Hoshino Resorts Reit, Inc.TSE: 3287

Notice Concerning Acquisition of Assets (Mezzanine Loan Receivables) (TLS5 Specified Purpose Company Class D Loan Receivables)

Dec 1, 2021 at 6:20 AM UTC · Issued by Hoshino Resorts REIT, Inc.

November 10, 2021

For Immediate Release

REIT Securities Issuer

Hoshino Resorts REIT, Inc.

Representative: Kenji Akimoto, Executive Director

(Code: 3287)

Asset Management Company

Hoshino Resort Asset Management Co., Ltd.

Representative: Kenji Akimoto, President & CEO

Contact: Takahiro Kabuki, Director & CFO

TEL: +81-3-5159-6338

Notice Concerning Acquisition of Assets (Mezzanine Loan Receivables)

(TLS5 Specified Purpose Company Class D Loan Receivables)

Hoshino Resorts REIT, Inc. (hereinafter "HRR") announces that Hoshino Resort Asset Management Co., Ltd. (hereinafter the "Asset Management Company"), to which HRR entrusts asset management, made a decision today to have HRR acquire assets (mezzanine loan receivables) (hereinafter the "Loan Receivables to be Acquired") as follows.

As of today, the counterparty for the acquisition of the Loan Receivables to be Acquired is correspond with an interested person, etc. under the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951, as amended) (hereinafter the "Investment Trusts Act"), and falls under the definition of interested party, etc. as set forth in the "interested party transaction rules," which are the internal rules of the Asset Management Company. Therefore, in deciding to acquire the Loan Receivables to be Acquired, the Asset Management Company has obtained the consent of HRR based on the approval of HRR's Board of Directors' Meeting held on November 10, 2021, in accordance with the Investment Trusts Act and the "interested party transaction rules."

1. Overview of Acquisition

(1)	Date of execution of purchase	November 10, 2021
	agreement

(2)	Planned acquisition date	December 1, 2021 (settlement date)
(3)	Seller	Please refer to "4. Details of Seller" later in this document.
(4)	Method of payment	Lump-sum payment upon delivery (plan)
(5)	Type of Loan Receivables to be	Monetary claims
	Acquired	Subordinated loan claim (non-recourse loan) to TLS5 Specified Purpose
		Company, holder of "(Tentative name) Hotel WBF Grande Kansai Airport"
		(Note 1)

Overview of Loan Receivables to be Acquired

Name	TLS5 Specified Purpose Company Class D Loan Receivables
Face value	750 million yen
Planned acquisition price	750 million yen (Note 2)
Interest rate	1)	Applicable interest rate
		Period until the scheduled repayment date (Note 3): 10.50% per annum
		Period from the day after the scheduled repayment date to the final
		repayment date: 11.50% per annum
	2)	PIK interest
		In regard to the Loan Receivables to be Acquired, interest in the amount
		calculated by the following formula (hereinafter "PIK interest") shall be
		incurred, and on each interest payment date, the payment will be
		automatically deferred until the scheduled repayment date (or the final

Disclaimer: This press release is a document for public announcement concerning the acquisition of assets (mezzanine loan receivables) by HRR and has not been prepared for the purpose of solicitation for investment. Investors are advised to ensure that they read the prospectus for the issuance of new investment units and secondary offering of investment units, as well as the amendments thereto, prepared by HRR before they invest and that they make decisions on investment at their own responsibility and discretion.

			repayment date if the scheduled repayment date is extended). The PIK
			interest shall not be incorporated into the principal amount and will not
			bear interest.
			Amount of PIK interest on Loan Receivables to be Acquired =
			[Principal balance of the Loan Receivables to be Acquired on the
			first day of the interest calculation period] x [2.00%] x [actual
			number of days in the referenced interest calculation period] /
		365
	Interest payment date	Last day of each month, and scheduled repayment date and final repayment
		date
	Final repayment date	July 31, 2024 (Note 4)
	Underlying asset	"(Tentative name) Hotel WBF Grande Kansai Airport" (hereinafter the
		"underlying asset"). (Note 5)
(7)	Overview of the structure of the
		TLS5 Specified Purpose Company
	Loan Receivables to be Acquired				Loan receivables with priority over

					the Loan Receivables to be Acquired
				Debt
			Loan Receivables to be Acquired
				(non-
				750 million yen
				recourse
				(Loan Receivables to be Acquired)
				receivables,
				Class D Lender: Hoshino Resorts Inc.
				etc.)
				(to be acquired by HRR)
			Underlying
				Specified bonds subordinated to the
			asset, etc.
				Loan Receivables to be Acquired
			(Note 6)
				No. 1 preferred equity (A)

