Takatsuki-Josai Shopping Center Ueroku F Building
Nitori Ibaraki-Kita Store
Kohnan Hiroshima Nakano-Higashi Store Sphere Tower Tennozu
Shiodome East Side Building Hotel Gracery Tamachi LAXA Osaka
LaLaport KOSHIEN
MANDAI Toyonaka Honan Store Kita-Aoyama San cho-me Building
DAILY QANAT Izumiya Horikawa Marutamachi Store kotocross Hankyu Kawaramachi
LIFE Shimoyamate Store MANDAI Gojo Nishikoji Store KOHYO Onohara Store OASIS Town Itami Konoike METS OZONE
Vessel Inn Hakata Nakasu
25
th Fiscal Period
Semi-Annual Report
From June 1, 2017 to November 30, 2017
Hankyu REIT, Inc.
19-19 Chayamachi, Kita-ku, OsakaWe hereby report on the management status of Hankyu REIT for the 25th fiscal
period from June 1, 2017 to November 30, 2017.
In the fiscal period under review (25th fiscal period), Hankyu REIT took a solid
step forward toward expanding its asset scale, enhancing portfolio quality and raising
distributions on an ongoing basis.
In terms of external growth, we resolved on November 28, 2017 to acquire Vessel
Inn Hakata Nakasu, a hotel specialized in accommodations, located in Fukuoka City.
Moreover, we resolved on the acquisition of METS OZONE, a community-based retail
facility located in Nagoya City, Aichi, on January 25, 2018 (26th fiscal period), when we
also made a resolution and an announcement of the issuance of new investment units
through public offering, our first such arrangement in approximately 3 years and 8 months.
The two properties we have resolved for acquisition represent the first acquisition for
Hankyu REIT in Fukuoka and Nagoya areas, respectively.
Vessel Inn Hakata Nakasu is approximately a 1-minute walk from Nakasu-Kawabata
Station, the nearest station to Nakasu area which is the largest bustling quarter in
Kyushu. Close to Tenjin area and featuring good access to Hakata Station and Fukuoka
Airport, the property can secure stable earnings by concluding a long-term lease agreement with fixed rents.
METS OZONE is located in a residential area in the center of Nagoya City. The property is a community-based retail facility with
highly-convenient transport access as it faces arterial roads and is situated in approximately a 5-minute walk from Ozone Station, which is a major
terminal station accessible by 3 lines (JR, Nagoya Municipal Subway and Meitetsu lines).
For these properties, Hankyu REIT secured acquisition at fair values without being roused by seemingly overheated bidding, as it
successfully arranged the acquisition through bidding among limited bidders for Vessel Inn Hakata Nakasu and through a one-on-one
transaction for METS OZONE.
As for internal growth, new lease agreements were concluded with two tenants for Sphere Tower Tennozu in the 25th fiscal period.
Consequently, the occupancy rate of the property stood at 93.0% at the end of the 25th fiscal period, and rose to 94.8% as of the end of February
2018.
With regard to Hotel Gracery Tamachi, which had been subject to a legal action since October 2014, a settlement was reached on
September 13, 2017. Although the settlement does not thoroughly satisfy its claim, Hankyu REIT anticipates that, after closely examining the
process of the repair plan and relevant expenses and other costs, we can keep its distribution levels by accepting the settlement. Accordingly,
we agreed to settle the issue as we determined that closing the action and eliminating uncertainty risks in the future should be the best
solution to avoid damaging the unitholders’ interests.
As a result of these endeavors, Hankyu REIT decided to deliver distribution per unit of ¥2,877 for the 25th fiscal period. For the 26th and
the 27th fiscal periods, we forecast distribution per unit at ¥2,950 and ¥3,000, respectively. Moreover, our asset scale will be ¥149.7 billion
after the acquisition of the two properties is completed.
Going forward, while endeavoring to stably secure distribution per unit at the middle of the ¥2,900 level, we will aim to expand the asset scale
to ¥200 billion and increase the distribution level to ¥3,000 by pursuing upside gains through acquiring quality properties and other measures.
The real estate market remains overheated, while the economic environment is fluctuating every day. However, we are resolved to unwaveringly
take measures in accordance with our medium-term management policy. In this way, we will endeavor to steadily increase distributions.
As we pursue steady growth for Hankyu REIT going forward to achieve its medium-to-long-term goals, we would greatly appreciate your
continued support.
Hankyu REIT is implementing measures toward
continued growth and enhancement of distributions.
To Our Unitholders
Yoshiaki Shiraki
Executive Director, Hankyu REIT, Inc. President and Representative Director, Hankyu REIT Asset Management, Inc.
Table of Contents
To Our Unitholders
25th Fiscal Period Highlights
Topics
◦
Achieving Continued Growth through Public Offering
and Property Acquisitions
◦
External Growth Initiatives
◦
Internal Growth Initiatives
◦
Financial and Other Initiatives
03
04
06
Portfolio Data
Portfolio Map
12
14
Financial Section
Information
Unitholders’ Information
66
Distribution Policy
Implementation of management that emphasizes stability of
distributions in the medium-to-long-term period
1
External Growth Strategy
Further sustainable growth of portfolio by utilizing the comprehensive
strengths of the Hankyu Hanshin Holdings Group
2
Internal Growth Strategy
Deepening of operational management
3
Financial Strategy
Implementation of stable inancial operations and LTV controls
4
Growth Strategy/Management Policy
25th Fiscal Period
Semi-Annual Report
Hankyu REIT, Inc.
From June 1, 2017 to November 30, 2017
Asset Management Report
Financial Statements
16
43
Balance Sheets
Statements of Income and Retained Earnings
Statements of Changes in Net Assets
Statements of Cash Flows
Notes to Financial Statements
Independent Auditor’s Report
44
46
47
48
49
65
Disclaimer
For the 25th fiscal period, Hankyu REIT achieved ¥4,902 million in operating revenues and ¥1,718 million in net income, showing an increase in revenues and income from the previous fiscal period’s results and over the forecasted figures announced on July 14, 2017.
Distribution per unit was ¥2,877, resulting in an increase of ¥160 (5.9%) from the previous fiscal period (¥2,717) as well as an increase of ¥77 (2.8%) from the distribution per unit forecast (¥2,800) announced on July 14, 2017.
25th Fiscal Period Fixed Distribution (per Unit)
Investor Ratings
LTV
¥2,877
Operating Revenues
¥4,902
million
Operating Income
¥2,150
million
AA–
Japan Credit Rating Agency, Ltd. (JCR)
(Outlook: Stable)
A+
Rating and Investment Information, Inc. (R&I)
(Outlook: Stable)
As of the end of the 25th fiscal period, Hankyu REIT has attained a long-term issuer rating of AA– (rating outlook: stable) from Japan
Credit Rating Agency, Ltd. (JCR) and an issuer rating of A+ (rating outlook: stable) from Rating and Investment Information, Inc. (R&I).
LTV at the end of the 25th fiscal period decreased due to an increase in appraisal values of properties owned, among other reasons.
41.4
%
●LTV (%)
21st FP 22nd FP 23rd FP 24th FP 41.9 43.0 42.2
25th FP 0
60 50 40 30
43.2 41.4
Distribution per Unit Forecast
26th Fiscal Period
27th Fiscal Period
¥2,950 ¥3,000
Upon the announcement of the 25th iscal period operating results on January 25, 2018, Hankyu REIT announced the distribution per unit forecast for the 26th iscal period (iscal period ending May 2018) and the 27th iscal period (iscal period ending November 2018) as follows.
The distribution per unit forecasted is based on certain assumptions available to Hankyu REIT as of January 25, 2018. Actual distribution per unit may differ substantially due to changes in conditions, and the forecasts are not a guarantee of any distribution amount.
Furthermore, the above forecast igures are based on the content announced in “Hankyu REIT, Incorporated Financial Results for the 25th Fiscal Period from June 1, 2017 to November 30, 2017” dated January 25, 2018.
Occupancy Rate
(Occupancy by End-Tenants)
Maintained a high-level of occupancy rate through aggressive leasing activities.
