new investment units through third-party allotment on May 24, 2016, 2,500 million yen was procured throughdebt financing on May 2, 2016, and these were allocated to part of the funds for acquisition of “KAI Kaga”and part of the funds for repayment of loans. In August 2016, HRR secured an agreement with a syndicate of banks to release the pledges held for the balance of all outstanding loans, and on August 31, 2016, HRR’s loans payable became unsecured.
Furthermore, scheduled payment was made, resulting in balance of loans outstanding of 27,160 million yen and ratio of interest-bearing liabilities to total assets (LTV) of 25.7% as of October 31, 2016.
In addition, as of the end of the fiscal period under review, HRR has been assigned a long-term issuer rating of “A- (rating outlook: stable)” from Japan Credit Rating Agency, Ltd. (JCR).
iv) Overview of business performance and distributionsAs a result of the management described above, business performance in the fiscal period under review resulted in operating revenue of 3,981 million yen, operating income of 2,097 million yen, ordinary income of 1,816 million yen and net income of 1,815 million yen. Concerning distributions, to ensure application of special provisions for taxation on investment corporations (Article 67-15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957, as amended; hereinafter, the “Act on Special Measures Concerning Taxation”)), the decision was made to distribute almost the entire amount of unappropriated retained earnings and distribution per investment unit was 22,209 yen.
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(3) Status of capital increase, etc.The following are the changes in unitholders’ capital and total number of investment units issued and outstanding since the establishment of HRR through October 31, 2016.
Date Event
Unitholders’ capital(thousands of yen)
Total number of investment units
issued and outstanding(units) Note
Increase (Decrease) Balance Increase
(Decrease) Balance
March 6, 2013 Establishment through private placement 150,000 150,000 300 300 (Note 1)
July 11, 2013 Capital increase through public offering 9,302,400 9,452,400 19,000 19,300 (Note 2)
August 12, 2013 Capital increase through third-party allotment 465,120 9,917,520 950 20,250 (Note 3)
May 1, 2014 Capital increase through public offering 16,547,762 26,465,282 22,000 42,250 (Note 4)
May 27, 2014 Capital increase through third-party allotment 540,810 27,006,092 719 42,969 (Note 5)
May 1, 2015 Capital increase through public offering 8,673,580 35,679,673 6,400 49,369 (Note 6)
May 26, 2015 Capital increase through third-party allotment 433,679 36,113,352 320 49,689 (Note 7)
November 2, 2015 Capital increase through public offering 30,279,030 66,392,382 26,970 76,659 (Note 8)
November 25, 2015 Capital increase through third-party allotment 1,514,512 67,906,895 1,349 78,008 (Note 9)
May 2, 2016 Capital increase through public offering 4,461,050 72,367,946 3,570 81,578 (Note 10)
May 24, 2016 Capital increase through third-party allotment 223,677 72,591,623 179 81,757 (Note 11)
(Note 1) Upon establishment of HRR, new investment units were issued at an offer price of 500,000 yen per unit.(Note 2) For the purpose of allocating funds for acquisition of specified assets and repayment of loans, new investment units were
issued through public offering at an offer price of 510,000 yen (paid-in amount of 489,600 yen) per unit.(Note 3) For the purpose of allocating funds for acquisition of specified assets and repayment of loans, new investment units were
issued through third-party allotment with paid-in amount of 489,600 yen per unit.(Note 4) For the purpose of allocating funds for part of the funds for acquisition of specified assets, new investment units were
issued through public offering at an offer price of 780,178 yen (paid-in amount of 752,171 yen) per unit.(Note 5) For the purpose of allocating funds for repayment of loans, new investment units were issued through third-party allotment
with paid-in amount of 752,171 yen per unit.(Note 6) For the purpose of allocating funds for acquisition of specified assets, new investment units were issued through public
offering at an offer price of 1,404,215 yen (paid-in amount of 1,355,247 yen) per unit.(Note 7) For the purpose of allocating funds for part of the funds for acquisition of specified assets, new investment units were
issued through third-party allotment with paid-in amount of 1,355,247 yen per unit.(Note 8) For the purpose of allocating funds for acquisition of specified assets, new investment units were issued through public
offering at an offer price of 1,162,024 yen (paid-in amount of 1,122,693 yen) per unit.(Note 9) For the purpose of allocating funds for part of the funds for acquisition of specified assets, new investment units were
issued through third-party allotment with paid-in amount of 1,122,693 yen per unit.(Note 10) For the purpose of allocating funds for part of the funds for acquisition of specified assets, new investment units were
issued through public offering at an offer price of 1,294,745 yen (paid-in amount of 1,249,594 yen) per unit.(Note 11) For the purpose of allocating funds for part of the funds for acquisition of specified assets, new investment units were
issued through third-party allotment with paid-in amount of 1,249,594 yen per unit.(Note 12) A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of
November 1, 2016. Total number of investment units issued and outstanding after the split is 163,514.
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[Changes in market price of investment unit]
The highest and lowest unit prices (closing price) of the investment units of HRR listed on J-REIT section of the Tokyo Stock Exchange for each period are as follows:
Fiscal period
3rd fiscal period(From May 1, 2014to October 31, 2014)
4th fiscal period(From November 1,
2014to April 30, 2015)
5th fiscal period(From May 1, 2015to October 31, 2015)
6th fiscal period(From November 1,
2015to April 30, 2016)
7th fiscal period(Note)
(Before ex rights)(From May 1, 2016to October 31, 2016)
7th fiscal period(Note)
(After ex rights)(From May 1, 2016to October 31, 2016)
Highest (Yen) 1,196,000 1,534,000 1,448,000 1,399,000 1,330,000 626,000
Lowest (Yen) 752,000 1,103,000 1,035,000 1,104,000 1,203,000 615,000
(Note) A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of November 1, 2016. Accordingly, transactions have been made at ex rights price on and after October 27, 2016.
(4) Distributions, etc.With the aim of having the maximum amount of distributable income deducted as expense pursuant to Article 67-15 of the Act on Special Measures Concerning Taxation, HRR resolved to distribute the entire amount of unappropriated retained earnings for the period, excluding fractions of distributions per unit that were less than ¥1. Consequently, distributions per unit came to ¥22,209.
Fiscal period3rd fiscal period
(From May 1, 2014to October 31, 2014)
4th fiscal period(From November 1,
2014to April 30, 2015)
5th fiscal period(From May 1, 2015
to October 31, 2015)
6th fiscal period(From November 1,
2015to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
Total net income(thousands of yen) 715,400 733,714 908,751 1,600,731 1,815,763
Total unappropriated retained earnings (undisposed loss)
(thousands of yen)715,409 733,732 908,788 1,600,757 1,815,796
Retained earnings brought forward(thousands of yen) 18 37 26 33 55
Total cash distributions(thousands of yen) 715,390 733,695 908,762 1,600,724 1,815,741
(Distributions per unit)(yen) 16,649 17,075 18,289 20,520 22,209
Of the above, total distributions(thousands of yen) 715,390 733,695 908,762 1,600,724 1,815,741
(Distributions of earnings per unit) 16,649 17,075 18,289 20,520 22,209Of the above, total refund of investments
(thousands of yen)– – – – –
(Refund of investments per unit) – – – – –Of total refund of investments, total distributions from reservefor temporary difference adjustments
– – – – –(Of refund of investments per unit, distributions from reservefor temporary difference adjustments per unit)
(yen)Of total refund of investments, total distributions from the unitholders’capital for tax purposes
– – – – –(Of refund of investments per unit, distributions from the unitholders’capital for tax purposes per unit)
(yen)
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(5) Future management policy
i) Future trends outlookThe Japanese economy is expected to experience a continued slower pace of economic recovery due to weak exports and production, owing to the effect of the slowdown of the emerging economies and other factors. Attention will still need to be given to the risks that may push down the Japanese economy due to the rising uncertainty surrounding the overseas economy, specifically downside performance in China and other Asian emerging countries, and resource-rich countries and the issue of the UK leaving the EU. In addition, the Japanese government has announced tourism policies aimed at enhancing the international competitiveness of the tourism business through relaxation of regulations and enhancement of the productivity of the lodging business. Such policies include relaxation of visa requirements for entry from the five countries of China, the Philippines, Vietnam, India and Russia, opening of the State Guest Houses and other public facilities for public viewing/access, and maintenance of tourist spots centering on cultural properties. In this manner, with large economic ripple effects, the tourism industry is becoming increasingly important as one of the drivers of Japan’s economic growth.
ii) Future management policy and challenges to be addressedUnder such circumstances, HRR’s basic policy is to form a portfolio with a stable revenue base centering on hotels, ryokans and ancillary facilities that can meet the travel needs of tourists.
In the hotel/ryokan industry which has trended toward being commoditized in general, HRR believes facilities that are differentiated from others due to an outstanding business model, operating skills, location and such are the ones that will be able to generate stable earnings and secure steady cash flow over a long-term period.
From this perspective, HRR selects investment properties from the stance of “superior know-how and experience” (whether the business model, brand power, etc. can be differentiated from competitors, and whether it is operated by an operator with extensive expertise) and “superior equipment and facilities” (whether the facility itself is superior as to its location, rarity of the building, etc.).
HRR seeks to flexibly form an optimum portfolio in order to secure long-term and stable cash flow. After proactively obtaining information on for-sale properties operated by both the Hoshino Resorts Group and outside operators as well as overseas for-sale properties related to the Hoshino Resorts Group, HRR will examine individual properties upon their selection for investment.
a. Properties operated by the Hoshino Resorts Group
HRR believes the securement of stable earnings will be achieved by investing mainly in the three brands “HOSHINOYA,” “Hoshino Resorts KAI” and “Hoshino Resorts RISONARE” operated by the Hoshino Resorts Group. HRR intends to obtain information on facilities under the three brands and other brands of the Hoshino Resorts Group by actively utilizing the sponsor support agreement with Hoshino Resorts. As a result, if HRR decides that a facility is able to generate long-term and stable cash flow, proactive investments will be made.
b. Properties operated by outside operators
Similar to when investing in properties operated by the Hoshino Resorts Group, HRR believes it will be able to secure long-term and stable cash flow by making appropriate investments while taking “superior know-how and experience” and “superior equipment and facilities” into consideration, based on sufficient information collection by the Asset Management Company.
Taking this view, HRR will make proactive investments in hotels, ryokans and ancillary facilities operated by outside operators if it decides secure, long-term and stable cash flow is possible after obtaining the necessary information by taking advantage of the sponsor support agreement with Hoshino Resorts and the Asset Management Company’s unique networks.
c. Overseas properties related to the Hoshino Resorts Group
With regard to HRR’s investment policy on the overseas properties related to the Hoshino Resorts Group, HRR makes it a policy to carry out prudent investment after (1) obtaining accurate information on the countries and regions in which the investment properties with potential are located; (2) performing a comprehensive analysis of the market to which the potential investment properties belong, including real-estate market trends, systems, and regulations in each country, which takes into consideration macro factors such as political trends, population trends, and economic growth; and (3) performing a comprehensive risk analysis of each country’s legal, accounting, and tax systems, as well as foreign
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exchange risks, etc., related to investment and revenue returns. In addition to the above policy, HRR also follows a policy of investment based on prudent selection of only overseas properties related to the Hoshino Resorts Group that can be expected to be used on a stable basis and to have the potential to secure long-term and stable cash flows.
Moreover, HRR aims to enhance profitability through expansion of asset size, and also aims to promote portfolio diversification in order to reduce the risk of a significant drop in HRR’s cash flow due to changes in tourism trends, disasters, etc.
