Rating Action: Moody's changes Nippon Accommodations Fund's rating
outlook to stable from positive
Global Credit Research - 01 Jun 2017
Tokyo, June 01, 2017 -- Moody's Japan K.K. affirmed Nippon Accommodations Fund Inc.'s (NAF) A3 issuer
rating and changed its rating outlook to stable from positive.
RATINGS RATIONALE"The stable outlook better reflects NAF's high leverage relative to its cash flow. Given the stability of thebusiness and financing model, we believe NAF will maintain leverage around the current range," says Moody'sVice President - Senior Analyst Akifumi Fukushi.
NAF's stable rating outlook reflects NAF's stable cash flow generated from a large, well-diversified portfolio
consisting of 118 residential properties with 11,709 units, at end-February 2017. Regular rent increases from alarge pool of residential customers and a consistently high occupancy rate (above 95%) have sustained cash
flow levels.
Given the current intense competition for property acquisitions, NAF's J-REIT competitors are struggling topurchase properties that generate sufficient yields. In that regard, Moody's believes NAF is relatively well
positioned and is able to be selective in its asset purchases, mostly from its sponsor Mitsui Fudosan Co., Ltd.
(A2 stable).
Lack of recent acquisitions has led to a moderate growth in EBITDA. As a result, NAF's net debt/EBITDA
improved to 10.3x in the fiscal half-year ended February 2017 from 11.4x in February 2015, but still at a
relatively high level for its rating.
NAF's liquidity coverage ratio had declined to around 100% at end-August 2016 and end-February 2017, fromabove 150% at end-February 2015 and end-August 2015. Moody's expects this erosion in liquidity coverage istemporary, due to the timing of near-term debt maturities, and that NAF's liquidity risk is manageable, becauseof the strong relationships that the company has with its bankers as well as its sponsor, Mitsui Fudosan.
An upgrade could result if NAF maintains a notable decrease in leverage through debt reduction and/or equity
issuance, so that net debt/EBITDA is sustained in the low 9x range, and debt/gross assets remains below 45%.
NAF could be downgraded if the quality of its cash flow deteriorates, and financial leverage stays at a higher
level, for example, net debt/EBITDA above 11.5x and debt/gross assets above 50%.
The principal methodology used in these ratings was Global Rating Methodology for REITs and Other
Commercial Property Firms (Japanese) published in October 2010. Please see the Rating Methodologies pageon www.moodys.com for a copy of this methodology.
Nippon Accommodations Fund Inc., headquartered in Tokyo, is a J-REIT with an investment portfolio of
residential properties.
REGULATORY DISCLOSURESFor ratings issued on a program, series or category/class of debt, this announcement provides certain
regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or
category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings issued on a support provider, thisannouncement provides certain regulatory disclosures in relation to the credit rating action on the support
provider and in relation to each particular credit rating action for securities that derive their credit ratings fromthe support provider's credit rating. For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be
assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms
have not changed prior to the assignment of the definitive rating in a manner that would have affected therating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on
www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of thiscredit rating action, and whose ratings may change as a result of this credit rating action, the associatedregulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following
disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from ratedentity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related
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Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosuresfor each credit rating.
Akifumi Fukushi
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Mihoko Manabe
Associate Managing Director
Corporate Finance GroupJOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

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