Fitch Ratings (Thailand) Limited has today affirmed Siam Future Development Public Company Limited's (SF) National Long-term rating at 'BBB+(tha)', National Short-term rating at 'F2(tha)' and its outstanding senior unsecured debentures due 2010 at 'BBB+(tha)'. Simultaneously, the agency has assigned a 'BBB+(tha)' rating to SF's new THB500m senior unsecured debentures due 2012. The Outlook remains Stable.
The ratings are based on SF's established market position in the domestic open-air and medium-sized shopping centre development business and on the high quality of its shopping centre portfolio. Fitch notes there is continued growth in gross leasable area (GLA) and the average rental rate, as well as a consistently high average occupancy rate of more than 90% since inception. The ratings also reflect the continued growth in SF's recurring rental and service income, as supported by an increasing number of new projects in its portfolio and secured cash flow stream from a long-term portion of the lease contracts (which accounts for 60%-70% of total GLA or 30%-35% of rental income).
The ratings are constrained by SF's relatively high financial leverage due to its aggressive expansion over the past several years. However, its financing needs are partially mitigated by its ability to collect up-front payment and rental deposits from anchor tenants to fund about 60% of the cost of each new project. SF's financial leverage, as measured by adjusted net debt to EBITDAR, is likely to remain high over the next three years as its large investment in a recently-set up JV with IKEA is not expected to make dividend payment in the first two years of operations. A weakening operating environment is also a concern for the retail property development. Although consumer confidence and spending do not directly and immediately affect the earnings of the retail operators/developers, it could delay the opening of planned new projects, which would impact the company's liquidity and leverage.
In H109, total revenues dropped 20.0% yoy mainly as a result of the smaller space of rental units under the new project handed-over during the period, versus H108, resulting in a 57.6% yoy decline in revenue from finance lease to THB187.5m in H109. However, recurring rental and service income grew by 11.9% yoy, contributing to 75.7% of total revenues. EBITDAR margin declined to 44.6% in H109 (2008: 54.4%) due to a significantly lower margin from finance lease on the project opened in July 2009 which was constructed during the high oil price period. The significant decrease in revenue and margin from finance lease also resulted in the deterioration of SF's financial leverage to 6.0x in H109 from 4.3x at end-2008.
The Stable Outlook reflects the expectation that SF should maintain its strong market position and the quality and steady growth of its shopping centre portfolio, and maintain its financial leverage and sufficient liquidity in consistence with its current ratings over the long term.
Negative ratings factors include consistently higher-than-expected net debt and financial leverage, as well as cost overruns, delays in construction and lower-than-expected revenue generation of its new JV project. Positive ratings triggers would be a stronger and more stable recurring rental and service income, and a significant decline in net debt and financial leverage to below 2.5x on a sustained basis.
Contacts: Somruedee Chaiworarat, Bangkok, +662 655 4762; Pimrumpai Panyarachun, Bangkok, +662 655 4752; Vincent Milton, Bangkok, +662 655 4755.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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