Moody's downgraded ADO Properties SA's long-term issuer rating to Baa3 from Baa2 and its short-term issuer rating to Prime-3 from Prime-2.

The rating agency also placed the ratings on review for further downgrade.

The downgrade is based on the failure of the Luxembourg-based residential property company in diversifying its funding sources and increasing the level of unencumbered assets, said Roberto Pozzi, a Moody's senior vice president and lead analyst for ADO.

Pozzi added that the company's more aggressive liquidity management practices, compared to Moody's expectations, led to the downgrade and the review for further downgrade.

Additionally, ADO's current Baa3 long-term issuer rating primarily comes on the back of its focus on the regulated rental housing market in Germany and the good quality of its properties.

Moody's is of the view that refinancing options to term out short-term borrowings are available and should be successfully implemented in the coming weeks.

A multiple-notch downgrade of ADO's ratings could occur if the company is unsuccessful in completing the refinancing measures and reducing exposure to commercial paper well below the level of available liquidity, according to Moody's.