					750 million yen
				Equity	No. 1 preferred equity (A) member:
				Hoshino Resorts Inc.
				(preferred
				Preferred equity and specified equity
				equity, etc.)
					other than Hoshino Resorts, Inc.
					(including those subordinated to
					No. 1 preferred equity (A))

On December 1, 2021, or on a date that may be separately agreed upon in writing by the Class D Lender and HRR, HRR plans to acquire the Loan Receivables to be Acquired (principal amount: 750 million yen) from the Class D Lender.
The Loan Receivables to be Acquired are subordinated to loan receivables with priority over the Loan Receivables to be Acquired (total principal amount: 7,860 million yen) in the order of interest payment and principal repayment. On the other hand, the Loan Receivables to be Acquired have priority over the specified bonds issued by the borrower (TLS5 Specified Purpose Company; the same shall apply hereinafter) and the preferred equity (hereinafter collectively referred to as "equity, etc.").
In repayment of the principal, even in the unlikely event of a decline in the value of the underlying asset, etc., the first damage to equity, etc. will occur, the principal of the Loan Receivables to be Acquired will be impaired only after all of the equity, etc. have been impaired.
With regard to the Loan Receivables to be Acquired, on each interest payment date during the period until the loan receivables with priority over the Loan Receivables to be Acquired are fully repaid, if there is a shortfall in the payment of interest owed to the Class D lender, the repayment date for the amount corresponding to the said shortfall shall be changed to the next interest payment date (such interest shall hereinafter be referred to as "carry forward interest"). Carry forward interest shall not be incorporated into the principal and will not bear interest.
The appraisal value of the underlying asset (Note 7) is 12,900 million yen. The ratio of the borrower's debt (loan receivables with priority over the Loan Receivables to be Acquired, Loan Receivables to be Acquired and specified bond senior receivables subordinated to the Loan Receivables to be Acquired, a total of 8,710 million yen) to this amount is approximately 67.5%. Therefore, based on the ratio of the borrower's debt to the appraisal value of the underlying asset, HRR judges that the

		risk of principal impairment of the Loan Receivables to be Acquired is
		relatively low.
(8)	Overview of Hoshino Resorts	In the event that the borrower intends to sell the underlying asset, the
	Inc.'s preferential negotiation	borrower shall notify in writing Hoshino Resorts Inc. (hereinafter
	rights (Note 8)	"Hoshino Resorts") of its intention to sell.
		By giving written notice of its intention to purchase to the borrower
		within 10 business days from the date of receipt of such notice, Hoshino
		Resorts shall acquire the right to negotiate the acquisition of the
		underlying asset on a priority basis for two months (hereinafter "priority
		negotiation rights"). (However, the terms and conditions of the sale and
		purchase of the underlying asset: (1) the sale price of the underlying
		asset must be an amount that can be reasonably satisfied by the
		borrower at its discretion, and (2) if the borrower has already received
		an application (including a notice of intent) from a third party to
		purchase the underlying asset, the terms and conditions of the
		application must be the same or higher).
(9)	Overview of the borrower
	Company name	TLS5 Specified Purpose Company
	Head office location	Within the office of TOKYO UNITED GROUP
		2-9-15, Yotsuya, Shinjuku-ku, Tokyo
	Name and title of representative	Takuya Ikeda, Director
	Amount of capital	100,000 yen (Amount of specified capital)
	Date of incorporation	July 27, 2018
	Net assets	Not disclosed as consent from the borrower has not been obtained.
	Total assets	Not disclosed as consent from the borrower has not been obtained.
	Preferred equity investors and	Preferred equity investors and specified equity investors other than Hoshino
	specified equity investors	Resorts, Inc. are not disclosed as consent from the borrower has not been
		obtained.
	Business	1) Transfer of specified assets in accordance with asset securitization plans
		based on the Act on the Securitization of Assets, and operations related
		to the management and disposal of such assets
		2) All other operations incidental and related to the aforementioned
		business relating to the securitization of specified assets

	Relationship with HRR/Asset		There is no capital relationship required to be
	Management Company	Capital relationship	stated between HRR/the Asset Management
			Company and the borrower.

