Fitch Ratings (Thailand) Limited has affirmed
Siam Future Development Public Company Limited's (SF) National Long-Term Rating at 'BBB(tha)' with a Stable Outlook, National Short-Term Rating at 'F3(tha)' and outstanding senior unsecured debentures at 'BBB(tha)'.
KEY RATING DRIVERS
Maintaining High Financial Leverage: Fitch expects SF's adjusted net debt/EBITDAR to increase to 5.5x-6.5x (Fitch RatingsHFitch Ratings8: 4.5x) over the next three years, driven by capex for expansions of about THBFitch Ratings.7 billion during 2Siam Future DevelopmentFitch Ratings8-2Siam Future Development2Siam Future Development. Cash flow will also be boosted over the same period with Mega Bangna, its 49%-owned joint venture, increasing its dividend distribution to SF to about THB2Siam Future DevelopmentSiam Future Development million in 2Siam Future DevelopmentFitch Ratings8 (from about THB5Siam Future Development million in 2Siam Future DevelopmentFitch Ratings7), after most of Mega Bangna's expansion plan is completed. However, SF has increased its dividend payment, and hence leverage is likely to be at the upper end for its rating level.
Higher Occupancy Supporting Growth: SF should achieve single-digit revenue growth a year in 2Siam Future DevelopmentFitch Ratings8-2Siam Future Development2Siam Future Development despite the termination of some existing centres representing about Fitch Ratings3% of total existing gross leasable area (GLA) during 2Siam Future DevelopmentFitch Ratings8-2Siam Future DevelopmentFitch Ratings9. Revenue growth stems from higher occupancy and additional GLA from expansion. SF launched the first expansion phase of Marketplace Nanglinchee, an existing centre in downtown Bangkok, in 4QFitch Ratings7 and will launch the second phase in 4QFitch Ratings8 as well as a new centre, Marketplace Dusit in 2Siam Future DevelopmentFitch Ratings9, totalling 6%-7% of its existing total GLA. In 2Siam Future DevelopmentFitch Ratings8, SF has also replaced the major tenants in its two centres for about 6% of its total GLA. Fitch expects the average occupancy rate of SF's portfolio to be about 88% in 2Siam Future DevelopmentFitch Ratings8 and rise to about 94% in 2Siam Future DevelopmentFitch Ratings9.
Strong Market Position: SF is a leading developer of Thai medium-sized open-air shopping centres. Its large portfolio, significant experience and expertise give SF an advantage over its peers. SF has a high-quality and diversified shopping-centre portfolio in terms of location. Although some community malls have not been successful, their occupancy remains higher than 8Siam Future Development%. SF's current strategy is to focus more on expansion of existing centres with proven performance. On the other hand, SF has tried to change the mall concept and tenant mix of weaker centres to attract more traffic.
Cash Flow Visibility: SF has long-term leases on about 6Siam Future Development% of its total GLA, which contribute about 25% of total recurring income. Its anchor tenants are high-profile and diversified. The space rented to its five largest tenants accounts for about 38% of total GLA, while the largest tenant - occupying Fitch Ratings7% of total GLA - is a related company. Additionally, rental from tenants provide a buffer against the immediate impact of weak consumption and spending.
Secured Debt to Increase: The company plans to use project financing loans for its renovation and expansion projects in 2Siam Future DevelopmentFitch Ratings8-2Siam Future Development2Siam Future Development. Therefore, secured debt is likely to increase. Fitch expects SF's secured interest-bearing debt-to-EBITDA to be Fitch Ratings.5x-2.Siam Future Developmentx in 2Siam Future Development2Siam Future Development, which should leave bondholders unimpaired. A higher-than-expected increase in secured debt, to the extent that secured debt-to-EBITDA rises above 2.Siam Future Developmentx, nonetheless, is the level at which senior unsecured creditors' interests are materially subordinated to interests of secured or prior-ranking creditors. SF's debenture rating could, therefore, be downgraded, irrespective of the National Long-Term Rating.
