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04 Feb 2011
Tokyo, February 04, 2011 -- Moody's Japan K.K. has confirmed its Baa1 issuer rating
on United Urban investment Corporation (UUR). The outlook is stable.
This concludes the review for downgrade initiated on April 22, 2010.
RATING RATIONALE
This confirmation reflects Moody's view that 1) the increase in
assets resulting from the merger with Nippon Commercial Investment Corporation
(NCI) on December 1, 2010, enhances UUR's already diversified
portfolio; 2) long-term refinancing of NCI's loans resolves
liquidity concerns; and 3) UUR will maintain its conservative financial
policies and lower its leverage.
The reasons for the stable outlook are two-fold: First,
UUR will benefit because the value of the portfolio has doubled,
to JPY 390 billion. Second, UUR's financials will improve,
with leverage declining to less than 50% in the next couple of
years, given management's commitment to lowering debt.
Prior to the merger, NCI had loans amounting to JPY 96.6
billion that were due September-November 2010; all were refinanced
with long-term loans, with terms of two to four years,
which resolved liquidity concerns. The refinancing is indicative
of UUR's conservative policy. Moreover, all of NCI's
loans were de-collateralized.
The debt repayment schedule for UUR (post merger) will peak (over JPY
50 billion) in November 2012 (at the end of the fiscal half-year);
Moody's expects that these loans will be repaid ahead of time through
property sales and public offerings. However, UUR does need
to expand its liquidity, as its total debt has increased to approximately
JPY 237.1 billion, as of February 4, 2011.
According to UUR's January 27, 2011, announcement,
the portfolio it inherited from NCI is worth JPY 168.8 billion
(including a property already sold) and the estimated yield from past
NOI is 6.2%. This fairly high yield will contribute
to its profits. But the company will need to sell a significant
number of properties if it plans to deleverage mainly by property sales.
The proportion of office buildings in the six central wards of Tokyo has
risen; moreover, the occupancy rate of NCI's portfolio
is lower than UUR's, which the company will find challenging
to raise. Then again, as a diversified REIT, UUR invests
in numerous assets and areas, which requires focused management
and efficiency, and the increase in assets will make for a more
effective operating portfolio. Also, the JPY 12.2
billion of negative goodwill from the merger will be a support factor
for the company's operating strategy in the event of public offering
operating strategy or property sales losses.
This rating confirmation reflects Moody's expectation that the company
will cut its leverage to less than 50% in the next couple of years,
through property sales and public offerings.
If UUR can improve its leverage and liquidity support to its conservative,
pre-merger levels, Moody's may consider positive rating
action.
However, if UUR does not bring down its leverage plan to less than
50%, Moody's may consider a negative rating action.
Moody's previous rating action on UUR took place on August 2, 2010,
when it maintained the review on its Baa1 issuer rating, which had
been placed under review possible downgrade on April 22, 2010.
The principal methodology used in this rating was Moody's Global Rating
Methodology for REITs and Other Commercial Property Firms, published
on October 1, 2010, and available on www.moodys.co.jp.
United Urban Investment Corporation, headquartered in Tokyo,
is a J-REIT that invests in and manages retail, office,
hotel, residential, and other properties. Its operating
revenue for the fiscal half-year that ended in November 2010 (right
before the merger), was approximately JPY8.4 billion.
Nippon Commercial Investment Corporation, headquartered in Tokyo,
was a J-REIT that invested in and managed office buildings and
retail properties. Its operating revenues totaled around JPY3.6
billion for the three months period ended in September to November 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's information.
Measures taken to ensure the quality of this information include use of
public information, reviews by a third party and verification by
the lead analyst.
Moody's considers the quality of information available on the issuer or
obligations satisfactory for the purposes of maintaining a credit rating.
Moody's adopts all necessary measures to ensure that the information it
uses in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third parties. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Credit ratings are Moody's current opinions of the relative future credit
risk of entities, credit commitments, or debt or debt-like
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may not meet its contractual, financial obligations as they come
due and any estimated financial loss in the event of default. Credit
ratings do not address any other risk, including but not limited
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rating due to insufficient information, or for other reasons.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
Please see ratings tab on the issuer/entity page on the Moody's website
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Credit Ratings were fully digitized and accurate
data may not be available. Consequently, Moody's provides
a date that it believes is the most reliable and accurate based on the
information that is available to it. Please see the ratings disclosure
page on the Moody's website for further information.
Please see the Credit Policy page on the Moody's website for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Tokyo
Hideyasu Yamamoto
Analyst
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Tetsuji Takenouchi
Senior Vice President - Team Leader
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
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Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's confirms UUR's Baa1 ratings, assigns stable outlook
No Related Data.
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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
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