The Hong Kong mall still accounts for over 50% of the trust’s revenue.
Mapletree North Asia Commercial Trust’s (MNACT) recent acquisitions in Japan will fall short of reducing its concentration risk to Festival Walk, as the mall will still account for over half of its revenue and asset portfolio afterwards, according to a report by Moody’s Investors Service.
“The proposed acquisitions will reduce MNACT’s concentration risk to Festival Walk, but the risk remains elevated,” according to Jacintha Poh, Moody’s vice president and senior credit officer.
Festival Walk, the trust’s largest asset, has been closed for repair works after taking heavy damage on 12 November during the ongoing unrests in Hong Kong, and is set to reopen in Q1 2020. According to a separate report by DBS Group Research, the mall contributes to almost 65% of the trust’s income.
Although Festival Walk is covered by insurance, neither the extent of the coverage and the operating performance of the mall after reopening could be determined.
The mall derives much of its rental income from base rent, and will not be affected much by a decline in Hong Kong’s retail sales. However, it is expected to hurt base rents if the expiring leases are not renewed or re-let at current rental rates.
Aiming to diversify away from Festival Walk, MNACT agreed to buy two freehold, multi-tenanted office properties in Greater Tokyo, Japan, from its sponsor Mapletree Investments (MIPL), for $482.5m (about JPY37.9b).
Moody’s noted that about $337m out of the acquisition will be funded through debt and/or internal cash resources, and expects the trust’s adjusted net debt/EBITDA to deteriorate to about 9.5x from 8.8x for the 12 months ended 30 September.