SINGAPORE (Dec 5): The trustee of Mapletree North Asia Commercial Trust (MNACT) has entered into agreements to acquire an effective interest of 98.47% in two office properties in Japan for a total acquisition cost of $482.5 million, the manager announced after market close on Dec 4.

The two freehold, multi-tenanted properties have a combined gross floor area (GFA) of 180,941 sqm and a net lettable area (NLA) of 91,583 sqm.

As at end-September, the properties have a weighted average lease expiry (WALE) by monthly gross rental income (GRI) of 3.4 years and an occupancy rate of 85.9%.

The manager of MNACT says the proposed acquisition of the properties from sponsor Mapletree Investments will have a net property income yield of 4.5%.

Notably, the proposed acquisition will also reduce the income and asset concentration of Festival Walk and accelerate the income diversification of MNACT.

MNACT’s Festival Walk shopping mall in Kowloon Tong, which accounted for 61.7% of MNACT’s net property income (NPI) in the latest 1HFY2020 ended September, is expected to remain shuttered until the first quarter of next year after incurring “extensive damage” in mid-November amid escalating violence in the Hong Kong protests.

The mall, described as an “anchor asset” for MNACT, has been closed since Nov 13.

See: MNACT's Festival Walk mall to stay shuttered until 2020; manager to top-up distributable income

Upon completion of the proposed acquisitions, MNACT’s Japan contribution by NPI will increase to 17.0%, from 11.6% currently.

The property value of the enlarged portfolio will stand at approximately $8.2 billion, representing an increase of 6.3% from the property value of the existing portfolio of approximately $7.7 billion.

The aggregate agreed property value of 38.11 billion yen ($485.1 million) represents a discount of approximately 1.8% and 3.1% to the valuations conducted as of Nov 1 by the independent property valuers appointed by the trustee and the manager respectively.

The manager intends to finance the total acquisition cost with the issuance of units to the sponsor’s nominee, debt financing, and/or internal cash resources.

The aggregate leverage of MNACT is expected to increase to 39.0% post-acquisitions, from 37.1% as at end-September.

The proposed acquisitions are subject to approval of MNACT unitholders as they constitute “interested person transactions”.

“A key focus for the manager is to continue to accelerate the income diversification of MNACT through acquisitions. The proposed acquisition of the two office towers in Greater Tokyo will contribute to the diversification of MNACT and at the same time, reduce the income and asset concentration of Festival Walk,” says Cindy Chow, CEO of the manager.

“Their strong tenant base from a diverse trade mix, which includes the growing information technology, financial, and real estate sectors, offers us a potential opportunity to lease up progressively and to improve portfolio occupancy,” she adds.

Since the start of November, units in MNACT have fallen more than 10% to close at $1.16 on Dec 4, before the announcement.

This has been led by concerns over the closure of Festival Walk, which was ravaged by protestors on Nov 12.

The angry mob torched a Christmas tree in the mall and set fire to the office lobby, and also smashed glass panels at the entrances to the property as well as balustrades on various levels of the mall.

See: MNACT falls 4.9% as Hong Kong protestors torch key asset Festival Walk

The violence came just days after several individuals were injured in altercations between Hong Kong protestors and police that broke out at the mall on Nov 10.

As at 3.14pm on Dec 5, units in MNACT are trading 1 cent lower at $1.15.