Revenue of Ascott and Frasers REITs to remain weak until 2023

But excellent liquidity will help them through the industry turmoil.

Ascott Residence Trust and Frasers Hospitality Trust (FHT) will continue to suffer weak revenues until 2023, according to Moody’s latest research.

Moody’s said the slow resumption of travel will keep credit metrics weak for the two rated REITs.

“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,” Moody’s said.

The investor research also said that prolonged pandemic-related disruptions may prompt a structural decline in demand for hotels and serviced residences given the sharp fall in corporate travel.

Ascott REIT and FHT have sufficient liquidity in the form of cash and undrawn committed credit facilities to cover all their basic cash needs and maturing debt in the coming 18 months. Both REITs have long-standing banking relationships and good track records of access to funding, which mitigate refinancing risk.

As of 31 December 2020, Ascott REIT had cash and undrawn committed credit facilities of around $600m. The trust received proceeds from its green loan of $50m for the development of lyf one-north Singapore in January 2021 and expects to receive proceeds from the divestment of two properties in France for $39m in Q1 2021 and the divestment of Somerset Xuhui Shanghai in China for $194m in Q2 2021. These are sufficient for Ascott REIT to cover its acquisition cost of a US student accommodation property for $130m in Q1 2021, capital spending and debt maturities, and estimated dividend payouts over the next 18 months

Meanwhile, FHT’s liquidity sources included cash of $92.5m and undrawn committed credit facilities of $55m as of 30 September 2020. These are sufficient to cover capital spending and estimated dividend payouts over the next 18 months. FHT does not have any debt maturities before July 2022.

“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,” Moody’s said.