Investment Guidelines
The decision to invest in a hotel asset is based on our valuation of the expected total cash flow from hotel operations, our estimate of future hotel rates, and our analysis of the relative overall profitability of the investment opportunity.
Key Review Items for Potential Acquisitions
| Matters to Review | |
|---|---|
| Facilities and Equipment | ①Guest rooms --Number of rooms, type of rooms, total area ②Restaurant facilities --Number of facilities, types of equipment, etc. ③Banquet facilities --Number of facilities, types of equipment, wedding ceremony layout, etc. ④Other facilities and equipment |
| Hotel Market | ①Local economy/overall economic conditions --Economic indicators, local statistics, tourist data, etc. ②Location of hotel --Local area, access points, nearby infrastructure, etc. ③Comp market --Review of competing and potentially competing assets, including new developments |
| Hotel Operations | ①Revenue by business division --Review points include occupancy rates per operational sector, ADR, RevPAR (Note 1), number and size of banquets, weddings, and other major gatherings, number of guests served per restaurant, unit prices, marketing strategy and cost/performance analysis ②Review of expenses by business division --Review points include unit price rates, personnel costs, administrative costs, maintenance costs, etc. ③Others |
| Tenant Services | ①Review of tenants --Analysis of creditworthiness, track record ②Review of tenant mix |
| Other Expense Items | ①Condition of leased assets ②Insurance coverage ③Taxes (fixed asset tax, city planning tax, etc.) ④License and/or franchise fees, etc. ⑤Costs for renewal of FF&E (Note 2) |
| Licenses and Approvals | Confirmation of all necessary licenses and approvals for carrying out the business under the Hotel Business Law (Law. No. 233, 1947, including all subsequent amendments), the Liquor Control Law, the Tobacco Business Law (Law. No. 68, 1984, including all subsequent amendments), the Act regulating the Adult Entertainment Business, etc. (Law No. 122, 1948, including all subsequent amendments), including all necessary disclosures, government notifications, etc. |
| Material Agreements | Agreements material to operations such as hotel leases, management agreements, third party service agreements, etc. |
(Note 1) RevPAR (Revenue Per Available Room) is calculated by dividing the hotel's total guestroom revenue (not including any other revenue) by the total room count and day count.
(Note 2) FF&E stands for 'Furniture, Fixture, & Equipment' and refers to items such as furniture, decorations, dishes, kitchen equipment, etc. that are necessary for hotel operations. Generally all FF&E are depreciable assets.
Hotel Investment Guidelines
Ichigo Hotel makes investment decisions based on the guidelines set forth below. Non-satisfaction of any specific guideline does not automatically rule out an acquisition, as we reach investment decisions based on a comprehensive assessment of the total investment opportunity for our shareholders.
This table can be scrolled horizontally.
| Factor | Guideline | |
|---|---|---|
| Location | Investment decisions will be made based on a comprehensive analysis and examination of asset type, area, size and other characteristics. | |
| Building Age | Investment decisions will be made based upon a comprehensive analysis of building and facility quality, taking into account any and all necessary renovations. | |
| Floor Space, Design and Build, and Equipment | Investment decisions shall be based on a comprehensive analysis and examination of asset type, area, size, and other characteristics. | |
| Legal Compliance | Generally, properties should comply with applicable public laws and regulations such as the City Planning Law and the Building Standards Law. However, non-compliant properties are investable if such non-compliance is expected to be corrected in the future. | |
| Earthquake Safety | Properties should be compliant with the new earthquake resistance standards or equivalent under the Building Standards Act of 1981. (Note 1) | |
| Earthquake PML (Note 2) (Probable Maximum Loss) |
Stand-alone PML of no more than 20%, with a non-exceedance probability of 90%. The portfolio PML shall be maintained at 10% or less. |
|
| Asbestos, PCB, and Other Harmful Substances | Asbestos | Buildings containing asbestos are generally not investable. However, buildings with a very low possibility of dispersal may be eligible for investment depending on the cost to remedy the contamination, etc. |
| PCB | Properties in which PCB can be stored in accordance with the Act on Special Measures Concerning Promotion of Proper Treatment of PCB Waste are generally investable. The acquisition price should reflect the costs of PCB storage, etc. | |
| Other | Attention should also be paid to other harmful substances. | |
| Soil Contamination | Land which is or was a designated area (Note 3) as specified in the Soil Contamination Countermeasures Act are not subject to investment. In cases where the land is found to be contaminated (Note 4) via an environmental assessment, the acquisition price will reflect the scale of contamination and the costs of rectification. | |
(Note 1) New earthquake resistance standards includes structural standards set forth in the Cabinet Ordinance (No. 196, 1980) and the Enforcement Regulations (No. 338, 1950, including subsequent amendments) to amend the Building Standards Law.
(Note 2) PML expresses the probable maximum loss that results from an earthquake. It can be calculated with respect to individual assets or a total portfolio. While there is no standardized definition of PML, Ichigo REIT's PML is based upon a projected building life use period of 50 years (as the assumed useful life of a standard building) and the calculated level of damage from a projected maximum size earthquake that occurs once every 475 years (i.e., an earthquake with a 10% probability of occurring within 50 years). The PML is expressed in percentage terms as the cost to restore a building to its condition prior to the earthquake relative to the building’s replacement cost.
(Note 3) A designated area means an area specified in the Soil Contamination Countermeasures Act (Law No. 53, 2002, including subsequent amendments) as defined and/or described under Article 5, Paragraph 4; Article 6, Paragraph 4; and Article 11, Paragraph 2 of such Soil Contamination Countermeasures Act.
(Note 4) Contamination refers to an area polluted at requisite levels of substances deemed hazardous under the Soil Contamination Countermeasures Act (Law No. 53, 2002, including subsequent amendments) and/or any guidelines or ordinances concerning hazardous materials set forth by any government organization, including any currently planned guidelines and/or ordinances, etc. to be made public.
Minimum Investment Amount
| Type of Investment | Minimum Investment Amount |
|---|---|
| Real Estate/Trust Beneficiary Certificates | 500 million yen |
| Real-Estate-Related Securities | 10 million yen |
※ Investments may be made otherwise based on thorough analysis of competitiveness and profitability.