Bangkok--19 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Thailand-based property investment company WHA Corporation Public Company Limited’s (WHA) senior unsecured debentures of up to THB2bn an ‘A-(tha)’ National Long-Term Rating. Simultaneously, Fitch has affirmed WHA’s National Long-Term Rating at ‘A-(tha)’, National Short-Term Rating at ‘F2(tha)’ and the National Long-Term Rating on its senior unsecured debentures at ‘A-(tha)’. The Outlook is Stable.
The new debentures will be issued in two tranches due in 2017 and 2019. The proceeds will be used to finance WHA’s expansion plan.
The senior unsecured debentures are rated at the same level as WHA’s National Long-Term Rating. This is based on Fitch’s expectation that WHA’s future debt will be on an unsecured basis, rather than on a secured basis as some of its existing debt is. This is because recent project loans granted by its main bankers are on an unsecured basis with a negative pledge condition. At end-March 2014, WHA’s secured debt was about 40% of the company’s total debt. WHA’s secured debt to EBITDA decreased to 1.1x at end-2013 from 8.4x at end-2012.
Key Rating Drivers
Increasing Debt Burden: Due to its continued large investment plan over the next two to three years, Fitch expects WHA’s net debt level to increase to more than THB8bn in 2015 from THB4.9bn at end-2013. Fitch expects WHA’s financial leverage as measured by funds flow from operations (FFO)-adjusted leverage, to increase to 3.5x-4.5x over 2014-2015. WHA’s sales of investment properties that totalled THB6.6bn in 2013 helped decrease its FFO-adjusted leverage significantly to 2.8x at end-2013, from 9.3x at end-2012.
Rising Recurring Income: Fitch expects WHA’s rental and service income in 2015 to increase to above THB1bn, contributing more than 40% to WHA’s total EBITDA (from THB500m with less than 20% contribution in 2013), driven by the high take-up rate and strong demand for modern warehouses in Thailand. However, should the local economic slowdown be prolonged, it could have an impact on the company’s expansion plan and the growth of recurring income in the long term as well as sales of mature investment properties to property funds and/or real estate investment trusts (REIT), which could, in turn, affect the ability of the company to deleverage.
Leading Niche Position: WHA is a market leader in the 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 a few large players with different product offerings, such as 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 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 alliances with tenants. This increases the potential for repeat business from existing customers and strong referrals.
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, helping to underpin WHA’s cash flow.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating
action include:
- Aggressive expansion leading to 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 approach
Positive rating action over the next 12-24 months is unlikely given the company’s expansion plan.