99.8
%
●Occupancy Rate (%)
21st FP 22nd FP 23rd FP 24th FP 98.8
25th FP 98.8 99.1 99.6 99.8
0 50 100
Total Acquisition Price/Total Number of Properties
●Total Acquisition Price (Billions of Yen)/Total Number of Properties
21st FP 22nd FP 23rd FP 24th FP 25th FP 0
130 140
120 110 100 150
20 25
15 10 5 0 23
139.30 21 132.89
23 23 141.62 141.62
23 141.62
Ordinary Income
¥1,793
million
Net Income
¥1,718
million
2,620
●Distribution per Unit (Yen)
21st FP
0
22nd FP 23rd FP 24th FP 2,775
2,626 2,717
2,877
25th FP 1,200
1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000
¥141.62
billion
23
properties
Topics
Hankyu REIT is engaged in operating its portfolio with an aim to enhance unitholder value over the medium-to-long-term. Since 2013, Hankyu REIT has achieved higher profitability and enhanced quality of its portfolio by conducting strategic asset replacement with the sponsor, etc., and acquiring properties focusing on excellent quality of retail facilities in Kansai Region, while working to solve problems by making investments for value enhancement at existing properties and promoting their lease, among other endeavors.
As Hankyu REIT continued investigations on property acquisitions in the 25th fiscal period, it resolved in November 2017 to acquire Vessel Inn Hakata Nakasu, a hotel specialized in accommodations, located in Fukuoka City. It also resolved on the acquisition of METS OZONE, a community-based retail facility located in Nagoya City, Aichi, in January 2018 (26th fiscal period), when it also made a resolution and an announcement of the issuance of new investment units through public offering. Going forward, Hankyu REIT will continue its endeavors to further expand its asset scale and maintain and enhance the distribution level by acquiring vigorously selected quality properties, etc., based on its medium-term management policy.
Achieving Continuous Growth Based on Medium-Term Management Policy and
Enhancing Portfolio Quality
Properties acquired (to be acquired) in the 26th FP
Acquired in February 2018
Vessel Inn Hakata Nakasu
Properties acquired in the 16th FP (April 2013)
Properties transferred in 16th FP (April 2013)
Hankyu Corporation Head Office Building HANKYU NISHINOMIYA GARDENS (28% of the
quasi co-ownership of the trust beneficiary interests)
Properties acquired upon 3rd public offering
(19th FP (June 2014))
kotocross Hankyu
Kawaramachi LIFE Shimoyamate Store (site)
Medium-Term Management Policy
1. Further expand the asset scale
2. Maintain and increase the distribution level
3. Implement environmental-friendly, etc., initiatives and systematically conduct repairs and capital expenditures in order to maintain and enhance the property value
4. Investigate and implement asset replacement to enhance portfolio quality
5. Cope with the risk factors of the future
6. Achieve stable financial operations
Average NOI yield 4.6% 5.0% 4.8% 4.7% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% 4.9% 4.9%
Average yield after depreciation 3.0% 3.4% 3.3% 3.2% 3.4% 3.4% 3.4% 3.5% 3.7% 3.6% 3.7% 3.7%
Unrealized gain/loss ¥-8.3 billion ¥-5.8 billion ¥-3.6 billion ¥-0.9 billion ¥1.6 billion ¥4.7 billion ¥8.4 billion ¥12.6 billion ¥14.6 billion ¥17.6 billion ¥20.4 billion ¥20.6 billion
LTV 55.8% 53.5% 48.6% 47.3% 45.4% 44.4% 43.2% 41.9% 43.0% 42.2% 41.4% 40.2%
Asset replacement
Operational management
Problem solving
ESG awareness results (Note 3)
Renovation Value enhancement
Occupancy rate improvement Settlement reached
Granted Gold Award in the 5th Japan
SC Awards
Granted 5 Stars in DBJ Green Building
Certification
Granted Award for Minato City Local Green
City Development
Properties acquired in the 23rd FP
KOHYO Onohara Store OASIS Town Itami Konoike (site)
Properties transferred in 22nd FP (April 2016)
Namba-Hanshin Building Richmond Hotel Hamamatsu
Asset replacement
(July 2016) (November 2016)
Asset scale
(Total (proposed) acquisition price)
Distribution per unit
End of 15th FP Nov. 2012
End of 16th FP May 2013
End of 17th FP Nov. 2013
End of 18th FP May 2014
End of 19th FP Nov. 2014
End of 20th FP May 2015
End of 21st FP Nov. 2015
End of 22nd FP May 2016
End of 23rd FP Nov. 2016
End of 24th FP May 2017
End of 25th FP Nov. 2017
After acquiring 2 new properties (Note 1)
¥116.1 billion
¥127.8 billion ¥127.8 billion
¥139.3 billion ¥139.3 billion ¥139.3 billion
¥132.8 billion
¥141.6 billion ¥141.6 billion ¥141.6 billion
¥149.7 billion
¥121.3 billion
¥2,445
¥2,361
¥2,597
¥2,492 ¥2,537 ¥2,567 ¥2,620
¥2,775
¥2,626 ¥2,717
¥2,877
Average NOI yield
+0.3 points
Average yield after depreciation
+0.7 points
Unrealized gain/loss
¥+28.9 billion
LTV
-15.6 points
Comparison with end of 15th FP (Note 2)
Asset scale
+23.5%
Distribution per unit
+17.7%
HANKYU NISHINOMIYA GARDENS
HANKYU NISHINOMIYA GARDENS
Sphere Tower Tennozu HANKYU NISHINOMIYA
GARDENS
Kita-Aoyama San cho-me Building HEP Five
HEP Five (31% of the quasi co-ownership
of the trust beneficiary interests) NU_ chayamachi
Hotel Gracery Tamachi
Adoption of ASSET business
Kitano Hankyu Building Granted 4 Stars in
DBJ Green Building Certification
HANKYU NISHINOMIYA GARDENS Food court renovation
Kitano Hankyu Building LAXA Osaka
Beautification of common-use portion Repair of
exterior walls
Sphere Tower Tennozu
Properties acquired upon 2nd public offering
(17th FP (June 2013))
Property acquired in the 17th FP (November 2013)
MANDAI Toyonaka Honan Store (site)
Kita-Aoyama San cho-me Building AEON MALL
SAKAIKITAHANADA (site)
DAILY QANAT Izumiya Horikawa Marutamachi Store (site)
MANDAI Gojo Nishikoji Store (site)
METS OZONE
To be acquired in March 2018
Adoption of LED lighting for common-use portion
Dew Hankyu Yamada
Repair of exterior walls
Takatsuki-Josai Shopping Center LTV improvement Shift to position of unrealized gain
Replacement of disaster prevention equipment
Kitano Hankyu Building
(Note 1) The respective figures after acquiring the 2 new properties have been calculated by simply adding the respective figures for already-acquired properties and the figures for the 2 new properties under certain assumptions, and may not necessarily be identical with the actual figures after acquiring the 2 new properties; the same shall apply hereinafter.
(Note 2) The figures for asset scale, average NOI yield, average yield after depreciation, unrealized gain/loss and LTV indicate the value obtained by comparing the respective figures at the end of the 15th fiscal period and after acquiring the 2 new properties. The figure for distribution per unit indicates the value obtained by comparing the respective figures at the ends of the 15th and the 25th fiscal periods. (Note 3) ESG awareness results represent the results of initiatives with a focus on Environment, Social and Governance awareness.
(Note) For METS OZONE, the Asset Management Company collaborated with Hankyu Sekkei Consultant, which belongs to the sponsor group, to make a proposal to the seller regarding reductions of energy costs for its CRE (Corporate Real Estate) operations.
Acquisition of Properties Located Closely to Major Stations on the Tokaido Sanyo Shinkansen Line
– First Property Acquisitions in Nagoya and Fukuoka Areas
Enhancement of Earnings Stability with Progress in the Diversiication of Investment Locations and Property Use
■Hankyu REIT endeavors to enhance earnings stability with progress in the diversification of investment locations and property use by acquiring properties in Nagoya and Fukuoka areas – the first such properties for Hankyu REIT.
■Hankyu REIT strives to steadily expand the asset scale by acquiring properties at appropriate levels, as it acquires METS OZONE, a community-based retail facility, through a negotiated transaction and Vessel Inn Hakata Nakasu, a hotel, through bidding among limited bidders.
