[Translation for reference purposes only] August 24, 2018

Transcription

1 [Translation for reference purposes only] August 24, 2018 Report on the Management Structure and System of the Real Estate Investment Trust Securities Issuer and Related Parties Real Estate Investment Trust Securities Issuer Ooedo Onsen Reit Investment Corporation Representative: Fuminori Imanishi, Executive Director (Securities Code: 3472) Asset Manager Ooedo Onsen Asset Management Co., Ltd. Representative: Fuminori Imanishi, Chief Executive Officer Inquiries TEL Basic Information (1) Basic Policy Regarding Compliance For Ooedo Onsen Asset Management Co., Ltd. (the Asset Manager ), compliance means not only strictly complying with all laws, ordinances, regulations, internal rules, and market rules related to the business of the Asset Manager, but also conducting sound and corporate activities with integrity while bearing social norms in mind. The Asset Manager has established its Compliance Regulations to ensure sound corporate management based on self-discipline, strictly complying with all laws, ordinances, and rules relating to its business, and performing sound and honest corporate activities by setting forth the basic matters regarding its compliance structure. An overview of the Compliance Regulations is as follows: The Asset Manager fully recognizes that a lack of thorough compliance may undermine the corporate management base of the Asset Manager; therefore, the Asset Manager s basic policy is to position thorough compliance as a key task of corporate management. The Asset Manager recognizes that, as a company engaged in the financial instruments business, it is responsible for endeavoring to realize the business value of the Asset Manager that is required by society and will actively and continuously strive to ensure compliance in order to improve the quality and quantity of its business value by earning the trust of its customers. The Asset Manager has established (i) the Board of Directors, (ii) the Compliance Officer, and (iii) the Compliance Committee as its framework for compliance within the Asset Manager and has set forth the role of each organization as follows: 1

2 (i) Role of the Board of Directors The Board of Directors decides on the establishment and amendment of the Compliance Regulations and other necessary internal rules as the decision-making organization for the basic policy regarding promotion of compliance and other basic matters. The Board of Directors may request the Compliance Officer to report the progress of compliance promotion as appropriate. (ii) Role of the Compliance Officer The Compliance Officer organizes, plans, and promotes overall compliance as the department responsible for overseeing compliance. If the Compliance Officer determines that an issue in terms of compliance has arisen or is likely to arise, the Compliance Officer may give related departments necessary opinions or instructions. In addition, with respect to compliance, the Compliance Officer reports the progress of compliance promotion and other matters relating to the compliance of the Asset Manager s business to the Board of Directors at least once every three months. (iii) Role of the Compliance Committee The Compliance Committee deliberates and resolves matters relating to compliance and compliance systems as set forth in the Compliance Regulations, the Regulations of the Compliance Committee, and the Compliance Program. The Asset Manager recognizes that guidance and training on compliance fulfill an important function in ensuring thorough compliance and assigns the planning and implementation of such guidance and training to the Compliance Officer. Officers and employees must immediately report to the Compliance Officer if they become aware of any issues relating to compliance, such as the occurrence or possible occurrence of (A) any act in violation of laws and ordinances provided for in Article 199 (vii) of the Cabinet Office Ordinance on Financial Instruments Business, etc. (Cabinet Office Ordinance No. 52 of 2007, as amended; the same hereinafter), (B) any criminal complaint or accusation against the Asset Manager or its officers or employees, (C) any act that hinders or is likely to hinder sound and proper operation of the business of the Asset Manager and any other act similar thereto, and (D) any act that violates or is likely to violate other laws, ordinances, or regulations. 2

3 (2) Unitholders Name Japan Trustee Services Bank, Ltd. (Trust Account) The Master Trust Bank of Japan, Ltd. (Trust Account) The Nomura Trust and Banking Co., Ltd. (Investment Trust Account) Ooedo-Onsen Monogatari Co., Ltd. Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) Relationship with the Investment Corporation, the Asset Manager or the sponsor; background to contribution Number of units (As of May 31, 2018) Ratio (%) (Note) N/A 28, N/A 25, N/A 9, Ooedo-Onsen Monogatari Co., Ltd. is a sponsor of Ooedo Onsen Reit Investment Corporation (the Investment Corporation ) and the parent company that wholly owns the Asset Manager. Ooedo-Onsen Monogatari Co., Ltd. has entered into a sponsor support agreement with the Investment Corporation, the Asset Manager and Ooedo-Onsen Monogatari Group, Co., Ltd. as of November 1, , N/A 5, Sekai Shindokyo N/A 2, BNY FOR GCM CLIENT ACCOUNTS (E) BD N/A 1, BBH FOR VANGUARD GLOBAL EX-U.S. REAL ESTATE INDEX FUND N/A 1, General Incorporated Association UYPartners N/A 1, Individual Investor N/A 1, (Note) Ratio is the ratio of the number of investments units held to the total number of investment units issued and outstanding, rounded to the second decimal place. Total of the top 10 unitholders 84,

