Fitch Affirms Siam Future Development at ‘BBB(tha)’

           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, its National Short-Term Rating at ‘F3(tha)’ and its outstanding senior unsecured debentures at ‘BBB(tha)’. 
          Key Rating Drivers
          Decreasing Financial Leverage: Fitch expects SF’s net adjusted debt to EBITDAR to decrease to 4.5x-5.5x during 2015-2017, a level that will be more in line with its rating, from 5.7x at end-2014 and 6.8x at end-2013. The significant decline in 2014 was driven by the shopping centre developer’s small capex and investment, and a large dividend received from a 49%-owned joint venture that operates Mega Bangna, a 140,000 square metre shopping mall in the Bangkok suburbs.
          Moderate Recurring Income Growth: SF is likely to post recurring income growth of 6%-7% in 2015 and 3%-5% a year in 2016-2017. The increase in 2015 will be propelled by the inclusion of a full-year of operation of the new tenants recruited in 2014 as well as an expected increase in casual leasing income. SF’s plan to open a new small centre in late 2015 and expand an existing centre in 2H17 should support moderate income growth over the medium term. 
          Strong Market Position: SF is a leading developer of medium-sized open-air shopping centres in Thailand. SF’s larger portfolio, and more extensive experience and expertise give it an advantage over its peers. SF has a high-quality and diversified shopping-centre portfolio in terms of location. It has maintained an average occupancy of more than 90% since the opening of its first centre in 1995, despite facing tenant issues and low traffic in some major centres in 2012-2013. Fitch expects SF’s average occupancy to be at 94%-95% in 2015-2017 (2014: about 94%).
          Secured Cash Flows: SF has long-term leases for about 65% of its total gross leasable area (GLA), which account for around 30%-35% of total recurring income. Its anchor tenants are high profile and diversified. The space rented to its five largest tenants accounts for about 40% of total GLA, while the largest tenant, which occupies 16% of total GLA, is a related company. SF will not immediately feel the impact of weak consumption and spending because its cash flows derive from rental payments from tenants. 
          Reliance on Refinancing: SF has THB840m of debt that will mature over the 12 months from 31 March 2015. The company plans to refinance the maturing debt with new debentures. SF’s liquidity is supported by cash balances and short-term investments of THB398m, and undrawn committed bank facilities of THB1.4bn at end-March 2015.

KEY ASSUMPTIONS
Fitch’s key assumptions within our rating case for the issuer include:
- 3%-6% total revenue growth in 2015-2017;
- Improvement in EBITDAR margin as revenue increases while a large portion of the costs are fixed;
- Total capex (including maintenance and renovation capex) of THB900m in 2015-2017.

Rating Sensitivities
          Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Deterioration in recurring income with the ratio of rental-derived EBITDA to interest expense at below 3.0x on a sustained basis (12 months to 31 March 2015: 4.3x)
-Financial leverage as measured by adjusted net debt to EBITDAR at above 6.5x on a sustained basis (12 months to 31 March 2015: 5.4x)
          Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Improvement in recurring income with the ratio of rental-derived EBITDA to interest expense at above 4.5x on a sustained basis
-Financial leverage at below 4.5x on a sustained basis