TRIS Rating affirms the company rating on CPN Retail Growth Leasehold REIT (CPNREIT) and the ratings on CPNREIT?s existing senior unsecured debentures at ?AA?, with a ?negative? rating outlook. At the same time, we assign the ratings of ?AA? to the THB2 billion senior unsecured debentures due in 2024 (CPNREIT243A) and THB1.5 billion senior unsecured debentures due in 2026 (CPNREIT263A). The proceeds from the debentures were used for debt repayment.
The ratings on CPNREIT and its debentures reflect the trust?s high-quality assets, its stable cash flow from contract-based rental and service income, and its conservative financial policy. The ratings also take into consideration future growth opportunities of the trust, supported by assets from its sponsor, Central Pattana PLC (CPN), rated ?AA? with a ?stable? outlook by TRIS Rating. The ?negative? outlook reflects our concerns over a delay in the trust?s asset acquisition and equity injection caused by the Coronavirus Disease 2019 (COVID-19), which could push the trust?s loan-to-value (LTV) ratio to a higher level than expected.
CPNREIT is the largest real estate investment trust (REIT) in Thailand, with total investment properties worth THB68 billion as of December 2020. The trust?s leasable area totaled 326,123 square meters (sq.m.), consisting of 213,886 sq.m. from five shopping centers and 112,237 sq.m. from four office buildings. The trust has also invested in Hilton Pattaya Hotel, a 304-room hotel.
In 2020, CPNREIT?s rental and service income decreased by 21% year-on-year (y-o-y) to THB4 billion while its earnings before interest, tax, depreciation, and amortization (EBITDA) dropped by 24% y-o-y to THB3.3 billion, following the rent waivers and rental fee discounts granted to affected tenants during the outbreak of COVID-2019 as well as the absence of variable rental income from Hilton Pattaya Hotel.
In February 2021, CPNREIT succeeded in acquiring Central Marina and Central Lampang, originally planned for April 2020, with a total asset size of THB5.7 billion. The trust?s leasable area increased by 30,656 sq.m. CPNREIT funded these two assets with 100% equity. In addition, CPNREIT plans to acquire another two pending shopping centers, with an expected combined asset size of THB17.3 billion by the end of this year. If the acquisitions and capital injection go ahead as targeted, we expect CPNREIT?s LTV ratio to stay below 35%.
We assess CPNREIT?s liquidity as manageable for the next 12 months. As of December 2020, CPNREIT?s sources of liquidity included cash on hand of THB1.2 billion and investments in securities worth THB1.1 billion. The trust also had undrawn committed and uncommitted credit facilities from banks worth THB2.1 billion and THB4.2 billion, respectively. Debts due in 2021 will amount to THB10.9 billion, comprising THB5.5 billion in long-term loans from banks and THB5.4 billion in debentures. CPNREIT already refinanced THB5.4 billion long-term loans maturing in the first quarter of 2021. The THB2.7 billion debentures due in February 2021 was refinanced by issuance of new debentures. We expect the trust to be able to refinance or repay its maturing debt with no difficulty, given the strong support from its sponsor. We also expect the trust to have sufficient back-up loan facilities to mitigate refinancing risk.
RATING OUTLOOK
The ?negative? outlook reflects our concerns over a delay in asset acquisition and equity injection that has caused the trust?s financial leverage to remain at a high level. In addition, we view that the COVID-19 pandemic will continue to impact the trust?s operating performance throughout 2021.
RATING SENSITIVITIES
CPNREIT?s ratings could be revised downward should the ongoing COVID-19 pandemic evolve in a way that leads us to believe that the trust?s operating performance and/or financial profile are heading for a deeper deterioration than expected. On the contrary, CPNREIT?s outlook could be revised back to ?stable? if the trust?s financial leverage improves with the LTV ratio staying below 35% on a sustained basis.
RELATED CRITERIA
- Rating Methodology ? Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
- Real Estate Investment Trust, 12 October 2016
Company Rating: AA Issue Ratings: CPNREIT218A: THB2,650 million senior unsecured debentures due 2021 AA CPNREIT232A: THB1,795 million senior unsecured debentures due 2023 AA CPNREIT243A: THB2,000 million senior unsecured debentures due 2024 AA CPNREIT263A: THB1,500 million senior unsecured debentures due 2026 AA CPNREIT288A: THB7,390 million senior unsecured debentures due 2028 AA Up to THB1,715 million senior unsecured debentures due within 10 years AA Rating Outlook: Negative TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2021, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient?s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.