4 (3) Major Shareholders of Asset Manager Name Relationship with the Investment Corporation, the Asset Manager or the sponsor; background to contribution (As of May 31, 2018) Number of shares Ratio (%) Ooedo-Onsen Monogatari Co., Ltd. Please refer to (2) Unitholders above (Note) Ratio is the ratio of the number of shares held to the number of shares issued and outstanding. Total held by one company (4) Investment Policy and Investment Targets (i) Growth Strategies of the Investment Corporation As a key pillar of its growth strategies, the Investment Corporation will take full advantage of sponsor support from Ooedo-Onsen Monogatari Group (Note 1) with its business expertise which has been embodied in the Group s own Ooedo Model (Note 2), while paying appropriate attention to conflicts of interest. Ooedo-Onsen Monogatari Group has management experience in introducing the Ooedo Model in 34 (Note 3) Onsen (hot spring) and Spa-related facilities (Note 4) with more than 3,500 rooms to date (as of the submission date of this report) and has accumulated unique expertise in introducing the Ooedo Model in Onsen and Spa-related facilities. The Investment Corporation intends to pursue external growth by continually acquiring Onsen and Spa-related facilities that have adopted the Ooedo Model through the execution of a sponsor support agreement (the Sponsor Support Agreement ) with Ooedo-Onsen Monogatari Co., Ltd. and Ooedo-Onsen Monogatari Group Co., Ltd. together with the Asset Manager, thus obtaining preferential negotiation rights, and through utilizing support aimed at property acquisition, such as the provision of information on property owned by a third party and the provision of warehousing functions (Note 5). Further, the Investment Corporation will cooperate with these companies on value-adding work for facilities and facility management, such as expanding the number of rooms and facility renewal at facitlies where Ooedo-Onsen Monogatari Group companies operate as tenants. The Investment Corporation also intends to utilize the expertise of Ooedo-Onsen Monogatari Group when acquiring and holding Onsen and Spa-related facilities where companies other than Ooedo-Onsen Monogatari Group operate as tenants, with the aim of pursuing internal growth through capturing changing consumer needs and improving the stability of managed asset revenue, facility competitiveness, occupacy rates, etc. As a key pillar of its growth strategies, the Investment Corporation will take full advantage of support and cooperation from Ooedo-Onsen Monogatari Group and acquire facilities managed and owned by Ooedo-Onsen Monogatari Group. The Investment Corporation will also lease the acquired facilities to Ooedo-Onsen Monogatari Group over the long term and seek to strengthen their competitiveness. Through these efforts, the Investment Corporation aims to secure stable revenue and steadily grow the managed assets, thus improving unitholder value. 4

5 Meanwhile, the Investment Corporation believes that its acquisition of Onsen and Spa-related facilities managed and owned by Ooedo-Onsen Monogatari Group will further promote the acquisition and vitalization of new facilities for Ooedo-Onsen Monogatari Group, which will become the seller, by utilizing proceeds from sales, and therefore contribute to enhancing Ooedo-Onsen Monogatari Group s scale of operations. Further, if the Asset Manager independently obtains information on property owned by a third party and decides that the property may become a target for investment by the Investment Corporation in the future by adopting the Ooedo Model after Ooedo-Onsen Monogatari Group acquires the property, regardless of whether or not the property fits the Investment Corporation s investment criteria at the time the property information is obtained, then the Asset Manager will actively endeavor to provide the property information to Ooedo-Onsen Monogatari Group in accordance with the provisions of the Sponsor Support Agreement. The Investment Corporation aims to build a win-win relationship between it and Ooedo-Onsen Monogatari Group and to promote mutual growth through sponsor support from Ooedo-Onsen Monogatari Group and through securing Ooedo-Onsen Monogatari Group s operational infrastructure over the long term. Note 1: Ooedo Model means Ooedo-Onsen Monogatari Group s business expertise considered to be highly competitive, which is adopted in facilities operated by Ooedo-Onsen Monogatari Group and which enables high revenue and stable operations. The same applies hereinafter. Note 2: Ooedo-Onsen Monogatari Group consists of Ooedo-Onsen Monogatari Group Co., Ltd. (hereinafter referred to as Sponsor Group Parent Company ), which is the Investment Corporation s sponsor as of the submission date of this report, and Ooedo-Onsen Monogatari Co., Ltd. ( Ooedo-Onsen Monogatari, and hereinafter referred to as Sponser together with the Sponsor Group Parent Company) and its consolidated subsidiaries (meaning subsidiaries provided for in Article 8, Paragraph 3 of the Ordinance on Terminology, Forms, and Preparation Methods of Financial Statements (Ordinance of the Ministry of Finance No. 59 of 1963, as amended), including the Asset Manager). The same applies hereinafter. Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd., Ooedo-Onsen Holdings Japan Co., Ltd. and Ooedo-Onsen Monogatari Group Co., Ltd., which are the parent companies of the Asset Manager, plan to conduct an absorption-type merger in which Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. survives and Ooedo-Onsen Holdings Japan Co., Ltd. is absorbed, and an absorption-type merger in which Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. survives and Ooedo-Onsen Monogatari Group Co., Ltd. is absorbed (hereinafter collectively referred to as Absorption-Type Mergers ), with September 1, 2018 as the effective date. Associated with this, Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. will succeed the position as a sponsor of Ooedo-Onsen Monogatari Group Co., Ltd. under the sponsor support agreement with the Investment Corporation, the Asset Manager, Ooedo-Onsen Monogatari Co., Ltd. and Ooedo-Onsen Monogatari Group Co., Ltd. on November 1, Therefore, the sponsors of the Investment Corporation after the Absorption-Type Mergers are Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. and Ooedo-Onsen Monogatari Co., Ltd. The same applies hereinafter. Note 3: Of the facilities operated by Ooedo-Onsen Monogatari Group, Ooedo-Onsen Monogatari Reoma Resort is an integrated facility consisting of Hotel Reoma no Mori and New Reoma World. Further, Ooedo-Onsen Monogatari Minoh Kanko Hotel and Minoh Onsen Spa Garden, which are not assets owned by the Investment Corporation, are classified as one integrated facility. The same applies hereinafter. Note 4: Onsen and Spa-related facilities means facilities that provide onsen (meaning hot water, mineral water, steam and other gases (not including natural gas mainly comprising hydrocarbons) that flow out from the ground; the same hereinafter) or hot baths as one of their primary functions such as baths (public bathing facilities that employ onsen or other similar facilities; the same hereinafter) and ryokan (meaning lodgings whose main structure and facilities are Japanese style; the same hereinafter), hotels (meaning lodgings whose main structure and facilities are Western style; the same hereinafter), resort facilities (facilities to provide opportunities for sports or recreation activities during leisure time; the same hereinafter), amusement parks, or other leisure facilities (including multiuse facilities that contain the foregoing) that include baths as part of their core facilities. Onsen and Spa-related facilities means the property as a whole, including not only buildings with onsen or hot 5