			There is no personnel relationship required to be
		Personnel relationship	stated between HRR/the Asset Management
			Company and the borrower.

			There is no business relationship required to be
		Business relationship	stated between HRR/the Asset Management
			Company and the borrower.

		Status of classification as	The borrower does not fall under the related
		related party	party of HRR/the Asset Management Company.

(Note 1) The name "(Tentative name) Hotel WBF Grande Kansai Airport" is a tentative name as of today, and the official name will be decided by the borrower, etc. in the future, and the name may be changed from "(Tentative name) Hotel WBF Grande Kansai Airport" at the time of commencement of the operation of this property.

(Note 2) "Planned acquisition price" indicates the sales/purchase price of the Loan Receivables to be Acquired stated in the sales and purchase agreement (excluding consumption taxes, local consumption taxes and expenses such as transaction commissions), rounded down to the nearest million yen.

(Note 3) The "scheduled repayment date" is July 31, 2024.

(Note 4) The final principal repayment date of the Loan Receivables to be Acquired is the scheduled repayment date (July 31, 2024). However, if the borrower requests and all lenders agree, the loan will be extended until the final repayment date (January 31, 2026). In addition, there is a possibility that the loan will be repaid before the final repayment date due to certain reasons such as the sale of the underlying asset.

(Note 5) For details of the underlying asset, please refer to "3. Overview of the Underlying Asset" below.

(Note 6) The underlying asset, etc., includes composition costs and reserve funds in addition to the underlying asset.

(Note 7) The "appraisal value of the underlying asset" is the appraisal value of the building and its site for its own use, based on the assumption that it is not yet open for business and the operator has not yet been determined, on the appraisal date of March 1, 2021, which was provided by the borrower. The said appraisal value is not the appraisal value obtained by HRR.

(Note 8) The company holding the preferential negotiation rights is Hoshino Resorts, not HRR. However, based on the sponsor support agreement with Hoshino Resorts, when selling the said property, HRR can receive information about the property at the latest at the same time as the information is provided to third parties. The same shall apply hereinafter.

(Note 9) The asset manager of the borrower is not disclosed because the consent from the borrower has not been obtained.

2. Reason for Acquisition

HRR aims to improve the possibility and efficiency of property acquisition by utilizing acquisition methods, such as acquiring properties from the sponsor pipeline (utilizing the sponsor support agreement), acquiring properties completed by the Hoshino Resorts Group (collectively referring to Hoshino Resorts, and its parent company and subsidiaries; the same shall apply hereinafter) for revitalization (utilizing the Hoshino Resorts Group's expertise in revitalization), acquiring properties leased to those other than the Hoshino Resorts Group (the Asset Management Company's original route) as well as by collaborating with the Hoshino Resorts Group (collaborative investment structure). In this way, HRR will continue to promote external growth.

In line with this policy, HRR intends to create opportunities for future acquisitions (Note 1). Through discussions with the Hoshino Resorts Group, as a new way of utilizing the cooperative investment structure that HRR has been implementing with the Hoshino Resorts Group, HRR has decided to acquire from the Hoshino Resorts Group a subordinated loan claims against TLS5 Specified Purpose Company, a specified purpose company for the development of the underlying asset in which the Hoshino Resorts Group has a preferred equity stake, and thereby indirectly invest in the underlying asset.

The subordinated loan claims to TLS5 Specified Purpose Company are loan claims that are subordinated in terms of payment of principal and interest, etc. to priority loan claims (senior loan receivables) to TLS5 Specified Purpose Company, and fall under the category of so-called mezzanine loan receivables (Note 2).

Aiming to secure stable and high income by investing in mezzanine loan receivables, HRR will acquire the Loan Receivables to be Acquired, mezzanine loan receivables backed by "(Tentative name) Hotel WBF Grande Kansai Airport." The acquisition will be made with funds procured from the issuance of new investment units resolved at HRR's Board of Directors' Meeting held on November 10, 2021.

