NEWS RELEASE
Jun 08, 2018

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

Nippon Accommodations Fund Inc.
Issuer Rating: AA-, Affirmed
Rating Outlook: Stable

RATIONALE:
Nippon Accommodations Fund Inc. (NAF) is a real estate investment trust that went public in August
2006. The REIT invests primarily in rental apartments in Tokyo's 23 wards. Mitsui Fudosan Co., Ltd.
serves as a sponsor.
NAF invests in properties such as the "Park Axis" series developed by the Mitsui Fudosan Group.
NAF's rental apartments, of which 87.7% are located in Tokyo's 23 wards, are mostly relatively new asshown by the average property age of 12.3 years (as of end-February 2018). The REIT has a very diverse
portfolio, with an asset size of more than 300 billion yen.
Because of intense competition for acquisitions, the pace of portfolio expansion is slowing down. Given
the sponsor's abundant pipeline, however, NAF will likely be able to continue acquiring a certain numberof properties.
Other than rental apartments, NAF also invests in "hospitality facilities" such as dormitories, corporate
housing and senior residences. Risk from such facilities is limited since it concludes long-term lease
contracts with leading operators to ensure stable earnings and the investment ratio is small.
The average occupancy rate during the period ended February 2018 was a record high 97.6%, andunit rent rates are steadily rising. Thanks to the sustained influx of population into Tokyo's 23 wards aswell as a low level of new apartment supply, the supply-demand balance of rental apartments remains
favorable. R&I believes NAF's properties will keep performing well.
In the process of external growth, the upper limit of the LTV ratio will be set at 55% for the foreseeable
future. This suggests that NAF's leverage is somewhat high as is the case with other residential REITs.
That said, the LTV was about 50% during the last six periods, a lower level than past records. With theappraisal value rising, unrealized gains are growing to around 21% of book value.
NAF has stable funding sources, most of which being long-term, fixed-rate loans from major domestic
financial institutions. The average remaining term of long-term debts is 4.3 years (as of end-February2018), with due dates staggered. Financing costs are also low compared to those of other REITs.
The Rating Outlook is Stable. NAF has a quality portfolio mainly consisting of properties developed by
the sponsor in Tokyo's 23 wards and enjoys highly stable earnings. Its leverage is controlled below thetarget level, and the funding base is solid.
The primary rating methodology applied to this rating is provided at "Rating Methodology for J-REIT".
The methodology is available at the web site listed below, together with other rating methodologies thatare taken into consideration when assigning the rating.
https://www.r-i.co.jp/en/rating/about/rating_method.html■Contact: Sales and Marketing Division, Customer Service Dept.
■Media Contact : Corporate Planning Division (Public Relations)Rating and Investment Information, Inc.

TEL.+81-(0)3-6273-7471 E-mail. infodept@r-i.co.jp
TEL.+81-(0)3-6273-7273

TERRACE SQUARE, 3-22 Kanda Nishikicho, Chiyoda-ku, Tokyo 101-0054, Japan https://www.r-i.co.jp

Credit ratings are R&I's opinions on an issuer's general capacity to fulfill its financial obligations and the certainty of the fulfillment of its individual obligations as promised (creditworthiness) and are notstatements of fact. Further, R&I does not state its opinions about any risks other than credit risk, give advice regarding investment decisions or financial matters, or endorse the merits of any investment.
R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a credit rating and makes no related representations or warranties. R&I is notliable in any way for any damage arising in relation to credit ratings (including amendment or withdrawal thereof). As a general rule, R&I issues a credit rating for a fee paid by the issuer. For details,
please refer to https://www.r-i.co.jp/en/docs/policy/site.html.
© Rating and Investment Information, Inc.

NEWS RELEASE
R&I RATINGS:ISSUER:RATING:

Nippon Accommodations Fund Inc. (Sec. Code: 3226)
Issuer Rating
AA-, Affirmed

RATING OUTLOOK:

Stable■Contact: Sales and Marketing Division, Customer Service Dept.
■Media Contact : Corporate Planning Division (Public Relations)Rating and Investment Information, Inc.

TEL.+81-(0)3-6273-7471 E-mail. infodept@r-i.co.jp
TEL.+81-(0)3-6273-7273

TERRACE SQUARE, 3-22 Kanda Nishikicho, Chiyoda-ku, Tokyo 101-0054, Japan https://www.r-i.co.jp

Credit ratings are R&I's opinions on an issuer's general capacity to fulfill its financial obligations and the certainty of the fulfillment of its individual obligations as promised (creditworthiness) and are notstatements of fact. Further, R&I does not state its opinions about any risks other than credit risk, give advice regarding investment decisions or financial matters, or endorse the merits of any investment.
R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a credit rating and makes no related representations or warranties. R&I is notliable in any way for any damage arising in relation to credit ratings (including amendment or withdrawal thereof). As a general rule, R&I issues a credit rating for a fee paid by the issuer. For details,
please refer to https://www.r-i.co.jp/en/docs/policy/site.html.
© Rating and Investment Information, Inc.