6 baths, but also buildings and sites that are adjacent to such buildings or that are operated as one facility. Further, in accordance with how investment assets of the Investment Corporation are used, as of the date on which this report is issued, the facilities owned by the Investment Corporation and leased by Ooedo-Onsen Monogatari Group are all classified as Onsen and Spa-related facilities. However, the Investment Corporation regards facilities mainly used for ryokan, hotels, resort facilities, amusement parks, or other leisure facilities (including multi-use facilities that contain the foregoing) (collectively referred to as facilities for other uses ) as its investment targets, in addition to the Onsen and Spa-related facilities. Note 5: Warehousing function means the function aimed at the future acquisition of investment-grade real estate (real estate mainly used for ryokan, hotels, baths, resort facilities, amusement parks, or other leisure facilities (including multi-use facilities that contain the foregoing), which includes real estate that does not fit the Investment Corporation s investment criteria) by the Investment Corporation, in which Ooedo-Onsen Monogatari Group acquires and temporarily owns investment-grade real estate from a third party after the Investment Corporation s expected acquisition date and expected acquisition price or method of determining the acquisition price are presented to Ooedo-Onsen Monogatari Group, and then sells the investment-grade real estate to the Investment Corporation. The same applies hereinafter. (ii) Portfolio Structuring Policy of the Investment Corporation (A) Investment Assets of the Investment Corporation The Investment Corporation s basic strategy is to focus its investment on Onsen and Spa-related facilities (the core portfolio) in order to secure stable revenue and steadily grow the managed assets over the medium to long term. The target ratio of investment in the core portfolio to the remainder of the portfolio will be 80% or greater (calculated on the basis of acquisition price). The Investment Corporation will also invest in facilities for other uses, such as leisure facilities, that are related to or complementary with the core portfolio and that can be anticipated to produce stable cash flows or generally stable capital gains over the medium to long term. The investment region will be focused on major tourist destinations and well-known onsen resorts throughout Japan. Policy on portfolio structuring according to usage Use Investment ratio Onsen and Spa-related facilities 80% or greater Facilities for other uses less than 20% Note: The above ratio is only a general standard, and it does not guarantee that the Investment Corporation s portfolio according to usage will be structured in accordance with the above ratio. 6

7 The following table states the investment criteria and characteristics of the investment targets according to usage as determined by the Investment Corporation with regard to its investments in real estate in Japan, which is the Investment Corporation s primary investment target. Use Onsen and Spa-related facilities Facilities for other uses Investment criteria The rent-to-sales ratio is appropriate to the tenant s medium- to long-term operational revenue, as evaluated based on factors such as capacity utilization, average price per customer, and other operating indicators (actual and projected), the stability of the facility s main customer base, the competitive environment, and the characteristics of the location, and stable rent revenue can be anticipated over the medium to long term. Stable revenue from lease operations can be anticipated upon comprehensive consideration of the future necessity of additional investment, foreseeable risks related to the condition of the building (and strategies for handling those risks), and other such factors. There are no major concerns regarding the tenant s operational or financial situation. Operations can be anticipated to remain stable in light of the characteristics of the facility s target market area, population movements, shifts in consumer demand, and other market trends. Investment decisions will be made following criteria similar to those for Onsen and Spa-related facilities and considering the condition that stable medium- to long-term cash flows can be anticipated and stability and growth can be anticipated upon evaluation of industry trends and the facility s regional competitiveness in the region. (B) Investment Criteria a. Location Investment will be focused on major tourist destinations and well-known onsen resorts throughout Japan. b. Acquisition Price The acquisition price when investing will be determined comprehensively based on a valuation by the Asset Manager, taking into account the appraisal value. When acquiring real estate, leasehold rights in real estate, surface rights, or beneficial interests in trust the principal of which is ownership of real estate, leasehold rights in real estate, or surface rights (collectively Target Assets in b. Acquisition Price ) from an Interested Party, Etc., the acquisition price is not permitted to exceed the appraisal value based on an appraisal conducted by a real estate appraiser (includes juridical persons; the same hereinafter) that does not constitute an Interested Party, Etc. However, 7

