TRIS Rating Co., Ltd. has assigned the ratings of “BBB-” to Property Perfect PLC’s (PF) proposed issue of up to Bt1,000 million in senior secured debentures and “BB+” to the proposed issue of up to Bt1,500 million in senior debentures. At the same time, TRIS Rating has affirmed the company rating of PF at “BBB-” and has affirmed the ratings of PF’s senior secured debentures (PF112A and PF128A) and senior partially guaranteed debentures (PF132A) at “BBB” as well as senior secured debentures (PF123A) at “BBB-”. The outlook remains “stable”.
The rating of the new senior secured debentures incorporates the land value of 329 rai in Pak Kret district, Nonthaburi province, which is pledged as collaterals. The appraisal value of the collaterals to outstanding debentures is at 1.06 times, resulting in the rating of proposed senior secured debentures to be equal to PF’s company rating.
The ratings reflect PF’s proven track record in the housing market and accepted brand name in the middle- to high-income market segment. The strengths are partly offset by weaker profitability and less financial flexibility than its peers. The ratings also take into consideration an uncertain political situation in Thailand, the cyclical nature of the property development industry, and intense competition among developers to acquire new plots of raw land. The issue ratings of PF112A and PF128A are enhanced after incorporating the land value of 25 rai for the Metro Sky Sukhumvit project and 176 rai of raw land along the highway route 345, which are pledged as collaterals. If the appraised value of the collaterals is less than 1.68 times the outstanding value of the debentures, the issue ratings will not be enhanced. The rating enhancement of PF132A, which is 65% guaranteed by Siam City Bank PLC (SCIB), a bank rated by TRIS Rating at “A” with “positive” outlook, results in one notch uplift from PF’s company rating. The issue rating of PF123A includes the land value of 145 rai in Perfect Park Rama V-Bangyai, 92 rai in Perfect Place II Rattanathibet-Ratchapreuk, and 34 rai in Bangbuathong area, which are pledged as collaterals. The appraisal value of the collaterals to outstanding debentures is at 1.05 times, resulting in the rating of PF123A to be equal to the company rating.
The “stable” outlook reflects the expectation that PF will be able to sustain its operating performance during more intense competition. With higher land acquisition costs and intensive capital requirements to support an aggressive expansion plan, financial leverage will be higher than during the past several years. However, TRIS Rating expects that management will carefully pursue growth and maintain a level of leverage that will not hurt its financial position.
TRIS Rating reported that PF is one of the leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Ngowsirimanee and was listed on the Stock Exchange of Thailand (SET) in 1993. After concluding a debt-equity swap as part of debt restructuring program, the creditors became the major shareholders. As of May 2010, the three largest creditors, Japan Asia Group Ltd., MJL Intertrade Co., Ltd., and Natee International Law Office Co., Ltd., together held 22.87% of the total outstanding shares.
TRIS Rating said, PF offers a wide range of products including single detached houses (SDH), duplex houses, townhouses, and condominiums. Its products target the middle- to high-end segments with selling prices per unit between Bt2.5-Bt20.0 million for SDHs, Bt1.7-Bt4.5 million for townhouses, and Bt1.2-Bt3.0 million for condominiums. SDHs remained the largest source of revenue with the contribution of 62%-68% of total revenue during 2007 through the first six months of 2010. Revenue from townhouses represented 18%-19% of total revenue during 2009 through the first half of 2010. Land plots accounted for 18% of total revenue in the first two quarters of 2010 and condominiums constituted only 1%. PF’s competitiveness is derived from its well-accepted brand name and large land holdings along future mass transit lines. The company differentiates its residential projects by providing grand central facilities to homeowners. This feature has become one of the company’s key selling points.
Presales of PF in 2009 rose to Bt6,389 million, up 14% from Bt5,582 million in 2008. During the first nine months of 2010, presales was Bt6,677 million, increasing from Bt4,516 million in the same period of 2009. The growth in presales was mainly driven by rising townhouse and condominium presales. PF’s revenue in 2009 was Bt5,852 million, a 22% drop from Bt7,538 million in 2008. The decline was caused by the drop in revenues from SDHs and condominiums in 2009. In addition, there was a delay in the sale of a land plot to the University of the Thai Chamber of Commerce (UTCC). However, the revenue in the first six months of 2010 improved to Bt4,293 million, up significantly from Bt2,712 million in the same period of the prior year. The increase was the result of improving housing sales and the revenue of Bt785 million from the sale of a land plot to UTCC. The company’s profitability was strengthened as the adjusted operating profit margin increased to 14.01% in the first half of 2010 from 12.39% in 2009 and 13.98% in 2008. Cash flow protection also moved in the same direction in the first six months of 2010 with the ratio of funds from operations (FFO) to total debt at 5.15% (non-annualized), compared with 8.85% in 2009. Despite improving, the company’s profitability and liquidity remained relatively weaker than most of the leading property developers. Financial leverage continuously increased, rising to 52.18% as of June 2010, up from 47.32% and 43.36% at the end of 2009 and 2008, respectively.
The residential property market recovered in the second half of 2009 and had sustained this momentum through the first nine months of 2010. Major developers continue to increase market share at the expense of smaller developers. Almost all large developers have set quite aggressive expansion plans for the next two to three years. They have accumulated more land plots, driven up land prices, and launched more residential projects than several past years. With aggressive pace of portfolio expansion, if the overall supplies are increasing faster than the demand absorption rates, developers could be facing challenges from a potential slowdown in presales and heightened risks to clear out excess supplies, said TRIS Rating. -- End
Company Rating: Affirmed at BBB- Issue Ratings: PF112A: Bt300 million senior secured debentures due 2011 Affirmed at BBB PF123A: Bt1,000 million senior secured debentures due 2012 Affirmed at BBB- PF128A: Bt800 million senior secured debentures due 2012 Affirmed at BBB PF132A: Bt1,500 million senior partially guaranteed debentures due 2013 Affirmed at BBB Up to Bt1,000 million senior secured debentures due within 2013 BBB- Up to Bt1,500 million senior debentures due within 2012 BB+ Rating Outlook: Stable
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