November 7, 2007

Nippon Accommodations Fund Series 1 J-REIT
Bonds Assigned 'A+' Rating
Primary Credit Analyst:
Roko Izawa, Tokyo (81) 3-4550-8674; roko_izawa@standardandpoors.com
Secondary Credit Analyst:
Yumi Oikawa, Tokyo (81) 3-4550-8775; yumi_oikawa@standardandpoors.com

TOKYO (Standard & Poor's) Nov. 7, 2007--Standard & Poor's Ratings Services
today assigned its 'A+' rating to Nippon Accommodations Fund Inc.'s (NAF)
proposed series 1 senior unsecured bonds, due November 2014. At the same time,Standard & Poor's affirmed its 'A+' long-term and 'A-1' short-term corporate
credit ratings on NAF. The outlook on the long-term corporate credit rating
remains stable.
The rating reflects NAF's strong business position and moderately
conservative financial profile. The company's real estate portfolio generates
stable cash flow as it is comprised of residential properties that are in good
locations, have a low average property age, and have good leasing conditions.
NAF's operating strategy is to specialize in very high quality residential
properties located mainly within the 23 wards of Tokyo, backed by the realestate development capabilities, real estate expertise, and brand recognitionof the sponsor, Mitsui Fudosan Co. Ltd. (BBB+/Stable/A-2). NAF has aconservative capital structure and high financial flexibility. These strengths
are partly offset by concerns regarding property concentration risk in NAF'sportfolio.
NAF is a J-REIT that went public on the Tokyo Stock Exchange in August
2006. As of the end of August 2007, NAF owned 30 properties and 3,035 leasing
units within the 23 wards of Tokyo, worth approximately ¥108.2 billion, basedon purchase price. The portfolio is diversified in terms of unit type,comprising single, family-type, and large leasing units, with a focus onwww.standardandpoors.com/ratingsdirect
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Nippon Accommodations Fund Series 1 J-REIT Bonds Assigned 'A+' Ratingcomparatively high-demand compact units. In September 2007, NAF acquired sevenproperties, including Park Axis Toyocho (¥3.95 billion; located in Koto Ward)and Park Axis Asakusabashi (approximately ¥2.72 billion; located in TaitoWard) for a total of ¥15 billion. As a result, the number of properties inNAF's portfolio increased to 37, worth approximately ¥123.2 billion, as of endof October 2007.
The portfolio has asset concentration risk, with the Okawabata Apartmentcommunities comprising 24.1% of the total portfolio value. This risk ismitigated by such factors as tenant diversification at the property, highoccupancy rates, stable cash flows, and high competitiveness in the submarket.
NAF is aiming to enlarge its portfolio by ¥300 billion, or 10,000 residential
units, by 2010 to 2011. However, the company is not focused solely on
expanding the size of its portfolio, taking into consideration the overheatingof the real estate market. The growth rate of NAF's portfolio has beenmoderate.
NAF's debt-to-capital ratio (interest bearing debt including Hoshokin
liabilities/(interest bearing debt + unitholders' capital); Standard & Poor'sdefinition) as of end of August 2007 was 44.2%. Management expects to maintainthe company's debt-to-capital ratio (interest bearing debt/total assets) at an
average of 40% to 50%, or at a maximum of 60%, which is a relatively
conservative level. To fund future property acquisitions, NAF anticipates a
strategy of timely equity issues aimed at stabilizing its leverage.
The outlook is stable. NAF's portfolio of high-quality assets should
generate stable income despite its asset concentration risk. With the supportof its sponsor, NAF is expected to maintain the high quality of its assets anda relatively conservative financial profile as its portfolio grows. Although
NAF's debt-to-capital ratio may fluctuate as it pursues acquisitions ofproperties, it is expected to remain within the aforementioned range.
A Japanese-language version of this media release is available on
Standard & Poor's Research Online at www.researchonline.jp, or via CreditWire
Japan on Bloomberg Professional at SPCJ <GO>.

Standard & Poor’s RatingsDirect | November 7, 2007
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