TRIS Rating has affirmed the company and senior unsecured debenture ratings of Central Pattana PLC (CPN) at “AA-” with “stable” outlook. The ratings reflect the company’s leading position in the retail property development industry in Thailand, proven records of managing high-quality shopping centers, reliable cash flows 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 2016-2018.
The “stable” outlook reflects the expectation that CPN will sustain the strong operating performance of its shopping centers. Despite continuously pursuing its growth strategy, the company is expected to maintain its financial discipline. The net interest-bearing debt to equity ratio should be kept lower than 1 times.
CPN’s ratings and/or outlook could be revised downward should its operating performance and financial profile significantly deteriorate from the current levels. On the contrary, the ratings and/or outlook would be upgraded if CPN’s expansion strengthens its business position and financial profile.
CPN is the largest retail property developer in Thailand. Its major shareholders are the Chirathivat family (27%) and Central Holding Co., Ltd. (26%). The ownership link with the Central Group is a benefit for CPN since many anchor stores under the group have been strong magnets for shopping centers owned by CPN. As of March 2016, CPN managed 29 shopping centers, with a total retail space of 1.59 million square meters (sq.m.). The centers are located in Bangkok and 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 an approximately 20% market share during the past five 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 was 93% as of March 2016. At the end of March 2016, its four new shopping centers, namely Central Plaza Rayong, Central Festival Phuket 1, Central Plaza WestGate, and Central Festival EastVille, had ORs of 94%, 95%, 92%, and 81%, respectively. CPN’s rental and service income increased by 9% year-on-year (y-o-y) to Bt22,231 million in 2015. During the first quarter of 2016, rental and service income grew by 18% y-o-y to Bt6,213 million. The growth was due to the openings of several new shopping centers and a 2% y-o-y rise in same-store rental and service income in 2015 and in the first three months of 2016. Over the next three years, CPN’s rental and service income is expected to reach Bt25,000-Bt30,000 million per annum with 36 shopping centers by 2018.
The company’s operating profit margin, defined as operating income before depreciation and amortization as a percentage of total revenue, stayed at 51%-54% during 2013-2015 and increased to 65% during the first quarter of 2016. CPN’s ability to increase its rental rates, control operating costs, and manage selling and administrative (SG&A) expenses drove profitability higher. Despite intense competition in the retail property development industry, CPN is expected to keep its operating profit margin above 50% over the next three years.
The company’s adjusted debt to capitalization ratio was 44% as of December 2015 and 42% as of March 2016. CPN’s liquidity remained strong as the ratio of funds from operations (FFO) to adjusted debt was 32% in 2015 and 34% (annualized with trailing 12 months) in the first three months of 2016. CPN’s financial flexibility was supported by cash on hand of Bt2,300 million, short-term investments of Bt3,100 million, and unused credit facilities of Bt8,100 million as of March 2016. Despite the large capital expenditures of Bt16,000-Bt17,000 million per annum during 2016-2018, TRIS Rating expects that CPN should keep the debt to capitalization ratio below 55% over the next three years. FFO is projected to be in the range of Bt12,000-Bt15,000 million per annum.
CPN18OA: Bt500 million senior unsecured debentures due 2018 AA- CPN208A: Bt1,400 million senior unsecured debentures due 2020 AA- CPN20DA: Bt800 million senior unsecured debentures due 2020 AA- CPN21OA: Bt300 million senior unsecured debentures due 2021 AA- CPN21DA: Bt800 million senior unsecured debentures due 2021 AA- CPN221A: Bt1,000 million senior unsecured debentures due 2022 AA- CPN228A: Bt800 million senior unsecured debentures due 2022 AA- CPN22DA: Bt600 million senior unsecured debentures due 2022 AA- Rating Outlook: Stable
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