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Announcement:

Moody's confirms UUR's Baa1 ratings, assigns stable outlook

 The document has been translated in other languages

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 securities. Moody's defines credit risk as the risk that an entity 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 to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information is given or made by Moody's in any form or manner whatsoever. The credit risk of an issuer or its obligations is assessed based on information received from the issuer or from public sources. Moody's may change the rating when it deems necessary. Moody's may also withdraw the 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
2-5-1 Atago, Minato-ku
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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