8 an acquisition price of up to 110% of the appraisal value is permissible if there are reasonable grounds for acquiring that Target Asset at a price higher than the appraisal value. In such case, the appropriateness of acquiring that Target Asset at a price higher than the appraisal value must be explained to the Investment Committee, Compliance Committee and Board of Directors of the Asset Manager and the board of directors of the Investment Corporation, and a resolution obtained. Note that the appraisal value is for the price of the Target Asset itself, and does not include taxes, acquisition expenses, trust establishment costs, reserve funds of the trust account, trust income, the pro-rated portion of fixed asset taxes, and other such costs. Furthermore, when acquiring specified assets other than Target Assets from Interested Parties, etc., the current market price will be used where possible; otherwise, the price will be determined in accordance with the preceding paragraph. c. Building Construction For building construction, investment will be in properties where it is judged that the construction of the buildings is strong enough for Onsen and Spa-related facilities and that there are no safety issues with respect to the use of the property as lodgings. In particular, when investing in older buildings, the merits of the investment will be carefully weighed after confirming that there are no impediments to operation and addressing safety issues, such as by carrying out non-destructive testing including an onsite visual inspection, and performing any repairs considered necessary pursuant to any relevant laws and ordinances including the Fire Service Act. In particular, in consideration of earthquake-proofing, investment in a building whose construction does not meet the current seismic design code will be conditional on confirmation by a professional report (a report of the results of a safety inspection of the building based on an exterior survey, use history, repair history, etc., by a professional with sufficient knowledge and experience in earthquake-proofing evaluation) or the like that the property is safe for use as lodgings in consideration of the characteristics of onsen ryokan, confirmation of PML (Note), and other requirements. Note: PML (probable maximum loss) means probable maximum loss caused by earthquakes. PML can be divided into two types: that related to individual buildings, and that related to portfolios. There is no unified and exact definition of PML, but in this report, PML means the ratio (%) of probable restoration costs for damage against replacement costs, showing to what extent the most destructive earthquake expected during the supposed planned period of use (50 years = the average useful life of general buildings; a major earthquake that occurs once every 475 years = a major earthquake whose likelihood of occurrence in 50 years is 10%) would affect the buildings; the same hereinafter. d. Insurance Policy The policy regarding insurance of an investment facility shall be determined based on comprehensive consideration of the characteristics of the facility, the foreseeable risks, the expected loss, and other such factors; in principle, property insurance and liability insurance will be procured based on the replacement cost of the buildings, and business interruption insurance will be considered as necessary. Furthermore, earthquake insurance will be considered based on a comparison of the likelihood of an earthquake occurring, the effect an earthquake would have on the individual property and the entire portfolio based on that likelihood (when portfolio PML is 10% or greater), the effect of the insurance premiums on profits, and other relevant factors. However, separate earthquake insurance will in principle be procured for any property whose PML is 20% or greater. 8

9 e. Tenants Tenants will be selected who can be anticipated to provide stable rent revenue over the medium to long term, after confirming the operator s social credibility and giving consideration to its operating and financial situation, the competitiveness of the investment facility, and other factors. f. Rights In principle, investment will be conditional upon judgment that, in consideration of the characteristics of the property, the rights pertaining thereto do not constitute an impediment to operation by the Investment Corporation. Specifically, after confirming the status of full ownership, surface rights, leasehold rights in real estate, hot spring rights (onsen ken), water rights and other relevant rights, if the property is shared, is subject to unit ownership, or is leased, investment will in principle be made on the condition that there are less restrictions on management and operation upon comprehensively considering the characteristics of the property, identifying stakeholders, and other factors. g. Business History The Investment Corporation will in principle not invest in Onsen and Spa-related facilities that have no history of operation. However, investment in newly-constructed Onsen and Spa-related facilities is permissible if stable operation can be sufficiently anticipated after operation begins and the Investment Corporation judges that stable revenue can be secured after the acquisition. 9

10 (C) Due Diligence Standards When investing in real estate related assets, the Investment Corporation will (a) conduct economic research into the estimated revenue, the potential and stability of the location, and other such matters of, (b) physically inspect the construction specifications, premises and equipment, earthquake-proofing, property management status, environment, and soil pollution of, and (c) make legal inquiries into the rights that exist with respect to the buildings on the real estate that forms the main part of or the underlying in the real estate related assets, and comprehensively review the results through the Asset Manager. Furthermore, the Asset Manager will sufficiently review the methods of due diligence, the appropriateness of outsourcing to contractors, and the like, including whether to use a professional investigator or the like for each investigation item. Investigation Item Details Guest rooms Number/type/area, etc. Facilities and equipment Restaurants, large public baths (Note 1), other facilities, and functions Number, structure, etc. Local economy and market in general Location Market Business Surrounding environment/location and access/surrounding investigation facilities/traffic infrastructure/onsen water volume, etc. Physical investigation Operating results Tenants Legal compliance of buildings Investigation of key operating indicators Investigation of ability to bear rent based on operating results Guest room occupancy rate (Note 2), ADR (Note 3), RevPAR (Note 4), etc. Investigation of tenants Creditworthiness/operating performance/actual results, etc. of each tenant Confirmation of the compliance conditions of building-related laws and regulations including the Building Standards Act (Act No. 201 of 1950; as amended) (hereinafter referred to as the Building Standards Act ) and the City Planning Act (Act No. 100 of 1968; as amended) Existence and degree of existing nonconformance Existence of building restrictions due to building-related laws, regulations, ordinances, arrangements, and the like 10

