TRIS Rating has assigned the company rating of Areeya Property PLC (Areeya) at “BBB-” with “stable” outlook. The rating reflects the company’s acceptable track record in the middle- to high-end segment of the residential property development market and its evolving brand recognition in both the townhouse and condominium segments. These strengths are partly offset by the company’s relatively small size, the fluctuations in its operating performance, and an expected rise in financial leverage. The rating also takes into consideration the cyclical nature of the property development industry and concerns over rising construction costs and the current labor shortage. The “stable” outlook reflects the expectation that Areeya will be able to sustain its financial position in the medium term. Sales from the low-rise segment are expected to help maintain its operations and liquidity while it constructs several condominium projects. An aggressive expansion and the huge investment needed to develop a condominium project on Ratchadamri road are expected to pressure Areeya’s financial profile over the next few years. However, the company’s debt to capitalization ratio should not exceed 65%.
Established by Laohapoonrungsee family in 2000, Areeya was listed on the Stock Exchange of Thailand (SET) in April 2004. Mr. Wisit Laohapoonrungsee has been Areeya’s chairman and chief executive officer. The Laohapoonrungsee family has been the company’s major shareholder since inception, owning a 65% stake as of May 2012. Areeya offers a wide range of residential property products including single detached houses (SDHs), semi-detached houses (semi-DHs), townhouses, and condominiums. Its products target the middle- to high-end segments, with an average selling price per unit of Bt7.3 million for SDHs, a price range of Bt2.7-Bt5.0 million per unit for semi-DHs, a unit price of Bt2.5- Bt7.0 million for townhouses, and an average selling price of Bt37,000-Bt80,000 per square meter (sq.m.) for condominiums. As of December 2012, Areeya had 24 existing projects. The remaining unsold units in all its existing projects were valued around Bt9,300 million. Fifty six percent of the value of the remaining projects was in condominium projects, 36% was in townhouse projects, and 8% was in SDH projects. Areeya has a backlog worth Bt1,230 million, mostly in condominium projects.
Areeya’s operating performance has fluctuated due to the relatively few number of projects launched each year. Presales reached a record high of Bt3,515 million in 2007, supported by presales of the A Space Asoke-Ratchada project. Presales declined to Bt1,300-Bt1,800 million per year during 2008-2011. Presales in 2012 improved to Bt2,502 million, due to several new projects launched during this period. Areeya’s revenue has fluctuated as well. Revenue was Bt800-Bt900 million per annum during 2005-2008. The transfers of condominium units in the A Space Asoke-Ratchada project pushed total revenue to Bt3,436 million in 2009 and Bt3,334 million in 2010. Afterwards, total revenue tumbled to Bt1,547 million in 2011, before increasing by 15% to Bt1,778 million in 2012. The growth in revenue was driven by a transfer of condominium units in A Space Sukhumvit 77, and townhouse units in The Colors Premium Bangna and The Colors Premium 3 Changwattana-Tiwanon projects. Areeya’s profitability also moved in tandem with its revenue. Operating income as a percentage of sales reached its peak of 18%-21% during 2009-2010, before declining to around 9% in 2011 and 10% in 2012.
Areeya has a rather high level of leverage. The debt to capitalization ratio has stayed above 50% since the company’s inception. The ratio was 62% (excluding capitalized annual leases) as of December 2012, increasing from 52% in 2010 and 55% in 2011. Areeya’s financial leverage is expected to remain high in the next few years, as it plans a more aggressive expansion than in the past. In addition, several condominium projects are currently under construction. During 2011-2012, income was low but the level of debt rose. As a result, cash flow protection has deteriorated. The ratio of funds from operations (FFO) to total debt plunged to 2%-3% in 2011 and 2012, down from 26% in 2009 and 17% in 2010.
Areeya’s financial leverage and liquidity will be more under pressure in the near future, as the company plans to develop a large high-end condominium project on Ratchadamri road. In February 2011, Areeya received the 30-year leasehold right (excluding a four-year construction period) from the Office of Privy Purse to develop a five-rai land plot on Ratchadamri road. The plot was the former office of the American University Alumni Association (AUAA). Areeya plans to develop a 52-storey high-end condominium project. In addition, the company has to build a 10-storey office for AUAA. The condominium project value will be around Bt9,000 million, much higher than any other projects that Areeya has undertaken in the past. Due to its large scale of this investment, the project is expected to pressure Areeya’s financial profile. Also, the condominium project will target the high-end segment. This choice of target market is a concern because the absorption rate in this segment is quite slow. However, Areeya plans a capital increase to partly finance this project. The capital increase is expected to alleviate the debt burden on Areeya’s balance sheet.
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