NEWS RELEASE
No.2006-C-957

Dec 25, 2006

R&I Assigns AA Stable: Nippon Accommodations Fund.
Rating and Investment Information, Inc. (R&I) has announced the following.
ISSUER:

Nippon Accommodations Fund. (Sec. Code: 3226)
Issuer Rating
R&I RATING: AA (Newly Assigned)
RATING OUTLOOK: Stable

RATIONALE:
Listed on the stock exchange in August 2006, Nippon Accommodations Fund (NAF) is a realestate investment trust (J-REIT) with assets comprising 27 properties with a value of 101.4 billion
yen (on an acquisition basis). The fund invests in accommodation assets chiefly for rental purposes
including student dormitories, condominiums for students, serviced apartments, retirement
residences, and corporate housing. NAF’s sponsor is Mitsui Fudosan Co., Ltd.
NAF’s entire portfolio consists of residential properties, 95% of which are located in
metropolitan Tokyo’s 23 wards, with 68% of these in the six central wards in the heart of the city.
The average acquisition price per property is 3.8 billion yen and the weighted average age atacquisition value is about six years.
The trust specializes in residential properties but promotes diversity in the types ofaccommodation it invests in through a well-balanced mix of single, compact, family and large-size
residences which cater to different customer segments. Residential properties in general are highin asset liquidity and tenant replaceability, so rent levels are less exposed to the impact ofeconomic trends. Therefore, R&I believes the stability of the cash flow of properties of this nature
to be relatively high.
Notable characteristics of NAF’s investment assets are: they are located in areas that areparticularly popular even within central Tokyo, they are relatively large in scale and, being
relatively new, they have facilities and specifications comparable to modern condominiums on themarket. The largest of its properties, Okawabata Rental Building, is somewhat advanced in age
but in addition to its superior residential environment and its highly prestigious reputation, thebuilding itself has been appropriately maintained and improved over the years, so it has kept itscompetitiveness. Reflecting the portfolio’s high quality, the occupancy rate of NAF’s properties
runs at about 97%, even in the absence of any buildings with rent-guaranteed master leases. The
number of tenants at approximately 2800 is well-spread and this factor contributes to stable
occupancy.
In principle, NAF plans to invest mainly in a condominium brand known as the Park Axis
Series developed by Mitsui Fudosan. In this way, the fund is expected to receive an ongoing supplyof properties which are quality-controlled by the sponsor, so there is very little likelihood of adecline in the quality of the portfolio with the acquisition of further properties. In addition, thesponsor purchases new properties on the basis of their occupancy potential, so the burden ofleasing risk on new acquisitions will be limited.
The fund plans to commission all property management to Mitsui Fudosan Housing Lease.
R&I believes that the strategy of commissioning the comprehensive management of properties to acompany with an outstanding track record is effective in establishing efficient management
systems in residential REITs where the number of units and tenants is large. It also believes thatthe Mitsui brand power, with its well-established reputation in condominiums, will be anadvantage in attracting tenants.

Rating and Investment Information, Inc. Nihonbashi 1-chome Bldg., 1-4-1, Nihonbashi, Chuo-ku, Tokyo 103-0027, Japan
Structured Finance Rating Division TEL. 03-3276-3406·3428 FAX. 03-3276-3429 EMAIL sfdept@r-i.co.jp Homepage http://www.r-i.co.jp
Ratings are statements of R&I's opinion shown in certain symbols regarding an Issuer's general capacity (credit quality) to repay its financial obligation and individual debts(bonds and loans, etc.) and it is not a statement of recommendations to buy, hold, or sell any securities. Information has been obtained by R&I from sources believed to be reliable,
however, its accuracy, adequacy, or completeness is not guaranteed. Therefore, R&I is not responsible for any errors or omissions or the result obtained from the use of the rating.
As a general rule, R&I provides the rating services for a rating fee paid by the Issuer.

©Rating and Investment Information, Inc.

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NEWS RELEASE
Although NAF itself does not have a long history, Mitsui Fudosan has already demonstrated
success in establishing and managing the Nippon Building Fund (NBF, specializing in officebuildings), the largest real estate investment fund in the industry. R&I believes that theexperience and know-how gained through the management of NBF can also be applied to themanagement of NAF.
As a rule, NAF aims to keep its debt within the range of about 40-50% of its total assets inordinary times. At present, it is at about 40%. In the future, however, there is a possibility that
this ratio will rise with the acquisition of new properties but the fund will probably adhere to the40-50% range overall through investment activities and capital increases that reflect an awarenessof leverage levels.
Based on the company’s business plans and other factors, R&I did projections on the mediumterm transition of its own loan-to-value ratio (debt plus deposits and guarantees excluding reserves
divided by R&I’s appraisal of the total value of the trust’s properties) and according to theseprojections, its loan-to-value (LTV) ratio as R&I defines is expected to be maintained at a favorablelevel in the 40 percentiles on the whole and in the mid 50 percentiles at the highest.
With long-term loans accounting for about 70% of all NAF’s loans and all of its loans on fixedinterest rates with terms of four to seven years, the fund has mitigated interest rate rise concerns
by making significant headway in converting its loans to long-term fixed-interest rates in the brief
period since its listing as a REIT. All of its loans are unsecured and unguaranteed, and funding
sources and repayment dates are appropriately spread, so NAF has a stable funding structure.
R&I RATINGS:ISSUER:
ISSUER RATING:
RATING OUTLOOK:

Nippon Accommodations Fund. (Sec. Code: 3226)
AA (Newly Assigned)
StableIssuer Rating is R&I's opinion regarding an issuer's overall capacity to repay its entire financial
obligation, and it will be assigned to all issuers. The rating of individual obligations (i.e. bonds and loansetc.)includes the prospect of recovery and reflects the terms and conditions ofthe agreement and it may belower or higher than the Issuer Rating.

Rating and Investment Information, Inc. Nihonbashi 1-chome Bldg., 1-4-1, Nihonbashi, Chuo-ku, Tokyo 103-0027, Japan
Structured Finance Rating Division TEL. 03-3276-3406·3428 FAX. 03-3276-3429 EMAIL sfdept@r-i.co.jp Homepage http://www.r-i.co.jp
Ratings are statements of R&I's opinion shown in certain symbols regarding an Issuer's general capacity (credit quality) to repay its financial obligation and individual debts(bonds and loans, etc.) and it is not a statement of recommendations to buy, hold, or sell any securities. Information has been obtained by R&I from sources believed to be reliable,
however, its accuracy, adequacy, or completeness is not guaranteed. Therefore, R&I is not responsible for any errors or omissions or the result obtained from the use of the rating.
As a general rule, R&I provides the rating services for a rating fee paid by the Issuer.

©Rating and Investment Information, Inc.

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