■Hankyu REIT works to further expand the property acquisition methods by achieving property acquisitions in line with CRE (Corporate Real Estate) proposals utilizing solutions by the sponsor group.
External Growth Initiatives
New Properties Acquired (to be acquired)
Overview of Newly Acquired Properties
Diversification by investment location
Diversification by property use
End of 25th FP
Kansai Region
74.3
%
Tokyo24.2% Tokyo
22.9%
Other regions1.5% Other regions 6.9% Other 0.8% Other 0.8%
Umeda area
17.2%
Umeda area
16.3%
Areas along Hankyu-Hanshin Lines
49.1%
Areas along Hankyu-Hanshin Lines
46.4%
Community-based retail facilities
50.9%
Community-based retail facilities
51.7%
Urban retail facilities
14.4%
Urban retail facilities
13.6%
Office
26.1%
Office
24.7%
Other part of Kansai Region
7.9%
Other part of Kansai Region
7.5%
Hotel
7.7%
Hotel
9.2%
METS OZONE
Acquisition price ¥5,400 million
NOI yield 5.4%
Yield after depreciation 4.2%
Location Higashi-ku,
Nagoya City, Aichi Pref.
Site area (Note)/
Leased area
17,422.32 m2/
15,681.37 m2
Occupancy rate 100%
Major tenants Nitori Holdings Co., Ltd.,
EDION Corporation
Opened April 2002
Property
manager TOKYU COMMUNITY CORP.
Acquisition date February 15, 2018
Community-based retail facility
After acquiring 2 new properties
Kansai Region
70.2
%
End of 25th FP
Retail-use zone
73.0
%
After acquiring 2 new properties
Retail-use zone
74.5
%
METS OZONE (acquired in the 26th FP)Community-based retail facility
Focused
investment area
(Kansai Region)
Tokaido Sanyo Shinkansen
Areas where major stations are located
Tokyo ( Tokyo metropolitan
area)
Nagoya
Hiroshima
Fukuoka
Kyoto Osaka Kobe
Location featuring excellent traffic access
The property is highly convenient as it is located in a residential area close to the center of Nagoya City, is approximately a 5-minute walk from the nearest station that is accessible by three lines, and faces arterial roads.
Trade zone with a high retail potential
The property covers an area with a concentrated and increasing population, and a high retail potential.
Composed of tenants that meet everyday needs
The tenants are composed of those that meet everyday needs of the community residents.1
2
3
Features of Surrounding Areas
Located in a residential area featuring good access to the center of Nagoya City
■Located in a residential area close to the center of Nagoya City
■Located in an area where demand for apartment units is expected from singles and DINKs (Note) who value
accessibility as well as from families, etc.
(Note) It refers to Double Income No Kids.
Facing arterial roads to secure good vehicle access
■The property faces Inner Ring Route, a wide-area arterial road, and is close to National Road No. 19 and Nagoya Expressway Ring Route, offering good access by car.
■The property has a ground parking lot for 124 vehicles to the west of the store, as well as a multilevel parking lot for 558 vehicles.
Nearest station is a transportation hub, accessible by 3 lines
■Ozone Station, the nearest station, is accessible by 3 lines (JR Chuo Line, Nagoya Municipal Subway Meijo Line and Meitetsu Seto Line), and is the origin and destination of the Yutorito Line operated by Nagoya Guide-way Bus Co., Ltd.
■The property is located within a 5-minute walking distance from the nearest station, featuring highly-convenient transport access.
Utilizing Sponsor Solutions
Hankyu REIT achieved property acquisition through a negotiated transaction by utilizing solutions fostered by the operational management of the sponsor group, in addition to the property information channel proprietary to the Asset Management Company.
Proprietary property information channel of the Asset Management Company
Property acquisition through negotiated
transaction
+
Sponsor solutions (by Hankyu Sekkei Consultant)
Top 10 Japanese cities by population (2015) Annual retail sales volume by city (2014)
(Source) Prepared by the Asset Management Company based on the Commerce Statistics 2014, Volume 3, Industries (table of municipalities) by Nagoya City.
(Note) The figure indicates the sum total of the 23 Wards of Tokyo. (Source) Prepared by the Asset Management Company based on the 2015 Population Census by the Statistics
Bureau, Ministry of Internal Affairs and Communications. (Note) The figure indicates the sum total of the 23 Wards of Tokyo.
Good Retail Market of Nagoya City Bolstered by Strong Purchasing Ability
■Nagoya City has a population of approximately 2.3 million, which is the 4th largest in Japan after Tokyo (23 Wards), Yokohama City and Osaka City and is on an increasing trend.
■For the annual retail sales volume by city (2014), Nagoya City is ranked the fourth in Japan after Tokyo (23 Wards), Osaka City and Yokohama City. Moreover, Hankyu REIT believes that the retail market of Nagoya City is bolstered by consumers with a high income level.
0 2.000 4.000 6.000 8.000 10.000(millions of people)
Tokyo (23 Wards) (Note)
Yokohama City Osaka City
Nagoya City
Sapporo City Fukuoka City Kobe City Kawasaki City Kyoto City
Saitama City 1.263 1.475 1.475 1.537 1.538 1.952
2.295
2.691 3.724
9.272
0 5.0 10.0 15.0(trillions of yen)
Tokyo (23 Wards) (Note)
Osaka City Yokohama City
Nagoya City
Sapporo City Fukuoka City Kobe City Kyoto City Hiroshima City
Sendai City 1.2 1.2 1.6 1.6 1.7 2.0
2.9
3.4 3.9
12.4 (Note) The figure includes a leased portion (ground parking lot) of 3,660.77 m2.
Vessel Inn Hakata Nakasu (to be acquired in the 26th FP)
Hotel
KOHYO Onohara Store (acquired in the 23rd FP)
Community-based retail facility
OASIS Town Itami Konoike (site) (acquired in the 23rd FP)
Community-based retail facility
0 500 1,000 1,500 2,000 2,500 3,000 2016 2015 2014 2013 2012
2011 (Year)
(thousand people)
Fukuoka Airport Port of Hakata
590 820
900
1,200
2,080
2,570
(Source) Prepared by the Asset Management Company based on the Statistics on Legal Immigrants by the Ministry of Justice.
0 20.0 40.0 60.0 80.0 100.0 Feb. 2018 Nov. 2017 May 2017 Nov. 2016 May 2016 Nov. 2015 May 2015 (%) 39.0% 39.0% 40.9% 52.5%
88.1% 93.0% 94.8%
Hankyu REIT had significantly improved its financial position through the 20th fiscal period by conducting public offerings for two consecutive years in the 17th and the 19th fiscal periods and other measures. In addition, Hankyu REIT obtained AA– rating (Rating Outlook: Stable) for a long-term issuer rating from Japan Credit Rating Agency, Ltd. (JCR) in the 18th fiscal period. A favorable financial standing has been maintained in the 25th fiscal period as well.
In the 25th fiscal period, Hankyu REIT refinanced ¥2.5 billion in long-term debt that matured in July 2017 in short-term debt (variable interest rate), ¥3.0 billion in long-term debt that matured in September 2017 in long-term debt (10 years, fixed interest rate), and ¥1.5 billion in long-term debt that matured in October 2017 in short-term debt (variable interest rate), all for the same amount.
With the refinances, Hankyu REIT worked to secure flexibility of fund management and reduce fund procurement costs by refinancing ¥4.0 billion in short-term, variable rate debt, while achieving an extension of the average remaining years and diversification of debt repayment dates by refinancing ¥3.0 billion in long-term, fixed rate debt, in an effort to further improve its financial standing and maintain and increase distributions.
As a result of these endeavors, the long-term debt ratio, fixed rate debt ratio and average debt financing costs at the end of the 25th fiscal period marked 89.1%, 85.7% and 0.88%, respectively.
LTV decreased to 41.4% at the end of the 25th fiscal period from 42.2% at the end of the 24th fiscal period, given an increase in the appraisal value of the properties owned.
Going forward, Hankyu REIT will seek continuation of stable financial operations and improvement in distributions by further reducing fund procurement costs, extending debt maturity and diversifying repayment dates, taking into account its financial status, etc., while closely watching market trends including interest rates.
