Global Credit Research
Rating Action
21 APR 2009

Rating Action: Hankyu REIT, Inc.

Moody's downgrades HRI's rating; outlook negative

Tokyo, April 21, 2009 -- Moody's Investors Service has downgraded to A3 from A2 the issuer rating of theHankyu REIT, Inc. ("HRI"). The rating had been under review for possible downgrade. The rating outlook isnegative. This concludes the review initiated on January 15, 2009.
The downgrade reflects Moody's concerns that HRI's conservative financial policy may be stressed, since its
ratio of debt to total assets (including "released deposits" -- tenant deposits that can be used for temporaryliquidity) is roughly 56% and remains high relative to its historical level.
The negative rating outlook reflects Moody's view that HRI will need some time to reduce its leverage.
HRI plans to maintain the ratio in the 40%-50% range. Should it exceed 50%, HRI will stop taking on interestbearing debt for acquisitions. Moody's is concerned that HRI's already conservative financial policy may bestressed, given the high debt ratio relative to its historical leverage. The prices of the property in thecompany's portfolio are apparently declining, while leverage based on appraisal values is rising. Although
HRI plans to hold off from any property acquisitions and to lower its leverage in the medium term, Moody's
believes that reducing debt significantly will take some time.
Long-term debt may be as much as 80% of total debt. However, the company's limited liquidity -- such as thelack of a commitment line -- will be an issue in the future.
HRI's portfolio comprises retail properties and office buildings; more than 70% (based on acquisition prices)of the portfolio is located in the Kansai region. More than 80% of the properties were purchased from Hankyu
Hanshin Holdings Group (HHHG), the sponsor of HRI. HRI has an established position in HHHG's strategy
for the real estate business. Rents for some of the retail properties are based on tenants' sales (variablerents). Moody's is concerned that HRI will be negatively affected by a decline in retail sales. However, thetotal percentage of this type of rent revenue is about 5%, which may mitigate its risk.
The portfolio's value is concentrated in its three largest properties, which comprise around 45% (based onacquisition prices) of the pool. Alleviating the asset concentration that Moody's noted when it assigned therating -- and which remains a concern -- may take some time. However, two of the three largest arecompetitive urban retail properties in Umeda, and their high visibility and tenant diversity mitigate theconcentration risk.
Moody's previous rating action on HRI took place on January 15, 2009, when the agency initiated a review of
its issuer rating of A2 for a possible downgrade.
The methodology used in rating REITs is the "Rating Methodology for REITs and Other Commercial Property
Firms" (January 2006), which can be found at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory.
Moody's Special Report, "Japan Real Estate Investment Trusts: Assessing Debt Credit Quality During
Financial Turmoil" (December 2008), can be found at www.moodys.com.
Hankyu REIT, Inc. is a J-REIT and focuses on investing in and managing retail and office properties. Its
operating revenue for the fiscal half-year that ended in November 2008 was approximately JPY 4.6 billion.
TokyoTakuji Masuko
VP - Senior Credit Officer
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Tetsuji Takenouchi

Senior Vice President - Team Leader
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

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