11 Investigation Item Details Existence of devices and waste that contain harmful pollutants such as asbestos or polychlorinated biphenyls (PCB) Compliance with regular reporting requirements of building Condition of buildings management-related laws and regulations such as the Building Standards Act, the Fire Service Act (Act No. 186 of 1948; as amended), and the Act on Maintenance of Sanitation in Buildings (Act No. 20 of 1970; as amended) Building management status Existence of parts that need urgent repair Repairs and capital expenditure required by Long term repair plan buildings Past repairs condition Seismic risk and earthquake-proofing Calculation of PML for individual properties investigation, soil and environmental Calculation of PML for the entire portfolio pollution investigation Soil testing Existence of boundary confirmation (existence of lawsuits or Boundary investigation disputes regarding the boundary) Existence of objects penetrating the boundary Existence of unregistered buildings Confirmation of rights regarding the land and buildings (full Legal inquiries Rights confirmation ownership, surface rights, land lease rights, common ownership, partial ownership, unit ownership, etc.) Content of agreements, etc. that accompany rights (including agreements related to hot-spring rights or water rights) Investigation of tenant-related agreements (lease agreements, Tenant affiliations sublease agreements, loan for use agreements, etc.) Investigation of management service-related agreements Investigation of antisocial forces (Note 5) Note 1: Note 2: A large public bath means an indoor public bath in Onsen and Spa-related facilities; the same hereinafter. Guest room occupancy rate means the figure obtained by the following formula; the same hereinafter. Guest room occupancy rate = Total number of guest rooms sold during the applicable period Total number of available guest rooms during the applicable period 100 (%) 11

12 Note 3: Note 4: Note 5: ADR means average daily rate (average guest room unit selling price), calculated by dividing the total lodging sales for a certain period of time by the total number of guest rooms sold (total number of guest rooms that were occupied) in the same period of time; the same hereinafter. RevPAR means revenue per available room (total lodging sales for sellable guest rooms for a day), calculated by dividing the total lodging sales for a certain period of time by the total number of available guest rooms for the same period of time, and it is the same as the figure calculated by multiplying ADR by guest room occupancy rate; the same hereinafter. If the Ooedo-Onsen Monogatari Group is selected as a tenant, the investigation of this item will in principle not be conducted. (4)-2 Matters concerning Selection Criteria of Tenants Tenants will be selected who can be anticipated to provide stable rent revenue over the medium to long term, after confirming the operator s social credibility and giving consideration to its operating and financial situation, the competitiveness of the investment facility, and other factors. (4)-3 Matters concerning Investment in Overseas Real Estate The Investment Corporation permits investment in overseas real estate in its articles of incorporation, and the Asset Manager has established rules pertaining to the acquisition of overseas real estate and the like; however, there are no specific plans to invest in overseas real estate as of the submission date of this report. (5) Matters concerning the Sponsor (i) Business Description of Ooedo-Onsen Monogatari Group Ooedo-Onsen Monogatari Group was established in November 2001, opened Odaiba Tokyo Ooedo-Onsen Monogatari in Odaiba, Tokyo in 2003, and since then has been advancing its business of operating Onsen and Spa-related facilities. Since 2007, Ooedo-Onsen Monogatari Group has been developing the business of revitalizing Onsen and Sparelated facilities associated with leisure facilities, such as theme parks, focusing on onsen ryokan throughout Japan by utilizing its expertise in operating such facilities, and as of the submission date of this report, it operates 34 Onsen and Spa-related facilities (Note 1). Since its purchase in 2015 by a holding company whose issued shares are entirely owned indirectly by an investment fund to which Bain Capital Private Equity, L.P. offers investment advice, Ooedo-Onsen Monogatari Group has been conducting step-by-step restructuring within the group into Furthermore, Ooedo-Onsen Monogatari Group conducted step-by-step restructuring within the group in 2017 as well, and Ooedo-Onsen Monogatari Group Co., Ltd. (Sponsor Group Parent Company), which was established on June 29, 2017 as the new company, succeeded part of the business of Ooedo-Onsen Holdings Japan Co., Ltd (including the entire issued shares of Ooedo-Onsen Monogatari owned by K.K. Ooedo-Onsen Holdings Japan) through an absorption-type split as of October 1, 2017 and the entire business of Ooedo-Onsen Monogatari through an absorption-type split as of November 1, 2017 ( the Restructuring ). Ooedo-Onsen Monogatari survives as an asset holding company after the Restructuring. In addition, in the Ooedo-Onsen Monogatari Group, Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. will succeed the position as the sponsor of sponsor support of Sponsor 12

13 Group Parent Company and the position as an operator and tenant pertaining to assets owned by the Investment Corporation through an absorption-type merger with September 1, 2018 as the effective date. As of the date of submission of this report, Ooedo-Onsen Monogatari Group consists of ten companies in total, including the Sponsor Group Parent Company, Ooedo-Onsen Monogatari and consolidated subsidiaries including the Asset Manager, and the Onsen and Spa-related facilities owned and operated by Ooedo-Onsen Monogatari Group are owned and operated by the Sponsor Group Parent Company and (for some facilities) its subsidiaries (Note 2). Note 1: Of the facilities operated by Ooedo-Onsen Monogatari Group, Ooedo-Onsen Monogatari Reoma Resort, as well as Ooedo-Onsen Monogatari Minoh Kanko Hotel and Minoh Onsen Spa Garden, which are not assets owned by the Investment Corporation, are classified as one integrated facility. The same applies hereinafter. Note 2: Among the facilities owned and operated by Ooedo-Onsen Monogatari Group, Ooedo-Onsen Monogatari Reoma Resort, which is an asset owned by the Investment Corporation, is operated by Reoma Unity Co., Ltd.; Ooedo-Onsen Monogatari Minoh Kanko Hotel and Minoh Onsen Spa Garden are owned and operated by Osaka Kanko Co., Ltd.; Yamashiro Onsen Yamashitaya is owned and operated by Yamashitaya Co., Ltd.; and Ooedo-Onsen Monogatari Nagayama is owned and operated by Katayamazu Ooedo-Onsen Monogatari Co., Ltd. Furthermore, Ooedo-Onsen Rainbow Co., Ltd., manages souvenir shops. All the companies described above are consolidated subsidiaries of Ooedo-Onsen Monogatari Group. 13

