Thai Rating and Information Services Co., Ltd. (TRIS) announces that it has assigned a "BBB+" rating to Land & Houses PLC's (LH) Bt1,500 million senior secured debentures. The rating is based on LH's leading position in the real estate market, the long experience and capability of its management team, and its acceptable and improving profitability. However, these strengths are partially offset by the highly cyclical nature of the real estate industry. In addition, the rating reflects LH's weak but improving cash flow protection and uncertainty about how the liquidation of foreclosed property held by financial institutions and the Asset Management Corporation (AMC) will impact the overall industry. The rating also takes into consideration the land bank pledged as collateral, at 1.65 times of outstanding debentures throughout the debentures' life for the benefit of debentureholders and the debt service reserve account to be set up.
According to TRIS's report, it is widely accepted that the real estate sector is closely tied to the state of the economy though its ups and downs are more volatile. Very few operators can avoid the negative impact of the down cycles, and thus almost all experienced financial difficulty during the recent crisis. Many housing developers had to transfer their property to offset loans. Property foreclosures of real estate projects financed by commercial banks and finance companies increased from Bt44,295 million as of June 1999 to Bt117,507 million at the end of 2000 and to Bt126,952 million as of April 2001. The potential liquidation of part of this property and property held in the portfolio of the AMC will likely put downward pressure on property prices during the next three to five years. Housing demand should continue to grow during the next two to three years provided that the low interest rate environment and the stimulus packages of the government are maintained to enhance the affordability of house purchases.
TRIS reported that LH is the leading residential developer with a 10.7% share of the housing units registered by developers in the Bangkok Metropolitan Area (BMA) in the first half-2001. Its share of single detached houses (SDHs) during the same period is more impressive at around 27.6%. The company has increased its market share in housing market every year since the economic crisis in 1997. Management capability and flexibility to adjust, initiate and implement strategies suitable for a changing market environment during the downturn and early recovery cycle of the real estate industry substantially enhances LH's market position. Since 2000, the company has aggressively promoted its pre-built houses, which have been well accepted by consumers. This gives LH a competitive advantage over undercapitalized rivals and has created a barrier to entry for weakly capitalized new comers.
Strong brand recognition helps the company to set prices at 5% to 10% higher than its peers. LH's adjusted operating margins bottomed out at 4.8% in 1999 and increased to 17.1% in 2000 and to 23.2% during the first nine months of 2001. The abnormally low margin in 1999 was due to discounts of 5% to 30% that LH offered to buyers of houses on which the previous buyers had stopped making payments. Profitability has returned to acceptable levels since 2000, and cash flow protection has improved also but remains weak. Adjusted funds from operation to total debt increased from a negative ratio in 1999 to 5.11% in 2000 and 11.22% (non-annualized) during the first nine months of 2001. Conservative inventory management, if maintained, will enhance this ratio to an acceptable of 20% to 25% range within the next five years, TRIS said.
Land & Houses PLC (LH) Issue Rating Bt1,500 million senior secured debentures due 2006 BBB+
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According to TRIS's report, it is widely accepted that the real estate sector is closely tied to the state of the economy though its ups and downs are more volatile. Very few operators can avoid the negative impact of the down cycles, and thus almost all experienced financial difficulty during the recent crisis. Many housing developers had to transfer their property to offset loans. Property foreclosures of real estate projects financed by commercial banks and finance companies increased from Bt44,295 million as of June 1999 to Bt117,507 million at the end of 2000 and to Bt126,952 million as of April 2001. The potential liquidation of part of this property and property held in the portfolio of the AMC will likely put downward pressure on property prices during the next three to five years. Housing demand should continue to grow during the next two to three years provided that the low interest rate environment and the stimulus packages of the government are maintained to enhance the affordability of house purchases.
TRIS reported that LH is the leading residential developer with a 10.7% share of the housing units registered by developers in the Bangkok Metropolitan Area (BMA) in the first half-2001. Its share of single detached houses (SDHs) during the same period is more impressive at around 27.6%. The company has increased its market share in housing market every year since the economic crisis in 1997. Management capability and flexibility to adjust, initiate and implement strategies suitable for a changing market environment during the downturn and early recovery cycle of the real estate industry substantially enhances LH's market position. Since 2000, the company has aggressively promoted its pre-built houses, which have been well accepted by consumers. This gives LH a competitive advantage over undercapitalized rivals and has created a barrier to entry for weakly capitalized new comers.
Strong brand recognition helps the company to set prices at 5% to 10% higher than its peers. LH's adjusted operating margins bottomed out at 4.8% in 1999 and increased to 17.1% in 2000 and to 23.2% during the first nine months of 2001. The abnormally low margin in 1999 was due to discounts of 5% to 30% that LH offered to buyers of houses on which the previous buyers had stopped making payments. Profitability has returned to acceptable levels since 2000, and cash flow protection has improved also but remains weak. Adjusted funds from operation to total debt increased from a negative ratio in 1999 to 5.11% in 2000 and 11.22% (non-annualized) during the first nine months of 2001. Conservative inventory management, if maintained, will enhance this ratio to an acceptable of 20% to 25% range within the next five years, TRIS said.
Land & Houses PLC (LH) Issue Rating Bt1,500 million senior secured debentures due 2006 BBB+
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