Japan Hotel REIT Investment : Notice Concerning Revision of Operating Forecast and Forecast of Dividend for the Fiscal Year Ended December 2018 (19th Period), and Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2019 (20th Period)

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

January 8, 2019

REIT Issuer:

Japan Hotel REIT Investment Corporation (TSE code: 8985) Kaname Masuda, Executive Director

Asset Management Company: Japan Hotel REIT Advisors Co., Ltd.

Hisashi Furukawa, Representative Director and President Contact:

Makoto Hanamura General Manager

Investor Relations Department, Operations Division TEL: [phone]

Notice Concerning Revision of Operating Forecast and Forecast of Dividend for the Fiscal Year Ended December 2018 (19th Period), and

Operating Forecast and Forecast of Dividend for the Fiscal Year Ending December 2019 (20th Period)

Japan Hotel REIT Investment Corporation (hereinafter called "JHR") informs you of the revision of the operating forecast and forecast of dividend for the full fiscal year ended December 2018 (January 1, 2018 through December 31, 2018), which was announced in the "Midterm Financial Report for the Fiscal Year Ending December 31, 2018 (January 1, 2018 - June 30, 2018)," dated August 22, 2018, and newly informs you of the operating forecast and forecast of dividend for the fiscal year ending December 2019 (January 1, 2019 through December 31, 2019) as follows.

1. Revision of the operating forecast and forecast of dividend for the full fiscal year ended December 2018 (January 1, 2018 through December 31, 2018)

Operating revenue	Operating income	Ordinary income	Net income	Dividend per unit (Excess of earnings exclusive)	Dividend per unit resulting from excess of earnings
Previous forecast (A)	JPY1M 28,485	JPY1M 18,122	JPY1M 16,294	JPY1M 16,293	JPY 3,890	JPY 0
Revised forecast (B)	JPY1M 28,208	JPY1M 17,927	JPY1M 16,148	JPY1M 16,147	JPY 3,890	JPY 0
Variance (C) = (B)－(A)	JPY1M (276)	JPY1M (195)	JPY1M (146)	JPY1M (146)	JPY －	JPY 0
Variance ratio (D) = (C) / (A)	% (1.0)	% (1.1)	% (0.9)	% (0.9)	% －	% 0

(Reference)	Forecast of net income per unit for the full fiscal year: ¥4,025
(Calculated based on the average number of investment units during the period (4,010,847 units))
(*1)	Dividend per unit is calculated based on the number of investment units issued as of today: 4,010,847 units.
(*2)	Total dividend is planned to be an amount that deducts the reserve for special advanced depreciation (¥1,115 million),
from the total amount of net income and the reversed amount from reserve for temporary difference adjustment in the
amount of ¥568 million, etc.
(*3)	For the assumptions of the operating forecast and dividend forecast above, please refer to "
Assumptions of the operating forecast for the full fiscal year ended December 2018 (19th period)" below.
(*4)	Amounts are rounded down to the nearest millions of yen and percentages are rounded off to the nearest first decimal
place. The same shall apply hereinafter.

2. Operating forecast and forecast of dividend for the full fiscal year ending December 2019 (January 1, 2019 through December 31, 2019)

Operating revenue	Operating income	Ordinary income	Net income	Dividend per unit (Excess of earnings exclusive)	Dividend per unit resulting from excess of earnings
Fiscal year ending December 2019 Midterm	JPY1M 12,765	JPY1M 7,186	JPY1M 6,155	JPY1M 6,154	JPY －	JPY －
Fiscal year ending December 2019 Full year	JPY1M 28,876	JPY1M 17,371	JPY1M 15,274	JPY1M 15,273	JPY 3,686	JPY 0

(Reference) Forecast of net income per unit for the full fiscal year: ¥3,445 (Calculated based on the forecast of the average number of investment units during the period (4,432,717 units))

• (*1) The number of investment units issued as of today is 4,010,847 units. In addition, it is assumed that JHR will additionally issue 451,500 new investment units in total (i) through a public offering (up to 447,800 units) (investment units to be underwritten and purchased by the domestic underwriters and the overseas underwriters in the domestic public offering and overseas offerings (hereinafter collectively called as the "Offering") and investment units to be additionally issued subject to a purchase right granted to the overseas underwriters in overseas offerings) and (ii) by way of third-party allotment (up to 3,700 units) determined by the resolution at the Board of Directors meeting held today. For details, please refer to "Notice Concerning Issuance of New Investment Units and Secondary Offering of Investment Units" dated today.