14 (Overview of Sponsor Group Parent Company) Trade name Ooedo-Onsen Monogatari Group Co., Ltd. Head office address 1-9-4, Nihonbashi Honcho, Chuo-ku, Tokyo Representative Mitsumasa Morita, Representative Director Establishment June 29, 2017 (founded in November 2001) Capital 18 million yen (as of May 31, 2018) Business details Developing business of revitalizing onsen ryokan, hotels, baths, and theme parks throughout Japan. As of the submission date of this report, operating 34 Onsen and Spa-related facilities (including Ooedo-Onsen Monogatari onsen theme parks, which have an Edo culture motif) Number of employees 1,104 (Note) (as of the end of February 2018; consolidated basis) Performance and finances (Note 2) Consolidated net revenue: 18,884 million yen (fiscal period ended February 2018) Consolidated total assets: 54,283 million yen Consolidated net assets: 10,319 million yen Note 1: Excluding non-regular employees, such as part-time workers. Note 2: As Ooedo-Onsen Monogatari Group conducted the Restructuring in 2017, figures based on consolidated financial statements from June 29, 2017, when Ooedo-Onsen Monogatari Group Co., Ltd. was established, to the end of the fiscal period are given for the respective figures for the fiscal period ended February 2018; the same applies hereinafter. 14

15 Organization chart of Ooedo-Onsen Monogatari Group Ooedo-Onsen Monogatari Group Co., Ltd. 56% 53% Ooedo-Onsen Yamashitaya Katayamazu Ooedo- Osaka Kanko Rainbow Co., Ltd. Co., Ltd. Onsen Monogatari Co., Ltd. Co., Ltd. Kagawa Prefecture Sightseeing LLC. Reoma Unity Co., Ltd. Kushimoto Kanko Hotel Co., Ltd. Note 1: Corporations for which an investment ratio is not included are wholly owned by their parent companies. Note 2: Ooedo-Onsen Monogatari Group Co., Ltd. plans to conduct an absorption-type merger in which Ooedo-Onsen Monogatari Hotels & Resorts Co., Ltd. survives and Ooedo-Onsen Monogatari Group Co., Ltd. is absorbed, with September 1, 2018 as the effective date. In addition, Kushimoto Onsen Hotel Co., Ltd. plans to conduct an absorption-type merger in which Ooedo-Onsen Monogatari Co., Ltd. survives and Kushimoto Onsen Hotel Co., Ltd. is absorbed, with September 1, 2018 as the effective date. 15

16 (ii) Agreements on the Supply of Properties and Provision of Information with the Sponsor Company Group The Investment Corporation and the Asset Manager have executed the Sponsor Support Agreement with the Sponsors dated November 1, 2017 (Note). An overview of the Sponsor Support Agreement is as follows. Note: The former sponsor support agreement (as amended, the former sponsor support agreement ) concluded as of July 29, 2016 between Ooedo-Onsen Monogatari, the Investment Corporation and the Asset Manager was invalidated upon conclusion of the sponsor support agreement from that time on. In the sponsor support agreement, Ooedo-Onsen Monogatari and the Sponsor Group Parent Company undertake the same obligations as those of Ooedo-Onsen Monogatari specified in the former sponsor support agreement as sponsors, and thus there are no substantive changes to the terms of the former sponsor support agreement due to the renewal of the agreement. Overview of Sponsor Support Agreement i. Preferential provision of information on property owned by Ooedo-Onsen Monogatari Group and granting of preferential negotiation rights If the Sponsors intend to sell real estate (meaning that provided for in the Investment Corporation s articles of incorporation) located in Japan, owned or developed by Ooedo-Onsen Monogatari Group, and mainly used for ryokan, hotels, baths, resort facilities, amusement parks, or other leisure facilities (including multi-use facilities that contain the foregoing; the same applies in this overview of Sponsor Support Agreement) (including real estate that does not fit the Investment Corporation s investment criteria; referred to in this overview of Sponsor Support Agreement as Investment-grade Real Estate ), the Sponsors will, ahead of any third party, preferentially provide information on the Investment-grade Real Estate to the Investment Corporation and the Asset Manager, grant the Investment Corporation and the Asset Manager the right to preferentially negotiate for purchase and sale (referred to in this overview of Sponsor Support Agreement as Preferential Negotiation Right ), or cause any other entity of the Ooedo-Onsen Monogatari Group that owns the Investment-grade Real Estate to grant the Investment Corporation and the Asset Manager Preferential Negotiation Rights. The Sponsors will not negotiate with any third party on the sale of the Investment-grade Real Estate and will not cause any other entity of the Ooedo- Onsen Monogatari Group that owns the Investment-grade Real Estate to negotiate on the sale of the Investment-grade Real Estate until Preferential Negotiation Rights extinguish as set out below in Overview of Preferential Negotiation Rights. Overview of Preferential Negotiation Rights If Preferential Negotiation Rights are granted to the Investment Corporation and the Asset Manager in accordance with the provisions of the Sponsor Support Agreement, the Investment Corporation or the Asset Manager will reply to the person who granted Preferential Negotiation Rights (referred to in this overview of Sponsor Support Agreement as the Grantor of Preferential Negotiation Rights ) within 10 banking business days (referred to in this overview of Sponsor Support Agreement as the Preferential Consideration Term ) from the day of receiving information as stated above (not including the day of receipt) on whether it will acquire the Investment-grade Real Estate or not. If an extended period is separately agreed between the Grantor of Preferential Negotiation Rights and the Investment Corporation or the Asset Manager, the Preferential Consideration Term may be extended for the agreed period. If the Grantor of Preferential Negotiation Rights receives a reply from the Investment Corporation or the Asset Manager within the Preferential Consideration Term that it intends to acquire the Investment-grade Real Estate, the Grantor of Preferential Negotiation Rights will consult with the Investment Corporation or the Asset Manager in good faith regarding the conditions of sale for the Investment-grade Real Estate. If an agreement is reached, the Grantor of Preferential Negotiation Rights will sell the Investment-grade Real Estate to the Investment Corporation. 16

