Fitch Rates Singapore's Far East Hospitality Trust 'BBB-'; Outlook Stable

Sun Mar 3, 2013 7:51pm EST

Related Topics

(The following statement was released by the rating agency) SINGAPORE/SYDNEY, March 03 (Fitch) Fitch Ratings has assigned Singapore-based Far East Hospitality Trust (FEHT) 'BBB-' Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs). The Outlook is Stable. FEHT is a Singapore-focussed hospitality group, comprising Far East Hospitality Real Estate Investment Trust and Far East Hospitality Business Trust, incorporated in August 2012, with a portfolio of seven mid-tier/upscale hotels and four serviced residences. FEHT's ratings reflect its stable and granular property portfolio and a robust regulatory environment in which it operates. The ratings also take into account ordinary support provided by sponsor and majority shareholder (51.9%), Far East Organization (FEO), which is the largest private property developer in Singapore, and has substantial experience in managing hospitality assets. A diversified mix of mid-tier and upscale hotels has enabled FEHT to be resilient during economic downturns. This was most noticeable in 2009 during the global financial crisis, where occupancy at FEHT's portfolio assets was less affected than peers and also experienced faster recovery afterwards. During the period 2009 to 2012, mid-tier/upscale hotels have exhibited high occupancy rates and secured consistent increases in revenue per available room (RevPAR) compared with luxury hotels. FEHT's hotels are also in prime locations, with public transport links, thereby appealing to both the corporate and leisure markets. Its serviced residences are mostly occupied by business travelers, whose length of stay - ranging from a week to a year - is longer than an average hotel guest's, adding stability to FEHT's earnings. FEHT's properties benefit from a long-term master lease structure, which consists of fixed and variable components. The variable component, of which a portion is based on the lessee's gross operating profits and revenue, offers income upside during periods of strong performance, while the fixed component provides some protection in a downswing. The backing of a strong sponsor like FEO provides FEHT with access to a property portfolio with consistently strong operating metrics such as occupancy rate and RevPAR, and the FEO brand. It also allows FEHT the opportunity to expand its portfolio through purchase of FEO's hospitality assets - it has the right of first refusal for seven of FEO's hotels and serviced residences. Under the Singapore regulatory framework, REITs must invest at least 75% of their assets in revenue- generating properties and are subject to a maximum leverage (as measured by total debt to deposited property) of 35% for unrated REITS and 60% for rated REITs. This ensures that the operating and financial metrics of Singapore REITs are generally stable, except during times of cyclical downturns and catastrophes. As of 31 December 2012, FEHT's ratio of total debt/deposited property was compliant with regulation at 29.2%. FEHT's Stable Outlook is underlined by Fitch's outlook for the Singapore hospitality sector. Hotel rooms are projected to increase by over 6,000 rooms during the period 2012-2014. Fitch believes that given the shortage of hotel rooms in Singapore and the expectation that tourist arrivals will hold up, the increase in room supply is not likely to adversely impact the mid-tier/upscale hotels' occupancy rates and margins. Rating Sensitivities Negative: Future developments that may, individually or collectively, lead to negative rating action include: -FEHT's financial leverage (adjusted net debt/ operating EBITDA) exceeding 6.5x on a sustained basis (FY12 annualised net debt / EBITDA: 6.1x) -EBITDA interest cover falling below 3.5x on a sustained basis (FY12 interest cover: 9.03x) -Failure to maintain positive to neutral free cash flows (after unit distributions) through the cycle No positive rating action is expected in the medium term due to FEHT's high financial leverage compared with rated peers, its geographic concentration in Singapore and the REIT operating in the cyclical hospitality industry. Contact: Primary Analyst Nandini Vijayaraghavan, CFA Director +65 67967216 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Johann Kenny, CFA Diretcor +61 2 8256 0348 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. The ratings were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of ratings. Applicable criteria, "Corporate Rating Methodology" dated 8 August 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.