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This comes as prolonged pandemic-related disruptions are expected to prompt a structural decrease in demand for serviced residences and hotels considering the significant decline in corporate travel, said Moody’s.
Moody’s expects Frasers Hospitality Trust (FHT) and Ascott Residence Trust to continue posting weak revenues until 2023, reported Singapore Business Review (SBR).
This comes as prolonged pandemic-related disruptions are expected to prompt a structural decrease in demand for serviced residences and hotels considering the significant decline in corporate travel, said Moody’s.
“Demand for hospitality assets will remain subdued, as the pandemic curtails international travel and a recovery in air travel demand remains a multiyear proposition. Earnings for the two rated Singapore hospitality REITs, Ascott Residence Trust and Frasers Hospitality Trust, will remain significantly below pre-pandemic levels until 2023, despite rising gradually from the lows in 2020,” said the investor research as quoted by SBR.
Nonetheless, FHT and Ascott REIT have adequate liquidity in the form of undrawn committed credit facilities and cash to cover their maturing debt and basic cash needs for the next 18 months.
The two REITs also have long-standing banking relationships as well as good track records of access to financing, mitigating refinancing risk.
As of 30 September 2020, FHT had $92.5 million in cash and $55 million in undrawn committed credit facilities. These are enough to cover the trust’s capital spending and estimated dividend payouts for the next 18 months. It does not have any debt maturities prior to July 2022.
Ascott REIT, on the other hand, had $600 million in cash and undrawn committed credit facilities as of 31 December 2020. It received proceeds from its $50 million green loan in January 2021 for the development of lyf one-north Singapore. The REIT also expects to receive proceeds from its $39 million divestment of two properties in France in Q1 2021 and the $194 million divestment of Somerset Xuhui Shanghai in Q2 2021. These are adequate to cover Ascott REIT’s $130 million acquisition of a student accommodation property in the US in Q1 2021, capital spending and debt maturities as well as its estimated dividend payouts for the next 18 months.
“We expect the REITs will remain within their loan covenant requirements for EBITDA interest coverage in the coming 12 months. Master lease EBITDA alone will cover interest expense by around 1.5x. EBITDA interest coverage will be even stronger, at above 2x,” said Moody’s.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email: victorkang@propertyguru.com.sg