The Hoshino Resorts Group operates each facility after categorizing investment target hotels, ryokans and ancillary facilities into the brands from various perspectives. HRR works to stabilize revenue by promoting portfolio diversification through investments not only in single brands of the Hoshino Resorts Group but in the three brands and other brands of the Hoshino Resorts Group as a whole, as well as in properties operated by outside operators and overseas properties related to the Hoshino Resorts Group. The facilities held by HRR vary by size, price setting and target customer base, leading to portfolio diversification effects. In addition, these facilities are diversified in terms of not only diversification by brand but also by geographic area of facility location and thereby reducing the risk of a significant drop in HRR’s cash flow.
(6) Significant subsequent events
i) Acquisition of assetsHRR acquired the real estate described below on November 1, 2016 (the acquisition price: 16,000 million yen). The acquisition price is the price stated in the sales and purchase agreement of the real estate, which does not include acquisition expenses, property-related taxes and consumption taxes.
Name of property Location Seller Acquisition price(millions of yen) Acquisition date
Hyatt Regency Osaka Osaka-shi, Osaka GCREF Japan I TMK 16,000 November 1, 2016
(Note) The acquisition price includes the trading value (79 million yen) of equipment, etc. acquired from GCP Hospitality Japan K.K., which was a lessee of the property. Note that GCP Hospitality Japan K.K. changed its trade name to HRO Inc. on November 1, 2016.
ii) Additional borrowingsHRR obtained bank loans on November 1, 2016 for acquisition of specified assets and related costs as stated in “(1) Acquisition of assets” above.
Floating/Fixed Lender Loan amount Interest rate Drawdown
date
Repayment due date
(Note 4)
Repayment method
Floating
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Sumitomo Mitsui Banking Corporation
1.5billion yen
Base rate 1-month
Japanese Yen TIBOR (Note 1)
+ 0.400%
November 1, 2016
October 31, 2017
Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationResona Bank, LimitedThe Bank of Fukuoka, Ltd.The Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.The Senshu Ikeda Bank, Ltd.
2.5billion yen
Base rate 1-month
Japanese Yen TIBOR
+ 0.2375%(Note 2)
November 1, 2016 April 30, 2019
Lump-sum payment at maturity
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Floating/Fixed Lender Loan amount Interest rate Drawdown
date
Repayment due date
(Note 4)
Repayment method
Floating
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationResona Bank, LimitedThe Bank of Fukuoka, Ltd.The Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.The Senshu Ikeda Bank, Ltd.
2.5billion yen
Base rate 1-month
Japanese Yen TIBOR
+ 0.300%(Note 3)
November 1, 2016
October 30, 2020
Lump-sum payment at maturity
Fixed
Resona Bank, LimitedThe Bank of Tokyo-Mitsubishi UFJ, Ltd.The Bank of Fukuoka, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationThe Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.
2.0billion yen 0.54888% November 1,
2016 April 30, 2021Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.76832% November 1,
2016October 31, 2022
Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.85244% November 1,
2016 April 28, 2023Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.93702% November 1,
2016October 31, 2023
Lump-sum payment at maturity
(Note 1) The base rate applicable to the interest calculation period for the interest payable on an interest payment due date shall be, of the Japanese Yen TIBOR (Tokyo Interbank Offered Rate) published by JBA TIBOR Administration as of two business days prior to the interest payment due date immediately preceding that interest payment due date (the drawdown date in the case of the first interest calculation period), the interest rate for the number of months corresponding to the interest calculation period. However, if there is no rate corresponding to the concerned period, then it shall be the base rate calculated based on the method provided in the contract. For the JBA Japanese Yen TIBOR, please check the website of JBA TIBOR Administration (http://www.jbatibor.or.jp/).
(Note 2) The interest rate is substantially fixed at 0.2785% with the effect of the interest rate swap agreements to hedge the risk ofrising interest rates.
(Note 3) The interest rate is substantially fixed at 0.356% with the effect of the interest rate swap agreements to hedge the risk of rising interest rates.
(Note 4) If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.
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iii) Split of investment unitsA 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and theeffective date of November 1, 2016.
(a) Purpose of the split
The purpose is to expand the investor base and enhance the liquidity of its investment units by reducing the per unit price with the aim of providing a more investor-friendly environment after the launch of Nippon Individual Savings Accounts (NISA).
(b) Method of the split
HRR executed a 2-for-1 split of investment units owned by unitholders indicated or recorded in final unitholder registry as of October 31, 2016.
(c) Increase in investment units resulting from the split, etc.
Total number of investment units issued and outstanding of HRR before the split: 81,757 units
Increase in number of investment units by the split: 81,757 units
Total number of investment units issued and outstanding of HRR after the split: 163,514 units
For notes concerning each numerical value of per unit information that is calculated on the assumption that the split of investment units was implemented at the beginning of the 6th fiscal period, please refer to “Notes to Financial Statements,” “Per unit information.”
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2. Profile of HRR
(1) Status of unitholders’ capital
3rd fiscal period(As of October
31, 2014)
4th fiscal period(As of April 30,
2015)
5th fiscal period(As of October
31, 2015)
6th fiscal period(As of April 30,
2016)
7th fiscal period(As of October
31, 2016)Total number of investment unitsauthorized (units) 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Total number of investment units issued and outstanding (Note)
(units)42,969 42,969 49,689 78,008 81,757
Unitholders’ capital(millions of yen) 27,006 27,006 36,113 67,906 72,591
Number of unitholders (persons) 7,029 6,841 8,639 10,001 10,278
(Note) A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of November 1, 2016. As a result, total number of investment units issued and outstanding is 163,514.
(2) Matters concerning investment unitsThe top 10 unitholders based on the ratio of units owned to total number of units issued and outstanding as of October 31, 2016 are as follows:
Name Address Number of units owned (units)
Ratio to total number of units
issued and outstanding (%)
Japan Trustee Services Bank, Ltd. (Trust account) 1-8-11 Harumi, Chuo-ku, Tokyo 15,209 18.60
Trust & Custody Services Bank, Ltd. (Securities investment trust account)
Harumi Island Triton Square Office Tower Z1-8-12 Harumi, Chuo-ku, Tokyo
10,162 12.42
The Master Trust Bank of Japan, Ltd. (Trust account)
2-11-3 Hamamatsu-cho, Minato-ku, Tokyo 7,374 9.01
The Nomura Trust and Banking Co., Ltd. (Investment trust account) 2-2-2 Otemachi, Chiyoda-ku, Tokyo 3,992 4.88
Hoshino Resorts Inc.2148 Oaza Nagakura, Karuizawa-machi, Kitasaku-gun, Nagano
3,070 3.75
JP MORGAN CHASE BANK (Standing proxy: Mizuho Bank, Ltd.)
Shinagawa Intercity Tower A2-15-1 Konan, Minato-ku, Tokyo 2,478 3.03
THE BANK OF NEW YORK, NON-TREATY JASDEC ACCOUNT (Standing proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
2-7-1 Marunouchi, Chiyoda-ku, Tokyo 1,375 1.68
STATE STREET BANK AND TRUST COMPANY 505012 (Standing proxy: The Hongkong and Shanghai Banking Corporation Limited, Tokyo branch)
3-11-1 Nihonbashi, Chuo-ku, Tokyo 1,366 1.67
The Hokkoku Bank, Ltd.(Standing proxy: Trust & Custody Services Bank, Ltd.)
Harumi Island Triton Square Office Tower Z1-8-12 Harumi, Chuo-ku, Tokyo
835 1.02
EVERGREEN (Standing proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)
2-7-1 Marunouchi, Chiyoda-ku, Tokyo 805 0.98
Total 46,666 57.07
(Note) The ratio to total number of units issued and outstanding is rounded down to two decimal places.
11
(3) Matters relating to officersThe Executive Director, Supervisory Directors and Independent Auditor for the fiscal period under review are as follows:
Title Name Major concurrent post, etc.
Total amount of compensation for each position during the fiscal period under review
(thousands of yen)Executive Director(Note 1) Kenji Akimoto President & CEO of Hoshino Resort Asset
Management Co., Ltd.–
(Note 2)
Supervisory Director(Note 1)
Hiroshi Shinagawa Attorney at law, Kinkadori Law Office 1,320
Yukiko Fujikawa Certified Public Accountant, Yukiko Fujikawa CPA Office 1,320
Independent Auditor(Note 3) Grant Thornton Taiyo LLC – 6,700
(Note 1) The Executive Director and Supervisory Directors do not hold investment units of HRR under their own or another person’s name. Although the Supervisory Directors may be officers in corporations other than the ones indicated above, there is no conflict of interest between HRR and such corporations, including those indicated above. In preparation for a situation where the Executive Director is absent or the number of officers is below the number of officers required by laws and regulations, a resolution was passed at the 2nd General Meeting of Unitholders to appoint Tetsuro Takashi as the Substitute Executive Director. As of the release of this report, Tetsuro Takashi is serving concurrently as Director & CFO, General Manager of Corporate Planning Department of the Asset Management Company.
(Note 2) The Executive Director does not receive compensations from HRR.(Note 3) Dismissal or non-reappointment of the Independent Auditor is subject to consideration at the HRR’s Board of
Directors, pursuant to the provisions of the Investment Trust Act in the case of dismissal, or in light of a comprehensive consideration of various circumstances in the case of non-reappointment.
(4) Asset Management Company, Asset Custodian and General AdministratorsThe Asset Management Company, Asset Custodian, and General Administrators as of October 31, 2016 are as follows:
Category of entrusted operation Name
Asset Management Company Hoshino Resort Asset Management Co., Ltd.
Asset Custodian Mitsubishi UFJ Trust and Banking Corporation
General Administrator (General Administrator of unit register) Mitsubishi UFJ Trust and Banking Corporation
General Administrator (General Administrator for accounting and administrative function) Mitsubishi UFJ Trust and Banking Corporation
12
3. Status on Investment Properties
(1) Investment status
Asset type Use of asset
6th fiscal periodAs of April 30, 2016
7th fiscal periodAs of October 31, 2016
Total amount held(millions of yen)
(Note 1)
Ratio to total assets (%)
(Note 2)
Total amount held(millions of yen)
(Note 1)
Ratio to total assets (%)
(Note 2)
Real estate Hotel 73,101 71.7 73,132 69.2
Ryokan 18,043 17.7 21,466 20.3Subtotal 91,144 89.4 94,598 89.5
Deposits and other assets 10,796 10.6 11,111 10.5Total assets (Note 3) 101,941 100.0 105,709 100.0
Total liabilities (Note 3) 32,433 31.8 31,302 29.6Total net assets (Note 3) 69,507 68.2 74,407 70.4
(Note 1) “Total amount held” is the carrying amount (in the case of real estate, the depreciated book value). The book value of real estate is including machinery and equipment, structures, and leasehold right, but excluding tools, furniture and fixtures, software, and construction in progress.
(Note 2) “Ratio to total assets” is rounded to one decimal place.(Note 3) “Total assets,” “Total liabilities” and “Total net assets” are stated at the book value.
(2) Major properties ownedThe major components of assets (the 10 largest properties by book value) as of October 31, 2016 are as follows:
Name of property
Book value(millions of
yen)(Note 1)
Leasable area(m2)
(Note 2)
Leased area(m2)
(Note 3)
Occupancy rate(%)
Ratio to total operating
revenue from real estate
leasing (%)(Note 4)
Primary use
ANA Crowne Plaza Hiroshima 17,855 32,332.00 32,332.00 100.0 14.2 Hotel
ANA Crowne Plaza Fukuoka 7,674 27,372.74 27,372.74 100.0 5.9 Hotel
HOSHINOYA Karuizawa 7,640 11,723.61 11,723.61 100.0 10.0 Ryokan
ANA Crowne Plaza Kanazawa 6,712 23,835.00 23,835.00 100.0 9.4 Hotel
Asahikawa Grand Hotel 4,811 25,715.20 25,715.20 100.0 4.6 Hotel
RISONARE Yatsugatake 4,566 33,853.45 33,853.45 100.0 8.1 Hotel
RISONARE Atami 4,219 23,385.18 23,385.18 100.0 3.9 Hotel
ANA Crowne Plaza Toyama 3,987 21,600.11 21,600.11 100.0 4.6 Hotel
KAI Kaga 3,182 5,159.46 5,159.46 100.0 2.6 Ryokan
KAI Kinugawa 3,092 4,066.60 4,066.60 100.0 2.6 Ryokan
Total 63,741 209,043.35 209,043.35 100.0 65.9 –
(Note 1) “Book value” is the carrying amount (in the case of real estate, etc., the depreciated book value). The book value of real estate is including machinery and equipment, structures, and leasehold right, but excluding tools, furniture and fixtures, software, and construction in progress.
