Nippon Building Fund Inc

NEWS RELEASE

Apr 21, 2021 R&I Affirms AA, Stable: Nippon Building Fund Inc.

Rating and Investment Information, Inc. (R&I) has announced the following: ISSUER: Nippon Building Fund Inc. Issuer Rating: AA, Affirmed Rating Outlook: Stable

RATIONALE: Nippon Building Fund Inc. (NBF) is a real estate investment trust that was listed in 2001. NBF specializes in investing in office buildings, and its main sponsor is Mitsui Fudosan Co., Ltd. The REIT has created a quality portfolio by investing in highly competitive large-scale buildings located mainly in central Tokyo. NBF obtained good properties of high rarity such as Shinjuku Mitsui Building and GranTokyo South Tower for a total of about 270 billion yen in the last year, achieving significant external growth. With an asset size of approximately 1,360 billion yen, NBF has established one of the most robust business bases in the J-REIT industry. It has been working on the portfolio improvement by replacing assets through, for instance, the selling of a property with an unrealized loss on advantageous terms. Shinjuku Mitsui Building is a well-known skyscraper in the Nishi-Shinjuku area and has been maintaining its competitive edge despite its old age, backed by a large amount of additional investments and good management by the sponsor, Mitsui Fudosan. The building will still be managed by the master lessee Mitsui Fudosan going forward. The average occupancy rate during the six months ended December 2020 was considerably high at 98.8%. Given that, however, several major tenants will move out in 2021, the average occupancy rate is expected to decline slightly to 97.5%. Since vacancy rates in the market are rising, it may take NBF some time to implement leasing. That said, such a concern is limited, in light of NBF's competitiveness of properties it possesses and the past results of leasing. NBF intends to manage its LTV ratio within the 36-46% range. After equity financing of about 120 billion yen in October 2020, the ratio is assumed at the 42% range at present, still remaining at a conservative level. An appraisal value as of December 2020 was about 27% higher than the book value, showing that unrealized gains are still large. With respect to long-term debts, the average remaining term to maturity is very long, about six years as of January 2021, and over 90% of the debts are fixed interest rate borrowings with staggered due dates. New borrowing of about 100 billion yen made under favorable conditions in January 2021 was another proof of NBF's strong funding capability. The Rating Outlook is Stable. NBF has many large-scale buildings located in central Tokyo, which constitute a good portfolio in terms of quality and size. Its strong business base, conservative leverage management policy and excellent funding ability will likely underpin the current high rating. Although the novel coronavirus outbreak has had a limited impact on properties NBF holds, a close eye will be on the implications of the virus for the market conditions of office leasing and NBF's properties.

The primary rating methodology applied to this rating is provided at "Rating Methodology for REITs". The methodology is available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating. https://www.r-i.co.jp/en/rating/about/rating_method.html

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R&I RATINGS: ISSUER: Nippon Building Fund Inc. (Sec. Code: 8951) Issuer Rating RATING: AA, Affirmed RATING OUTLOOK: Stable

Unsec. Str. Bonds No.13 Issue Date Maturity Date Issue Amount (mn) Jun 26, 2013 Jun 26, 2023 JPY 10,000 RATING: AA, Affirmed