(The following statement was released by the rating agency)
Nov 15 - Fitch Ratings has affirmed CDL Hospitality Real Estate Investment Trust’s (H-REIT) Long-Term Issuer Default Rating (IDR) rating at ‘BBB-'. The Outlook is Stable.
The affirmation reflects H-REIT’s adequate leverage and debt service coverage, its low gearing ratio of 25.5% as of end-September 2012, its strong and stable revenue per available room (RevPAR) and occupancy rates among its Singapore hotel properties and financial flexibility afforded by an unencumbered portfolio. These strengths help to offset the company’s low liquidity coverage relative to peers.
The Stable Outlook reflects Fitch’s expectation that H-REIT’s portfolio performance will remain stable, given the resilient Singapore economy and a booming tourism sector. Stable rental income from its Australian properties, guaranteed by Accor S.A. (‘BBB-'/Stable/‘F3’), further supports the Stable Outlook.
H-REIT’s leverage remains consistent with its rating category. Its net debt over recurring operating EBITDA was at an annualised 3.9x for the nine months ended 30 September 2012, compared with 3.8x and 3.0x for the full year 2011 and 2010, respectively. Its fixed charge coverage (defined as recurring operating EBITDA less recurring capital expenditure and straight line rent adjustments, divided by the sum of interest expense, capitalised interest and preferred stock dividends) was strong at an annualised 7.2x for the nine months ended 30 September 2012, little changed from 7.4x for the full year 2011.
Despite its debt maturity concentration, Fitch views H-REIT’s refinancing risk as manageable. This is because of its overall low gearing, its unencumbered portfolio, as well as access to an unutilised amount of SGD586.4m available under its multi-currency medium term note programme as of end-September 2012. About 71% of H-REIT’s debt will mature before December 2013, while 13% will mature in August 2014. Fitch considers H-REIT’s liquidity coverage, defined as sources of liquidity divided by uses of liquidity, over the next 18-24 months, low at 0.26x. Sources of liquidity comprise unrestricted cash, availability under committed unsecured revolving credit facilities, expected retained cash flows from operating activities after dividend distributions. Uses of liquidity are debt maturities and expected capital expenditures.
H-REIT’s properties are concentrated in Singapore and in the volatile hotel sector, although this is somewhat mitigated by the minimum rent structure which makes up approximately 49% of gross rental revenue. As of end-September 2012 about 80% of H-REIT’s year-to-date gross revenue was generated from its Singapore properties. The company does not have any interest rate or currency swaps to manage its interest rate and foreign currency exposures. However, the denomination of 22% of its debt in AUD offers a natural hedge for its foreign currency exposures, as about 13.6% of its gross revenue in January to September 2012 was generated from its portfolio of five Australian hotels.
H-REIT’s current portfolio comprises six hotels and one shopping arcade in Singapore, five hotels in Australia and one hotel in New Zealand.