External Growth Initiatives
Internal Growth Initiatives
Overview of Newly Acquired (to be acquired) Properties
Financial and Other Initiatives
Location in close proximity to Hakata and Tenjin areas
The property is approximately a 1-minute walk from Nakasu-Kawabata Station, the nearest station to Nakasu area which is the largest bustling quarter in Kyushu, and is in close proximity to Hakata and Tenjin areas.
Good access from the nearest station
The nearest station offers good access to Hakata Station, a major terminal station, and Fukuoka Airport.
Highly-stable long-term lease agreement with fixed rents
A long-term lease agreement with fixed rents secures stable earnings.1
2
3
Proposed acquisition price ¥2,760 million
NOI yield 4.3%
Yield after depreciation 2.7%
Location Hakata-ku, Fukuoka City
Site area/ Leased area
405.98 m2/
2,776.49 m2
Operator Vessel Hotel Development Co., Ltd.
Lease agreement term (Note) 25 years
No. of guest rooms 166 rooms in total (of which, 153 single rooms)
Opened February 2010
(Rebranded on October 2014) Proposed acquisition date March 29, 2018
Property Features
■The property features good access to Hakata Station, a major terminal station, and Fukuoka Airport, and is in close proximity to such office zones and bustling quarters as Hakata and Tenjin areas. As such, demand is expected to grow going forward both for leisure and business purposes.
■Vessel Inn is one of the brands of the hotel groups (with a total of 18 hotels throughout Japan) operated by Vessel Hotel Development Co., Ltd. Under the concept of “providing comfortable and clean spaces at reasonable prices,” the Vessel Inn brand has adopted beds by Simmons, air purifiers with a humidifying function and Wi-Fi equipment, etc., for all guestrooms, with an aim to provide spaces that feature both cleanliness and functionality.
Changes in the Number of Foreign Visitors to Japan (Fukuoka Airport and Port of Hakata)
Changes in Guestroom Occupancy Rates of Accommodations Facilities (Fukuoka City)
Hotel Market in Fukuoka City with Demand Expected to Expand
for both Sightseeing and Business Purposes
■Thanks to an increase in the number of users of Fukuoka Airport and the number of inbound foreign tourist visiting Fukuoka Prefecture, among other factors, the guest room occupancy rate (Note) of accommodation facilities in the city has been stable, at over 80%
since 2016, remaining at a high level.
■As a core city in the Kyushu region, Fukuoka City has a concentration of offices, allowing expectations for hotel accommodations needs from business guests.
■The number of international conventions held in Fukuoka City has been the second largest in Japan after the 23 Wards of Tokyo for 7 consecutive years, allowing expectations for expanded accommodation demand for business use and academic occasions in addition to sightseeing.
■The occupancy rate of Sphere Tower Tennozu dropped to 39.0% as of the end of the 19th fiscal period due to move-outs of large tenants, etc. Since the 20th fiscal period, focus had been placed on meticulous leasing activities by demonstrating the advantages and strengths of the area as well as the property’s characteristics and location, etc., on top of strengthening its appeal through value enhancement works. Moreover, even after the occupancy rate dropped, Hankyu REIT had continued leasing activities without lowering target rents, taking into account the rent levels over the medium-to-long-term.
Along with these leasing activities, the property’s rent level and its appeal point of offering large zones in blocks have matched the tenant needs in light of the upward trend of rents in Tokyo metropolitan area due to a decrease in the office vacancy rates. This has resulted in an increase in the property’s occupancy rate at the end of the 24th fiscal period to 88.1%.
The focus on leasing activities continued in the 25th fiscal period, leading to the conclusion of lease agreements with two new tenants since October 2017. With the lease agreements coming into effect on November 1, 2017 and February 1, 2018, respectively, the occupancy rate of the property increased to 93.0% at the end of the 25th fiscal period and 94.8% in February 2018.
Going forward, Hankyu REIT will work on the management and leasing of the property in close communication with Premier Investment Corporation, which acquired 67% quasi co-ownership interests (the portion other than what is owned by Hankyu REIT) in June 2017, in an effort to further enhance the property’s value.
■As for Hotel Gracery Tamachi, an action for rent reduction was filed by Fujita Kanko Inc., the lessee of the property, in October 2014 via Mizuho Trust & Banking Co., Ltd., the trustee of the property.
Hankyu REIT had considered the claim by Fujita Kanko Inc. for rent reduction to lack reasonable grounds, and filed a counterclaim for rent increase in July 2015.
With the court recommendation of a settlement, a settlement was reached as of September 13, 2017. Although the settlement does not thoroughly satisfy its claim, Hankyu REIT anticipates that, after closely examining the process of the repair plan and relevant expenses and other costs as well as considering the balance of income and expenditures, it can keep its distribution levels by accepting the settlement. Accordingly, Hankyu REIT agreed on the settlement, determining that closing the action and eliminating uncertainty risks in the future should be the best solution to avoid damaging the unitholders’ interest.
Hotel
Sphere Tower Tennozu (external appearance)
(Note) The lease agreement term indicates the contract period (years) based on the lease agreement that is effective as of the proposed acquisition date by Hankyu REIT.
(Source) Prepared by the Asset Management Company based on the Travel and Staying Statistics by the Japan Tourism Agency.
60 85 80 90
Jan. 2013 Jul. 2013 Jan. 2014 Jul. 2014 Jan. 2015 Jul. 2015 Jan. 2016 Jul. 2016 Jan. 2017 Jul. 2017
95 75 70 65 (%) 12-month average Monthly
Diversification of Repayment Dates
Occupancy Rate Trend
1.0 10 8 6 4 2 0
(Billions of Yen)
26th FP May 2018 25th FP
Nov. 2017 Nov. 201827th FP May 201928th FP Nov. 201929th FP May 202030th FP Nov. 202031st FP May 202132nd FP Nov. 202133rd FP May 202234th FP Nov. 202235th FP May 202336th FP Nov. 202337th FP May 202438th FP Nov. 202439th FP May 202540th FP Nov. 202541st FP May 202642nd FP Nov. 202643rd FP May 202744th FP Nov. 202745th FP May 202846th FP Nov. 202847th FP May 202948th FP Nov. 202949th FP May 203050th FP Nov. 203051st FP May 203152nd FP Nov. 203153rd FP
7.0
6.0 5.5 5.0 5.0 5.2 5.0
4.0
2.0 2.0 2.8 2.0
1.2
¥2.0 billion in investment corporation bonds
¥2.0 billion in investment corporation bonds 3.0 5.2 1.5 7.0 2.5
(Note) The guestroom occupancy rate indicates the figures obtained by dividing the number of guestrooms sold in the relevant month or in the past 12 months including the relevant month, respectively, by the number of available rooms.
Exit 3
Hakataza Theater
Riverain Center Bld. Subway
Hakozaki LineSubway
Airport Line Meiji-dori Showa-dori Kunihiro-jinja-dori Vessel Inn Hakata Nakasu Hakatagawa-dori Nakasu-chuo-dori Sennichimae-dori Nakasu-Kawabata Sta. Approx. 1-minute walk from Nakasu-Kawabata Sta.
Tenjin Sta. Hakata Sta.
Akasaka Sta. Nishitetsu Fukuoka Sta.
Nakasu-Kawabata Sta.
Sanyo Shinkansen
Subway Nanakuma Line
Nishitetsu Tenjin-Omuta Line Naka River Hakata-ek imae-dori Subway Hakozaki Line Hakata Hankyu Dept. Store Hakata Hankyu Dept. Store Hakataza Theater Fukuoka PARCO Showa-dori Fukuoka Urban Expressway Circular Route
Subway Airport Line Vessel Inn Hakata Nakasu Mikasa River Fukuoka Urban Expressway Circular Route
Subway Airport Line
Hakata Marui Hakata Marui Tenjin-minami Sta.