(Note 2) “Leasable area” is the leasable area to tenants.(Note 3) In principle, “Leased area” is the leased area under the lease agreement with tenants.(Note 4) “Ratio to total operating revenue from real estate leasing” represents the ratio to total real estate operating revenue,
rounded to one decimal place.
13
(3) Summary of portfolio propertiesAn overview of assets held by HRR as of October 31, 2016 is as follows:
Name of property Location Type of ownershipLeasable
area(m2)
Book value at end of period
(millions of yen)
(Note 1)
Estimatedvalue at end
of period(millions of
yen)(Note 2)
HOSHINOYA Karuizawa Karuizawa-machi, Kitasaku-gun, Nagano
Ownership of real estate, etc. 11,723.61 7,640 11,100
HOSHINOYA Kyoto Kyoto-shi, Kyoto Ownership of real estate, etc. 2,626.15 2,943 3,760
RISONARE Yatsugatake Hokuto-shi, Yamanashi Ownership of real estate, etc. 33,853.45 4,566 6,000
RISONARE Atami Atami-shi, Shizuoka Ownership of real estate, etc. 23,385.18 4,219 4,080
KAI Matsumoto Matsumoto-shi, Nagano Ownership of real estate, etc. 4,056.12 617 783
KAI Izumo Matsue-shi, Shimane Ownership of real estate, etc. 3,909.02 706 847
KAI Ito Ito-shi, Shizuoka Ownership of real estate, etc. 7,473.91 704 923
KAI Hakone Hakone-machi, Ashigarashimo-gun, Kanagawa
Ownership of real estate, etc. 4,649.67 952 1,240
KAI Aso Kokonoe-machi, Kusu-gun, Oita
Ownership of real estate, etc. 1,543.53 628 676
KAI Kawaji Nikko-shi, Tochigi Ownership of real estate, etc. 8,190.38 1,000 1,140
KAI Kinugawa Nikko-shi, Tochigi Ownership of real estate, etc. 4,066.60 3,092 3,280
KAI Kaga Kaga-shi, Ishikawa Ownership of real estate, etc. 5,159.46 3,182 3,330
Chisun Inn Shiojiri Kita IC Shiojiri-shi, Nagano Ownership of real estate, etc. 2,100.47 688 809
Chisun Inn Sano Fujioka IC Sano-shi, Tochigi Ownership of real estate, etc. 1,968.91 757 895
Chisun Inn Suwa IC Suwa-shi, Nagano Ownership of real estate, etc. 1,944.94 675 802
Chisun Inn Toyokawa IC Toyokawa-shi, Aichi Ownership of real estate, etc. 2,040.09 612 726
Chisun Inn Tosu Tosu-shi, Saga Ownership of real estate, etc. 1,968.02 498 630
Chisun Inn Chiba Hamano R16 Chiba-shi, Chiba Ownership of real
estate, etc. 2,023.29 791 1,020
Chisun Inn Kumamoto Miyukifueda Kumamoto-shi, Kumamoto Ownership of real
estate, etc. 2,094.77 616 736
Chisun Inn Utsunomiya Kanuma Utsunomiya-shi, Tochigi Ownership of real
estate, etc. 2,094.16 712 833
Chisun Inn Fukui Fukui-shi, Fukui Ownership of real estate, etc. 2,094.01 641 767
Chisun Inn Fukushima Nishi IC Fukushima-shi, Fukushima Ownership of real
estate, etc. 2,094.01 668 773
Chisun Inn Niigata Chuo IC Niigata-shi, Niigata Ownership of real estate, etc. 2,094.16 627 747
Chisun Inn Nagasaki Airport Omura-shi, Nagasaki Ownership of real estate, etc. 1,968.02 623 752
Chisun Inn Hitachinaka Hitachinaka-shi, Ibaraki Ownership of real estate, etc. 1,968.30 727 903
14
Name of property Location Type of ownershipLeasable
area(m2)
Book value at end of period
(millions of yen)
(Note 1)
Estimatedvalue at end
of period(millions of
yen)(Note 2)
Chisun Inn Tsuchiura Ami Ami-machi, Inashiki-gun, Ibaraki Ownership of real estate, etc. 1,968.03 756 921
Chisun Inn Kofu Isawa Fuefuki-shi, Yamanashi Ownership of real estate, etc. 1,968.47 651 786
Chisun Inn Marugame Zentsuji Marugame-shi, Kagawa Ownership of real
estate, etc. 2,094.16 584 692
Chisun Inn Munakata Munakata-shi, Fukuoka Ownership of real estate, etc. 2,094.16 500 618
Chisun Inn Iwate Ichinoseki IC Ichinoseki-shi, Iwate Ownership of real
estate, etc. 1,968.02 697 773
Chisun Inn Karuizawa Karuizawa-machi, Kitasaku-gun, Nagano
Ownership of real estate, etc. 1,917.10 802 1,050
Chisun Inn Himeji Yumesakibashi Himeji-shi, Hyogo Ownership of real
estate, etc. 2,406.95 616 731
Chisun Inn Kurashiki Mizushima Kurashiki-shi, Okayama Ownership of real
estate, etc. 2,094.16 720 857
Candeo Hotels Handa Handa-shi, Aichi Ownership of real estate, etc. 2,814.05 621 693
Candeo Hotels Chino Chino-shi, Nagano Ownership of real estate, etc. 2,868.18 795 914
Candeo Hotels Fukuyama Fukuyama-shi, Hiroshima Ownership of real estate, etc. 3,985.73 1,072 1,240
Candeo Hotels Sano Sano-shi, Tochigi Ownership of real estate, etc. 2,828.71 1,256 1,460
Candeo Hotels Kameyama Kameyama-shi, Mie Ownership of real estate, etc. 3,912.03 481 532
Comfort Hotel Hakodate Hakodate-shi, Hokkaido Ownership of real estate, etc. 2,927.44 955 1,040
Comfort Hotel Tomakomai Tomakomai-shi, Hokkaido Ownership of real estate, etc. 2,721.08 980 1,070
Comfort Hotel Kure Kure-shi, Hiroshima Ownership of real estate, etc. 3,121.02 1,132 1,230
Chisun Inn Kagoshima Taniyama Kagoshima-shi, Kagoshima Ownership of real
estate, etc. 8,066.36 2,036 2,230
ANA Crowne PlazaHiroshima Hiroshima-shi, Hiroshima Ownership of real
estate, etc. 32,332.00 17,855 19,900
ANA Crowne PlazaFukuoka Fukuoka-shi, Fukuoka Ownership of real
estate, etc. 27,372.74 7,674 8,630
ANA Crowne PlazaKanazawa Kanazawa-shi, Ishikawa Ownership of real
estate, etc. 23,835.00 6,712 7,170
ANA Crowne PlazaToyama Toyama-shi, Toyama Ownership of real
estate, etc. 21,600.11 3,987 4,440
Asahikawa Grand Hotel Asahikawa-shi, Hokkaido Ownership of real estate, etc. 25,715.20 4,811 4,770
Total – – 317,700.93 94,598 109,299
(Note 1) “Book value at end of period” is the carrying amount (in the case of real estate, etc., the depreciated book value). The book value of real estate is including machinery and equipment, structures, and leasehold right, but excluding tools, furniture and fixtures, software, and construction in progress.
(Note 2) Appraisal of the property is entrusted to Japan Valuers Co., Ltd., Morii Appraisal & Investment Consulting Inc. or Rich Appraisal Institute Co., Ltd. “Estimated value at end of period” is the appraisal value stated in the real estate appraisal report or investigation report with October 31, 2016 as the effective date of the valuation.
15
Lease status of real estate, etc. held by HRR is as follows:
6th fiscal period(From November 1, 2015
to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
Name of property
Number of tenants at
end of period
(subleasing)
Occupancyrate [At end of period]
(%)
Operating revenue
from real estate
leasing[During the
period](millions of
yen)
Ratio to total
operating revenue
from real estate
leasing(%)
Number of tenants at
end of period
(subleasing)
Occupancyrate [At end of period]
(%)
Operating revenue
from real estate
leasing[During the
period](millions of
yen)
Ratio to total
operating revenue
from real estate
leasing(%)
HOSHINOYA Karuizawa 1 (14) 100.0 383 10.8 1 (14) 100.0 396 10.0HOSHINOYA Kyoto 1 (0) 100.0 128 3.6 1 (0) 100.0 105 2.6RISONARE Yatsugatake 1 (17) 100.0 320 9.0 1 (16) 100.0 321 8.1RISONARE Atami 1 (0) 100.0 155 4.4 1 (0) 100.0 156 3.9KAI Matsumoto 1 (0) 100.0 41 1.2 1 (0) 100.0 43 1.1KAI Izumo 1 (0) 100.0 47 1.3 1 (0) 100.0 50 1.3KAI Ito 1 (0) 100.0 57 1.6 1 (0) 100.0 58 1.5KAI Hakone 1 (0) 100.0 54 1.5 1 (0) 100.0 52 1.3KAI Aso 1 (0) 100.0 28 0.8 1 (0) 100.0 29 0.7KAI Kawaji 1 (0) 100.0 53 1.5 1 (0) 100.0 54 1.4KAI Kinugawa 1 (0) 100.0 101 2.8 1 (0) 100.0 102 2.6KAI Kaga – – – – 1 (0) 100.0 102 2.6Chisun Inn Shiojiri Kita IC 1 (1) 100.0 28 0.8 1 (1) 100.0 28 0.7Chisun Inn Sano Fujioka IC 1 (0) 100.0 31 0.9 1 (0) 100.0 31 0.8Chisun Inn Suwa IC 1 (0) 100.0 29 0.8 1 (0) 100.0 30 0.8Chisun Inn Toyokawa IC 1 (0) 100.0 27 0.8 1 (0) 100.0 27 0.7Chisun Inn Tosu 1 (0) 100.0 22 0.6 1 (0) 100.0 24 0.6Chisun Inn Chiba Hamano R16 1 (0) 100.0 33 0.9 1 (0) 100.0 34 0.9Chisun Inn Kumamoto Miyukifueda 1 (0) 100.0 25 0.7 1 (0) 100.0 26 0.7
Chisun Inn Utsunomiya Kanuma 1 (0) 100.0 30 0.9 1 (0) 100.0 31 0.8
Chisun Inn Fukui 1 (0) 100.0 28 0.8 1 (0) 100.0 30 0.8Chisun Inn Fukushima Nishi IC 1 (0) 100.0 31 0.9 1 (0) 100.0 32 0.8
Chisun Inn Niigata Chuo IC 1 (0) 100.0 28 0.8 1 (0) 100.0 28 0.7Chisun Inn Nagasaki Airport 1 (0) 100.0 29 0.8 1 (0) 100.0 30 0.8Chisun Inn Hitachinaka 1 (0) 100.0 30 0.9 1 (0) 100.0 29 0.8Chisun Inn Tsuchiura Ami 1 (0) 100.0 30 0.9 1 (0) 100.0 30 0.8Chisun Inn Kofu Isawa 1 (0) 100.0 29 0.8 1 (0) 100.0 29 0.7Chisun Inn Marugame Zentsuji 1 (0) 100.0 27 0.8 1 (0) 100.0 27 0.7Chisun Inn Munakata 1 (0) 100.0 26 0.7 1 (0) 100.0 24 0.6Chisun Inn Iwate Ichinoseki IC 1 (1) 100.0 25 0.7 1 (1) 100.0 27 0.7Chisun Inn Karuizawa 1 (0) 100.0 37 1.1 1 (0) 100.0 41 1.0Chisun Inn Himeji Yumesakibashi 1 (0) 100.0 29 0.8 1 (0) 100.0 29 0.7
Chisun Inn Kurashiki Mizushima 1 (0) 100.0 29 0.8 1 (0) 100.0 31 0.8
Candeo Hotels Handa 1 (0) 100.0 26 0.7 1 (0) 100.0 26 0.7Candeo Hotels Chino 1 (0) 100.0 32 0.9 1 (0) 100.0 32 0.8Candeo Hotels Fukuyama 1 (0) 100.0 39 1.1 1 (0) 100.0 39 1.0Candeo Hotels Sano 1 (0) 100.0 45 1.3 1 (0) 100.0 45 1.2Candeo Hotels Kameyama 1 (0) 100.0 20 0.6 1 (0) 100.0 20 0.5Comfort Hotel Hakodate 1 (0) 100.0 32 0.9 1 (0) 100.0 32 0.8
16
6th fiscal period(From November 1, 2015
to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
Name of property
Number of tenants at
end of period
(subleasing)
Occupancyrate [At end of period]
(%)
Operating revenue
from real estate
leasing[During the
period](millions of
yen)
Ratio to total
operating revenue
from real estate
leasing(%)
Number of tenants at
end of period
(subleasing)
Occupancyrate [At end of period]
(%)
Operating revenue
from real estate
leasing[During the
period](millions of
yen)
Ratio to total
operating revenue
from real estate
leasing(%)
Comfort Hotel Tomakomai 1 (0) 100.0 33 0.9 1 (0) 100.0 33 0.8Comfort Hotel Kure 1 (0) 100.0 37 1.1 1 (0) 100.0 37 0.9Chisun Inn Kagoshima Taniyama 1 (1) 100.0 69 2.0 1 (1) 100.0 69 1.7
ANA Crowne PlazaHiroshima 1 (7) 100.0 527 14.8 1 (7) 100.0 567 14.2
ANA Crowne PlazaFukuoka 1 (6) 100.0 223 6.3 1 (6) 100.0 235 5.9
ANA Crowne PlazaKanazawa 1 (5) 100.0 299 8.4 1 (5) 100.0 374 9.4
ANA Crowne PlazaToyama 1 (6) 100.0 153 4.3 1 (6) 100.0 182 4.6
Asahikawa Grand Hotel 1 (5) 100.0 31 0.9 1 (5) 100.0 182 4.6
Total 46 (63)(Note) 100.0 3,559 100.0 47 (62)
(Note) 100.0 3,981 100.0
(Note) “Number of tenants (subleasing)” refers to sum total of the number of tenants, with the number of parties subleasing from the parties leasing the property from HRR shown in parentheses.
