Moody’s lowers Frasers Hospitality Trust ratings outlook to negative

Fraser Residence in Singapore by Frasers HospitalityFraser Residence in Singapore by Frasers Hospitality

Moody’s Investors Service said Monday it changed its ratings outlook on Frasers Hospitality Trust to negative from stable.

“The change in outlook to negative reflects FHT’s weakened operating performance and Moody’s expectation that FHT’s credit metrics will remain weak relative to its Baa2 rating, at least over the next 12-18 months,” Sweta Patodia, a Moody’s analyst, said in a statement.

Moody’s said it expected the trust’s net debt to EBITDA ratio would remain around 8.4 times over the next 12-18 months, right at the downgrade trigger of the ratio exceeding 8.0 to 8.5 times. EBITDA stands for earnings before interest, taxes, depreciation and amortization.

The operating environment in Australia, which contributed 36 percent of the trust’s net property income for the fiscal year ended 30 September, is likely to remain weak over the next 12-18 months, with occupancy and room rates down under set to remain subdued, Moody’s said.

“While FHT’s net debt/EBITDA will recover from current levels, Moody’s expects the improvement to be only marginal. This implies that FHT’s credit metrics will remain under pressure and have limited financial flexibility for any further increases in borrowings or deterioration in operating performance from current levels,” the ratings agency said.

The ratings service affirmed its provision (P)Baa2 backed senior unsecured rating on the S$1 billion multicurrency medium-term securities program by Frasers Hospitality Trust’s wholly owned subsidiary FH-REIT Treasury and the Baa2 ratings on the backed senior unsecured notes issued under the program.

“The affirmation of FHT’s Baa2 issuer rating reflects the strong quality of its portfolio assets, which are well diversified across geographies and hospitality asset classes. The rating also considers FHT’s strong liquidity, with no debt maturities until 2022,” Moody’s said. “However, the rating remains constrained by FHT’s small asset size and significant tenant concentration risk.”

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