CANAL CITY HAKATA CANAL CITY HAKATA Gofukumachi Sta. Hakata area Tenjin area Nakasu area
Vessel Inn Hakata Nakasu
Sphere Tower Tennozu and Hotel Gracery Tamachi
Topics
Trends of Average Debt Financing Costs and Average Remaining Years
0.9 1.0 1.1 1.2 1.3 1.4 1.5 0.8 25th FP 24th FP 23rd FP 22nd FP 21st FP 20th FP 19th FP 18th FP 1.23
1.08 1.07 1.06
1.04 0.92 0.94
0.88
Average debt inancing costs (including investment corporation bonds) (left axis) Average remaining years (right axis)
(%) 0 1 2 3 4 5 6 2.7
3.4 5.1 4.8
4.4 4.4 4.4 4.4
(Note 1) The properties owned by Hankyu REIT are assigned codes classiied by the facility (type of use) and region. The letters on the left represent the facility (type of use): “R” is for retail-use facility, “O” is for ofice-use facility and “M” is for mixed-ofice-use (complex) facility. The numbers are assigned to each facility in chronological order of acquisition. The letter “(K)” in parentheses to the right of the numerals indicates that the property is located in Kansai Region.
(Note 2) Site area indicates igures equivalent to 100% ownership.
(Note 3) Figures in parentheses indicate the total leasable area for end-tenants, the occupancy rate based on the area and the number of end-tenants, respectively. For HEP Five, the total leasable area indicates the igure equivalent to 14% quasi co-ownership of the trust beneiciary interests. For Sphere Tower Tennozu, the total leasable area indicates the igure equivalent to 33% quasi co-ownership of the trust beneiciary interests. For HANKYU NISHINOMIYA GARDENS, the total leasable area indicates the igure equivalent to 28% quasi co-ownership of the trust beneiciary interests.
(Note 4) Although there is no single precise deinition of PML (Probable Maximum Loss), PML refers to the percentage of expected loss that may result from a large earthquake that occurs once every 475 years (annual exceedance probability: 0.21%) to the replacement cost (the cost of rebuilding the existing building at the time of investigation). However, the expected amount of loss shall be the direct loss of the building only (structural parts, non-structural parts and construction equipment) caused by seismic movements and shall not include secondary damage such as damage to equipment, furniture or ixtures, or post-quake losses caused by water or ire, compensation for victims, operating loss caused by suspension of operation and other losses.
(Note 5) Site area includes leased land portion of 8,409.40 m2.
(Note 6) Total leasable area includes area for a parking lot of 9,476.49 m2.
(Note 7) PML is for the parking garage space (394.88 m2) portion.
(Note 8) Site area includes leased land portion of 6,255.29 m2.
(Note 9) Total leasable area includes area for a parking lot of 8,929.49 m2 (equivalent to 28% quasi co-ownership of the trust beneiciary interests).
(Note 10) Site area includes leased land portion of 205.08 m2.
(Note 11) The completion year for the ofice and store portions is indicated.
(Note 12) Site area includes portion owned by other sectional owners of 1,204.93 m2 and leased land portion of 320.49 m2.
Portfolio List
Code
(Note 1) Name Location
Completion year
Site area
(m2)
(Note 2)
Total leasable area
(m2)
(Note 3) Occupancy rate (Note 3) Total number of tenants (Note 3) PML (Note 4) Date of acquisition Acquisition price
(Millions of Yen)
Investment ratio R e ta il -u se f a c ili ti e s
R1 (K) HEP Five (14% of the quasi co-ownership of the trust beneficiary interests)
Kita-ku, Osaka
City 1998 5,596.11
6,337.37 (2,958.94)
100.0% (99.7%)
1
(129) 5.0% Feb. 1, 2005 6,468 4.6% R2 (K) Kitano Hankyu Building Kita-ku, Osaka
City 1985 4,450.05
28,194.15 (18,477.35)
100.0% (98.8%)
2
(24) 10.1% Feb. 1, 2005 7,740 5.5% R3 (K) Dew Hankyu Yamada Suita City, Osaka
Prefecture 2003 7,914.22 13,027.28 100.0% 27 4.7% Feb. 1, 2005 6,930 4.9% R4 (K) Takatsuki-Josai Shopping Center Takatsuki City,
Osaka Prefecture 2003 31,007.58(Note 5)
31,451.81
(Note 6) 100.0% 1 5.9% Nov. 15, 2005 8,600 6.1%
R5 (K) Nitori Ibaraki-Kita Store (site) Ibaraki City, Osaka
Prefecture — 6,541.31 6,541.31 100.0% 1 — Mar. 29, 2006 1,318 0.9% R6 Kohnan Hiroshima Nakano-Higashi Store
(site)
Aki-ku, Hiroshima
City — 25,529.73
25,469.59
100.0% 1 — Oct. 2, 2006 2,170 1.5% 60.14 Apr. 9, 2007 5 R8 Hotel Gracery Tamachi Minato-ku, Tokyo 2008 1,724.01 4,943.66 100.0% 1 10.3% Dec. 25, 2008 4,160 2.9% R9 (K) LaLaport KOSHIEN (site) Nishinomiya City,
Hyogo Prefecture — 126,052.16 126,052.16 100.0% 1 6.4%
(Note 7) Jan. 22, 2009 7,350 5.2%
R11 (K)
HANKYU NISHINOMIYA GARDENS (28% of the quasi co-ownership of the trust beneficiary interests)
Nishinomiya City,
Hyogo Prefecture 2008 79,003.72(Note 8)
65,372.41
(Note 9) 100.0% 1 9.2% Apr. 16, 2013 18,300 12.9%
R12 (K) AEON MALL SAKAIKITAHANADA (site) Kita-ku, Sakai City,
Osaka Prefecture — 64,232.77 64,104.27 100.0% 2 — Jun. 27, 2013 8,100 5.7% R13 (K) MANDAI Toyonaka Honan Store (site) Toyonaka City,
Osaka Prefecture — 8,159.41 8,159.41 100.0% 1 — Jun. 27, 2013 1,870 1.3% R14 (K) DAILY QANAT Izumiya Horikawa
Marutamachi Store (site)
Kamigyo-ku, Kyoto
City — 3,776.15 3,776.15 100.0% 1 — Jun. 4, 2014 3,100 2.2% R15 (K) kotocross Hankyu Kawaramachi Shimogyo-ku,
Kyoto City 2007 638.62(Note 10) 4,400.13 100.0% 1 2.6% Jun. 4, 2014 2,770 2.0%
R16 (K) LIFE Shimoyamate Store (site) Chuo-ku, Kobe
City — 2,397.83 2,397.83 100.0% 1 — Jun. 4, 2014 1,421 1.0% R17 (K) MANDAI Gojo Nishikoji Store (site) Ukyo-ku, Kyoto
City — 9,182.80 9,182.80 100.0% 1 — Jun. 24, 2014 4,182 3.0% R18 (K) KOHYO Onohara Store Minoh City, Osaka
Prefecture 2016 4,479.14 3,310.31 100.0% 1 5.3% Jul. 1, 2016 1,631 1.2% R19 (K) OASIS Town Itami Konoike (site) Itami City, Hyogo
Prefecture ー 17,997.10 17,997.10 100.0% 1 — Nov. 25, 2016 7,100 5.0%
O ff ice -u se fa c ili ti e
s O1 Shiodome East Side Building Chuo-ku, Tokyo 2007 1,932.54 9,286.58 100.0% 6 4.6% Feb. 29, 2008 19,025 13.4%
O2 (K) Hankyu Corporation Head Ofice Building Kita-ku, Osaka
City 1992 3,396.82 27,369.37 100.0% 1 3.7% Apr. 10, 2013 10,200 7.2%
Mi xe d -u se ( c o m pl e x) f a c il it
ies M1 (K) Ueroku F Building Chuo-ku, Osaka
City 1993 915.22 4,611.82 93.8% 11 3.2% Nov. 1, 2005 2,980 2.1% M2
Sphere Tower Tennozu (33% of the quasi co-ownership of the trust beneficiary interests)
Shinagawa-ku, Tokyo
1993
(Note 11) 6,106.11 8,818.09 93.0% 24 2.7% Oct. 2, 2007 9,405 6.6%
M3 (K) LAXA Osaka Fukushima-ku,
Osaka City 1999 5,678.87(Note 12) 30,339.91 100.0% 1 3.7% Jan. 22, 2009 5,122 3.6%
M5 Kita-Aoyama San cho-me Building Minato-ku, Tokyo 2013 415.42 619.76 100.0% 3 7.4% Nov. 12, 2013 1,680 1.2%
Total (488,728.20)501,823.43 (99.8%)99.8% (241)91 3.5% — 141,628 100.0%
98.8 99.1 99.6 99.8
99.5 98.6 98.6 98.7 98.7 98.8
●404,922
●56,182
461,105
●404,922
●56,182
461,105 ●424,679
●56,182 480,862 ●332,614 ●55,561 388,175 ●404,922 ●56,182 461,105 ●404,922 ●56,182
461,105 ●424,679
●56,182 480,862 ●424,679 ●56,182 480,862 ●424,679 ●56,182 480,862 ●418,222 ●49,187 467,410 ●418,222 ●49,187 467,410 ●424,675 ●56,182 480,858 ●424,675 ●56,182 480,858 0 100 90 80 70 60 50 40 30 20 10 Occupancy rate
(%) Total leasable area (m2)
0 100,000 200,000 300,000 400,000 500,000
22nd FP 23rd FP
16th FP 17th FP 18th FP 19th FP 20th FP 21st FP 24th FP 25th FP Kansai Region
Occupancy rate Other regions
●439,530 ●49,197 488,728 ●439,530 ●49,197 488,728 ●439,530 ●49,197 488,728 ●439,530 ●49,197 488,728 ●439,530 ●49,197 488,728 Fixed-rent tenants
91.6
% Overage-rent tenants8.4
% Kansai Region74.3
% Zones for other uses0.8
% Other regions1.5
% Ofice-use zone26.1
% Retail-use zone73.0
% Tokyo24.2
% Umeda area17.2
% Areas along Hankyu-Hanshin Lines49.1
% Variable-rentportion
1.0
%7.7
% Of which, hotel-use zoneOther part of Kansai Region
7.9
%Fixed-rent
portion
7.4
%Total Acquisition Price Occupancy Rate (Note) Total Number of Properties PML
¥141.62
billion
99.8
% (99.8%)
23
properties
3.5
%
(Note) Figures in parenthesis indicate the occupancy rate based on the total leased area for end-tenants.