(4) Status of other assetsThere are no assets incorporated into the portfolio other than those listed in the aforementioned “(3) Summary of portfolio properties,” as of October 31, 2016.
(5) Status of asset holding by country and regionThere is no portfolio overseas real estate outside Japan, as of October 31, 2016.
17
4. Capital expenditures for properties held
(1) Future plan for capital expendituresThe following table summarizes the major capital expenditure plan in the fiscal period ending April 2017 in connection with scheduled renovation and others for properties held as of October 31, 2016. The estimated construction costs below include the amounts to be expensed for accounting purpose.
Name of property Location Purpose Scheduled period
Estimated construction costs(millions of yen)
Total amount
Amount paid
during the period
Total amountpaid
RISONARE Yatsugatake
Hokuto-shi, Yamanashi
Renovation of guest rooms and common-use areas
From June 2016to April 2017 1,326 40 53
RISONARE Yatsugatake
Hokuto-shi, Yamanashi
Renovation of elevators
From January 2017to April 2017 47 – –
KAI HakoneHakone-machi, Ashigarashimo-gun, Kanagawa
Construction as an investment for facility maintenance such as renovation of large common bath and guestrooms, and elevators.
From December 2016to January 2017
228 – –
RISONARE Atami Atami-shi, Shizuoka
Renovation of all guest rooms and corridor of building B and construction to increase guest rooms in building B.
From January 2017to May 2017 75 – –
ANA Crowne Plaza Hiroshima
Hiroshima-shi, Hiroshima
Construction to convert single rooms into double rooms and renovate twin rooms.
From January 2017to March 2017 48 – –
ANA Crowne Plaza Hiroshima
Hiroshima-shi, Hiroshima
Renovation of elevators
From June 2016to January 2017 110 – –
18
(2) Capital expenditures for the periodOf construction work falling under the category of capital expenditures conducted in the fiscal period under review for properties held as of October 31, 2016, the following are the major amounts. The fiscal period under review’s capital expenditures amounted to 1,037 million yen and repair expenses separately charged to expenses amounted to 55 million yen for a combined total of 1,092 million yen of construction work implemented.
Name of property Location Purpose Period
Construction costs(millions of yen)
Total amount
Amount paid during period
Total amount paid
RISONARE Atami Atami-shi, Shizuoka
Renovation of exterior walls, and 9F and 11F interior finishing
From May 2016to July 2016 246 240 246
ANA Crowne PlazaKanazawa
Kanazawa-shi, Ishikawa
Upgrading of banquet hall lighting control unit panel and lighting equipment
From August 2016to September 2016 58 58 58
HOSHINOYA Karuizawa
Karuizawa-machi,
Kitasaku-gun, Nagano
Setting up of “Ice Skating Rink in the Forest”
From October 2015to July 2016 338 338 338
RISONARE Yatsugatake
Hokuto-shi, Yamanashi
Renovation of guest rooms and common-use areas
From June 2016to April 2017 1,326 40 53
(3) Funds reserved for long-term repair plansNot applicable.
5. Expenses and liabilities
(1) Details of expenses relating to asset management, etc.(thousands of yen)
ItemPrevious fiscal period
(From November 1, 2015to April 30, 2016)
Current fiscal period(From May 1, 2016 to October 31, 2016)
Asset management fee 249,568 342,999
Asset custody fee 2,139 3,786
Administrative service fees 10,407 15,741
Directors’ compensation 2,640 2,640
Audit fee 6,500 6,751
Other expenses 71,426 83,750
Total 342,681 455,670
19
(2) Status of borrowingsThe status of borrowings of HRR as of October 31, 2016 is as follows:
Category Lender Drawdown date
Balance at beginning of
period (millions of
yen)
Balance at end of period (millions of
yen)
Average interest
rate(Note 1)
Repayment due date
Repayment method Use Remarks
Short-term loans
payable
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Sumitomo Mitsui Banking Corporation
November2, 2015 1,100 – 0.45957% October 31,
2016Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
Subtotal 1,100 –
Long-term loans
payable
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Sumitomo Mitsui Banking Corporation
July 16, 2013 1,860 – 1.44478% July 16,
2016 (Note 4) (Note 2)Unsecured/
Unguaranteed(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
July 16, 2013 2,418 2,385 1.92875% July 16,
2018 (Note 5) (Note 2)Unsecured/
Unguaranteed(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
July 16, 2013 1,288 1,268 2.45886% July 16,
2020 (Note 6) (Note 2)Unsecured/
Unguaranteed(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.The Ashikaga Bank, Ltd.The Shizuoka Bank, Ltd.
May 2, 2014 700 700 1.12207% May 2,
2017Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
May 2, 2014 300 300 1.52063% May 2,
2019Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
May 2, 2014 942 928 1.99816% April 30,
2021 (Note 7) (Note 2)Unsecured/
Unguaranteed(Note 3)
Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationThe Ashikaga Bank, Ltd.The Shizuoka Bank, Ltd.The Bank of Fukuoka, Ltd.The Yamaguchi Bank, Ltd.The Bank of Kyoto, Ltd.The Hokuriku Bank, Ltd.
November 2, 2015 2,515 2,515 0.36134% April 27,
2018Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
November 2, 2015 885 885 0.40000% April 27,
2018Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationThe Ashikaga Bank, Ltd.The Shizuoka Bank, Ltd.The Bank of Fukuoka, Ltd.The Yamaguchi Bank, Ltd.The Bank of Kyoto, Ltd.The Hokuriku Bank, Ltd.
November 2, 2015 2,550 2,550 0.46134% October 31,
2019Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
November 2, 2015 850 850 0.50000% October 31,
2019Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
November 2, 2015 1,500 1,500 0.82080% April 30,
2020Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
20
Category Lender Drawdown date
Balance at beginning of
period (millions of
yen)
Balance at end of period (millions of
yen)
Average interest
rate(Note 1)
Repayment due date
Repayment method Use Remarks
Long-term loans
payable
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
November 2, 2015 3,500 3,500 1.12193% October 29,
2021Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
November 2, 2015 3,000 3,000 1.22788% April 28,
2022Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
November 2, 2015 1,478 1,457 1.33575% October 31,
2022 (Note 8) (Note 2)Unsecured/
Unguaranteed(Note 3)
Sumitomo Mitsui Banking Corporation
March 31, 2016 2,500 – 0.50063% April 3,
2017Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
Sumitomo Mitsui Banking Corporation
March 31, 2016 997 983 1.51809% March 31,
2025 (Note 9) (Note 2)Unsecured/
Unguaranteed(Note 3)
Development Bank of Japan Inc.The Hokuriku Bank, Ltd.The Bank of Fukuoka, Ltd.The Bank of Kyoto, Ltd.
May 2, 2016 – 900 0.50313% April 30,
2020Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
May 2, 2016 – 492 1.09313% April 28,
2023 (Note 10) (Note 2)Unsecured/
Unguaranteed(Note 3)
Development Bank of Japan Inc. May 2, 2016 – 492 1.47689% April 30,
2025 (Note 11) (Note 2)Unsecured/
Unguaranteed(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
May 2, 2016 – 591 1.66686% April 30,
2026 (Note 12) (Note 2)Unsecured/
Unguaranteed(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Sumitomo Mitsui Banking CorporationThe Hokuriku Bank, Ltd.The Bank of Fukuoka, Ltd.
July 19, 2016 – 860 0.49695% April 30,
2021Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
July 19, 2016 – 1,000 0.82289% April 28,
2023Lump-sum repayment (Note 2)
Unsecured/Unguaranteed
(Note 3)Subtotal 27,285 27,160
Total 28,385 27,160
(Note 1) Average interest rates on floating rate borrowings are the weighted average rate during the period.(Note 2) All borrowings were used as the funds for acquiring real estate and paying its related costs.(Note 3) All pledges were released effective at August 31, 2016.(Note 4) Repayment of 25,000 thousand yen was due firstly on October 31, 2013 (total payment on first payment was 14,795 thousand yen) and subsequently
on the last day of April and October of every year thereafter (If the concerned date is not a business day, then payment was/shall be the next business day. If that business day falls into the next calendar month, then payment was/shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 1,860,205 thousand yen was paid in lump sum on the final repayment due date.
(Note 5) Repayment of 32,500 thousand yen shall be due firstly on October 31, 2013 (total payment on first payment was 19,234 thousand yen) and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 2,288,266 thousand yen shall be due in lump sum on the final repayment due date.
(Note 6) Repayment of 20,001 thousand yen shall be due firstly on October 31, 2013 (total payment on first payment was 11,838 thousand yen) and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 1,128,149 thousand yen shall be due in lump sum on the final repayment due date.
(Note 7) Repayment of 14,287 thousand yen shall be due firstly on October 31, 2014 and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 814,269 thousand yen shall be due in lump sum on the final repayment due date.
