Bangkok--30 Aug--Fitch Ratings
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
Increasing Financial Leverage: Fitch expects SF's net adjusted debt/EBITDAR to rise to 5.5x-6.0x in 2018 due to investment in expansion projects in 2016-2018. Total expected capex is about THB2bn. In addition, dividend from Mega Bangna, its 49%-owned joint venture, is likely to decrease to THB50m-THB100m a year in 2016-2017 from THB113m in 2015 as Mega Bangna has to conserve cash for its own projects.
Low Recurring Income Growth: The community mall developer's recurring income is likely to continue rising slowly at 2.0%-2.5% a year in 2016-2017 and be unchanged in 2018. SF cancelled a small project that it planned to open in 2015. It does not plan to open any new centres in 2016-2017 while the operations of existing projects being expanded are likely to be partly closed before re-launching in 2H18. As a result, revenue growth over the next three years is likely to be mainly driven by an increase in rental and the replacement of terminated tenants.
Strong Market Position: SF is a leading developer of Thai medium-sized open-air shopping centres. SF's large portfolio, significant 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 95%-96% in 2016-2017 (2015: about 95%).
Secured Cash Flow: SF has long-term leases for about 65% of its total gross leasable area (GLA), which account for 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 is unlikely to be immediately affected by weak consumption and spending because its cash flows are derived from rental from tenants.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue growth of 2.0%-2.5% a year in 2016-2017 and no growth in 2018
- EBITDAR margin in the range of 44%-46%
- Total capex of THB2.2bn (including maintenance capex) in 2016-2018
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 below 3.0x on a sustained basis (12 months to 30 June 2016: 5.1x)
-Financial leverage as measured by adjusted net debt to EBITDAR above 6.5x on a sustained basis (12 months to 30 June 2016: 4.8x)
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 above 4.5x on a sustained basis
-Financial leverage below 4.5x on a sustained basis