Research Update:

Nomura Real Estate Master Fund Inc.
Ratings Affirmed After Announcement
Of Merger With Top REIT Inc.;
Outlook Stable
Primary Credit Analyst:
Roko Izawa, Tokyo (81) 3-4550-8674; roko.izawa@spglobal.com
Secondary Contact:
Makiko Yoshimura, Tokyo (81) 3-4550-8368; makiko.yoshimura@spglobal.com

Table Of Contents
Overview
Rating Action
Rationale
OutlookRatings Score Snapshot
Related Criteria And Research
Ratings List

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Research Update:

Nomura Real Estate Master Fund Inc. Ratings
Affirmed After Announcement Of Merger WithTop REIT Inc.; Outlook StableOverview• Nomura Real Estate Master Fund (NMF) has concluded a deal to merge withTop REIT on Sept. 1, 2016.
• We believe the impact of the merger, if realized, on NMF's credit quality
would be within the tolerances of our current ratings despite theslightly weaker business base and financial standing of Top REIT. This isbecause the expanded scale would strengthen NMF's market position and theimproved diversification of assets and their geographic locations would
help stabilize revenues.
• We are affirming our 'A' long-term and 'A-1' short-term corporate credit
ratings on NMF. The outlook on the long-term corporate credit ratingremains stable.

Rating Action
On May 26, 2016, S&P Global Ratings affirmed its 'A' long-term and 'A-1'
short-term corporate credit ratings on Japan-based Nomura Real Estate MasterFund Inc. (NMF). The outlook on the long-term rating remains stable.

Rationale
The affirmations follow the Japanese REIT's (J-REIT) announcement that it has
concluded a deal to absorb Japan-based Top REIT Inc. on Sept. 1, 2016. We
believe the impact of the merger, if realized, on NMF's credit quality would
be within the tolerances of our current ratings despite the slightly weakerbusiness base and financial standing of Top REIT. This is because the expanded
scale from the merger would strengthen NMF's market position and the improved
diversification of its assets and their locations would help stabilize
revenues, in our view.
Top REIT's portfolio would be equivalent to about 15% of the assumed
acquisition value of the merged entity's portfolio. Top REIT's portfolio
carries concentration risk in its assets and tenants, the average property age
is slightly high, and its profitability is somewhat low. However, we believe
the merger would strengthen NMF's market position because it would expand
NMF's scale via external growth with sufficient yields amid severe competition
for acquisitions. We also expect NMF to further stabilize rental revenue fromits diversified and relatively high-quality portfolio, which we expect will

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Research Update: Nomura Real Estate Master Fund Inc. Ratings Affirmed After Announcement Of Merger WithTop REIT Inc.; Outlook Stablegrow to over ¥900 billion (total assumed acquisition value). In addition, webelieve NMF will leverage its nature as a diversified J-REIT and continue to
use its sponsor's property sourcing pipeline to enhance its asset quality andscale by pursing external growth and replacing properties in its portfolio. We
also continue to view as a strength the brand recognition and real estate
management and development capabilities of its sponsor, Nomura Real Estate
Holdings Inc. We believe the addition of Top REIT's portfolio, which generates
sufficient yields, will slightly improve NMF's somewhat weak profitability.
Accordingly, we continue to assess the business risk profile of NMF as strong.
In assessing the financial risk profile of NMF, we incorporate our view that
it will maintain favorable interest coverage measures and relatively highfinancial flexibility. Top REIT's moderately high debt-to-total assets ratio(as Top REIT defines it) will likely push up NMF's post-merger debt ratios
slightly. We expect NMF's moderately high debt ratios relative to its
diversified portfolio and its slightly weak cash flow measures to continue toconstrain our assessment of its financial risk profile somewhat. Nevertheless,we believe NMF will manage its debt levels in line with its financial policyin the medium term. Under its financial policy, NMF intends to maintain its
debt-to-total assets ratio (as NMF defines it) at about 45% (40%-50%). We
believe this corresponds to a debt-to-debt plus equity ratio on an
undepreciated basis (debt / [debt + equity + depreciation]; our definition) of
about 43% (38%-48%). Accordingly, we continue to assess NMF's financial risk
profile as modest.
In our base-case scenario, we assume:• NMF will merge with Top REIT on Sept. 1, 2016;• NMF's total rental revenue will rise moderately, owing to an expanded
asset scale and a marginal increase in rent levels;• Its slightly weak profitability, including return on investments (ROI),
will improve somewhat with the merger and will remain mostly flat
thereafter; and• NMF will control its debt-to-total assets ratio in line with its
financial policy.

