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Rating Action:

Moody's assigns provisional Baa2 rating to Mapletree Commercial Trust

06 Apr 2011

Singapore, April 06, 2011 -- Moody's Investors Service has assigned a provisional Baa2 issuer rating to Mapletree Commercial Trust (MCT). The outlook for the rating is stable.

This is the first time Moody's has assigned a rating to MCT. The provisional status of the rating will be removed upon completion of the Initial Public Offering of Units and the completion of the asset purchase and finance drawdown.

RATINGS RATIONALE

MCT's provisional Baa2 issuer rating is based on its stable and recurring income from its investment property portfolio. The initial portfolio of MCT comprises three properties. The key asset, VivoCity currently accounts for over 70% of the portfolio by income and value, but as Singapore's largest shopping mall and with good connectivity, it enjoys a good quality and diverse tenant base. The other two properties are fringe area office buildings in the same Southern Corridor area of Singapore. Based on the properties available under Right of First Refusal (ROFR) agreements with the sponsor, the proportion of income derived from offices will increase over time and may exceed that from retail properties.

"VivoCity is a prize asset. It is a very busy, family destination-cum-retail and leisure mall, located over the HarbourFront MRT Station " says Alan Greene, a Moody's Vice President and Senior Credit Officer.

"In addition to footfall generated by the resident Singaporean population, VivoCity is at the gateway to Sentosa, and so benefits from the large tourist numbers drawn to Sentosa's numerous attractions and casino", adds Greene, who is also Moody's Lead Analyst for MCT.

"Compared with VivoCity, the initial two office properties are relatively modest. However, one is leased to a single tenant until 2017, with built-in triennial rent increases, while rental income from the other building, the PSA Building, will benefit later this year once its adjacent retail centre is completed." comments Greene.

After its IPO on Singapore's SGX in Q2 2011, it is expected that the sponsor of MCT, Mapletree Investment Pte. Ltd. will retain a 40% stake. The sponsor's ultimate owner is Temasek Holdings. Based on the experience of Mapletree Logistics Trust (Baa2, Positive) and Mapletree Industrial Trust (unrated), its sister trusts, MCT is likely to be well-supported by Singapore's banking sector and have good access to fresh equity when required. As a Singapore registered real estate investment trust (REIT), MCT is required to distribute at least 90% of its adjusted net income.

The rating is currently constrained by concentration risk, but this concern is expected to reduce with the asset enhancement activities underway and with the potential injection of pipeline properties acquired from the sponsor where MCT has the ROFR to purchase. The rating also reflects the early stages of the trust with respect to developing a track record of rental reviews and the management of expansion within sound financial parameters.

The stable outlook reflects Moody's expectations of continued stable cash generation from its current portfolio driven by maintained occupancy levels, positive rental reversions and successful conclusion to its current asset enhancement programme. The rating also anticipates that MCT's first acquisition as a listed REIT, will be yield accretive and prudently financed.

The rating could be upgraded if i) MCT's rent reviews and net property income exceed Moody's expectations and/or ii) MCT maintains Debt/EBITDA at below 8-9x, Debt/Total Assets below 35% and EBITDA interest coverage above 3x. In addition, a successful acquisition of a ROFR pipeline asset would be viewed favourably.

The rating could face downward pressure if i) the operating environment deteriorates leading to higher vacancy levels and declines in operating cash flow and/or ii) financial metrics generally deteriorate with Debt/EBITDA climbing above 10x, Debt/Total Assets rises above 40-45%and EBITDA/Interest coverage falls below 2x on a consistent basis. In addition, an aggressive growth policy in terms of leverage or a reliance on short-term funding would be viewed with concern.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so 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-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com 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 Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Singapore
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Singapore Pte. Ltd.
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Moody's assigns provisional Baa2 rating to Mapletree Commercial Trust
No Related Data.
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