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Moody's downgrades Mapletree North Asia Commercial Trust

Moody's downgraded Mapletree North Asia Commercial Trust's ratings due to the expected weakening in its credit metrics following its proposed acquisition of two office properties in greater Tokyo for S$482.5 million.

The rating agency lowered the issuer rating of Mapletree North Asia to Baa2 from Baa1. Among other ratings, the agency downgraded the senior unsecured rating on the euro medium-term note programs of the trust, Mapletree North Asia Commercial Trust Treasury Co. (S) Pte. Ltd. and Mapletree North Asia Commercial Treasury Co. Ltd. to provisional (P)Baa2 from provisional (P)Baa1.

The outlook is negative.

Mapletree North Asia is acquiring the properties from sponsor Mapletree Investment Pte. Ltd. Since the acquisitions will be funded by a combination of equity, debt and internal cash resources, the rating agency expects Mapletree North Asia's adjusted net debt/EBITDA will deteriorate to around 9.5x on a look-through basis from 8.8× for the year ended Sept. 30, while adjusted EBITDA interest coverage may weaken to 3.9× from 4.2×.

Further, while the acquisitions will cut Mapletree North Asia's concentration risk to the Festival Walk retail mall in Hong Kong, risk remains elevated because Festival Walk will continue to account for more than 50% of the trust's revenue and asset portfolio after the transaction, the agency said.

The negative outlook reflects uncertainty surrounding the earnings and operating performance of Festival Walk, which is closed for repairs, and limited headroom at the trust's credit metrics to accommodate a decline in earnings from the retail mall.