TRIS Rating has assigned the rating of “BBB-” to the proposed issue of up to Bt2,395 million in senior unsecured debentures of Ananda Development PLC (ANAN). At the same time, TRIS Rating has affirmed the company and current senior unsecured debenture ratings of ANAN at “BBB-”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay outstanding debts and purchase land plots for business expansion.
The ratings reflect the company’s strong competitive position in condominium segment with close proximity to electric-train stations and moderate business scale. The strengths are partially offset by limited and discontinued business track record, product segment concentration, and expected high financial leverage. The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors. The “stable” outlook reflects an expectation that ANAN’s competitiveness in the condominium segment located nearby mass transit stations will remain strong, and that its business platform is moderately resilient in responding to the market dynamic and cycle. In addition, TRIS Rating expects that the company’s business expansion will not exert an upward pressure on the debt to capitalization ratio to exceed 66%, or the debt to equity ratio above 2 times.
ANAN is engaged in development and sale of residential real estates, mainly condominium projects with close proximity to mass transit electric-train stations in Bangkok. The company was established in 1999 by the Ruangkritya family. In 2003, Mr. Chanond Ruangkritya became the company’s largest shareholder. During 2006-2007, ANAN and Pramerica Real Estate Investors (Pramerica), an overseas property fund manager, jointly established Ananda Development One Co., Ltd. (ADO) and Ananda Development Two Co., Ltd. (AD2) to develop low-rise and condominium projects, respectively. Pramerica invested 95% of total funding in both ventures. ANAN invested 5% and acted as a property developer and manager. ANAN fully acquired AD2 from Pramerica in 2010 and ADO in 2012. ANAN was listed on the Stock Exchange of Thailand (SET) in December 2012. As of August 2014, Mr. Chanond Ruangkritya was ANAN’s largest shareholder, holding 50.1% of total shares.
ANAN’s business risk is moderate. The business profile takes into consideration operating track records and financial performance of ADO and AD2 as if both entities had been wholly owned by ANAN since their inceptions. This is because ANAN had been highly involved in all key aspects of the project developments for ADO and AD2. ANAN has a strong competitive position in condominium projects located within 300 metres from electric-train stations under “Ideo” brand. ANAN’s credit profile is however, weighed by limited and discontinued operational track records, particularly in low-rise products. The ratings also reflect risks from high product concentration in condominium segment. In TRIS Rating’s view, it should require some times for ANAN to prove its strategic execution capabilities in responding to the continuing changes in real estate market dynamics and competitive landscape, as well as rising challenges in acquiring land plots nearby the mass transit stations.
As of June 2014, ANAN had 23 existing projects, with total remaining value of around Bt13,000 million available for sale. The company had a backlog worth Bt11,000 million (excluding backlog from Ideo Q Chula-Samyan) to be transferred during the remainder of 2014 through 2017. Presales in 2013 reached a record high of Bt20,361 million, sharply increasing from Bt8,888 million in 2012. During the first half of 2014, presales declined to Bt2,154 million as there were no new projects launched in this period. Total revenue in 2013 was mainly driven by a transfer of the units in four Ideo Mobi projects in the last quarter. ANAN’s total revenue soared by 80% year-on-year (y-o-y) to Bt9,173 million in 2013. Revenue in the first six months of 2014 continued to sharply grow to Bt4,269 million. Under TRIS Rating’s base case scenario, ANAN’s total revenue is expected to stay at around Bt8,000-Bt10,000 million per annum over the next three years. Around 80%-85% of revenue will come from condominium projects.
ANAN’s operating margins, as measured by operating income before depreciation and amortization as a percentage of revenue, during 2010-2012 were volatile. This was due to the consolidation of AD2’s projects in 2010 at fair value, which was around Bt1,500 million higher than the book value. The impacts from acquiring AD2 at high fair value had pressured net profits during 2010-2012, but declining from 2013 onward. On the other hand, ANAN should benefit from the purchase of ADO’s assets at price below book value. This should allow ANAN to offer competitive pricing for the low-rise projects under ADO. ANAN’s operating margin was 15%-16% during 2013 through the first half of 2014, and it is expected to stay above 11% in the medium term, despite pressures from rising operating expenses to support business expansion.
The debt to capitalization ratio was 57% (including 51% debt from joint venture) as of June 2014. Under TRIS Rating’s base case scenario, ANAN’s financial leverage over the next few years is expected to rise from its business expansion plan to pursue the growth momentum. However, the debt to capitalization ratio should not exceed 66%. ANAN’s liquidity profile is acceptable. Its liquidity sources include Bt2,441 million in cash, Bt5,194 million in undrawn credit facilities as of June 2014, and expected funds from operations (FFO) of around Bt1,000 million on average per year. The FFO to total debt ratio is expected to stay above 7% over the next three years.
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