(Note 8) Repayment of 21,430 thousand yen shall be due firstly on April 28, 2016 and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 1,221,410 thousand yen shall be due in lump sum on the final repayment due date.
(Note 9) Repayment of 14,286 thousand yen shall be due firstly on April 28, 2016 (total payment on first payment was 2,427 thousand yen) and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that
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business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 754,711 thousand yen shall be due in lump sum on the final repayment due date.
(Note 10) Repayment of 7,143 thousand yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 407,141 thousand yen shall be due in lump sum on the final repayment due date.
(Note 11) Repayment of 7,143 thousand yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 378,569 thousand yen shall be due in lump sum on the final repayment due date.
(Note 12) Repayment of 8,572 thousand yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.), and repayment of the remaining principal amount of 437,132 thousand yen shall be due in lump sum on the final repayment due date.
(3) Investment corporation bondsNot applicable.
(4) Short-term investment corporation bondsNot applicable.
(5) Subscription rights to new investment unitsNot applicable.
6. Acquisitions and sales
(1) Status of acquisitions and sales of real estate, asset-backed securities, infrastructure assets and infrastructure-related assets
Name ofproperty
Acquisition Sale
Acquisition dateAcquisition price(millions of yen)
(Note)Sale date Sale price
(millions of yen)Book value
(millions of yen)Gain (loss) on sale(millions of yen)
KAI Kaga May 2, 2016 3,160 – – – –
Total – 3,160 – – – –
(Note) “Acquisition price” represents the property purchase price stated on the sale and purchase agreement (excluding consumption taxes and other acquisition related costs) rounded down to the nearest million yen.
(2) Status of acquisitions and sales of other assetsNot applicable. Main other assets except the abovementioned properties mostly consist of bank deposits.
(3) Appraisal values of specified assets
i) Real estate
Acquisition / Sale
Name ofproperty
Transaction date
Type of assets
Acquisition price / Sale price
(millions of yen)
Appraisal value(millions of yen)
Appraiser(Note 1)
Appraisaldate
Acquisition KAI Kaga May 2, 2016 Real estate, etc. 3,160 3,300 M February 29,
2016
Total 3,160 3,300
(Note 1) “Appraiser” is described as the initials in the table above. The initial used for the appraiser is as follows:M: Morii Appraisal & Investment Consulting Inc.
(Note 2) With regard to transactions that require the appraisal value for real estate related to specified assets as prescribed by Article 201, paragraph 1 of the Investment Trust Act, Morii Appraisal & Investment Consulting Inc. conducts the
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appraisal pursuant to the “Real Estate Appraisal Standard, Chapter 3, Appraisal on Value of Real Estate Subject to Securitization” and HRR received the report on the appraisal.
(Note 3) Real Estate Appraisal Report presents judgment and opinion of the appraiser at a certain time of period, and does not guarantee the validity and accuracy of the contents or possibility of transactions and such with the appraisal value. In addition, there is no special vested interest between Morii Appraisal & Investment Consulting Inc. and HRR or the Asset Management Company.
(Note 4) Acquisition price and sale price do not include other acquisition and sale related costs such as direct expenses for acquisition and sale, property-related taxes and consumption taxes.
ii) Other
Of the transactions performed by HRR, there are no transactions other than transactions stated in “i) Real estate” above that require a price survey, etc. pursuant to Article 201 of the Investment Trust Act.
(4) Transactions with interested parties
i) Purchase and sale transactions with interested parties
CategoryPurchase or sale price (millions of yen)
Purchase price Sale priceTotal 3,160 –
Breakdown of transactions with interested parties
K.K. Horizon Hotels 3,160 (100.0%) –
Total 3,160 (100.0%) –
(Note) The term “interested parties” refers to interested parties as prescribed under Article 26, Paragraph 1, Item 27 of the Regulations for Asset Investment Reports of Investment Trusts and Investment Corporations issued by the Investment Trusts Association, Japan. The same shall apply hereinafter.
ii) Leasing to interested parties
Name of lessee Name of property Annual fixed rent(millions of yen) (Note)
Hoshino Resorts Inc.HOSHINOYA Karuizawa 600
KAI Kinugawa 204
K.K. Horizon Hotels
RISONARE Yatsugatake 525RISONARE Atami 313ANA Crowne Plaza Hiroshima 606
ANA Crowne Plaza Fukuoka 288ANA Crowne Plaza Kanazawa 546ANA Crowne Plaza Toyama 240
K.K. Arashiyama Onsen RankyokanHOSHINOYA Kyoto 187KAI Kaga 206
Hoshino Resort Management Co., Ltd.
KAI Matsumoto 75
KAI Izumo 75KAI Ito 80KAI Hakone 95KAI Aso 42
KAI Kawaji 99Asahikawa Grand Hotel Co., Ltd. Asahikawa Grand Hotel 364
(Note) In the lease agreement with each lessee above, rent comprises fixed rent and floating rent, but the entry under “Annual fixed rent” is the amount arrived at when the fixed rent (monthly amount) provided in the lease agreement on the building is annualized by multiplying by 12. The floating rent is calculated by multiplying sales or profit of the hotels, ryokans and ancillary facilities by a certain rate that is decided in the lease agreement. However, with the agreement reached for each of RISONARE Atami and KAI Kinugawa to have a premium for a limited period from November 2, 2015 to October 31, 2018, KAI Kaga to have a premium for a limited period from May 2, 2016 to April 30, 2019 and Asahikawa Grand Hotel to have a premium for a limited period from March 31, 2016 to October 31, 2019, the
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annualized fixed rent is calculated based on the rent with the premium mentioned above, as of October 31, 2016.Accordingly, the calculated amount may not be equivalent to the actual annual fixed rent. Fixed rent after the lapse of the premium period shall be less than the amount stated in the table above. Furthermore, in the event that sales or profit of hotels, ryokans and ancillary facilities is below a certain amount, floating rent shall not apply. In addition, the lease agreement with each lessee above provides that the initial date of reckoning floating rent for RISONARE Atami and KAI Kinugawa is November 1, 2018 (12th fiscal period), KAI Kaga is May 1, 2019 (13th fiscal period) and Asahikawa Grand Hotel is November 1, 2019 (14th fiscal period). Accordingly, floating rent shall not apply to the period before the concerned date, regardless of the amount of sales or profit of hotels, ryokans and ancillary facilities.
iii) Leasing from interested parties
Name of lessor Name of property Monthly rent (yen)
Hoshino Resorts Inc. HOSHINOYA Karuizawa (Note 1) 1,068,171 (Note 2)
(Note 1) HRR borrows the above-mentioned property from the above-mentioned lessor.(Note 2) The monthly rent shown above is applied from the period July 26, 2016 to April 30, 2017. The monthly rent applied
from the period May 1, 2016 to July 25, 2016 was 1,040,582 yen.
iv) Amount of other fees paidNot applicable.
(5) Transactions with Asset Management Company pertaining to its business other than asset managementNot applicable.
7. Financial information
(1) Status of assets, liabilities, principal, and income and lossPlease refer to the “Balance Sheets,” “Statements of Income,” “Statements of Changes in Net Assets,” “Notes to Financial Statements” and “Statements of Cash Distributions” presented later in this report.
(2) Change in the calculation method of depreciationNot applicable.
(3) Change in the valuation method of real estate and infrastructure assets
Not applicable.
8. Beneficiary certificates of investment trusts established by HRRNot applicable.
9. Disclosure regarding investments in real estate holding companies in foreign countriesNot applicable.
10. Disclosure regarding properties held by above mentioned real estate holding companies in foreign countries
Not applicable.
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11. Other
(1) NoticeNot applicable.
(2) Treatment of fractions in amounts and ratios
Unless otherwise stated, monetary amounts have been rounded down and ratios have been rounded to the nearest specified unit in this report.
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II. Balance Sheets(Unit: thousands of yen)
6th fiscal period(Reference)
(As of April 30, 2016)
7th fiscal period(As of October 31, 2016)
AssetsCurrent assets
Cash and deposits 8,243,199 9,514,280Operating accounts receivable 40,416 39,832Prepaid expenses 129,450 182,643Consumption taxes receivable 1,205,689 67,952Deferred tax assets 13 14Total current assets 9,618,770 9,804,723
Non-current assetsProperty, plant and equipment
Buildings 51,692,917 55,399,273Accumulated depreciation (1,984,232) (2,729,273)Buildings, net *1 49,708,684 52,670,000
Structures 1,311,237 1,569,735Accumulated depreciation (58,106) (80,642)Structures, net *1 1,253,131 1,489,093
Machinery and equipment 83,801 83,801Accumulated depreciation (20,498) (24,115)Machinery and equipment, net *1 63,303 59,685
Tools, furniture and fixtures 458,598 475,715Accumulated depreciation (50,718) (109,170)Tools, furniture and fixtures, net *1 407,879 366,545
Land *1 39,116,980 39,351,315Construction in progress 70,114 201,094Total property, plant and equipment 90,620,094 94,137,734
Intangible assetsLeasehold right 1,002,287 1,028,324Software 11,786 13,504Total intangible assets 1,014,073 1,041,829
Investments and other assetsLong-term prepaid expenses 375,334 412,650Guarantee deposits 10,000 10,000Other 302,890 302,890Total investments and other assets 688,224 725,540
Total non-current assets 92,322,392 95,905,104Total assets 101,941,162 105,709,827
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Balance Sheets(Unit: thousands of yen)
6th fiscal period(Reference)
(As of April 30, 2016)
7th fiscal period(As of October 31, 2016)
LiabilitiesCurrent liabilities
Operating accounts payable 104,560 94,787Short-term loans payable *1 1,100,000 –Current portion of long-term loans payable *1 4,565,213 950,724Accounts payable - other 563,476 561,547Income taxes payable 789 889Accrued expenses 2,715 –Advances received 658,034 695,672Total current liabilities 6,994,789 2,303,620
Non-current liabilitiesLong-term loans payable *1 22,720,410 26,209,332Tenant leasehold and security deposits 2,718,309 2,789,454Total non-current liabilities 25,438,719 28,998,786
Total liabilities 32,433,509 31,302,406Net assets
Unitholders’ equityUnitholders’ capital 67,906,895 72,591,623Surplus
Unappropriated retained earnings 1,600,757 1,815,796Total surplus 1,600,757 1,815,796
Total unitholders’ equity 69,507,653 74,407,420Total net assets *2 69,507,653 *2 74,407,420
Total liabilities and net assets 101,941,162 105,709,827
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III. Statements of Income(Unit: thousands of yen)
6th fiscal period(Reference)
(From November 1, 2015to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
Operating revenueLease business revenue *1 3,559,947 *1 3,981,640Total operating revenue 3,559,947 3,981,640
Operating expensesExpenses related to rent business *1 1,303,096 *1 1,428,747Asset management fee 249,568 342,999Asset custody fee 2,139 3,786Administrative service fees 10,407 15,741Directors’ compensation 2,640 2,640Audit fee 6,500 6,751Other operating expenses 71,426 83,750Total operating expenses 1,645,777 1,884,418
Operating income 1,914,169 2,097,222Non-operating income
Interest income 702 47Insurance income – 1,559Interest on refund 602 –Miscellaneous income 17 18Total non-operating income 1,322 1,625
Non-operating expensesInterest expenses 144,948 156,288Borrowing related expenses 100,279 90,394Investment unit issuance expenses 68,634 35,506Total non-operating expenses 313,863 282,188
Ordinary income 1,601,628 1,816,659Income before income taxes 1,601,628 1,816,659Income taxes - current 897 896Income taxes - deferred 0 0Total income taxes 897 896Net income 1,600,731 1,815,763Retained earnings brought forward 26 33Unappropriated retained earnings 1,600,757 1,815,796
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IV. Statements of Changes in Net Assets 6th fiscal period (from November 1, 2015 to April 30, 2016) (Reference)
(Unit: thousands of yen)Unitholders’ equity
Total net assetsUnitholders’
capital
SurplusTotal
unitholders’ equityUnappropriated retained earnings
Total surplus
Balance at beginning of period 36,113,352 908,788 908,788 37,022,141 37,022,141
Changes of items during periodIssuance of new investment units 31,793,543 – – 31,793,543 31,793,543
Dividends of surplus – (908,762) (908,762) (908,762) (908,762)Net income – 1,600,731 1,600,731 1,600,731 1,600,731
Total changes of items during period 31,793,543 691,969 691,969 32,485,512 32,485,512
Balance at end of period *1 67,906,895 1,600,757 1,600,757 69,507,653 69,507,653
7th fiscal period (from May 1, 2016 to October 31, 2016)(Unit: thousands of yen)
Unitholders’ equityTotal
net assetsUnitholders’ capital
Surplus Total unitholders’ equityUnappropriated
retained earningsTotal
surplusBalance at beginning of period 67,906,895 1,600,757 1,600,757 69,507,653 69,507,653
Changes of items during periodIssuance of new investment units 4,684,727 – – 4,684,727 4,684,727
Dividends of surplus – (1,600,724 ) (1,600,724) (1,600,724) (1,600,724)Net income – 1,815,763 1,815,763 1,815,763 1,815,763
Total changes of items during period 4,684,727 215,039 215,039 4,899,766 4,899,766
Balance at end of period *1 72,591,623 1,815,796 1,815,796 74,407,420 74,407,420
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V. Notes to Financial StatementsSummary of significant accounting policies
Item 6th fiscal period (Reference)(from November 1, 2015 to April 30, 2016)
7th fiscal period (from May 1, 2016 to October 31, 2016)
1. Method of depreciation and amortization of non-current assets
i) Property, plant and equipment
Depreciation is calculated using the straight-line method.