Based on these assumptions, we expect NMF's EBITDA interest coverage ratio tohover at about 8.0x-9.0x and its ratio of funds from operations (FFO) to debt
to be about 7.5%-8.5%.

Liquidity
We believe NMF's liquidity is adequate and expect its sources of liquidity toexceed 1.2x its uses for the next 12 months.

OutlookThe stable outlook reflects our view that NMF will continue to generate steadyrental revenue from its large, diversified, and relatively high-quality

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Research Update: Nomura Real Estate Master Fund Inc. Ratings Affirmed After Announcement Of Merger WithTop REIT Inc.; Outlook Stableportfolio amid a moderate recovery of Japan's property leasing market.

Downside scenario
We would consider lowering our ratings if NMF's financial measuresdeteriorate, largely deviating from its financial policy and our projections,as a result of large property acquisitions funded with debt or weakened rentalrevenue. Specifically, we might consider a downgrade if the J-REIT's FFO todebt declined and stayed below 7.0% for a sustained period, and we saw thisratio as unlikely to improve.

Upside scenario
We might consider raising our ratings on NMF if we saw better prospects for
improvement in its asset quality, profitability, debt ratios, and cash flow
measures, and if we saw continued solid recovery in Japan's property leasing
market. Specifically, we might consider an upgrade if we expected FFO to debt
to exceed and remain above 9.5%. However, we believe the likelihood of an
upgrade is currently remote, given NMF's slightly weak profitability measuresand somewhat high debt levels.

Ratings Score Snapshot
Corporate Credit Rating: A/Stable/A-1
Business risk: Strong• Country risk: Low• Industry risk: Low• Competitive position: Strong

Financial risk: Modest• Cash flow/Leverage: ModestAnchor: aModifiers• Diversification/Portfolio effect: Neutral (no impact)• Capital structure: Neutral (no impact)• Financial policy: Neutral (no impact)• Liquidity: Adequate (no impact)• Management and governance: Satisfactory (no impact)• Comparable rating analysis: Neutral (no impact)

Related Criteria And Research

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Research Update: Nomura Real Estate Master Fund Inc. Ratings Affirmed After Announcement Of Merger WithTop REIT Inc.; Outlook Stable

Related Criteria• Methodology For Linking Short-Term And Long-Term Ratings For Corporate,Insurance, And Sovereign Issuers, May 7, 2013
• Group Rating Methodology, Nov. 19, 2013
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
• 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
• Corporate Methodology, Nov. 19, 2013
• Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013
• Methodology And Assumptions: Liquidity Descriptors For Global CorporateIssuers, Dec. 16, 2014
• Key Credit Factors For The Real Estate Industry, Nov. 19, 2013
• Methodology: Industry Risk, Nov. 19, 2013
• Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
• Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

Ratings ListRatings Affirmed
Nomura Real Estate Master Fund Inc.
Corporate Credit Rating

A/Stable/A-1

Nomura Real Estate Master Fund Inc.
Senior Unsecured

ACertain terms used in this report, particularly certain adjectives used toexpress our view on rating relevant factors, have specific meanings ascribedto them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for furtherinformation. Complete ratings information is available to subscribers ofRatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. Allratings affected by this rating action can be found on the S&P Global Ratings
public website at www.standardandpoors.com. Use the Ratings search box locatedin the left column.

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