(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.