TRIS Rating Co., Ltd. has upgraded the company rating of Quality Houses PLC (QH) to "BBB+" from "BBB". At the same time, TRIS Rating has assigned a rating of "BBB" to QH's proposed issue of up to Bt2,000 million senior debentures. The ratings reflect the company's long track record in the property market, its strong brand name in middle- to high-income housing market, support from its major shareholder (Land & Houses Group) and recurring income from its serviced apartments and office buildings. These strengths are partly offset by the company's highly-leveraged balance sheet and the cyclical nature of the property development market.
TRIS Rating reported that QH is one of the largest property developers in Thailand. It was established in 1983 by Land & Houses PLC (LH). As of March 2004, its major shareholders are the LH Group (26%), the Government of Singapore Investment Corporation Pte. Ltd. (12%) and Thailand Prosperity Fund (11%).The company originally engaged in home building and the development of commercial properties for rent, building its first housing development in 1992. In 2003, sales from housing accounted for approximately 89% of the company's revenues, with the remainder divided between recurring income from serviced apartments (7%) and offices for rent (4%). The company's strategy to focus on high-end single detached houses (SDHs) has been successful. The implementation of a pre-built housing strategy, together with the aggressive launch of its Five-Quality housing concept, has helped the company receive a positive response from its target group. In 2003, the company delivered 518 housing units while its average selling price per unit in 2003 increased to Bt10 million from Bt7.5 million in 2002.
TRIS Rating said, although QH's recurring income from high-rise projects has typically contributed only 10%-20% to its revenues during the last three years, it accounts for around 20%-30% of total operating cash flow. Currently, QH has six serviced apartments and four office buildings. QH's Centerpoint 1,033 unit serviced apartments are among the largest and the most well-known serviced apartments in Thailand. The company has one more new apartment project on Sukhumvit Road (45 units), which is expected to commence commercial operations in July 2004. The average occupancy rate for QH's serviced apartments was 79% in 2003, which was slightly less than the industry average of 81%. TRIS Rating expects that competition in serviced apartments will intensify because there will be approximately 1,000 new units completed by the end of 2004. QH has four office buildings with a combined rentable area of 53,354 square meters (sq.m.).
TRIS Rating also said that QH's 2003 performance was satisfactory. The company's operating margin continued to improve from 21.3% in 2002 to 23.8% in 2003. Although the company's leverage has been improving, its debt-to-capitalization ratio remained relatively high at 60% in 2003. QH's Lumpini project, with construction pending since 1997, will be redeveloped and is expected to be completed in late 2005. The project consists of 50,000 sq.m. of office space for rent and 10,000 sq.m. of retail space. Additional investment for this project is approximately Bt1,900 million. Demand for grade A office space is expected to remain favorable and the project is advantageously located close to the Sathorn Road subway station. Despite these positive factors, the huge investment cost and the risk associated with high-rise project development are still concerns.
A 49% increase in registered houses in the Bangkok Metropolitan Area (BMA) to 50,594 units in 2003 is partly due to an acceleration of consumer's buying before the expiration of a tax incentive in December 2003. The housing market in 2004 is expected to intensify as more developers enter the market while demand growth is expected to lower. The increasing trend of raw material prices together with the expiration of a tax incentive will put more pressure on developers' margins. The Bank of Thailand's regulations to control the down payment for high-market housing (selling prices over Bt10 million per unit) and stricter reporting requirements for pre-financing loans may reduce speculation in the residential market, TRIS Rating said.-- End
Quality Houses PLC (QH)Company Rating: Upgraded to BBB+ from BBBIssue Ratings: Up to Bt2,000 million senior debentures:
QH1/2004, tranch 1 due 2006 BBB
QH1/2004, tranch 2 due 2007 BBB
QH1/2004, tranch 3 due 2008 BBB
TRIS Rating reported that QH is one of the largest property developers in Thailand. It was established in 1983 by Land & Houses PLC (LH). As of March 2004, its major shareholders are the LH Group (26%), the Government of Singapore Investment Corporation Pte. Ltd. (12%) and Thailand Prosperity Fund (11%).The company originally engaged in home building and the development of commercial properties for rent, building its first housing development in 1992. In 2003, sales from housing accounted for approximately 89% of the company's revenues, with the remainder divided between recurring income from serviced apartments (7%) and offices for rent (4%). The company's strategy to focus on high-end single detached houses (SDHs) has been successful. The implementation of a pre-built housing strategy, together with the aggressive launch of its Five-Quality housing concept, has helped the company receive a positive response from its target group. In 2003, the company delivered 518 housing units while its average selling price per unit in 2003 increased to Bt10 million from Bt7.5 million in 2002.
TRIS Rating said, although QH's recurring income from high-rise projects has typically contributed only 10%-20% to its revenues during the last three years, it accounts for around 20%-30% of total operating cash flow. Currently, QH has six serviced apartments and four office buildings. QH's Centerpoint 1,033 unit serviced apartments are among the largest and the most well-known serviced apartments in Thailand. The company has one more new apartment project on Sukhumvit Road (45 units), which is expected to commence commercial operations in July 2004. The average occupancy rate for QH's serviced apartments was 79% in 2003, which was slightly less than the industry average of 81%. TRIS Rating expects that competition in serviced apartments will intensify because there will be approximately 1,000 new units completed by the end of 2004. QH has four office buildings with a combined rentable area of 53,354 square meters (sq.m.).
TRIS Rating also said that QH's 2003 performance was satisfactory. The company's operating margin continued to improve from 21.3% in 2002 to 23.8% in 2003. Although the company's leverage has been improving, its debt-to-capitalization ratio remained relatively high at 60% in 2003. QH's Lumpini project, with construction pending since 1997, will be redeveloped and is expected to be completed in late 2005. The project consists of 50,000 sq.m. of office space for rent and 10,000 sq.m. of retail space. Additional investment for this project is approximately Bt1,900 million. Demand for grade A office space is expected to remain favorable and the project is advantageously located close to the Sathorn Road subway station. Despite these positive factors, the huge investment cost and the risk associated with high-rise project development are still concerns.
A 49% increase in registered houses in the Bangkok Metropolitan Area (BMA) to 50,594 units in 2003 is partly due to an acceleration of consumer's buying before the expiration of a tax incentive in December 2003. The housing market in 2004 is expected to intensify as more developers enter the market while demand growth is expected to lower. The increasing trend of raw material prices together with the expiration of a tax incentive will put more pressure on developers' margins. The Bank of Thailand's regulations to control the down payment for high-market housing (selling prices over Bt10 million per unit) and stricter reporting requirements for pre-financing loans may reduce speculation in the residential market, TRIS Rating said.-- End
Quality Houses PLC (QH)Company Rating: Upgraded to BBB+ from BBBIssue Ratings: Up to Bt2,000 million senior debentures:
QH1/2004, tranch 1 due 2006 BBB
QH1/2004, tranch 2 due 2007 BBB
QH1/2004, tranch 3 due 2008 BBB