TRIS Rating affirms the company rating on WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust (WHART or “trust”), and its existing senior unsecured debentures at “A” with a “stable” outlook. At the same time, TRIS Rating assigns the rating of “A” to WHART’s proposed issue of up to Bt1.5 billion in senior unsecured debentures due within seven years. The trust plans to use the proceeds of these debentures to refinance some of its existing loans.
The ratings reflect WHART’s predictable income stream from medium- to long-term rental contracts with well-recognized tenants, and the high occupancy rate (OR) of industrial properties. The ratings are also supported by the growth prospects resulting from asset injection by the trust’s sponsor, WHA Corporation PLC (WHA). However, the ratings are constrained by tenant concentration plus the inherent volatility of the industrial property for rent business, which is somewhat linked with economic conditions, consumer spending, and market competition.
During the third quarter of 2019, WHART achieved satisfactory average OR of 94%. The weighted average lease life stood at 3.8 years as of September 2019. WHART has recorded strong growth in rental and service income supported by consistent asset injection from the trust’s sponsor. WHART’s total revenue rose to Bt2.0 billion in 2018 from Bt1.1 billion in 2017. During the first nine months of 2019, total revenue stood at Bt1.7 billion, up 14% year-on-year (y-o-y). Its profitability has also stood at a relatively high level. The earnings before interest, tax, depreciation and amortization (EBITDA) margin has held steady at 91%-93% during 2015 through the first nine months of 2019.
WHART’s loan to fair value of total assets ratio (LTV) at the end of September 2019 was 28.8%, the same level as of December 2018. Under its investment plan, the trust will acquire new assets valued at around Bt5 billion at the end of this year, funded 100% by raised capital. As a result, we expect the ratio to decline to a range of 25%-26% at the end of 2019.
WHART has a number of debt repayments due in the years ahead. Of the trust’s Bt9.5 billion in debt, Bt1.68 billion of a bridge loan comes due in late 2019, followed by Bt1.35 billion due in 2020, Bt3.5 billion due in 2021, and the rest due thereafter. WHART plans to refinance by issuing new debentures. Given WHART’s access to financial markets, TRIS Rating believes the trust’s refinancing risk is manageable. In addition, WHART has already engaged back-up credit facilities for bullet repayments in 2020.
RATING OUTLOOK
The “stable” outlook reflects our expectation that WHART’s property portfolio will generate reliable cash flows and sustain high level of OR above 90% with sound profitability. In addition, TRIS Rating expects the trust will be able to keep the LTV below 35% as per the trust’s policy and be able to comply with its financial covenants.
RATING SENSITIVITIES
The credit ratings of WHART could be under downward pressure if the OR notably drops below expectations and/or the LTV ratio stays above 35% for a prolonged period. On the other hand, the ratings could be revised upward if WHART’s capital structure improves significantly, leading to higher cash flow protection over an extended period.
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