17 Preferential Negotiation Rights will extinguish in the event that the Investment Corporation or the Asset Manager (i) does not reply to the Grantor of Preferential Negotiation Rights within the Preferential Consideration Term that it intends to make an acquisition, (ii) replies to the Grantor of Preferential Negotiation Rights that it does not intend to make an acquisition, or (iii) replies to the Grantor of Preferential Negotiation Rights that it intends to make an acquisition, but an agreement is not reached on the conditions of sale within 10 banking business days from the day the Grantor of Preferential Negotiation Rights receives the reply (not including the day of receipt) or within the extended period separately agreed between the Grantor of Preferential Negotiation Rights and the Investment Corporation or the Asset Manager. ii. Mutual provision of information on property owned by a third party Exemptions Preferential Negotiation Rights will not be granted in any of the following events: When Investment-grade Real Estate is transferred within the Ooedo-Onsen Monogatari Group due to corporate restructuring or for any other reason; When Investment-grade Real Estate is transferred to a fund in whose formation Ooedo-Onsen Monogatari Group was involved or to which Ooedo-Onsen Monogatari Group makes a silent partnership contribution, preferred equity investment, or other investment (in this case, Preferential Negotiation Rights will be granted to the fund by deeming the fund to be part of the Ooedo-Onsen Monogatari Group); When Ooedo-Onsen Monogatari Group disposes of Investment-grade Real Estate pursuant to a request by an administrative agency; When Ooedo-Onsen Monogatari Group has commenced discussions with a third party on the sale of Investment-grade Real Estate before acquiring the Investment-grade Real Estate; When Ooedo-Onsen Monogatari Group grants Preferential Negotiation Rights to a third party based on an agreement with the third party that has been executed before the execution of the Sponsor Support Agreement; In the event that Ooedo-Onsen Monogatari Group shares or has unit ownership of Investment-grade Real Estate with a third party, when Ooedo-Onsen Monogatari Group has agreed in advance to assign the Investment-grade Real Estate to the third party or to grant Preferential Negotiation Rights to the third party, or when it has not obtained the consent of the third party regarding the provision of information to the Investment Corporation or the Asset Manager; In the event that Ooedo-Onsen Monogatari Group conducts joint ventures or joint development for Investment-grade Real Estate with a third party, when Ooedo-Onsen Monogatari Group has agreed in advance to assign the Investment-grade Real Estate to the third party or to grant Preferential Negotiation Rights to the third party, or when it has not obtained the consent of the third party regarding the provision of information to the Investment Corporation or the Asset Manager; or When there is any other unavoidable reason. If the Sponsors become aware that the owner of Investment-grade Real Estate that is owned, developed, or managed by a third party is considering the sale of such real estate, they will, at their discretion, provide information on such Investment-grade Real Estate to the Investment Corporation and the Asset Manager on the condition that it obtains the prior approval of the seller, owner, and other relevant parties, and they will not provide the information to a third party (excluding the lenders and advisors of the Sponsors) until the information has been provided to the Investment Corporation and the Asset Manager. Further, if the Sponsors have been granted Preferential Negotiation Rights under an agreement with a third party that was executed before or after the execution of the Sponsor Support Agreement, and a third party designated by the Sponsors is able to obtain such rights, the Sponsors will endeavor to grant Preferential 17

