Fitch Ratings (Thailand) Limited has affirmed Siam Future Development Public Company Limited’s (SF) National ratings at Long-term ‘BBB(tha) with Stable Outlook and Short-term ‘F3(tha). Its outstanding senior unsecured debentures have also been affirmed at National Long-term ‘BBB(tha)’.
The ratings reflect SF’s strong market position as Thailand’s leading developer of medium-sized open-air shopping centres under a community mall concept. SF also has an advantage from its high quality shopping mall portfolio with high average occupancy rate of more than 90% since the opening of its first centre in 1995.
The ratings also reflect SF’s strong recurring rental and service income, which has continued to grow even in the years with no increase in gross leasable area (GLA). About 30% of SF’s recurring income is secured from long-term lease contracts which account for about 60% of total GLA. In addition, SF maintains a high occupancy rate and commands rental increase for its short-term leases.
Despite the sale of Major Avenue Ratchayothin - which contributed about 10.7% of total recurring rental and service income in 2010 - SF’s recurring income in Q111 decreased only 1.5% yoy. However, total revenue in Q111 rose 25.5% yoy to THB388.6m, due to finance lease income from the renewal of an expired lease agreement by an anchor tenant, while EBITDAR increased 18.7% yoy to THB175.3m. Fitch expects EBITDAR for 2011 to be flat as the aforementioned finance lease income, rental and service income from the new project, and higher rental rates of existing projects mitigate the loss of revenue contribution from Major Avenue Ratchayothin.
The ratings are, however, constrained by SF’s high financial leverage. Net adjusted debt to EBITDAR was 6.2x at end-2010, due to its large investment in the Mega Bangna project. SF is likely to gradually de-leverage, given its more moderate capex plan over the next five years. Fitch expects financial leverage to improve to 4.0x-4.5x in 2014.
Even though the political environment is likely to become more stable after the general election on 3 July 2011, several political controversial issues have not yet been resolved. Any negative development on a sustained basis could limit SF’s ability to increase rental and delay new project launches, adversely affecting liquidity and leverage.
Negative rating factors include consistently higher-than-expected financial leverage, as measured by net adjusted debt to EBITDAR, at above 6.5x, delays in new project openings and lower-than-expected recurring income. On the other hand, stronger recurring income and a significant, sustained decline in financial leverage below 4.5x could positively affect the ratings.