March 28, 2008

Ratings On Japan Real Estate Investment Corp.
Raised To 'AA-/A-1+'; Outlook Stable
Primary Credit Analyst:
Roko Izawa, Tokyo (81) 3-4550-8674; roko_izawa@standardandpoors.com

TOKYO (Standard & Poor's) March 28, 2008--Standard & Poor's Ratings Services
today raised by one notch to 'AA-' from 'A+' its long-term issuer credit andsenior unsecured debt ratings on Japan Real Estate Investment Corp. (JRE), andits preliminary rating on JRE's ¥100 billion shelf registration (see listbelow). At the same time, Standard & Poor's raised to 'A-1+' from 'A-1' its
short-term issuer credit rating on the company. The outlook on the long-term
issuer credit rating is stable.
The rating revisions reflect JRE's enhanced business base, achieved via
improvements in its portfolio quality and cash flow stability, and via
expansion of its asset portfolio. The revisions also reflect JRE'sconservative operations, such as the maintenance of appropriate leveragecontrol as it pursues external growth despite the recent severe debt andequity market environment, and its enhanced financial flexibility that isachieved by securing various funding methods and strong liquidity.
JRE boasts the second largest asset portfolio size among listed Japanesereal estate investment trusts (J-REITs) that focus on office buildings, with astrong business position, as well as good brand recognition. The credit
quality of its sponsors has improved and remains one of JRE's strengths:
Mitsubishi Estate Co. Ltd. (A+/Stable/A-1); Tokio Marine & Nichido Fire
Insurance Co. Ltd. (AA/Stable/A-1+); Dai-ichi Mutual Life Insurance Co.
(A/Stable/--); and Mitsui & Co. Ltd. (A/Positive/A-1). JRE owns a portfolio ofwell-maintained office buildings with high occupancy rates that generate
stable cash flow. JRE's financial profile is solid.
As of today, JRE owns a portfolio of 53 office properties throughout

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Ratings On Japan Real Estate Investment Corp. Raised To 'AA-/A-1+'; Outlook Stable

Japan worth ¥519.0 billion, based on purchase price. In addition, JRE owns
¥1.27 billion in preferred securities issued by Harumi Front Tokutei Mokuteki
Kaisha (Harumi Front TMK). In the one-year period from April 2007, JRE
invested a combined ¥79.1 billion, including the ¥26.8 billion acquisition ofHarumi Center Building (Chuo ward, Tokyo), as well as the ¥37.4 billion
acquisition of the MM Park Building (Nishi ward, Yokohama). On the other hand,JRE sold a smaller property with limited upside earnings potential, KobeItomachi Building, for ¥17.7 billion. JRE used its close ties with sponsors toconduct many of its asset acquisitions, which boosted the quality andstability of its portfolio.
Although there is a degree of asset concentration risk in the portfolio,
with the largest property, Kitanomaru Square Building, accounting for about
15.7% of the entire portfolio, the property's scarcity value in terms oflocation, excellent specifications, and stable cash flow based on long-termleases mitigate this risk. Moreover, asset concentration is declining
moderately as the company acquires more properties. The company's portfolio isgeographically diverse with concentration in Tokyo's 23 wards, and its averageoccupancy rate stood at 97.8% as of January 2008, providing stable cash flow.
Since debt and capital markets in Japan and overseas have been unstable
due to the U.S. subprime crisis, the J-REIT investment unit market has also
been experiencing a major correction period from last year. Even in thissevere market environment, JRE has maintained growth at a moderate pacethrough internal growth strategies, such as lifting rents and bolstering asset
quality through renovation and successful asset recycling efforts. Meanwhile,
timely equity issues and selective property acquisitions have also helped JRE
maintain growth. Under JRE's financial policy, the company aims to maintainthe ratio of debt to total assets between 30% and 40%. As JRE's portfolio
asset size has reached a certain magnitude, its leverage has experienced
relatively smaller fluctuations. Since its listing, JRE has issued additional
equity five times, including an issuance in March 2008 amid a soft equity
market, and Standard & Poor's thus expects it to conduct equity issuance in atimely manner, maintaining the leverage level within the conservative range inline with its financial policy.
For the 12th fiscal period, which ended in September 2007, JRE had total
revenue of about ¥17.5 billion, net income of about ¥7.6 billion, and adebt-to-capital ratio (interest-bearing debt/(interest-bearing debt +unitholders' capital) according to Standard & Poor's definition) of about
34.7%. As of February 2008, long-term fixed loans comprised 100% of thecompany's total debt, and the maturities are diversified through 2025. JRE's
cash flows are relatively stable, and in the 12th fiscal period, the company
recorded an EBITDA interest coverage ratio of about 10x, based on the period's
attractive financing costs. The ratio of FFO to total debt stood at 13.8%. In
the 13th fiscal period, which ended in March 2008, JRE's earnings-related anddebt service coverage-related measures are expected to increase temporarily
because of dividend income from its preferred equity issued by Harumi FrontTMK.
JRE's cash balance as of September 2007 was about ¥16.4 billion, a levelsufficient to cover immediate operating expenses (including security depositliabilities). The company maintains ample liquidity at hand, supported by ¥25
billion worth of unused and committed credit lines and good relationships withStandard & Poor’s RatingsDirect | March 28, 2008
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Ratings On Japan Real Estate Investment Corp. Raised To 'AA-/A-1+'; Outlook Stablea number of creditor banks. JRE has high financial flexibility, given that allof its current interest-bearing debts are unsecured.
The outlook is stable. Standard & Poor's expects JRE to maintain stable
income, based on its high-quality assets and its close ties with sponsors. We
also expect JRE to focus on internal growth by strengthening its profitability
through maintaining its diversified and stable portfolio based on a solidbusiness base. JRE will likely maintain its strong financial profile, such asdebt and equity structure and interest coverage through conservative leveragecontrol, in line with its financial policy. We would, however, consider
revising the outlook and/or ratings if JRE's future operations do not meet ourassumptions described above, resulting in scenarios such as a sustained andsignificant rise in debt levels to fund an above-average volume ofacquisitions.
RATINGS RAISEDJapan Real Estate Investment Corp.
Long-term issuer credit rating
Long-term senior unsecured debt ratings, series 2 through 6Short-term issuer credit rating

ToAAAAA-1+

From
A+A+A-1

PRELIMINARY RATING RAISED
Shelf Registration¥100 billion

ToAA-FromA+

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>.

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