TRIS Rating affirms the company rating on Central Pattana PLC (CPN) and the ratings on CPN?s senior unsecured debentures at ?AA?, with a ?stable? outlook. The ratings reflect CPN?s leading position in the retail property development industry in Thailand, proven track record of managing high-quality assets, and reliable cash flow from contract-based rental and service income. The ratings also take into consideration the recovery of the retail industry after the Coronavirus Disease 2019 (COVID-19) pandemic and the large capital expenditures needed for business expansion during 2023-2024.
Key Rating Considerations
Strong recovery in 2022 performance
CPN?s shopping centers are expected to fully recover in 2023-2024 after the country?s reopening and the lifting of COVID-19 restrictions. In December 2022, customer traffic at CPN?s shopping centers reached high 80% of the 2019 pre-pandemic level, the highest since March 2020.
The hotel sector is recovering following the government?s stimulus measures and the resurgence of incoming foreign tourists. We expect revenue per available room (RevPAR) of CPN?s hotel in Pattaya as the 2019 level in 2023-2024, while its hotels in secondary provinces that depend mainly on domestic tourists should gradually recover to the 2019 level by 2025. As of December 2022, the overall performance of CPN?s hotels was satisfactory compared to pre-COVID-19 levels. The RevPAR of the ?Hilton Pattaya? achieved the 2019 level, while that of ?Centara Udonthani? reached 79%.
We forecast that CPN?s operating revenue to improve to the THB35-THB45 billion per annum range during 2022-2024 while its earnings before interest, taxes, depreciation, and amortization (EBITDA) will soar to THB22-THB27 billion per annum. Revenue is projected to grow by 36% in 2022 and 10% per year in 2023-2024 due to the improvement in the COVID-19 situation and revenue contributions from newly opened shopping centers, residential projects, and hotels.
Proven track record in high-quality asset management
We assess CPN?s overall asset quality as good. CPN has a diversified portfolio of income-generating retail properties, sited in good locations, with a diverse and strong tenant base. Each shopping center regularly undergoes renovations and remerchandising to enhance its appearance and draw customer traffic. Magnet anchors, such as ?Central Department Stores?, ?Robinson Department Stores?, cinemas, supermarkets, brand name shops, and large multi-purpose halls, help stimulate traffic. A good mix of anchor tenants attracts other specialty retailers. The prime-quality shopping centers also attract a diverse mix of local and international brand retailers.
Enhanced portfolio with mixed-use properties
CPN?s strategy is to become a leading retail-led mixed-use developer. The company plans to develop office buildings, hotels, and residences in the same areas as its own or Central Group?s shopping centers. CPN has many mixed-use developments in the pipeline including large projects being developed jointly with well-known partners. These include the ?Dusit Central Park? project on the corner of Silom and Rama 4 Roads, with Dusit Thani PLC (DTC), and the ?Central Embassy 2? project, located between Wireless Road and Soi Somkid, with Hongkong Land Ltd. (HKL). CPN also plans to turn land plots at ?The Grand Rama 9? project and on Phaholyothin Road, held by Grand Canal Land PLC (GLAND), into various types of mixed-use properties. The number of residential projects and hotels located next to CPN?s shopping centers is expected to more than double in the next five years. We forecast an increase in CPN?s revenue from residential properties and hotels of approximately THB2-THB3 billion per year.
Leverage to be maintained despite intensive expansion
We expect CPN?s financial leverage to remain steady during the forecast period. In our base-case scenario, we assume capital expenditures totaling THB75 billion during 2022-2024. More than 50% of total investments are earmarked for new shopping centers and office buildings, as well as for enhancements to existing shopping centers. Land purchases and construction costs for residential projects are expected to total THB3-THB4 billion per year during 2022-2024 while investment costs for hotel projects are expected to be in the THB1-THB2 billion per year range.
Total debt has been high since the acquisition of Siam Future Development PLC (SF) in 2021. However, the company?s plan to sell part of its assets to CPN Retail Growth Leasehold Real Estate Investment Trust (CPNREIT) should help alleviate CPN?s debt burden. We expect CPN to sell and sublease assets in late 2023. Cash received from these transactions will be around THB15 billion. We expect CPN?s net debt to EBITDA ratio and EBITDA interest coverage ratio to remain around 6 times and 8 times, respectively, over the forecast period.
Adequate liquidity profile
We assess CPN to have adequate liquidity over the next 12 months. At the end of September 2022, CPN?s sources of funds consisted of THB3.3 billion in cash plus THB2.4 billion in short-term investments. The company had undrawn committed credit facilities of THB31 billion. Funds from operations (FFO) are forecast to be around THB18 billion in 2022. In addition, CPN had unencumbered assets at book value worth around THB179 billion, which can be pledged as collateral for new loans, if needed.
