RAM reaffirms Notable Vision's RM750m debt notes rating

RAM said the transaction is a property securitisation involving The Westin Kuala Lumpur

KUALA LUMPUR: RAM Ratings has reaffirmed the ratings of medium term notes (MTNs) under Notable Vision Sdn Bhd’s RM750mil MTN programme.

“Concurrently, we have maintained the negative outlook on the ratings of its Class A Senior MTN and Class B Junior MTN,” it said. 

The outlook on the Issuer’s C3-rated Class C MTN remains stable. 

RAM said the transaction is a property securitisation involving The Westin Kuala Lumpur  – a five-star hotel operated by Marriott International (Marriott).

It is part of the portfolio of Frasers Hospitality Trust (FHT), a hospitality real-estate investment trust listed in Singapore.

“The reaffirmation of ratings is premised on our expectation that the adjusted capital value of the property of RM271.66mil (previously: RM278.62mil) will remain supportive of loan-to-value and debt service coverage ratios that commensurate with the respective ratings of the Class A to Class C MTNs,” it said. 

RAM said during the review period, it adjusted the property’s capitalisation rate from 9.75% to 10.0% to reflect the different priorities of the asset owner (FHT) and asset operator (Marriott). 

“Specifically, this refers to the increasing challenge of balancing the need to achieve minimum returns on added capital investments from the owner’s perspective, and the operator’s need to maintain the Property’s relevance in an increasingly competitive market, which could make Westin KL less appealing than most of its immediate competitors that have recently undergone substantial refurbishment. 

“The negative outlook on the Class A and Class B MTN ratings reflects our concern that Westin KL’s cashflow performance may remain suppressed in the near to medium term,” it said. 

While Westin KL’s performance had recovered in 2017 – with net property income (NPI) for the first time since 2014 converging with RAM’s sustainable assumption of RM27.17mil – it was partially attributable to the temporary closure of JW Marriott for refurbishment as well as tighter cost control as seen in the property’s improved NPI margin of 29% (2016: 24%). 

With JW Marriott now fully re-opened, and given increasing competition, Westin KL will continue to find it challenging to maintain this performance on a sustained basis.

As a single-asset transaction, the performance of the MTNs will stay dependent on the performance of Westin KL, which is in turn sensitive to changes in the property’s business environment and the tourism industry. 

“We remain concerned about competition from new and incoming supply (particularly hotels that have recently been refurbished) and the lack of fresh catalysts to stimulate tourism demand in KL over the medium term, to enable the property to improve its NPI. Westin KL’s NPI came in lower on-year in 1Q 2018. 

“While there are some indications of competing hotels having begun to reprice rates, it is yet to be seen if this will translate into a sustainable adjustment to higher rates across the industry,” it said. 

Up to March 31, 2018, JBB Hotels Sdn Bhd (the originator/tenant) had promptly paid a total of RM87.5 million in lease payments. 

Lease payments collected for FY September 2017 are sufficient to cover over five times the coupon payment on the Class A Senior MTN. 

The remainder will first be channelled to the variable coupon payment on the Class B Junior MTN (capped at 12% per annum), and then to the variable coupon payment on the Class C Junior MTN.