TRIS Rating has assigned the rating of “BB+” to the proposed issue of up to Bt2,000 million in senior unsecured debentures of Property Perfect PLC (PF). At the same time, TRIS Rating has affirmed the company rating of PF at “BBB-” and has affirmed the ratings of PF’s partially guaranteed debentures (PF143A, PF153A, and PF15NA) at “BBB”, and senior secured debentures (PF13NA) at “BBB-”. The outlook remains “negative”. The proceeds from the issuance of the new debentures will be used for working capital and business expansion.
The partially guaranteed debentures are guaranteed by Thanachart Bank PLC (TBANK), rated by TRIS Rating at “AA-” with a “stable” outlook. TBANK guarantees 60% of principal amounts of the debentures.
The “negative” outlook reflects PF’s relatively weak financial profile, resulting from its low operating margin and high financial leverage. PF’s financial leverage is expected to remain high in the next few years as the company continues to pursue growth opportunities in the residential property segment and in new business ventures. The ratings could be downgraded if the company’s interest-bearing debt to equity ratio stays above two times for an extended period. On the other hand, the outlook could be revised back to “stable” should its financial position improve.
The ratings of PF reflect the company’s proven track record in the residential housing market and its accepted brand name in the middle- to high-income segment. These strengths are partly offset by PF’s weakening financial profile resulting from its relatively low operating profit margins and high financial leverage, due mainly to large investments in new projects. The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over rising operating costs and the widespread labor shortage among contractors.
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. As of March 2013, PF had 34 existing residential projects, with total remaining value of around Bt31,000 million available for sale. The company had a backlog worth approximately Bt7,800 million. PF’s residential project portfolio comprises housing projects (around 70% of total project value) and condominium projects (30%).
PF’s presales were Bt13,434 million in 2012, up 35% from Bt9,939 million in 2011. The growth in presales was mainly from condominium projects. Condominium presales were Bt5,962 million in 2012, sharply increasing from Bt2,647 million in 2011. Presales from housing projects was around Bt7,400 million per year during 2011-2012. Presales during the first quarter of 2013 dropped by 5% year-on-year (y-o-y) to Bt2,645 million. Housing presales grew by 27% y-o-y to Bt2,240 million, whereas condominium presales declined by 60% y-o-y to Bt405 million. Only two housing projects were launched in the first three months of 2013, while there was no new condominium project was launched.
Total revenue was Bt9,094 million in 2012, 13% higher than Bt8,081 million in 2011. Revenue from housing and condominium projects increased by 8% and 10% y-o-y, respectively. During the first three months of 2013, total revenue rose by 30% to Bt2,409 million, from Bt1,848 million during the same period of 2012. Revenue from housing projects was Bt1,847 million, a 38% y-o-y growth. Condominium projects generated revenue of Bt75 million in the first quarter of 2013, down from Bt466 million in the same period of 2012. PF plans to deliver the backlog worth around Bt2,500 million in four condominium projects during the remainder of 2013.
PF’s financial position was relatively weaker than most leading property developers. The company’s operating income as a percentage of sales remained low compared with its peers. Operating margin was 11% in 2012 and 13% in the first three months of 2013. Cash flow protection during 2010 through the first quarter of 2013 deteriorated. The ratio of funds from operations (FFO) to total debt declined to 3%-5% during 2010-2012 and was 1% (non-annualized) during the first three months of 2013, down from 9% in 2009 and 19% in 2008. PF’s financial leverage remained relatively high due to large investments in new housing and condominium projects. As a result, the debt to capitalization ratio jumped from 49% in 2009 to 61% in 2010. The ratio stepped up consecutively to 67% as of March 2013.
PF’s leverage is expected to remain high, since the company plans to invest in new lines of business: retailing and overseas projects. The company plans to invest in several community malls nearby its residential projects. In July 2012, We Retail PLC, PF’s subsidiary, signed an agreement to lease a parcel of land on Ratchadapisek road. The lease is for 30 years, from 2015 to 2044. The company has to pay an upfront installment of Bt740 million during 2012-2014 and total lease payments of Bt1,785 million over the 30-year lease period. In addition, in October 2012, PF acquired Kiroro Ski Resort from the Mitsui Fudosan Group. The resort is located in Hokkaido, Japan. The acquisition cost was around Bt780 million, covering a 292-rai land plot, two hotel buildings, and other assets related to skiing services. PF’s future investment plans are expected to pressure the company’s financial profile in the medium term. Therefore, the company plans to find strategic partners for its new investments. This will help alleviate the debt burden on PF’s balance sheet and lower the risk of entering into unfamiliar businesses.
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