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Fitch Ratings-Bangkok/Singapore-16 July 2012: Fitch Ratings (Thailand) Limited has affirmed Siam Future Development Public Company Limited’s (SF) National Long-Term Rating at ‘BBB(tha)’ with Stable Outlook and its National Short-Term rating at ‘F3(tha)’. Its outstanding senior unsecured debentures have also been affirmed at ‘BBB(tha)’.
The ratings are based on SF’s strong market position as a leading developer of medium-sized open-air shopping centres in Thailand. Its larger portfolio, longer experience and stronger expertise in its niche over its peers provide it with a competitive advantage. SF possesses a strong-quality shopping mall portfolio with a high average occupancy rate of more than 90% since the opening of its first shopping centre in 1995.
The ratings also reflect SF’s solid recurring rental and service income, which represents more than 85% of its total revenue. About 35% of its recurring income is secured from long-term lease contracts from a well-diversified tenant base, which account for about 65% of total gross leasable area. In addition, the company has been able to maintain high occupancy rates and to command rental increases for its short-term leases. Dividend from its investment in Mega Bangna will also be another source of recurring cash flow in the near future.
SF’s diversification by location and tenant helped limit the decline in its EBITDAR in 2011 to only 4%, despite a series of unfavourable events. These included the flooding in November and December, a large rental discount for one of SF’s major tenants, and a decrease in occupancy at the Avenue Pattaya during its revamp. In addition, there was an absence of recurring income from Major Avenue Ratchayothin following its sale to a property fund at end-2010.
SF’s net adjusted debt to EBITDAR is likely to remain high at between 5.7x and 6.2x and its fixed charge coverage at between 2.5x and 3.0x in 2012-2013. These figures should, nonetheless, improve to about 5.0x and above 3.0x, respectively, in 2014, supported by cash flow from newly completed projects in 2013 and dividend from Mega Bangna.
Retail property developers like SF, whose main earnings stream is rental income, are not directly and immediately affected by changes to consumer spending. However, a prolonged unfavourable economic environment could limit the company’s ability to increase rental, increase tenant turnover and delay new project openings, in turn impacting liquidity and leverage.
What Could Trigger A Rating Action?
Positive: Future developments that may, individually or collectively, lead to positive rating
-Stronger recurring income
-Funds from operations (FFO) fixed charge coverage above 3.0x on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating
-FFO fixed charge coverage below 2.5x on a sustained basis
-delays to new project openings
-lower-than-expected recurring income