As of September 2022, CPN?s debt maturing over the next 12 months will amount to THB33.5 billion, comprising THB18 billion in short-term obligations, THB9 billion in long-term loans, THB4 billion in debentures, and THB2.5 billion in lease liability. We project CPN?s capital expenditures to amount to THB12 billion in 2022 and THB25 billion annually during 2023-2024. Dividend payments will be around 35% of net profit.
The key financial covenant on its debentures requires the company to maintain its net interest-bearing debt to equity ratio (excluding lease liability) below 1.75 times and total assets (excluding secured debt) to unsecured debt ratio above 1.5 times. The ratios as of September 2022 were 0.9 times and 3.5 times, respectively.
At the end of September 2022, the ratio of its secured debt to cost value of total assets was only 1.4%, well below the threshold of 35% according to TRIS Rating?s ?Rating Methodology for Real Estate for Rent Companies?, we view that CPN?s unsecured creditors are not significantly disadvantaged with respect to claims against the company?s assets.
BASE-CASE ASSUMPTIONS
? Rental and service income from shopping centers to recover to THB32-THB35 billion per annum during 2023-2024.
? CPN to open one to three new shopping centers annually during 2023-2024, with overall OR of around 90%.
? Aggregate capital expenditure totaling of THB75 billion during 2022-2024.
? Total operating revenue of THB36 billion in 2022, recovering to THB40-THB45 billion annually during 2023-2024.
? CPN to sell and sublease assets to the CPNREIT in late 2023.
RATING OUTLOOK
The ?stable? rating outlook reflects our expectation that CPN will be able to deliver operating results as targeted. Despite a more aggressive business expansion, we expect CPN to sustain its strong financial profile and keep the net debt to EBITDA ratio below 7.5 times, over the forecast period.
RATING SENSITIVITIES
A credit upside would materialize if CPN strengthens its financial position while maintaining a strong business profile, with the net debt to EBITDA ratio remaining below 4.5 times on a sustained basis. On the contrary, the ratings and/or outlook could be revised downward should the company?s operating performance and/or financial profile significantly deteriorate from our expectations with the net debt to EBITDA ratio staying well above 7.5 times for an extended period.
COMPANY OVERVIEW
CPN was incorporated in 1980 under the name ?Central Plaza Co., Ltd.? to develop and operate shopping centers in Thailand. The company was listed on the Stock Exchange of Thailand (SET) in 1995. As of September 2022, the major shareholders of CPN were the Chirathivat family (27%) and Central Holding Co., Ltd. (26%). Central Holding, a wholly-owned holding company of Chirathivat family members, is engaged in real estate development, hotel, food retailing, department store, hardline product, and online marketing businesses. The ownership link with the Central Group is a benefit for CPN since many anchor tenants under the group have been strong magnets for shopping centers owned by CPN.
CPN is the largest retail property developer in Thailand. After the acquisition of GLAND in late 2018 and SF in August 2021, CPN?s property portfolio included 52 shopping centers and community malls with net leasable area of 2.2 million square meters (sq.m.), 10 office buildings with net leasable area of 317,253 sq.m., two hotels, one apartment, 32 food centers, 13 existing residential projects, and two REITs/property funds.
CPN?s rental and service income from shopping centers constituted 80%-85% of total revenues from sales and services during 2018 through the first nine months of 2022. Revenue from residential projects for sale has contributed 7%-8% during the past five years. Revenue from office buildings for rent has contributed 3%-7% during the same period. Revenue from hotel operations and food centers has remained negligible.
RELATED CRITERIA
- Corporate Rating Methodology, 15 July 2022
- Key Financial Ratios and Adjustments for Corporate Issuers, 11 January 2022
- Rating Methodology for Real Estate for Rent Companies, 15 July 2021
- Issue Rating Criteria, 15 June 2021
CPN241A: THB2,000 million senior unsecured debentures due 2024 AA CPN242A: THB3,000 million senior unsecured debentures due 2024 AA CPN248A: THB5,000 million senior unsecured debentures due 2024 AA CPN253A: THB1,500 million senior unsecured debentures due 2025 AA CPN256A: THB1,000 million senior unsecured debentures due 2025 AA CPN258A: THB1,000 million senior unsecured debentures due 2025 AA CPN25DA: THB1,000 million senior unsecured debentures due 2025 AA CPN261A: THB1,250 million senior unsecured debentures due 2026 AA CPN261B: THB750 million senior unsecured debentures due 2026 AA CPN268A: THB4,000 million senior unsecured debentures due 2026 AA CPN26OA: THB2,100 million senior unsecured debentures due 2026 AA CPN273A: THB1,000 million senior unsecured debentures due 2027 AA CPN27OA: THB2,000 million senior unsecured debentures due 2027 AA CPN293A: THB1,000 million senior unsecured debentures due 2029 AA CPN29OA: THB2,200 million senior unsecured debentures due 2029 AA CPN323A: THB2,000 million senior unsecured debentures due 2032 AA Up to THB2,200 million senior unsecured debentures due within 15 years AA Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: +66 0 2 098 3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2023, 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 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 www.trisrating.com/rating-information/rating-criteria