Investment Ratio by Use and Zone Investment Ratio by Region Income Ratio by Rent Category and Variation Factors
(Note) The ratios are calculated based on the acquisition price. (For multiple-use zone properties, the amount is proportionate to the rent income and common service fees for each zone during the iscal period.)
(Note) The calculation is based on the acquisition price. Hankyu REIT collects only ixed rent payments from ixed-rent tenants. From overage-rent tenants, Hankyu REIT collects rent that includes sales based variable rent, in addition to collecting the ixed portion of the rent, such as rent from ixed-lease contracts, common service fees and the minimum guarantee rent.
(Note) The ratios are calculated based on the rent income and common service fees during the iscal period.
Portfolio Summary
Occupancy Rate of the Entire Portfolio (Occupancy by End-Tenants)
O1
Shiodome East Side Building
19
R8
Hotel Gracery Tamachi
18
R6
Kohnan Hiroshima Nakano-Higashi Store (site)
17
R1 (K)
HEP Five
R2 (K)
Kitano Hankyu Building
R3 (K)
Dew Hankyu Yamada
R4 (K)
Takatsuki-Josai Shopping Center
R11 (K)
HANKYU NISHINOMIYA GARDENS
R14 (K)
DAILY QANAT Izumiya Horikawa Marutamachi Store (site)
R17 (K)
MANDAI Gojo Nishikoji Store (site)
O2 (K)
Hankyu Corporation Head Ofice Building
R5 (K)
Nitori Ibaraki-Kita Store (site)
R15 (K)
kotocross Hankyu Kawaramachi
M1 (K)
Ueroku F Building
R9 (K)
LaLaport KOSHIEN (site)
R16 (K)
LIFE Shimoyamate Store (site)
1
2
3
4
7
10
13
14
5
8
11
15
6
9
12
R13 (K)
MANDAI Toyonaka Honan Store (site)
R12 (K)
AEON MALL SAKAIKITAHANADA (site)
R19 (K)
OASIS Town Itami Konoike (site)
23
M3 (K)
LAXA Osaka
16
17
24
Retail-use facilities
Office-use facilities
Mixed-use facilities
21 18 19 20
Hotel Gracery Tamachi Shiodome East Side Building Sphere Tower Tennozu Kita-Aoyama San cho-me Building
Kohnan Hiroshima Nakano-Higashi Store (site)
METS OZONE Vessel Inn Hakata Nakasu
R21
Vessel Inn Hakata Nakasu
M2
Sphere Tower Tennozu
20
25
21
M5
Kita-Aoyama San cho-me Building
Award for Minato City Local Green City
Development
R20
METS OZONE
24
R18 (K)
KOHYO Onohara Store
22
Portfolio Map
25
To be acquired in the 26th FP
Acquired in the 26th FP
Acquired in the 26th FP
To be acquired in the 26th FP
Shin-Kobe
Namba Yamada
Takatsuki City
Kawaramachi Kyoto
Hyogo Prefecture
Nara Prefecture Kyoto Prefecture
Shin-Osaka
Takatsuki
Tennoji Takarazuka
ItamiOsaka Airport
Osaka International Airport
Kadoma City Imazu
Nishinomiya Kitaguchi
Osaka
Kobe-Sannomiya
Umeda
Shinkansen JR Hankyu Hanshin
Kintetsu Osaka and Nara Line Osaka Monorail Kobe New Transit Kita-Osaka Kyuko Subway Midosuji Line Subway Sennichimae Line Subway Tanimachi Line Subway Sakaisuji Line
kotocross Hankyu Kawaramachi
Dew Hankyu Yamada
HANKYU NISHINOMIYA GARDENS
LaLaport KOSHIEN (site)
AEON MALL SAKAIKITAHANADA (site) LIFE Shimoyamate Store (site)
DAILY QANAT Izumiya Horikawa Marutamachi Store (site) MANDAI Gojo Nishikoji Store (site)
Nitori Ibaraki-Kita Store (site)
8 6
7
3
5 4
11 10 13
12
Takatsuki-Josai Shopping Center
22
KOHYO Onohara Store
OASIS Town Itami Konoike (site)
23
Namba Nishi-Kujo
梅田
Umeda
Kyobashi
Uehommachi Tanimachi kyu-chome Shin-Osaka
Tennoji
Osaka
Hankyu Corporation Head Office Building
14 9
16
15
Center of Osaka
HEP Five
Ueroku F Building MANDAI Toyonaka Honan Store (site)
Kitano Hankyu Building
LAXA Osaka
1
1. Overview of Asset Management
(1) Trends in Hankyu REIT’s Asset Management
Fiscal Period 25th Fiscal
Period
24th Fiscal Period
23rd Fiscal Period
22nd Fiscal Period
21st Fiscal Period
Operation Period
Jun. 1, 2017 to Nov. 30,
2017
Dec. 1, 2016 to May 31,
2017
Jun. 1, 2016 to Nov. 30,
2016
Dec. 1, 2015 to May 31,
2016
Jun. 1, 2015 to Nov. 30,
2015
Operating Revenues Millions of Yen 4,902 4,740 4,721 5,527 4,875
Rental revenues Millions of Yen 4,902 4,740 4,721 4,795 4,875
Operating Expenses Millions of Yen 2,752 2,760 2,745 3,474 2,913
Property-related expenses Millions of Yen 2,269 2,297 2,284 2,387 2,471
Operating Income Millions of Yen 2,150 1,979 1,976 2,053 1,961
Ordinary Income Millions of Yen 1,793 1,625 1,570 1,659 1,566
Net Income Millions of Yen 1,718 1,623 1,569 1,657 1,565
Total Assets Millions of Yen 147,953 147,834 147,958 143,964 144,092
(Change from previous period) % (+0.1) (‒0.1) (+2.8) (‒0.1) (‒0.0)
Net Assets Millions of Yen 73,378 73,283 73,228 73,317 73,224
(Change from previous period) % (+0.1) (+0.1) (-0.1) (+0.1) (+0.0)
Unitholders’ Capital Millions of Yen 71,659 71,659 71,659 71,659 71,659
Total Number of Investment
Units Issued and Outstanding Units 597,500 597,500 597,500 597,500 597,500
Net Assets per Unit (net asset
value) Yen 122,809 122,649 122,558 122,706 122,552
Total Distributions Millions of Yen 1,719 1,623 1,569 1,658 1,565
Distributions from Profit per Unit Yen 2,877 2,717 2,626 2,775 2,620
㻌Distributions per unit Yen 2,877 2,717 2,626 2,775 2,620
㻌Total distributions in excess of
earnings Yen — — — — —
Return on Assets (ROA)
(Notes 1 and 2) % 1.2 (2.4) 1.1 (2.2) 1.1 (2.1) 1.2 (2.3) 1.1 (2.2)
Return on Equity (ROE)
(Notes 1 and 3) % 2.3 (4.7) 2.2 (4.4) 2.1 (4.3) 2.3 (4.5) 2.1 (4.3)
Equity Ratio (Note 4) % 49.6 49.6 49.5 50.9 50.8
(Change from previous period) % (+0.0) (+0.1) (-1.4) (+0.1) (+0.0)
Payout Ratio % 100.0 100.0 100.0 100.0 100.0
Actual Days of Operation during
Fiscal Period Days 183 182 183 183 183
Loan to Value Ratio at End of
Period (LTV) (Note 5) % 47.3 (41.4) 47.4 (42.2) 47.4 (43.0) 45.8 (41.9) 45.9 (43.2)
Ratio of Interest-bearing Debt to Total Assets at End of Period
(Note 6)
% 44.5 44.6 44.5 43.0 43.0
Debt Service Coverage Ratio
(DSCR) (Note 7) Times 9.5 9.2 8.5 8.9 8.7
Net Operating Income (NOI)
(Note 8) Millions of Yen 3,474 3,288 3,286 3,335 3,373
Funds from Operation (FFO)
(Note 9) Millions of Yen 2,560 2,469 2,418 2,486 2,534
2
(Note 1) Figures shown in parentheses are per annum figures based on days of operation. (Note 2) Ordinary income/([Total assets at beginning of period + Total assets at end of period]/2) (Note 3) Net income/([Net assets at beginning of period + Net assets at end of period]/2) (Note 4) Net assets at end of period/Total assets at end of period