The useful lives of principal property, plant and equipment are as follows:
Buildings 14–57 yearsStructures 4–60 yearsMachinery and equipment 6–15 yearsTools, furniture and fixtures 2–20 years
ii) Intangible assets
Amortization is calculated using the straight-line method.
The useful lives are as follows:
Intangible assets 2–5 years
iii) Long-term prepaid expenses
Amortization is calculated using the straight-line method.
i) Property, plant and equipment
Depreciation is calculated using the straight-line method.
The useful lives of principal property, plant and equipment are as follows:
Buildings 3–57 yearsStructures 3–60 yearsMachinery and equipment 6–15 yearsTools, furniture and fixtures 2–20 years
ii) Intangible assets
Amortization is calculated using the straight-line method.
The useful lives are as follows:
Intangible assets 2–5 years
iii) Long-term prepaid expenses
Amortization is calculated using the straight-line method.
2. Standards for revenue and expense recognition
Accounting for property-related taxes
With respect to property tax, city planning tax, depreciable asset tax, etc. on real estate etc. held, of the tax amount assessed and determined, the amount corresponding to the relevant accounting period isaccounted as expenses related to rent business.
Of the amounts paid for the acquisition of real estate, the amounts equivalent to property-related taxes are capitalized as part of the acquisition cost of the relevant real estate instead of being charged as expenses.
Accounting for property-related taxes
With respect to property tax, city planning tax, depreciable asset tax, etc. on real estate etc. held, of the tax amount assessed and determined, the amount corresponding to the relevant accounting period isaccounted as expenses related to rent business.
Of the amounts paid for the acquisition of real estate, the amounts equivalent to property-related taxes are capitalized as part of the acquisition cost of the relevant real estate instead of being charged as expenses.
3. Other significant matters serving as the basis for preparation of financial statements
Accounting for consumption taxes
Consumption tax and local consumption tax are excluded from the corresponding transaction amounts.
Accounting for consumption taxes
Consumption tax and local consumption tax are excluded from the corresponding transaction amounts.
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Notes to Balance Sheets6th fiscal period (Reference)
(As of April 30, 2016)7th fiscal period
(As of October 31, 2016)*1. Assets pledged as collateral and liabilities secured by
pledged assets are as follows:– (Note)
(Unit: thousands of yen)Buildings 28,853,728
Structures 635,959Machinery and equipment 63,303Land 28,566,414
Total 58,119,405Liabilities secured by pledged assets are as follows:
Short-term loans payable 1,100,000Current portion of long-term loans payable 4,565,213Long-term loans payable 22,720,410
Total 28,385,623
*2. Minimum net assets as provided in Article 67, Paragraph 4 of the Investment Trust Act
*2. Minimum net assets as provided in Article 67, Paragraph 4 of the Investment Trust Act
¥50,000 thousand ¥50,000 thousand
(Note) All pledges were released effective at August 31, 2016.
Notes to Statements of Income6th fiscal period (Reference)
(From November 1, 2015to April 30, 2016)
7th fiscal period(From May 1, 2016to October 31, 2016)
*1. Components of income (loss) from real estate lease business
*1. Components of income (loss) from real estate lease business
(Unit: thousands of yen) (Unit: thousands of yen)A. Operating revenue from real estate
leasingA. Operating revenue from real estate
leasingLease business revenue Lease business revenue
Rental revenue 3,559,947 Rental revenue 3,981,640Total operating revenue from real estate leasing 3,559,947
Total operating revenue from real estate leasing 3,981,640
B. Operating expenses from real estate leasing
B. Operating expenses from real estate leasing
Expenses related to rent business Expenses related to rent businessInsurance expenses 13,194 Insurance expenses 14,266Repair expenses 96,943 Repair expenses 55,088Land rent 33,824 Land rent 33,994Depreciation 735,681 Depreciation 831,174Taxes and dues 216,260 Taxes and dues 287,204
Other expenses 207,191 Other expenses 207,019Total operating expenses from real estate leasing 1,303,096
Total operating expenses from real estate leasing 1,428,747
C. Operating income from real estate leasing [A-B] 2,256,851
C. Operating income from real estate leasing [A-B] 2,552,892
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Notes to Statements of Changes in Net Assets6th fiscal period (Reference)
(From November 1, 2015to April 30, 2016)
7th fiscal period(From May 1, 2016to October 31, 2016)
*1. Total number of investment units authorized and total number of investment units issued and outstanding
*1. Total number of investment units authorized and total number of investment units issued and outstanding
Total number of investment units authorized 2,000,000 units Total number of investment
units authorized 2,000,000 units
Total number of investment units issued and outstanding 78,008 units Total number of investment
units issued and outstanding 81,757 units
Income taxes6th fiscal period (Reference)
(From November 1, 2015to April 30, 2016)
7th fiscal period(From May 1, 2016to October 31, 2016)
*1. Breakdown of deferred tax assets and deferred tax liabilities by major causes
*1. Breakdown of deferred tax assets and deferred tax liabilities by major causes
(Unit: thousands of yen) (Unit: thousands of yen)
Deferred tax assets Deferred tax assets
Enterprise tax payable excluded from deductible expenses 13
Enterprise tax payable excluded from deductible expenses 14
Total deferred tax assets 13 Total deferred tax assets 14
Net deferred tax assets 13 Net deferred tax assets 14*2. Breakdown by major items that caused significant differences
between the statutory tax rate and the effective income tax rate after application of tax-effect accounting
*2. Breakdown by major items that caused significant differences between the statutory tax rate and the effective income tax rate after application of tax-effect accounting
(Unit: %) (Unit: %)
Statutory tax rate 32.31 Statutory tax rate 31.74
[Adjustments] [Adjustments]
Distributions deductible for tax purposes (32.29) Distributions deductible for tax purposes (31.72)Other 0.04 Other 0.03
Effective income tax rate after application of tax-effect accounting 0.06 Effective income tax rate
after application of tax-effect accounting 0.05
*3. Change in tax rate for income taxes
The “Act Partially Amending the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act Partially Amending, etc. the Local Tax Act, etc.” (Act No. 13 of 2016) were enacted in the Diet session on March 29, 2016, changing the income tax rate, etc., starting from calculation periods beginning on or after April 1, 2016. This changed the statutory tax rate used in the calculation of deferred tax assets and deferred tax liabilities to 31.74% for the temporary differences expected to reverse in the fiscal period ended October 2016 (7th fiscal period) or subsequent fiscal periods. The impact of this change was minimal.
-
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Financial instruments
6th fiscal period (from November 1, 2015 to April 30, 2016) (Reference)
(1) Status of financial instruments
i) Policy for financial instrumentsHRR procures funds mainly through issuance of new investment units, loans from financial institutions, issuance of investment corporation bonds, for acquisition of new assets.
HRR enters into derivative transactions solely for the purpose of hedging the risk of fluctuations in interest rates on loans and other risks.
ii) Description of financial instruments and associated risks, and risk management systemThe funds procured through loans are mainly used for acquisition of assets and repayment of loans. Concerning the liquidity risk and the risk of fluctuations in interest rates associated with such fund procurement, HRR manages and limits the concerned risks by diversifying fund procurement sources, and also by considering and implementing diversified fund procurement, including effective use of surplus funds and procurement of funds from the capital market through issuance of investment units.
In addition, loans with floating interest rates are exposed to the risk of rising interest rates, but HRR mitigates such risk by maintaining the LTV (ratio of interest-bearing liabilities to total assets) at a low level and maintaining the ratio of long-term and fixed-rate loans at a high level. Moreover, derivative transactions (interest rate swap transactions, etc.) are executed as hedging instruments in order to mitigate the risk of rising interest rates and stabilize its financial costs.
Deposits, which are used for investment of HRR’s surplus funds, are exposed to credit risk, such as bankruptcy of the depository financial institution, but HRR exercises prudence by limiting the deposit period to short term, taking into consideration security and liquidity and fully taking into account the market environment and status of cash flows.
iii) Supplementary explanation concerning fair values of financial instrumentsThe fair value of financial instruments is based on the quoted market price, if available. When there is no available quoted market price, the fair value is reasonably estimated. Certain assumptions are used for the estimation of fair value. Accordingly, the result of such estimation may change if different assumptions are adopted.
(2) Fair values of financial instruments
Carrying amounts, fair values and the difference between the values as of April 30, 2016 are as follows:(Unit: thousands of yen)
Carrying amount(Note 1)
Fair value(Note 1) (Note 2) Difference
(1) Cash and deposits 8,243,199 8,243,199 –
(2) Short-term loans payable (1,100,000) (1,100,000) –(3) Current portion of long-term loans payable (4,565,213) (4,567,924) 2,711
(4) Long-term loans payable (22,720,410) (22,973,913) 253,503
(Note 1) Items that are liabilities are shown in parentheses.(Note 2) Method of calculation of the fair value of financial instruments
(1) Cash and deposits; (2) Short-term loans payableBecause these are settled in a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.
(3) Current portion of long-term loans payable; (4) Long-term loans payableWith respect to long-term loans payable as of April 30, 2016, because those with floating interest rates reflect market interest rates in a short period of time, the fair value is deemed to resemble the book value and is thus stated at that book value. In the case of those with fixed interest rates, the fair value is measured by discounting the total principal and interest amount at the current rates that are reasonably estimated to be applicable if HRR enters into new similar loans.
33
(Note 3) Financial instruments for which the fair value is difficult to estimateTenant leasehold and security deposits are not subject to valuation at fair value, because a reasonable estimation of cash flows is recognized to be extremely difficult due to there being no market price and the difficulty of calculating the actual deposit period from when lessees move in to when they move out.