• (*2) Total dividend is planned to be an amount of net income plus the reversed amount of reserve for temporary difference adjustment in the amount of ¥1,177 million.

• (*3) For the assumptions of the operating forecast and dividend forecast above, please refer to " Assumptions of the operating forecast for the full fiscal year ending December 2019 (20th period)" below.

• (*4) The acquisition of the two properties (Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi) (hereinafter called the "Assets for Anticipated Acquisition") which is announced in the press release "Notice Concerning Acquisition and Lease of New Assets (Hilton Tokyo Odaiba and Hotel Oriental Express Osaka Shinsaibashi)" dated today is assumed. For the annualized effect (hypothetical result) that reflects the full-year impact of the acquisition of the Assets for Anticipated Acquisition, please refer to "4. Highlights of the operating forecast and forecast of dividend" below.

3. Rationale for the revisions of the operating forecast and forecast of dividend for the full fiscal year ended December 2018 (January 1, 2018 through December 31, 2018)

Due to the impact of natural disasters, such as the torrential rain in western Japan in July, series of typhoons and the Hokkaido Eastern Iburi earthquake in September, variable rent and income from management contract from the Twelve HMJ Hotels (*1), the Six Accor Hotels (*2) and the Four the b Hotels (*3) decreased. As a result, JHR expects a decrease in operating revenue by ¥276 million compared to the previous forecast.

On the other hand, JHR expects a decrease in operating expenses by ¥81 million as a result of reviewing various expenses related to properties and other operating expenses, etc. As a result, the net income for the fiscal year ended December 2018 (19th period) is expected to decrease by ¥146 million as compared to the previous forecast.

However, taking into consideration a decrease in operating revenue due to these natural disasters, JHR plans to increase the amount which will be allocated to dividend to ¥819 million, as compared to the previous forecast of ¥701 million, out of the gain on sale of real estate properties in connection with the sales of the three properties in the fiscal year ended December 2018 (19th period) (hereinafter called the "Sales") (*4). (As a result, the amount of reserve for special advanced depreciation, which is planned to be retained, will be decreased to ¥1,155 million from the previous forecast of ¥1,235 million.)

As a result, dividend per unit for the fiscal year ended December 2018 (19th period) is expected to be ¥3,890, the same as the previous forecast. Annualized dividend per unit, which eliminated one-time effect caused by the Sales and reflected the decrease in operating revenue due to the Sales on a full year basis, is assumed to be ¥3,628. (Please refer to "4. Highlights of the operating forecast and forecast of dividend, (4) Comparison and the major factors causing the variance between the operating forecast and forecast of dividend for the full fiscal year ended December 2018 (annualized) and the operating forecast and forecast of dividend for the full fiscal year ending December 2019 (annualized)") For the detailed information on assumptions of the annualized effect, please refer to " Assumptions of the forecast of the annualized effect for fiscal year ended December

• 2018 (19th period) and fiscal year ending December 2019 (20th period)" below.

• (*1) The Twelve HMJ Hotels are the twelve hotels comprising the five hotels, namely, Kobe Meriken Park Oriental Hotel, Oriental Hotel tokyo bay, Namba Oriental Hotel, Hotel Nikko Alivila, and Oriental Hotel Hiroshima (hereinafter called "the Five HMJ Hotels"), plus Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel, which is the major facility of ACTIVE-INTER CITY HIROSHIMA, Hotel Centraza Hakata, Holiday Inn Osaka Namba, Hilton Tokyo Narita Airport, International Garden Hotel Narita, and Hotel Nikko Nara. HMJ is the abbreviation for Hotel Management Japan Co., Ltd. The same shall apply hereinafter.

