Bangkok--18 Aug--Fitch's rating Fitch Ratings (Thailand) Limited today has affirmed Siam Future Development Public Company Limited’s (SF) National Long-term rating at ‘BBB+(tha)’ with a Stable Outlook and National Short-term rating at ‘F2(tha)’. At the same time, the agency has affirmed the ‘BBB+(tha)’ rating of SF’s outstanding senior unsecured debentures due 2010. The ratings reflect SF’s established market position in the medium-scale open-air shopping centre business and its high-quality portfolio of shopping malls, evidenced by its consistently high occupancy rate of more than 90% since inception and its continued improvement in average rental rate. The ratings also reflect the continued growth in SF’s recurring rental and service income (H108: 52% of net sales), backed by the increasing number of newly launched projects in the portfolio, the diversified tenant profiles and the increasing cash flow streams generated by long-term lease contracts, which accounted for about 70% of its gross leasable area (GLA) in 2007. The stronger recurring rental and service income helps provide a better cushion against SF’s operating fixed costs. The ratings take into account SF’s remaining high expansion plan. SF’s capital expenditures are budgeted at about THB1.3bn per annum during 2008-2009 and likely to increase to THB3.0bn in 2010. The high capital expenditure has been set to follow the company’s plan to increase its GLA by 50,000-100,000 square metres per annum over the next three years. While this helps provide stronger cash flow generation for SF, it also results in substantial cash outflows to fund construction works and also to finance land acquisition for some new projects, which will limit the company’s ability to reduce debt during 2008-2010. Partially mitigating these risks is the company’s use of upfront prepayment and deposits from key tenants as a primary source of funding for new projects, as well as its focus on cash flow management. SF is also looking for an opportunity to liquidate some of its existing operating assets through the property fund as this should help raise funds for future investments and also help control the company’s debt level within the manageable range. Other key credit concerns include the company’s exposure to the sensitivity of the retail property development to the current economic slowdown, as well as declining consumer confidence and spending. In addition, a major delay in the new project completion could negatively impact the company’s liquidity and financial leverage. In H108, SF reported a 17% yoy growth in EBITDAR to THB663m, mainly driven by the stronger recurring rental and service income. EBITDAR margins also improved to 63% in H108 from 56% in H107, thanks to its ability to increase the average rental rate and growing non-leasing income (revenue from rental of common areas in its shopping centres). Despite strong earnings performance, SF continued to see an increase in its total debt to THB2.9bn at end-H108 from THB1.9bn at end-2006, given its continued reliance on external funding to fund its GLA growth. SF’s adjusted net debt/EBITDAR ratio is likely to stay in the moderate range of 3.0x-3.5x during 2007-2010 (end-H108: 3.5x). Meanwhile, SF’s liquidity remains adequate, supported by a cash balance of THB479m and its undrawn committed banking facilities of around THB880m at end-H108. The Stable Outlook reflects the expectation that SF should be able to maintain its financial leverage and sufficient liquidity consistent with the current rating level in light of its continued large planned expansion. A sustainable improvement in recurring rental and service income, as well as a significant decline in net debt and financial leverage of below 2.5x on a sustained basis could positively affect the ratings. Meanwhile, sustained higher-than-expected net debt or financial leverage of over 4.0x as a result of aggressive expansion plan or delays of new projects, as well as a worse-than-expected economic downturn could negatively affect the ratings. Contacts: Wasant Polcharoen, +662 655 4763; Somruedee Chaiworarat, +662 655 4762; Vincent Milton, Bangkok, +662 655 4759. 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. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. 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