15.09.2015, 10:00
Fitch: CDL Hospitality Trusts' UK Acquisition Reduces Rating Headroom
OREANDA-NEWS. Fitch Ratings said today that CDL Hospitality Trusts' (CDL, BBB-/Stable) acquisition of Cambridge City Hotel in the UK will reduce rating headroom as it will be fully debt-funded. This will more than offset the benefits of improved earnings diversity that the acquisition will bring.
CDL said on 9 September 2015 that it has acquired Cambridge City Hotel (CCH) in Cambridge, UK for an all-in cost of GBP63.6m (around SGD137.8m). CDL may also inject up to GBP1.5m for future capex and working capital needs. The hotel in the city centre of Cambridge has 198 rooms, and is classified as an "upper-upscale" property. The purchase will be entirely funded using CDL's outstanding multi-currency credit facility. CDL expects to close the transaction on 1 October 2015.
Fitch estimates that the transaction will increase CDL's pro-forma net debt/hotel assets (LTV) ratio to 37% post-closing, from 33% at 30 June 2015, and CDL's FFO-adjusted net leverage to around 7.3x from 6.6x. This will reduce CDL's rating headroom - under the current rating, Fitch may consider taking negative rating action if the LTV ratio is maintained at more than 40%-45% (the lower bound will apply during periods of compressed capitalisation rates such as the present) and FFO-adjusted net leverage is sustained at above 6.5x.
CDL's FFO fixed-charge cover is likely to reduce to around 5.4x, which is still comfortable for its ratings. However CDL's ability to retain fixed-charge cover at a comfortable level will depend on how soon it fixes the interest cost of the acquisition facility, which will be priced on a floating rate-basis initially. CDL expects to term out the acquisition facility within 12 months to reduce its refinancing risk.
CCH will be run by CDL's Business Trust, which means CDL will bear the maximum upside and downside of CCH's earnings. We estimate that the proportion of CDL's income stemming from fixed rentals will reduce to around 40% from 44% before as a result of the acquisition.
The acquisition is earnings accretive at an EBITDA yield of 5.6% based on pro-forma annualised net property income for 1H2015, compared to CDL's average portfolio EBITDA yield of 5% at 30 June 2015. The acquisition mark's CDL's first investment in Europe and is a diversification of its portfolio away from the Asia-Pacific region. On a pro-forma basis, the UK hotel will account for around 5.3% of CDL's 1H15 net property income, and improve the geographical diversity of CDL's earnings. In particular, the acquisition will reduce the mid-term risks to CDL from its exposure to Singapore's hospitality market, where earnings have remained under pressure over the last few quarters.
We expect the demand-supply dynamics in the Cambridge hospitality industry to remain robust. This is because there is limited land available in the city centre for new hotels, owing to strict town-planning regulations in place to preserve the city's architectural heritage. Further, demand for hotel rooms, particularly in the city centre, remains strong, supported by the continued growth of high-tech and life-science-based industries.
CCH's earnings are also less seasonal and cyclical compared with most of its peers because it has a more balanced mix of corporate and leisure clients. CCH has good-quality meeting- and conference facilities, and is located close to key universities, tourist attractions and business hubs. CCH reported revenue per available room (RevPAR) of GBP101 in 1H15. CCH and peers of a similar grade recorded a RevPAR increase of 6% in 2014. CDL may be able to tap further earnings upside if it can attract an international hotel operator to run CCH.
CDL said on 9 September 2015 that it has acquired Cambridge City Hotel (CCH) in Cambridge, UK for an all-in cost of GBP63.6m (around SGD137.8m). CDL may also inject up to GBP1.5m for future capex and working capital needs. The hotel in the city centre of Cambridge has 198 rooms, and is classified as an "upper-upscale" property. The purchase will be entirely funded using CDL's outstanding multi-currency credit facility. CDL expects to close the transaction on 1 October 2015.
Fitch estimates that the transaction will increase CDL's pro-forma net debt/hotel assets (LTV) ratio to 37% post-closing, from 33% at 30 June 2015, and CDL's FFO-adjusted net leverage to around 7.3x from 6.6x. This will reduce CDL's rating headroom - under the current rating, Fitch may consider taking negative rating action if the LTV ratio is maintained at more than 40%-45% (the lower bound will apply during periods of compressed capitalisation rates such as the present) and FFO-adjusted net leverage is sustained at above 6.5x.
CDL's FFO fixed-charge cover is likely to reduce to around 5.4x, which is still comfortable for its ratings. However CDL's ability to retain fixed-charge cover at a comfortable level will depend on how soon it fixes the interest cost of the acquisition facility, which will be priced on a floating rate-basis initially. CDL expects to term out the acquisition facility within 12 months to reduce its refinancing risk.
CCH will be run by CDL's Business Trust, which means CDL will bear the maximum upside and downside of CCH's earnings. We estimate that the proportion of CDL's income stemming from fixed rentals will reduce to around 40% from 44% before as a result of the acquisition.
The acquisition is earnings accretive at an EBITDA yield of 5.6% based on pro-forma annualised net property income for 1H2015, compared to CDL's average portfolio EBITDA yield of 5% at 30 June 2015. The acquisition mark's CDL's first investment in Europe and is a diversification of its portfolio away from the Asia-Pacific region. On a pro-forma basis, the UK hotel will account for around 5.3% of CDL's 1H15 net property income, and improve the geographical diversity of CDL's earnings. In particular, the acquisition will reduce the mid-term risks to CDL from its exposure to Singapore's hospitality market, where earnings have remained under pressure over the last few quarters.
We expect the demand-supply dynamics in the Cambridge hospitality industry to remain robust. This is because there is limited land available in the city centre for new hotels, owing to strict town-planning regulations in place to preserve the city's architectural heritage. Further, demand for hotel rooms, particularly in the city centre, remains strong, supported by the continued growth of high-tech and life-science-based industries.
CCH's earnings are also less seasonal and cyclical compared with most of its peers because it has a more balanced mix of corporate and leisure clients. CCH has good-quality meeting- and conference facilities, and is located close to key universities, tourist attractions and business hubs. CCH reported revenue per available room (RevPAR) of GBP101 in 1H15. CCH and peers of a similar grade recorded a RevPAR increase of 6% in 2014. CDL may be able to tap further earnings upside if it can attract an international hotel operator to run CCH.
Комментарии