Fitch Rates Siam Future Development’s THB500m Bonds ‘BBB(tha)’

           Fitch Ratings (Thailand) Limited has assigned Siam Future Development Public Company Limited’s (SF; BBB(tha)/Stable) new issue of up to THB500m of senior unsecured debentures due in 2020 a National Long-Term Rating of ‘BBB(tha)’. The proceeds will be used to refinance maturing debentures. 
          The notes are rated at the same level as SF’s National Long-Term Rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the retail property developer. 

          Key Rating Drivers
          High Financial Leverage: Fitch expects SF’s net adjusted debt to EBITDAR to improve but remain high at 5.0x-6.0x during 2014-2015. Fitch expects SF’s recurring income growth to be low at 1%-2% in 2014-2015 because there will not be any new centres opening. The opening of new centres in 2015 is likely to be postponed due to a delay in construction of the residential project adjacent at one of the centres and a delay in securing the land leases for the others. With the delays, capex in 2015 is likely to be small. 
          Strong Market Position: SF is a leading developer of Thai medium-sized open-air shopping centres. SF’s larger portfolio, greater experience and expertise in this niche give it an advantage over its peers. SF has a good-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 tenant problems and low traffic in some major centres in 2012-2013. Fitch expects SF’s average occupancy to be at about 93%-95% in 2015 (2014: about 94%). 
          Secured Cash Flow: SF has long-term leases for about 65% of its total gross leaseable area (GLA), which account for around 30%-35% of total recurring income. Its anchor tenants are also high profile and diversified. Its five largest tenants account for 40% of total GLA, while the largest tenant, which occupies 15% of total GLA, is a related company. Mega Bangna, its first mega JV project, has contributed cash flow in the form of dividends since 2013. The dividend from Mega Bangna’s first full year of operation, which was paid in early 2014, was about 20% of SF’s EBITDAR in 2013. 
          Reliance on Refinancing: SF’s THB533m of debt will mature over the next 12 months from 30 September 2014. The company plans to refinance the maturing debt with new debentures. SF’s liquidity is supported by cash balances and short-term investments of THB177m, and undrawn committed bank facilities of THB867m at end-September 2014.

          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 30 September 2014: 3.7x)
          -Financial leverage as measured by adjusted net debt to EBITDAR at above 6.5x on a sustained basis (12 months to 30 September 2014: 6.0x)
          Positive rating action is unlikely over the next 12-18 months due to the company’s sustained high financial leverage. However, 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