(Unit: thousands of yen)Carrying amount
Tenant leasehold and security deposits 2,718,309
(Note 4) Redemption schedule for monetary claims after the closing date (April 30, 2016)(Unit: thousands of yen)
Due within one yearCash and deposits 8,243,199
(Note 5) Redemption schedule for loans payable after the closing date (April 30, 2016)(Unit: thousands of yen)
Due within one year
Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years
Short-term loans payable 1,100,000 – – – – –
Long-term loans payable 4,565,213 4,305,008 2,428,274 5,340,008 2,028,137 8,618,983
7th fiscal period (from May 1, 2016 to October 31, 2016)
(1) Status of financial instruments
i) Policy for financial instrumentsHRR procures funds mainly through issuance of new investment units, loans from financial institutions, issuance of investment corporation bonds, for acquisition of new assets.
HRR enters into derivative transactions solely for the purpose of hedging the risk of fluctuations in interest rates on loans and other risks.
ii) Description of financial instruments and associated risks, and risk management systemThe funds procured through loans are mainly used for acquisition of assets and repayment of loans. Concerning the liquidity risk and the risk of fluctuations in interest rates associated with such fund procurement, HRR manages and limits the concerned risks by diversifying fund procurement sources, and also by considering and implementing diversified fund procurement, including effective use of surplus funds and procurement of funds from the capital market through issuance of investment units.
In addition, loans with floating interest rates are exposed to the risk of rising interest rates, but HRR mitigates such risk by maintaining the LTV (ratio of interest-bearing liabilities to total assets) at a low level and maintaining the ratio of long-term and fixed-rate loans at a high level. Moreover, derivative transactions (interest rate swap transactions, etc.) are executed as hedging instruments in order to mitigate the risk of rising interest rates and stabilize its financial costs.
Deposits, which are used for investment of HRR’s surplus funds, are exposed to credit risk, such as bankruptcy of the depository financial institution, but HRR exercises prudence by limiting the deposit period to short term, taking into consideration security and liquidity and fully taking into account the market environment and status of cash flows.
iii) Supplementary explanation concerning fair values of financial instrumentsThe fair value of financial instruments is based on the quoted market price, if available. When there is no available quoted market price, the fair value is reasonably estimated. Certain assumptions are used for the estimation of fair value. Accordingly, the result of such estimation may change if different assumptions are adopted.
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(2) Fair values of financial instruments
Carrying amounts, fair values and the difference between the values as of October 31, 2016 are as follows:(Unit: thousands of yen)
Carrying amount(Note 1)
Fair value(Note 1) (Note 2) Difference
(1) Cash and deposits 9,514,280 9,514,280 –
(2) Short-term loans payable – – –(3) Current portion of long-term loans payable (950,724) (952,478) 1,754
(4) Long-term loans payable (26,209,332) (26,544,657) 335,325
(Note 1) Items that are liabilities are shown in parentheses.(Note 2) Method of calculation of the fair value of financial instruments
(1) Cash and deposits; (2) Short-term loans payableBecause these are settled in a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.(3) Current portion of long-term loans payable; (4) Long-term loans payableWith respect to long-term loans payable as of October 31, 2016, because those with floating interest rates reflect market interest rates in a short period of time, the fair value is deemed to resemble the book value and is thus stated at that book value. In the case of those with fixed interest rates, the fair value is measured by discounting the total principal and interest amount at the current rates that are reasonably estimated to be applicable if HRR enters into new similar loans.
(Note 3) Financial instruments for which the fair value is difficult to estimateTenant leasehold and security deposits are not subject to valuation at fair value, because a reasonable estimation of cash flows is recognized to be extremely difficult due to there being no market price and the difficulty of calculating the actual deposit period from when lessees move in to when they move out.
(Unit: thousands of yen)
Carrying amount
Tenant leasehold and security deposits 2,789,454
(Note 4) Redemption schedule for monetary claims after the closing date (October 31, 2016)(Unit: thousands of yen)
Due within one yearCash and deposits 9,514,280
(Note 5) Redemption schedule for loans after the closing date (October 31, 2016)(Unit: thousands of yen)
Due within one year
Due after one to two years
Due after two to three years
Due after three to four years
Due after four to five years
Due after five years
Short-term loans payable – – – – – –
Long-term loans payable 950,724 5,906,490 3,885,724 3,693,872 5,291,417 7,431,829
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Investment and rental properties
6th fiscal period (From November 1, 2015 to April 30, 2016) (Reference)
HRR owns rental properties for hotels and ryokans in Nagano Prefecture and other areas. The following table summarized the carrying amount, including the change during the period, and the fair value of these rental properties.
(Unit: thousands of yen)Carrying amount
Fair value at end of periodBalance at beginning of period Change during period Balance at end of period
43,274,331 47,940,170 91,214,502 104,483,000
(Note 1) “Carrying amount” is the book value at acquisition cost less accumulated depreciation.(Note 2) The change during the period primarily consisted of the increase due to acquisition of seven properties
(48,210,932 thousand yen) including ANA Crowne Plaza Hiroshima and the decrease due to depreciation (684,396 thousand yen).
(Note 3) “Fair value at end of period” is the appraisal or survey values provided by an independent real estate appraiser.
The operating income and expenses from investment and rental properties for the fiscal period ended April 30, 2016 are presented in “Notes to Statements of Income.”
7th fiscal period (From May 1, 2016 to October 31, 2016)
HRR owns rental properties for hotels and ryokans in Nagano Prefecture and other areas. The following table summarized the carrying amount, including the change during the period, and the fair value of these rental properties.
(Unit: thousands of yen)Carrying amount
Fair value at end of periodBalance at beginning of period Change during period Balance at end of period
91,214,502 3,585,011 94,799,513 109,299,000
(Note 1) “Carrying amount” is the book value at acquisition cost less accumulated depreciation.(Note 2) The change during the period primarily consisted of the increase due to acquisition of KAI Kaga (3,209,143
thousand yen) and the decrease due to depreciation (771,194 thousand yen).(Note 3) “Fair value at end of period” is the appraisal or survey values provided by an independent real estate appraiser.
The operating income and expenses from investment and rental properties for the fiscal period ended October 31, 2016 are presented in “Notes to Statements of Income.”
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Transactions with related parties
6th fiscal period (From November 1, 2015 to April 30, 2016) (Reference)
Type Name
Description of business
or occupation
Voting rights
holding ratio (%)
Relationship
Description of transaction
Amount of transaction (Thousands
of yen)(Note 2)
Account item
Balance at end of period
(Thousands of yen)
(Note 2)
Inter-locking officers
etc.
Business relation-
ship
Parentetc. of Asset Manage-ment Company
Hoshino Resorts Inc.
Hotels and ryokans business
3.9 –Real estate leasing
Purchase of real estate 3,080,000 – –
Real estate leasing 484,562
Operating accounts receivable
14,963
Advances received 72,360
Tenant leasehold and security deposits
364,800
Parentetc. of Asset Manage-ment Company
K.K. Horizon Hotels
Hotels and ryokans business
– –Real estate leasing
Purchase of real estate 36,000,000 – –
Real estate leasing 1,680,396
Operating accounts receivable
10,467
Advances received 320,276
Tenant leasehold and security deposits
1,074,100
(Note 1) The terms and conditions of these transactions are determined based on the same terms and conditions as those applied to general business transactions in view of the prevailing market price.
(Note 2) Consumption taxes are not included in the transaction amounts but included in the related balances at the end of the period.
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7th fiscal period (From May 1, 2016 to October 31, 2016)
Type Name
Description of business
or occupation
Voting rights
holding ratio (%)
Relationship
Description of transaction
Amount of transaction (Thousands
of yen)(Note 2)
Account item
Balance at end of period
(Thousands of yen)
(Note 2)
Inter-locking officers
etc.
Business relation-
ship
Parent etc. of Asset Manage-ment Company
Hoshino Resorts Inc.
Hotels and ryokans business
3.8 –Real estate leasing
Real estate leasing 498,509
Operating accounts receivable
17,371
Advances received 75,060
Tenant leasehold and security deposits
379,800
Parent etc. of Asset Manage-ment Company
K.K. Horizon Hotels
Hotels and ryokans business
– –Real estate leasing
Purchase of real estate 3,160,000 – –
Real estate leasing 1,838,547
Operating accounts receivable
10,662
Advances received 333,939
Tenant leasehold and security deposits
1,074,100
(Note 1) The terms and conditions of these transactions are determined based on the same terms and conditions as those applied to general business transactions in view of the prevailing market price.
(Note 2) Consumption taxes are not included in the transaction amounts but included in the related balances at the end of the period.
Per unit information
(Unit: yen)6th fiscal period (Reference)
(From November 1, 2015 to April 30, 2016)7th fiscal period
(From May 1, 2016 to October 31, 2016)
Net assets per unit 891,032 Net assets per unit 455,052
Net income per unit 20,606 Net income per unit 11,110
(Note 1) Net income per unit is calculated by dividing net income by the daily weighted average number of investment units. In addition, diluted net income per unit is not stated because there are no dilutive investment units.
(Note 2) A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of November 1, 2016. Net assets per unit and net income per unit for the 7th fiscal period in the above table are calculated under the assumption that the split was conducted at the beginning of the 7th fiscal period. Calculated under the assumption that the split had been conducted at the beginning of the 6th fiscal period, net assets per unit and net income per unit for the 6th fiscal period would be 445,516 yen and 10,303 yen, respectively.
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(Note 3) The following is the basis for calculation of net income per unit.(Unit: thousands of yen)
6th fiscal period (Reference)(From November 1, 2015 to April 30, 2016)
7th fiscal period(From May 1, 2016 to October 31, 2016)
Net income 1,600,731 Net income 1,815,763Amount not attributable to common unitholders – Amount not attributable to common
unitholders –
Net income attributable to common investment units 1,600,731 Net income attributable to common
investment units 1,815,763
Average number of investment units during period (units) 77,681 Average number of investment units
during period (units) 163,430
Significant subsequent events
6th fiscal period (From November 1, 2015 to April 30, 2016) (Reference)
(1) Issuance of New Investment Units
HRR resolved at meetings of the Board of Directors held on April 8, 2016 and April 19, 2016 on the following issuance of new investment units, and payment was completed on May 2, 2016 for the new investment units through primary offering, and on May 24, 2016 for the new investment units through third-party allotment.
Issuance of new investment units through primary offering
Number of investment units issued: 3,570 unitsIssue price: 1,294,745 yen per unitTotal issue price: 4,622,239,650 yenPaid-in amount: 1,249,594 yen per unitTotal paid-in amount: 4,461,050,580 yenPayment due date: May 2, 2016
Issuance of new investment units through third-party allotment
Number of investment units issued: 179 unitsPaid-in amount: 1,249,594 yen per unitTotal paid-in amount: 223,677,326 yenPayment due date: May 24, 2016Allottee: Nomura Securities Co., Ltd.
Use of funds
The funds procured from the primary offering were allocated to part of the funds for acquisition of the real estate stated in (2) below and part of the funds for repayment of the loan stated in (4) below. Furthermore, the funds procured from the third-party allotment, which were set aside as funds on hand, are scheduled to be allocated to part of the funds for acquisition of specified assets or part of the funds for repayment of loans in the future.
(2) Acquisition of assetsHRR acquired the real estate described below on May 2, 2016 (the acquisition price: 3,160 million yen). The acquisition price is the price stated in the sales and purchase agreement of the real estate which does not include acquisition expenses, property-related taxes and consumption taxes.
Name of property Location SellerAcquisition price(millions of yen)
Acquisition date
KAI Kaga Kaga-shi, Ishikawa K.K. Horizon Hotels 3,160 May 2, 2016
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(3) Additional borrowingsHRR obtained bank loans on May 2, 2016 for acquisition of specified assets and related costs as stated in “(2) Acquisition of assets” above and for repayment of loans before maturity.
(Note 1) Amounts are rounded down to the nearest specified unit.(Note 2) If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the
next calendar month, then it shall be the business day immediately preceding the concerned date.
(4) Repayment of Loan
HRR implemented early repayment of the following loan on May 2, 2016.