• (*2) The Six Accor Hotels are ibis Tokyo Shinjuku, ibis Styles Kyoto Station, ibis Styles Sapporo, Mercure Sapporo, Mercure Okinawa Naha and Mercure Yokosuka. The same shall apply hereinafter.

• (*3) The Four the b Hotels are the b suidobashi, the b ikebukuro, the b hachioji and the b hakata. The Six the b Hotels are the Four the b Hotels plus the b Akasaka-mitsuke and the b Ochanomizu which were sold on August 10, 2018. The same shall apply hereinafter.

• (*4) JHR sold R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu on August 10, 2018. For details, please refer to press releases "Notice Concerning Sale of Assets (R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu)" dated August 7, 2018 and "Notice Concerning Completion of Sale of Assets (R&B Hotel Higashi-nihonbashi, the b akasaka-mitsuke and the b ochanomizu)" dated August 10, 2018.

4. Highlights of the operating forecast and forecast of dividend (1) Comparison and the major factors causing the variance between the operating forecast and forecast of dividend

(previous forecast) for the full fiscal year ended December 2018, which was released in the "Midterm Financial Report for the Fiscal Year Ending December 31, 2018 (January 1, 2018 - June 30, 2018)" dated August 22, 2018, and the operating forecast and forecast of dividend for the full fiscal year ended December 2018 announced this time

(Unit: millions of yen)

2018
Previous Forecast (*1) (A)	Forecast This Time (B)

Comparison with Previous Forecast (B) - (A) %	Causes of Variance

Properties	Number of Properties	41	41
	Acquisition Price	309,370	309,370

-

-

Operating Revenue Real Estate Operating Revenue			28,485	28,208
			26,548	26,273
Profit and	Fixed Rent, etc.	Composition 55.6% 14,763	Composition 56.2% 14,772
	Variable Rent	44.4% 11,784	43.8% 11,501
Statement	Gain on Sale of Real Estate Properties		1,937	1,934
NOI (*2) NOI Yield			22,221 7.2%	22,043 7.1%
NOI after Depreciation (*2) NOI Yield after Depreciation			18,152 5.9%	17,920 5.8%
Operating Income			18,122	17,927
Ordinary Income			16,294	16,148
Net Income			16,293	16,147

(276) (1.0%)
(274) (1.0%)
8 0.1%
(283) (2.4%)	The Twelve HMJ Hotels: decrease in variable rent by JPY214M The Six Accor Hotels: decrease in income from management contract, etc. by JPY160M The Four the b Hotels: decrease in variable rent by JPY6M Increase in revenue sharing, etc. by JPY97M
(2) -
(177) (0.8%) (0.1%)
(232) (1.3%) (0.1%)
(195) (1.1%)
(146) (0.9%)
(146) (0.9%)

Dividend	Reserve for Temporary Difference Adjustments (negative goodwill)	544	568
	Reserve for Special Advanced Depreciation	(1,235)	(1,115)
	Total Dividends	15,602	15,602
	Number of Units Issued (unit)	4,010,847	4,010,847
	Dividend per Unit (JPY)	3,890	3,890

24	-
Forecast This Time:
120	50-year amortization amount of negative goodwill: JPY262M
		-
Correspondence to loss on retirement of noncurrent assets:
-	-	JPY40M
Correspondence to major renovation works: JPY265M
-	-
-	-

(*1) Stating the operating forecast and forecast of dividend for the full fiscal year ended December 2018, which was released in the

"Midterm Financial Report for the Fiscal Year Ending December 31, 2018 (January 1, 2018 - June 30, 2018)" dated August 22, 2018.

(*2) Each is calculated using the following formula. The same shall apply hereinafter.