18 Negotiation Rights to the Investment Corporation. However, if the Investment-grade Real Estate conforms to the Sponsors investment criteria, the Sponsors may consider the acquisition of the Investment-grade Real Estate ahead of the Investment Corporation and the Asset Manager. If the Asset Manager becomes independently aware that the owner of real estate that is owned, developed, or managed by a third party is considering the sale of such real estate, and the real estate conforms to the Sponsors investment criteria, the Asset Manager will endeavor to provide information on the real estate to the Sponsors ahead of any third party. Further, if the Investment Corporation or the Asset Manager has been granted Preferential Negotiation Rights under an agreement with a third party executed after the execution of the Sponsor Support Agreement, and a third party designated by itself, the Investment Corporation or the Asset Manager may be granted Preferential Negotiation Rights, the Investment Corporation or the Asset Manager will endeavor to grant Preferential Negotiation Rights to the Sponsors. However, if the real estate constitutes Investment-grade Real Estate, the Investment Corporation and the Asset Manager may consider the acquisition of the real estate ahead of the Sponsors. iii. Provision of warehousing functions The Investment Corporation and the Asset Manager may request the Sponsors to, for the purpose of the future acquisition of Investmentgrade Real Estate by the Investment Corporation, acquire and temporarily own (referred to in this overview of Sponsor Support Agreement as Warehousing ) Investment-grade Real Estate owned by a third party after presenting to the Sponsors the expected acquisition date and the expected acquisition price or method of determining the acquisition price. In this case, the Sponsors will consider the request in good faith and reply to the Investment Corporation and the Asset Manager within 10 banking business days from the day of receiving the request (not including the day of receipt) on whether it will accept the request or not. If the Sponsors provide notice of their intention to accept the request for Warehousing as set out above, the Sponsors, the Investment Corporation, and the Asset Manager will consult on details concerning the acquisition, ownership, and sale to the Investment Corporation associated with Warehousing. In accordance with the terms agreed upon through the consultation and, if necessary, upon obtaining the consent of the lender and other relevant persons, the Sponsors will implement Warehousing, acquire and own the Investment-grade Real Estate on their own accord, or endeavor to cause a special purpose company to which any other entity or sponsor of the Sponsors group makes a silent partnership contribution, preferred equity investment, or other investment (referred to in this overview of Sponsor Support Agreement as Warehousing SPC ) to acquire and own the Investment-grade Real Estate. While owning Investment-grade Real Estate for Warehousing, the Sponsors will take full advantage of their business expertise and exert their best efforts to enhance the appeal of the Investment-grade Real Estate as agreed between the Investment Corporation and the Asset Manager. If the Sponsors or any other entity of the Ooedo-Onsen Monogatari Group or Warehousing SPC acquire the Investment-grade Real Estate as set out above, the Sponsors may not, without obtaining the prior written consent of the Investment Corporation and the Asset Manager, propose the sale or any other manner of disposition of the Investment-grade Real Estate to a third party other than the Investment Corporation, cause any other entity of the Ooedo-Onsen Monogatari Group or Warehousing SPC to propose the sale or any other manner of disposition of the Investment-grade Real Estate, negotiate with a third party on the sale of the Investment-grade Real Estate, or cause any other entity of the Ooedo-Onsen Monogatari Group or Warehousing SPC that owns the Investment-grade Real Estate to negotiate on the sale of the Investment-grade Real Estate until the expected acquisition date presented by the Investment Corporation and the Asset Manager has passed. Further, if the Investment Corporation and the Asset Manager propose to acquire the Investment-grade Real Estate during such period, the Sponsors will sell the Investment-grade Real Estate to the Investment Corporation after the details of the sale of the real estate to be acquired are agreed upon among the Sponsors, the Investment Corporation, and the Asset Manager. If it becomes difficult to acquire the real estate to be acquired at the expected acquisition date presented by the Investment Corporation and 18

19 Asset Management Corporation, the Investment Corporation and the Asset Manager may notify the Sponsors of that fact and the desired acquisition date after extension. In this case, the Sponsors will not unreasonably refuse the extension of the expected acquisition date. iv. Consultation regarding execution of lease agreements v. Cooperation related to investment strategy and property acquisition vi. Cooperation related to securing human resources vii. Unitholders special benefits plan viii. Acquisition and holding of investment units If the Asset Manager deems it necessary, the Asset Manager may propose the execution of a fixed-rent lease agreement or other type of lease agreement to the Sponsors, and the Sponsors will earnestly consider executing such lease agreement on their own accord or through another company of the Ooedo-Onsen Monogatari Group. If the Sponsors are so requested by the Asset Manager (not including requests for cooperation that constitute investment management services or investment advisory and agency services), the Sponsors will, to the extent reasonable and not in violation of applicable laws and ordinances, provide (i) advice related to investment strategy by providing knowledge and information regarding ryokan, hotels, baths, resort facilities, amusement parks, other leisure facilities, lodgings, and the leisure industry and (ii) support related to the acquisition and management of Investment-grade Real Estate to the Investment Corporation and the Asset Manager. However, this section v. does not mean that the Asset Manager will grant all or part of its authority pertaining to asset management to the Sponsors. Ooedo-Onsen Monogatari Group will endeavor to the extent reasonable to secure the human resources that become necessary due to the growth of the Asset Manager and the Investment Corporation through such measures as seconding necessary human resources from Ooedo-Onsen Monogatari Group to the Asset Manager in order to transfer and develop the expertise in real estate administration and management necessary for the performance of the asset management services entrusted by the Investment Corporation, while respecting the identity of the Asset Manager. Following the execution date of the Sponsor Support Agreement, the Investment Corporation, the Asset Manager, and the Sponsors will consult about matters such as whether to introduce a unitholders special benefits plan (referred to in this section vii. as the Special Benefits Plan ) for the purpose of providing unitholders with opportunities to experience the characteristics of the ryokan, hotels, baths, resort facilities, amusement parks, and other leisure facilities owned by the Investment Corporation or Ooedo-Onsen Monogatari Group and to enrich their understanding thereof, and about the details of the plan if it is introduced. If, as part of the Special Benefits Plan, the Investment Corporation and the Asset Manager give preferential treatment to unitholders in order to allow them to widely use ryokan, hotels, baths, resort facilities, amusement parks, and other leisure facilities managed and operated by the Sponsors through such methods as giving them coupons that offer discounts of a certain amount or ratio off the accommodation charges when they stay at those facilities, then the Sponsors will cooperate through such means as issuing those coupons as agreed through consultation in good faith with the Investment Corporation and the Asset Manager. The sharing of the expenses and the like arising from the introduction of the Special Benefits Plan will be determined upon separate agreement. If the Sponsors acquire investment units of the Investment Corporation, the Sponsors will endeavor to continue to hold those investment units of the Investment Corporation to the Invest Corporation and the Asset Manager. If the Sponsors intend to sell all or part of the investment units of the Investment Corporation, the Sponsors will notify the Investment Corporation and the Asset Manager to that effect and consult in good faith. 19