(Note 5) (Amount of interest-bearing debt at end of period + Security deposits and guarantees at end of period ‒ Matched money to
security deposits and guarantees at end of period)/(Total assets at end of period ‒ Matched money to security deposits and
guarantees at end of period)
Total assets at end of period refer to the amount recorded on the balance sheets at the end of the current period. Figures shown in parentheses were calculated based on the amount obtained by adding or subtracting the difference between appraisal value and book value of tangible fixed assets at the end of the fiscal period to/from the total assets at the end of the period.
(Note 6) Interest-bearing debt at end of period/Total assets at end of period
(Note 7) Net income before Interest expense and Depreciation for current fiscal period/Interest expense (Note 8) Gain/loss on rental revenues + Depreciation
(Note 9) Net income + Depreciation ‒ Gain/loss on sale of real estate
Asset Management Report
3
(2) Asset Management Process during the Period under Review
1) Basic Asset Management Policy
Hankyu REIT is an integrated real estate investment trust that invests in real estate properties for retail or
office use throughout Japan with the purpose of securing stable income in the medium-to-long-term and
achieving the best possible returns for unitholders.
Hankyu REIT will focus its investments in the retail-use zone (zone in which visitors receive goods and
services in return for payment) and Kansai Region (the 6 prefectures of Osaka, Kyoto, Hyogo, Nara, Shiga and
Wakayama).
In principle, the ratio of investment in the retail-use zone and Kansai Region will be 50% or more,
respectively, of the total investment portfolio (on an acquisition price basis) as of the end of each fiscal period.
Hankyu REIT will utilize the planning and management capacities in the real estate business of the Hankyu
Hanshin Holdings Group (a corporate group formed under Hankyu Hanshin Holdings, Inc. as the holding
company; hereinafter also called the “sponsor group”).
2) Asset Management Status
(i) Major Trends of Hankyu REIT
Hankyu REIT was established on December 3, 2004 pursuant to the Act on Investment Trusts and
Investment Corporations (Act No. 198 of 1951, including all subsequent revisions; hereinafter the “Investment
Trusts Act”), with Hankyu REIT Asset Management, Inc., its asset management company (hereinafter the
“Asset Management Company”), serving as the organizer. Subsequently, Hankyu REIT was listed on the
Tokyo Stock Exchange Real Estate Investment Trust Market (securities code number 8977) on October 26,
2005. As of the end of the previous fiscal period (24th fiscal period ended May 2017: December 1, 2016 to
May 31, 2017), it owned 23 properties in its portfolio.
Hankyu REIT made no acquisition or transfer of properties in the fiscal period under review (25th fiscal
period ended November 2017: June 1, 2017 to November 30, 2017). Accordingly, it had 23 properties under
management as of the end of the 25th fiscal period, with total assets amounting to ¥147,953 million. The
number of investment units issued and outstanding stood at 597,500 units as of the date.
(ii) Asset Management Performance
During the fiscal period under review, the Japanese economy was on a moderate recovery track, due to
steady improvements in corporate earnings and the employment and income environments backed by the
government’s economic policies and ongoing monetary easing measures by the Bank of Japan. In terms of
personal consumption, the consumer sentiment has continued to pick up in the light of a modest increase in the
real wage income of employees.
The TSE REIT Index recovered to the lower half of the 1,700-point level later in July 2017, given a
decrease in the yield of 10-year Japanese government bonds caused by higher geopolitical risks such as
conditions in relation to North Korea. However, with the capital outflow from investment trusts (mutual
funds) delivering monthly distributions failing to stop, the Index remained weak as it dropped to the lower half
of the 1,600-point level by mid-November 2017. Subsequently, the figure remained in a range around the
upper half of the 1,600-point level through the end of November, with investors becoming positive to J-REITs
that appeared to be lagging behind foreign REITs.
Following the previous fiscal period, the real estate transaction market continued to see such players as
newly listed J-REITs, existing listed REITs, private placement REITs and foreign investment funds actively
acquire properties in the 25th fiscal period. With competition over the acquisition of properties remained
overheated, it is essential for Hankyu REIT to take advantage of the comprehensive strengths of the sponsor
group and the proprietary sourcing channels of the Asset Management Company in order to acquire properties
at fair values (which refer to appropriate price levels; the same shall apply hereinafter).
Under such circumstances, Hankyu REIT resolved on November 28, 2017 to acquire Vessel Inn Hakata
Nakasu, a hotel specialized in accommodations, located in Fukuoka City. Moreover, on January 25, 2018 (the
26th fiscal period) following the closing of the fiscal period under review, Hankyu REIT resolved on the
acquisition of METS OZONE, a community-based retail facility located in Nagoya City, Aichi Prefecture, and
the issuance of the new investment units through public offering (primary offering) – its first such
arrangement in approximately 3 years and 8 months. The 2 properties resolved for acquisition as stated above
(hereinafter referred to as the “2 new properties”) represent the first acquisition for Hankyu REIT in Fukuoka
and Nagoya areas, respectively. Going forward, in acquiring properties, Hankyu REIT will take into account
the fair values based on property valuations over a medium-to-long-term while considering the diversification
of investment areas and property use, in an effort to enhance portfolio quality and reinforce earnings stability.