NOI (Net Operating Income) = Real estate operating revenue - Real estate operating costs + Depreciation + Loss on retirement of noncurrent assets + Asset retirement obligations expenses

NOI yield = NOI ÷ (Anticipated) acquisition price

NOI after depreciation = Real estate operating revenue - Real estate operating costs NOI yield after depreciation = NOI after depreciation ÷ (Anticipated) acquisition price

(2) Comparison and the major factors causing the variance between the operating result and dividend (actual) for the full fiscal year ended December 2017 and the operating forecast and forecast of dividend for the full fiscal year ended December 2018

(Unit: millions of yen)

2017	2018
Actual (A)	Forecast This Time (B)

Properties	Number of Properties	44	41
	Acquisition Price	319,474	309,370

(3)	(3)	-	-	-
(10,104) (3.2%)	(10,104)	-	-	-

Operating Revenue Real Estate Operating Revenue			25,475	28,208
			25,475	26,273
Profit and Loss Statement	Fixed Rent, etc.	Composition 55.8% 14,221	Composition 56.2% 14,772
	Variable Rent	44.2% 11,253	43.8% 11,501
Gain on Sale of Real Estate Properties		-	1,934
NOI NOI Yield			21,424 6.7%	22,043 7.1%
NOI after Depreciation NOI Yield after Depreciation			17,563 5.5%	17,920 5.8%
Operating Income			15,757	17,927
Ordinary Income			14,006	16,148
Net Income			14,005	16,147

2,733 10.7%	1,733	1,096	(291)	194
798 3.1%	(201)	1,096	(291)	194
551 3.9%	(128)	663	-	15
247 2.2%	(72)	432	(291)	179	The Eight HMJ Hotels (*5): increase in variable rent by JPY72M The Six Accor Hotels: increase in income from management contract, etc. by JPY48M The Four the b Hotels: decrease in variable rent by JPY20M Increase in revenue sharing, etc. by JPY79M
1,934 -	1,934	-	-	-
618 0.4% 2.9%	(185)	968	(295)	131
356 0.3% 2.0%	(168)	730	(269)	64
2,169 13.8%
2,142 15.3%
2,142 15.3%

Dividends	Reserve for Temporary Difference Adjustments (negative goodwill)	769	568
	Reserve for Special Advanced Depreciation	-	(1,115)
	Total Dividends	14,771	15,602
	Number of Units Issued (unit)	4,010,847	4,010,847
	Dividend per Unit (JPY)	3,683	3,890

5.6%

Amount to be reversed from reserve for temporary difference adjustments 2017: 50-year amortization amount of negative goodwill: JPY262M Correspondence to loss on retirement of noncurrent assets: JPY132M Correspondence to dilution: JPY374M 2018: 50-year amortization amount of negative goodwill: JPY262M Correspondence to loss on retirement of noncurrent assets: JPY40M Correspondence to major renovation works: JPY265M

207

• (*1) Stating the amount of the impact by the Sales. The same shall apply hereinafter.

• (*2) Stating the amount of the impact of Hilton Tokyo Narita Airport, International Garden Hotel Narita, and Hotel Nikko Nara (hereinafter called the "Three Properties Acquired in 2017") acquired during the fiscal year ended December 2017.

• (*3) Major renovation works causing the suspension of hotel operation (hereinafter called the "Renovation") have been implemented at Hotel Centraza Hakata from October 1, 2018 to March 31, 2019 (scheduled). Stating the amount of impact of the major renovation works.

• (*4) "The existing properties" above refers to 37 properties which excludes the Three Properties Acquired in 2017 and Hotel Centraza Hakata from 41 properties owned by JHR as of today.

• (*5) The Eight HMJ Hotels are the Five HMJ Hotels plus Okinawa Marriott Resort & Spa, Sheraton Grand Hiroshima Hotel, which is the major facility of ACTIVE-INTER CITY HIROSHIMA, and Holiday Inn Osaka Namba.