Floating/Fixed Lender Loan
amount Interest rate Drawdown date
Final repayment due date(Note 2)
Repayment method
Floating Sumitomo Mitsui Banking Corporation
2.5billion yen
Base rate(JBA
1-month Japanese
Yen TIBOR)
(Note 1) + 0.425%
March 31, 2016
April 3, 2017
Lump-sum payment at maturity
(Note 1) The base rate applicable to the interest calculation period for the interest payable on an interest payment due date shall be, of the Japanese Yen TIBOR (Tokyo Interbank Offered Rate) published by JBA TIBOR Administration as of two business days prior to the interest payment due date immediately preceding that interest payment due date (the drawdown date in the case of the first interest calculation period), the interest rate for the number of months corresponding to the interest calculation period. However, if there is no rate corresponding to the
Floating/Fixed Lender Loan
amount Interest rate Drawdowndate
Repayment due date(Note 2)
Repayment method
Fixed
Development Bank of Japan Inc.The Hokuriku Bank, Ltd.The Bank of Fukuoka, Ltd.The Bank of Kyoto, Ltd.
0.9billion yen 0.50313% May 2,
2016April 30,
2020 Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
0.5billion yen 1.09313% May 2,
2016April 28,
2023
Repayment of 7,143,000 yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (Note 2), and repayment of the remaining amount of 407,141,000 yen shall be due in lump sum on the final repayment due date
Development Bank of Japan Inc.
0.5billion yen 1.47689% May 2,
2016April 30,
2025
Repayment of 7,143,000 yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (Note 2), and repayment of the remaining amount of 378,569,000 yen shall be due in lump sum on the final repayment due date
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
0.6billion yen 1.66686% May 2,
2016April 30,
2026
Repayment of 8,572,000 yen shall be due firstly on October 31, 2016 and subsequently on the last day of April and October of every year thereafter (Note 2), and repayment of the remaining amount of 437,132,000 yen shall be due in lump sum on the final repayment due date
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concerned period, then it shall be the base rate calculated based on the method provided in the contract. For the JBA Japanese Yen TIBOR, please check the website of JBA TIBOR Administration (http://www.jbatibor.or.jp/).
(Note 2) If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.
7th fiscal period (From May 1, 2016 to October 31, 2016)
(1) Acquisition of assets
HRR acquired the real estate described below on November 1, 2016 (the acquisition price: 16,000 million yen).The acquisition price is the price stated in the sales and purchase agreement of the real estate which does not include acquisition expenses, property-related taxes and consumption taxes.
Name of property Location SellerAcquisition price(millions of yen)
Acquisition date
Hyatt Regency Osaka Osaka-shi, Osaka GCREF Japan I TMK 16,000 November 1, 2016
(Note) The acquisition price includes the trading value (79 million yen) of equipment, etc. acquired from GCP Hospitality Japan K.K., which was a lessee of the property. Note that GCP Hospitality Japan K.K. changed its trade name to HRO Inc. on November 1, 2016.
(2) Additional borrowings
HRR obtained bank loans on November 1, 2016 for acquisition of specified assets and related costs as stated in “(1) Acquisition of assets” above and for repayment of loans before maturity.
Floating/Fixed Lender Loan amount Interest rate Drawdown
date
Repayment due date
(Note 4)
Repayment method
Floating
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Sumitomo Mitsui Banking Corporation
1.5billion yen
Base rate 1-month Japanese
Yen TIBOR (Note 1)
+ 0.400%
November 1, 2016 October 31, 2017
Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationResona Bank, LimitedThe Bank of Fukuoka, Ltd.The Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.The Senshu Ikeda Bank, Ltd.
2.5billion yen
Base rate 1-month Japanese
Yen TIBOR + 0.2375%
(Note 2)
November 1, 2016 April 30, 2019
Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationResona Bank, LimitedThe Bank of Fukuoka, Ltd.The Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.The Senshu Ikeda Bank, Ltd.
2.5billion yen
Base rate 1-month Japanese
Yen TIBOR + 0.300%
(Note 3)
November 1, 2016 October 30, 2020
Lump-sum payment at maturity
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Floating/Fixed Lender Loan amount Interest rate Drawdown
date
Repayment due date
(Note 4)
Repayment method
Fixed
Resona Bank, LimitedThe Bank of Tokyo-Mitsubishi UFJ, Ltd.The Bank of Fukuoka, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking CorporationThe Ashikaga Bank, Ltd.The Hokuriku Bank, Ltd.The Yamaguchi Bank, Ltd.
2.0billion yen 0.54888% November 1,
2016 April 30, 2021Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.76832% November 1,
2016 October 31, 2022Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.85244% November 1,
2016 April 28, 2023Lump-sum payment at maturity
The Bank of Tokyo-Mitsubishi UFJ, Ltd.Development Bank of Japan Inc.Sumitomo Mitsui Banking Corporation
2.5billion yen 0.93702% November 1,
2016 October 31, 2023Lump-sum payment at maturity
(Note 1) The base rate applicable to the interest calculation period for the interest payable on an interest payment due date shall be, of the Japanese Yen TIBOR (Tokyo Interbank Offered Rate) published by JBA TIBOR Administration as of two business days prior to the interest payment due date immediately preceding that interest payment due date (the drawdown date in the case of the first interest calculation period), the interest rate for the number of months corresponding to the interest calculation period. However, if there is no rate corresponding to the concerned period, then it shall be the base rate calculated based on the method provided in the contract. For the JBA Japanese Yen TIBOR, please check the website of JBA TIBOR Administration (http://www.jbatibor.or.jp/).
(Note 2) The interest rate is substantially fixed at 0.2785% with the effect of the interest rate swap agreements to hedge the risk of rising interest rates.
(Note 3) The interest rate is substantially fixed at 0.356% with the effect of the interest rate swap agreements to hedge the risk of rising interest rates.
(Note 4) If the concerned date is not a business day, then it shall be the next business day. If that business day falls into the next calendar month, then it shall be the business day immediately preceding the concerned date.
(3) Split of investment units
A 2-for-1 split of investment units was implemented with the record date of October 31, 2016 and the effective date of November 1, 2016.
i) Purpose of the splitThe purpose is to expand the investor base and enhance the liquidity of its investment units by reducing the per unit price with the aim of providing a more investor-friendly environment after the launch of Nippon Individual Savings Accounts (NISA).
ii) Method of the split
A 2-for-1 split of investment units was implemented with the record date of October 31, 2016.
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iii) Increase in investment units resulting from the split, etc.Total number of investment units issued and outstanding of HRR before the split: 81,757 units
Increase in number of investment units by the split: 81,757 units
Total number of investment units issued and outstanding of HRR after the split: 163,514 units
See “Per unit information” for the per unit information assuming that the split of investment units had been made at the beginning of the 6th fiscal period.
Other note
Since the 7th fiscal period, the “Implementation Guidance on Recoverability of Deferred Tax Assets” (Accounting Standards Board of Japan (ASBJ) Guidance No. 26, March 28, 2016) has been adopted.
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VI. Statements of Cash Distributions
(Unit: yen)6th fiscal period
(Reference)(From November 1, 2015
to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
I. Unappropriated retained earnings 1,600,757,757 1,815,796,809II. Amount of distributions 1,600,724,160 1,815,741,213
[Amount of distribution per investment unit] [20,520] [22,209]III. Retained earnings brought forward 33,597 55,596
Method of calculating distribution amount
In accordance with the policy described in Article 37, Paragraph 1 of the Articles of Incorporation of Hoshino Resorts REIT, Inc. (HRR) that “distributions shall be in excess of the amount equivalent to 90% of the amount of earnings available for distribution of HRR provided in Article 67-15 of the Act on Special Measures Concerning Taxation,” the decision was made to distribute 1,600,724,160 yen, which is almost the entire amount of unappropriated retained earnings, as distributions of earnings. Furthermore, the distribution of cash in excess of earnings provided in Article 37, Paragraph 2 of the Articles of Incorporation will not be conducted.
In accordance with the policy described in Article 37, Paragraph 1 of the Articles of Incorporation of Hoshino Resorts REIT, Inc. (HRR) that “distributions shall be in excess of the amount equivalent to 90% of the amount of earnings available for distribution of HRR provided in Article 67-15 of the Act on Special Measures Concerning Taxation,” the decision was made to distribute 1,815,741,213 yen, which is almost the entire amount of unappropriated retained earnings, as distributions of earnings. Furthermore, the distribution of cash in excess of earnings provided in Article 37, Paragraph 2 of the Articles of Incorporation will not be conducted.
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VIII. Statements of Cash Flows(Reference Information)(Unit: thousands of yen)
6th fiscal period (Reference)(From November 1, 2015
to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)Cash flows from operating activities
Income before income taxes 1,601,628 1,816,659Depreciation and amortization 736,281 831,907Interest income (702) (47)Interest expense 144,948 156,288Borrowing related expenses 100,279 90,394Investment unit issuance expenses 68,634 35,506(Increase) decrease in operating accounts receivable (9,069) 584Increase in prepaid expenses (59,837) (53,192)(Increase) decrease in consumption taxes refund receivable (641,941) 1,137,736Increase (decrease) in operating accounts payable 17,040 (8,801)Increase in accounts payable - other 56,992 154,070Increase in advances received 326,698 37,638Increase in long-term prepaid expenses (239,206) (37,316)Other, net (100,104) (90,394)Subtotal 2,001,643 4,071,032Interest income received 702 47Interest expenses paid (142,646) (159,003)Income taxes paid (894) (797)Net cash provided by operating activities 1,858,804 3,911,278
Cash flows from investing activitiesPurchase of property, plant and equipment (48,054,566) (4,508,815)Purchase of intangible assets (798,587) (29,509)Proceeds from tenant leasehold and security deposits 1,013,808 71,145Payments for lease and guarantee deposits (300,000) -Net cash used in investing activities (48,139,346) (4,467,179)
Cash flows from financing activitiesProceeds from short-term loans payable 1,100,000 -Repayments of short-term loans payable (1,400,000) (1,100,000)Proceeds from long-term loans payable 19,800,000 4,360,000Repayments of long-term loans payable (115,645) (4,485,567)Proceeds from issuance of investment units 31,793,543 4,684,727Payments for investment unit issuance expenses (68,634) (35,506)Dividends paid (906,265) (1,596,672)Net cash provided by financing activities 50,202,997 1,826,982
Net increase in cash and cash equivalents 3,922,455 1,271,080Cash and cash equivalents at beginning of period 4,320,744 8,243,199Cash and cash equivalents at end of period *1 8,243,199 *1 9,514,280
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Summary of significant accounting policies (Reference information)
Item6th fiscal period (Reference)
(From November 1, 2015to April 30, 2016)
7th fiscal period(From May 1, 2016
to October 31, 2016)
Scope of funds in the statements of cash flows
The funds (cash and cash equivalents) in the statements of cash flows comprise cash on hand, demand deposits, and short-term investments with a maturity of three months or less from the date of acquisition that are readily convertible to cash and are subject to an insignificant risk of changes in value.
The funds (cash and cash equivalents) in the statements of cash flows comprise cash on hand, demand deposits, and short-term investments with a maturity of three months or less from the date of acquisition that are readily convertible to cash and are subject to an insignificant risk of changes in value.
Notes to Statements of Cash Flows(Reference Information)
6th fiscal period (Reference)(From November 1, 2015 to April 30, 2016)
7th fiscal period(From May 1, 2016 to October 31, 2016)
*1. Reconciliation of cash and cash equivalents at end of the period to the corresponding Balance sheet item
(As of April 30, 2016)(Unit: thousands of yen)
*1. Reconciliation of cash and cash equivalents at end of the period to the corresponding Balance sheet item
(As of October 31, 2016)(Unit: thousands of yen)
Cash and deposits 8,243,199 Cash and deposits 9,514,280Cash and cash equivalents 8,243,199 Cash and cash equivalents 9,514,280