4
In managing the 23 properties it owns, Hankyu REIT focused on implementing operational management,
one of its strengths, in an optimum manner. In doing so, Hankyu REIT conducted meticulous management
operations tailored to the needs of tenants, in closer coordination with property management companies, to
enhance tenant satisfaction, and worked to maintain and increase the unit value of rents and occupancy rates
through effective sales promotion activities. As for Hotel Gracery Tamachi, for which an action for rent
reduction had been filed by Fujita Kanko Inc. (the lessee of the property) via Mizuho Trust & Banking Co.,
Ltd. (the trustee of the property), a settlement was reached as of September 13, 2017. Hankyu REIT had
considered the claim by Fujita Kanko for rent reduction to lack reasonable grounds, and filed a counterclaim
for rent increase. Although the settlement does not thoroughly satisfy its claim, Hankyu REIT anticipates that,
after closely examining the relevant expenses and other costs and considering the balance of income and
expenditures, it can keep its distribution levels by accepting the settlement. Accordingly, Hankyu REIT
determined that closing the action and eliminating uncertainty risks in the future should be the best solution to
avoid damaging the unitholders’ interest. (For more details, please refer to the press release “Notice
Concerning Settlement for Rent Reduction Action (Hotel Gracery Tamachi)” dated September 13, 2017.) At
Sphere Tower Tennozu, lease agreements were concluded with new tenants to raise its occupancy rate from
88.1% at the end of the previous fiscal period to 93.0% at the end of the 25th fiscal period. The figure rose to
94.8% in February 2018 (the 26th fiscal period). Moreover, at Kitano Hankyu Building and Dew Hankyu
Yamada, we successfully invited tenants that should help vitalize the facilities. The occupancy rate of the
entire portfolio was kept at a high level, standing at 99.8% (Note) as of the end of the period under review.
At the same time, Hankyu REIT sought to maintain or improve tenant satisfaction levels to bolster its
competitiveness, while working to optimize management expenses by improving the quality and efficiency of
asset operation and management.
As of the end of the 25th fiscal period, the total leasable area was 488,728.20 m
2, and the share of retail-use
zone investment and Kansai Region investment as a percentage of the entire portfolio stood at 73.0% and
74.3%, respectively (on an acquisition price basis).
(Note) Occupancy rates for pass-through-type master lease properties are calculated based on end-tenant occupancy.
(iii) Overview of Fund Procurement
Hankyu REIT’s basic financial policy is to develop and execute stable and efficient financial strategies with
a view to maximizing unitholder value by securing stable income from, and generating steady growth of its
portfolio properties. To this end, Hankyu REIT uses an effective mix of equity and debt financing as well as
security deposits and equivalent guarantees obtained in relation to retail-use facilities. As of the end of the
period under review, the balance stood at ¥7,168 million. When Hankyu REIT undertakes borrowings, it
endeavors to lower debt financing costs while at the same time extend the remaining years of debt and
diversify debt repayment dates, in consideration of interest rate trends.
During the 25th fiscal period, Hankyu REIT refinanced ¥7,000 million (comprising long-term debt) for
which the repayment date arrived, into long-term (10 years) and fixed interest debt (¥3,000 million) and
short-term and variable interest debt (¥4,000 million) from the perspective of stable fund procurement and
contribution to distributions, among other considerations.
As of the end of the period under review, Hankyu REIT had interest-bearing debt totaling ¥65,900 million.
Of this sum, ¥61,900 million was debt financing (¥7,200 million in short-term debt and ¥54,700 million in
long-term debt (including ¥3,000 million due within one year)) and ¥4,000 million in investment corporation
bonds (no portion due within one year). The ratio of interest-bearing debt to total assets was 44.5%.
As of the end of the 25th fiscal period, Hankyu REIT had a long-term credit rating of AA
‒(stable) by the
Japan Credit Rating Agency, Ltd. (JCR) and a credit rating of A+ (stable) by the Rating and Investment
Information, Inc. (R&I).
(iv) Performance and Distribution
As a consequence of these asset management operations, operating revenues and operating income reached
¥4,902 million and ¥2,150 million, respectively. Ordinary income after deducting interest expense and others
was ¥1,793 million, and net income was ¥1,718 million.
5
(3) Capital Increase
The total number of investment units issued and outstanding and unitholders’ capital over the last 5 years are as
follows.
Date Remarks
Total Number of Investment Units Issued and Outstanding
(Units)
Unitholders’ Capital
(Millions of Yen) Notes
Change Balance Change Balance
Dec. 1, 2014 Split of investment units 478,000 597,500 — 71,659 (Note 1)
Jun. 27, 2014 Capital increase through
third-party allotment 1,300 119,500 667 71,659 (Note 2)
Jun. 2, 2014 Capital increase through
public offering 13,000 118,200 6,675 70,991 (Note 3)
Jul. 10, 2013 Capital increase through
third-party allotment 1,800 105,200 815 64,316 (Note 4)
Jun. 18, 2013 Capital increase through
public offering 18,000 103,400 8,155 63,500 (Note 5)
(Note 1) Hankyu REIT implemented a five-for-one split of investment units with a cut-off date of November 30, 2014 and an effective date of December 1, 2014.
(Note 2) Hankyu REIT issued new investment units through a third-party allotment at an issue price of ¥513,503 per unit to fund future acquisitions of specified assets, redeem security deposits and guarantees and repay loans that were used for the acquisition of specified assets.
(Note 3) Hankyu REIT issued new investment units through a public offering at ¥532,057 per unit (issue price ¥513,503) to partially fund the acquisitions of new specified assets.
(Note 4) Hankyu REIT issued new investment units through a third-party allotment at an issue price of ¥453,091 per unit to fund the acquisitions of new specified assets, as well as to redeem security deposits and guarantees and repay loans that were used for the acquisition of portfolio assets.
(Note 5) Hankyu REIT issued new investment units through a public offering at ¥469,462 per unit (issue price ¥453,091) to fund the acquisitions of new specified assets, as well as to redeem security deposits and guarantees and repay loans that were used for the acquisition of portfolio assets.
(Changes in Securities Exchange Prices)
The highest and lowest prices (closing price basis) for each fiscal period at the Tokyo Stock Exchange Real
Estate Investment Trust Market on which Hankyu REIT is listed are as follows.
Fiscal Period 25th Fiscal Period 24th Fiscal Period 23rd Fiscal Period 22nd Fiscal Period 21st Fiscal Period
Account
closing month Nov. 2017 May 2017 Nov. 2016 May 2016 Nov. 2015
Highest Yen 144,400 156,500 151,000 139,500 147,500
Lowest Yen 130,100 141,400 120,300 119,200 108,200
6
(4) Performance of Distributions, etc.
With regard to the distribution for the period under review (25th fiscal period), Hankyu REIT decided to
distribute the entire amount of unappropriated income, excluding the fraction of distribution per unit that was less
than ¥1, with the aim of having the maximum amount of distributable income deducted as expense in application
of the special tax treatment (Article 67-15 of the Special Taxation Measures Act). Consequently, the distribution
per unit came to ¥2,877.
Fiscal Period 25th Fiscal
Period
24th Fiscal Period
23rd Fiscal Period
22nd Fiscal Period
21st Fiscal Period
Operation Period Jun. 1, 2017 to
Nov. 30, 2017
Dec. 1, 2016 to May 31, 2017
Jun. 1, 2016 to Nov. 30, 2016
Dec. 1, 2015 to May 31, 2016
Jun. 1, 2015 to Nov. 30, 2015
Total net income Thousands
of Yen 1,718,771 1,623,587 1,569,198 1,657,924 1,565,338
Retained earnings brought forward
Thousands
of Yen 515 335 171 309 420
Total unappropriated retained earnings
Thousands
of Yen 1,719,286 1,623,922 1,569,370 1,658,233 1,565,759
Retained earnings Thousands
of Yen 279 515 335 171 309
Total distributions Thousands
of Yen 1,719,007 1,623,407 1,569,035 1,658,062 1,565,450
(Distribution per unit) Yen (2,877) (2,717) (2,626) (2,775) (2,620)
Of these, total distribution from profit
Thousands
of Yen 1,719,007 1,623,407 1,569,035 1,658,062 1,565,450
(Distribution from
profit per unit) Yen (2,877) (2,717) (2,626) (2,775) (2,620)
Of these, total contribution return
Thousands
of Yen — — — — —
(Contribution return
per unit) Yen (—) (—) (—) (—) (—)
Of the total contribution return, total distribution from reserve for temporary difference adjustments
Thousands
of Yen — — — — —
(Of the contribution return per unit,
distribution per unit from reserve for temporary difference adjustments)
Yen (—) (—) (—) (—) (—)
Of the total contribution return, total distribution through reduction in unitholders’ capital for tax purposes
Thousands
of Yen — — — — —
(Of the contribution return per unit, distribution through reduction in unitholders’ capital for tax purposes)
Yen (—) (—) (—) (—) (—)