DERIVATION SUMMARY
SF is a leading community mall developer in Thailand. Its closest industry peer is TICON Freehold and Leasehold Real Estate Investment Trust's (TREIT, A/Stable), the largest industrial REIT in Thailand, whose properties are mainly sponsored by the TICON group. TREIT has a property portfolio that is 3x as large as and better tenant diversification than SF's. TREIT has a significantly higher EBITDA margin of 75%-8Siam Future Development%, compared with SF's 58% (excluding utilities). In addition, SF has development risk exposure whereas TREIT does not. Therefore, TREIT is rated higher than SF.
JWD InfoLogistics Plc (JWD, BBB+(tha)/Negative), a leading full-service in-land logistics provider in Thailand, is larger than SF in revenue and EBITDAR size while its EBITDAR margins are lower. SF has higher earnings visibility and more cushion against an economic downturn than JWD. Nonetheless, JWD's customers are more diversified by industry than SF's, which are mostly food retail stores, restaurants and entertainment services. Both have large investment plans over the next one to two years and are likely to see increasing financial leverage. SFs financial leverage is likely to remain higher than that of JWD. Therefore, JWD has a higher rating.
Compared with IRPC Public Company Limited (IRPC, A-(tha)/Stable, standalone credit profile of BBB+(tha)), the third-largest oil refiner and the third-largest petrochemicals producer in Thailand, SF has significantly smaller operating scale, revenue and EBITDAR. IRPC has significantly higher earnings volatility than SF due to its exposure to commodity risk. However, SF's financial leverage is significantly higher than IRPC's. SF is, therefore, rated lower than IRPC based on IRPC's standalone credit profile.
KEY ASSUMPTIONS
Fitch's Key Assumptions within our Rating Case for the Issuer
- 2%-4% revenue growth a year in 2Siam Future DevelopmentFitch Ratings8-2Siam Future DevelopmentFitch Ratings9, and no growth in 2Siam Future Development2Siam Future Development
- EBITDAR margin at 44%-45%
- Total capex of about THBFitch Ratings.7 billion (including maintenance capex) in 2Siam Future DevelopmentFitch Ratings8-2Siam Future Development2Siam Future Development
- Dividend of about THB2Siam Future DevelopmentSiam Future Development million a year from Mega Bangna in 2Siam Future DevelopmentFitch Ratings8-2Siam Future Development2Siam Future Development
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to Positive Rating Action
- Adjusted net debt/EBITDAR below 4.5x on a sustained basis (Fitch RatingsHFitch Ratings8: 4.5x)
- Substantial improvement in recurring income and rental-derived EBITDA (including dividend from Mega Bangna) /interest expense above 4.5x on a sustained basis (Fitch RatingsHFitch Ratings8: 4.6x)
Developments That May, Individually or Collectively, Lead to Negative Rating Action
- Adjusted net debt/EBITDAR at above 6.5x on a sustained basis
- Deteriorating recurring income with rental-derived EBITDA (including dividend from Mega Bangna) /interest expense below 3.Siam Future Developmentx on a sustained basis.
LIQUIDITY
Adequate Liquidity: SF's total debt (excluding lease liabilities) at end-June 2Siam Future DevelopmentFitch Ratings8 was THB2.2 billion. Over the Fitch Ratings2 months from end-June 2Siam Future DevelopmentFitch Ratings8, THB753 million of debt will mature. At end-June 2Siam Future DevelopmentFitch Ratings8 SF's liquidity was supported by a cash balance and investments of THBFitch Ratings5Fitch Ratings million, and undrawn committed bank facilities of THBFitch Ratings billion. About 45% of total debt (excluding lease liabilities) at end-June 2Siam Future DevelopmentFitch Ratings8 were unsecured debentures while about 2Fitch Ratings% were secured loans.