TRIS Rating has assigned the rating of “BBB” to the proposed issue of up to Bt1,000 million in senior unsecured debentures of Sansiri PLC (SIRI). At the same time, TRIS Rating has affirmed the company rating of SIRI at “BBB+” and has affirmed the ratings of SIRI’s existing senior unsecured debentures at “BBB”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance debentures maturing in October 2015. The ratings reflect SIRI’s leading position and proven track record in the residential property development industry, well-known condominium and housing brands, and diverse product portfolio. These strengths are partially offset by SIRI’s high financial leverage from project expansion under its own projects and through joint ventures (JVs). The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy and high household debt levels.
The “stable” outlook reflects the expectation that SIRI will be able to deliver the backlog as scheduled. The operating profit margin should be maintained at 12%-15% over the next three years. SIRI is expected to keep its debt to capitalization ratio (including proportionate debt from JVs) below 65%, or the interest-bearing debt to equity ratio at less than 2 times.
SIRI’s ratings and/or outlook could be upgraded, should its financial profile improve, as its funds from operation (FFO) to total debt ratio stays at around 10%-15% and the debt to capitalization ratio (including proportionate debt from JVs) is kept below 60% on a sustainable basis. On the contrary, the ratings and/or outlook could be revised downward if SIRI’s financial performance is significantly worse than the target levels.
SIRI is one of the leading property developers in Thailand. As of 12 August 2015, the company had 104 residential projects in its portfolio, worth a total of around Bt140,000 million. The portfolio consisted of condominium (52% of the total portfolio value), single-detached house (SDH, 40%), and townhouse (8%) projects. The average unit price across the portfolio was Bt3.5 million. As of 12 August 2015, SIRI had a backlog worth Bt27,000 million (excluding backlog under JV project worth Bt5,727 million) and unsold units (including built and un-built units) worth Bt60,000 million available for sale.
SIRI’s presales reached around Bt42,000 million per annum during 2012-2013. Presales plunged to Bt8,762 million in 2014 due mainly to large number of backlog cancellations, especially in SIRI’s “dcondo” and “The Base” condominium projects. Presales during the first six months of 2015 was Bt15,054 million (including presales from JV project worth Bt5,727 million), sharply increasing from Bt4,281 million during the same period of 2014. Condominium projects drove presales higher. Presales from two condominium projects launched in the first half of 2015 contributed around 50% of total presales.
SIRI’s total revenue in 2014 dropped by 2% year-on-year (y-o-y) to Bt28,093 million. Condominiums generated revenue of Bt14,045 million in 2014, a 7% y-o-y drop. Revenue from SDHs increased by 13% y-o-y, while revenue from townhouses fell by 30%. SIRI’s revenue during the first half of 2015 soared to Bt16,296 million, a 56% y-o-y rise. Revenue from condominium projects mainly supported the growth. SIRI’s revenues in the remainder of 2015 and 2016 are partly secured by backlogs worth Bt12,400 million and Bt11,700 million, respectively. Over the next three years, SIRI’s revenue is expected to be around Bt30,000 million per annum, if the company can transfer its backlog to customers as planned.
SIRI’s gross profit margin held at 33%-34% of total revenue annually during 2010-2014. Its gross profit margin declined to 28% during the first six months of 2015 as the company cut the price in several condominium projects to clear finished units. Selling, general, and administrative (SG&A) expenses was 20%-24% of total revenue during 2011-2014, and improved to 18% during the first half of 2015. SIRI’s operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) decreased to 11% in the first six months of 2015 from 14% in 2014. Going forward, SIRI’s operating profit margin is expected to range from 12%-15% over the next three years.
SIRI’s financial leverage was relatively high. Its real estate investments rose substantially, causing the debt to capitalization ratio to increase from 61%-63% during 2010-2012 to 67% as of December 2013. SIRI successfully raised around Bt6,000 million of new capital in the fourth quarter of 2014, dropping the debt to capitalization ratio to 61% at the end of 2014. The ratio was 60% as of June 2015, comparatively higher than most leading property developers.
Due to the significant amount of its real estate investments, its leverage is expected to maintain at a high level. Under TRIS Rating’s base-case scenario, SIRI’s financial leverage over the next three years will rise from its business expansion to pursue the growth. However, the debt to capitalization ratio (including proportionate debt from JVs) should not exceed 65%, or the interest-bearing debt to equity ratio should be less than 2 times.
SIRI’s liquidity profile during 2013-2014 weakened due primarily to higher debt. The ratio of funds from operations (FFO) to total debt declined to 4% in 2013 and 8% in 2014, down from 12%-14% during 2010-2012. The ratio rebounded to 11% (annualized with trailing 12 months) in the first six months of 2015. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio diminished to 2-3 times during 2013 through the first six months of 2015, from 4-6 times during 2010-2012. SIRI’s financial flexibility was supported by Bt2,000 million in cash, Bt42,000 million in undrawn unconditional credit facilities as of June 2015, and expected minimum FFO of around Bt2,000 million per year.
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