TRIS Rating has upgraded the company and the existing senior debenture ratings of Central Pattana PLC (CPN) to “AA-” from “A+”. At the same time, TRIS Rating has also assigned ratings of “AA-” to CPN’s new senior debentures, CPN15OA and CPN174A. The upgrade reflects improvements in CPN’s operating and financial performances during the last three years.
The “AA-” ratings continue to reflect CPN’s leading position in the retail property development industry in Thailand, proven record in managing high-quality shopping centers, reliable cash flow from contract-based rental and service income, and conservative financial policy. The ratings also take into consideration the large amount of capital expenditures needed for business expansion during 2014-2016. The “stable” outlook reflects the expectation that CPN will continue to sustain its strong operating performance for its shopping center portfolio. Despite pursuing its growth strategy, the company is expected to maintain its financial discipline. The net interest-bearing debt to equity ratio is expected to stay below 1 time in the medium term.
CPN is the largest retail property developer in Thailand. Its major shareholders are the Chirathivat family (29%) and Central Holding Co., Ltd., the leading retailer in Thailand (26%). The ownership link with the Central Group is a benefit for CPN since Central Department Store has been a strong magnet for shopping centers owned by CPN. As of March 2014, CPN managed 24 shopping centers, with a total retail space of 1.3 million square meters (sq.m.). The centers are located in Bangkok and other major cities in Thailand. CPN has long been the market leader in the Thai retail property industry. As measured by total retail space in Greater Bangkok, CPN had approximately 20% market share during the past three years.
CPN’s solid operating performance is attributable to the high occupancy rates (OR) and healthy growth in same-store sales for its shopping centers. The OR of CPN’s shopping centers has been above 95% since 2007. Its new shopping centers, namely CentralPlaza Ubonratchathani and CentralFestival Chiangmai, had ORs of 99.8% and 92.2%, respectively, as of December 2013. Although CentralFestival Hatyai had an OR of 77.5% as of December 2013, its OR improved to 84% as of March 2014. CPN’s rental and service income soared to Bt15,325 million in 2012 and Bt18,128 million in 2013, up from Bt10,853 million in 2011. The growth was due to the openings of several new shopping centers and its strong year-on-year (y-o-y) same-store sales growth of 29% in 2012 and 12% in 2013.
The company’s operating margin, defined as operating income before depreciation and amortization as a percentage of total revenue, improved to 49% in 2012 and 51% in 2013, from 41%-42% during 2009-2011. CPN’s ability to increase its rental rates and control selling and administrative (SG&A) expenses drove profitability higher. The debt to capitalization ratio improved to 59% in 2012 and 47% in 2013, from above 60% during 2010-2011. CPN’s liquidity had been stronger as the ratio of funds from operations (FFO) to total debt increased to 24% in 2012 and 28% in 2013, up from 12% during 2010-2011. CPN’s financial flexibility was supported by cash on hand of around Bt1,900 million and unused credit facilities of around Bt9,700 million as of December 2013. Despite high capital expenditures needed at around Bt16,000 million per annum during 2014-2016, TRIS Rating expects that CPN will be able to keep financial leverage at less than 55% in the medium term. FFO is projected to be approximately Bt10,000 million per annum.
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