Fitch Affirms CDL Hospitality Trust at 'BBB-'; Outlook Stable

CDL Hospitality Trusts

13/11/2013 07:53

(The following statement was released by the rating agency)

SINGAPORE, November 13 (Fitch) Fitch Ratings has affirmed Singapore-based CDL 
Hospitality Trust's (CDLHT) Long-Term Issuer Default Rating (IDR) at 'BBB-'. The 
Outlook is Stable.

CDLHT's rating reflects the strong regulatory environment in Singapore, the 
systemic importance of real estate in Singapore, the strength of its sponsor 
Millennium & Copthorne Hotels Plc (M&C), a moderately diversified property 
portfolio with stable operating metrics, favourable lease terms and moderate 
financial risk. CDLHT's rating is constrained by its small size in relation to 
global property investment companies and exposure to the cyclical hospitality 
industry. The rating's outlook reflects the stable outlook for its property 
portfolio.

KEY RATING DRIVERS:

Stable Portfolio Operating Metrics: CDLHT's investment property portfolio is 
valued at SGD2.13bn (USD1.71bn) as of 30 September 2013. The portfolio comprises 
12 hotels spread across Singapore (76.3% of value), Australia (12.2%), New 
Zealand (4.1%) and the Maldives (4.2%), and the Orchard Hotel Shopping Arcade in 
Singapore (3.2%). Despite a reduction in corporate travel budgets, the 
performance of its Singapore hotels was resilient as visitor arrivals continued 
to be strong. The occupancy rate and average room rate (ARR) for its Singapore 
portfolio during the nine months ended 30 September 2013 were 87.5% (9M 2012: 
88.6%) and SGD219 (9M 2012: SGD234) respectively. 

Favourable Lease Terms: CDLHT has long-dated lease agreements in place with a 
balance tenor of at least eight years for 93% of its portfolio by value. Its 
lease rentals consist of fixed and variable components. The 2013 fixed lease 
rental component is approximately SGD71.18m and is equivalent to approximately 
4.5x of annual interest expense.  

Moderate Financial Risk: CDLHT's financial leverage, as measured by FFO-adjusted 
net leverage, is lower than that of most seasoned Singapore REITs (FY12: 3.4x, 
9M 2013: 4.4x) and in line with regional investment-grade property investment 
companies. SGD 70m and SGD250m of its debt falls due in 2014 and 2015 
respectively. CDLHT has a SGD1bn multi-currency medium-term note programme in 
place, of which the unutilized portion is SGD726.4m. It also has a SGD200m 
committed multi-currency facility, of which SGD60m is unutilized. These sources 
are adequate to meet the 2014 and 2015 debt maturities.

Strong Sponsor: CDLHT's sponsor, M&C, is a global hospitality player with a 
portfolio of 110 hotels and total assets of USD5.47bn as of 31 December 2012. 
M&C operates 30,939 rooms across Asia, Europe, US & Australia, with a blended 
portfolio occupancy rate of 70.8% and revenue per available room (RevPAR) of 
USD108.29. The backing of M&C gives CDLHT access to a pipeline of properties 
with a sound brand image and stable operating metrics.

Stable Outlook Despite Rising Supply: CDLHT's properties are located in areas 
where the outlook for the hospitality sector is broadly stable. There is a risk 
of increasing hotel room supply up to end-2015 in Singapore, Perth and Brisbane. 
But in Singapore and Perth, visitor arrivals are holding up. As leisure 
travellers replace the more profitable corporate travellers, Fitch expects 
occupancy rates to be maintained at more than 80%, although the ARRs are 
expected to stabilize at the 9M 2013 levels (which were lower than 2012 levels). 


RATINGS SENSITIVITIES:

Negative: Future developments that may, individually or collectively, lead to 
negative rating action include

- FFO-adjusted net leverage remaining above 6.5x on a sustained basis, and

- FFO fixed charge cover falling below 3.5x on a sustained basis (9M 2013: 
7.70x)

Positive: No positive rating action is expected in the medium term given CDLHT's 
small scale in relation to global property investment companies and exposure to 
the cyclical hospitality industry.

Contacts:

Primary Analyst

Nandini Vijayaraghavan, CFA

Director

+65 6796 7216

Fitch Ratings Singapore Pte Ltd

6 Temasek Boulevard

#35-05 Suntec Tower Four

Singapore 038986

Secondary Analyst

Johann Kenny, CFA

Director

+61 2 8256 0348

Committee Chairperson

Kalai Pillay

Senior Director

+65 6796 7221

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings 
and Parent and Subsidiary Linkage", dated 5 August 2013 are available at

www.fitchratings.com.

Applicable Criteria and Related Research: 

Corporate Rating Methodology: Including Short-Term Ratings and Parent and 
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807839

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE