Bangkok--30 Jul--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Thailand-based property investment company WHA Corporation Public Company Limited (WHA) a National Long-Term rating of ‘A-(tha)’ and a National Short-Term rating of ‘F2(tha)’. The Outlook is Stable.
Key Rating Drivers
Increasing debt burden: Due to its aggressive investment plan over the next two to three years, Fitch expects WHA’s net debt level to increase to more than THB6bn by 2014, from less than THB3bn at end-March 2013. Nonetheless, expected stronger recurring income and its capability to sell its investment properties to property funds should boost its EBITDA and reduce its financial leverage to 3.5x-4.5x over the medium term, from 7.3x at end-March 2013.
Rising recurring income: Fitch expects rental and service income, mainly from warehouse leases, to increase significantly to above THB1bn by 2015 from about THB360m in 2012. The contribution from recurring income is likely to be 35%-45% of WHA’s total EBITDA in 2014-2015 from less than 20% in 2013. WHA’s short construction period of five to 10 months and high take-up rate from strong demand should enable it to increase recurring income as a share of total revenue, despite continued sales of more mature investment properties to property funds and/or real estate investment trust (REIT) in 2013-2014.
Leading niche position: WHA is a market leader in development of premium built-to-suit warehouses for lease. Given the prime location and unique quality of WHA’s warehouses, occupancy has been at 100% for the past five years. Competition is limited with only few large players with different product offerings i.e. smaller and standard ready-built warehouses. These factors should enable the company to maintain revenue growth and strong margins in warehouse leasing over the medium term.
Pre-leased strategy: The involvement of potential tenants from the beginning of the project development under WHA’s built-to-suit concept not only secures the projects’ occupancy by pre-leased contracts before the investment, but also creates strong business alliance with tenants for their future development. This increases the potential for repeat business from existing customers as well as for a strong referral to new customers.
Strong tenant base: WHA’s cash flow is partly underpinned by its strong tenant base. WHA’s tenants mainly consist of large multinational companies, with long-term lease contracts. More than 50% of leasable area is occupied by tenants in the consumer and healthcare industry which is low in cyclicality.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating
action include:
- Failure to achieve significant de-leveraging by end-2013, with funds flow from operations (FFO) adjusted leverage at above 4.5x on a sustained basis
- Failure to increase rental and service income to above THB1bn by 2015
- Change in the company’s business strategy towards a pre-built approach from the existing pre-lease
- Positive rating action over the next 12-24 months is unlikely, given the company’s expansion plan.