The Loan Receivables to be Acquired have a final repayment date of July 2024. As Hoshino Resorts, which holds the No. 1 equity (A), has obtained preferential negotiating rights upon the sale of properties in connection with the repayment of the Loan Receivables to be Acquired, we believe that the acquisition of the Loan Receivables to be Acquired is an investment that can lead to the future expansion of the pipeline for HRR.

(Note 1) There is no specific plan for HRR to acquire the underlying asset, nor is there any guarantee that HRR will acquire the underlying asset in the future.

(Note 2) When an SPC is used for real estate securitization, it is common to use capital-like financing (equity) together with debt financing such as loans and bond issues. As a means of raising debt financing, loans that are subordinated to loans from banks and other financial institutions in terms of repayment ranking, etc., may be implemented. Such loans are called mezzanine loans, and loans that have priority over mezzanine loans are called senior loans.

Mezzanine loans are generally subordinated to senior loans in terms of repayment ranking, etc., but the interest rate is generally set higher than that of senior loans.

Therefore, if the principal and interest are repaid on time, higher returns can be realized compared to senior loans. In the event that the full amount of principal and interest of the senior loan and mezzanine loan cannot be paid due to a decrease in income from the underlying real estate, etc. or a decline in the value of the real estate, etc., the payment for the senior loan shall take priority over the payment for the mezzanine loan. As a result, the principal and interest of the mezzanine loan will not be paid as scheduled.

However, since payments to mezzanine loans are in principle made in priority to payments to capital-like financing (equity), even if the value of real estate etc. declines, the principal of capital-like financing (equity) will be damaged first, and then the principal of mezzanine

loans will be impaired only after all capital-like financing (equity) has been impaired. Therefore, mezzanine loans are generally regarded

as relatively safer assets than capital-like financing (equity).

3. Overview of the Underlying Asset

(Tentative name) Hotel WBF Grande Kansai Airport	Category		Pending
Use		Hotel

Location			833-1,Rinkuorai-kita,Izumisano-shi, Osaka
Transportation		2-minute walk from Rinku Town Station on the Nankai Electric Railway Nankai Airport Line and JR Kansai-
	airport Line

	Lot number		833-1,Rinkuorai-kita,Izumisano-shi,			Completion	August 2020
		Osaka			date

	Building					Structure /	Reinforced concrete, steel-
	coverage		80%
				floors	construction with flat roof/B1/22F
	ratio

						Total floor	28,975.89 m2
						area
	Floor-area
		600%			No. of rooms	700
	ratio
Land			Building		No. of	1

				buildings

						Building	NIKKISEKKEI Co., Ltd.
						engineer

	Site area		2,954.00 m2				Specified Construction Joint Venture
					of JDC Corporation, ASAHI
						Constructors
						CONSTRUCTION CO., LTD., and

							Usami Gumi Co.
	Type of		Ownership			Type of	Ownership
	ownership				ownership

Overview
of	Not applicable
leasing

(Note 1) The above information is based on information available as of today and is subject to change without notice. There is no specific plan for HRR to acquire the underlying asset, nor is there any guarantee that HRR will acquire the underlying asset in the future.

(Note 2) "Transportation" is based on research conducted by HRR.

The property is located in Rinku Town, one of the sub-centers of Osaka Prefecture, on the opposite shore of Kansai International Airport. Rinku Town, a gateway city hub which spans the two cities and one town of Izumisano-shi,Tajiri-cho and Sennan-shi in Osaka Prefecture, is an area that was reclaimed and developed in conjunction with the opening of Kansai International Airport in September 1994. It is also the area on the opposite shore of the bay closest to Kansai International Airport, so it is the first area that visitors to Japan come into contact with when they arrive at the airport and the last area they visit.

The nearest station to the property is "Rinku Town Station," which is served by Nankai Electric Railway and West Japan Railway Company. As the property is located right in front of the north exit of Rinku Town Station, it has extremely good visibility from areas including the station platform and the pedestrian deck on the north exit side. In addition, as the area around the property is dotted with shopping and leisure facilities such as "Rinku Premium Outlets" and "Kanku Ice Arena," visitation is expected to increase as the COVID-19 pandemic recedes. HRR believes that the property will benefit from this.

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