TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Asian Property Development PLC (AP) at “BBB+” with “stable” outlook. The ratings reflect AP’s track record in the residential property development market, an accepted brand in the downtown townhouse and condominium segments, and operating flexibility, which enables the company to promptly adjust the project portfolio to cope with industry trends. The ratings also take into consideration a slowdown of the property development industry and inflationary pressure that may impact developers’ profitability. An additional concern is the company’s aggressive expansion through condominium projects in recent years, which leaves AP more exposed to condominium transfer risk and increased financial leverage.
The “stable” outlook reflects the expectation that AP will be able to manage construction of its condominium projects and alleviate the pressure from rising inflation in order to sustain profit margins. Though there will likely be a pressure to use debt to fund its condominium projects, the company’s leverage is expected to remain at the range of 50%-55% over the next three years.
TRIS Rating reported that AP was established in the 1990s by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together now own 36% of the company. During the last four years, revenue from real estate sales averaged Bt5,500 million per year from townhouses (70%-80% of total revenue), condominiums (10%-15%), and single detached houses (SDH) (10%-15%). AP’s main competitive edge stems from prime location of the company’s sites, which focus on downtown area and the capability of management to promptly adjust its project portfolio to match changes in demand. Management shifted its residential property portfolio to focus more in condominium segment to serve demographic changes to more urban living. The average unit price across the portfolio fell to Bt3.8 million, reflecting a strategic shift towards the medium-priced housing segment. As of June 2008, the company had 26 residential projects on hand worth approximately Bt28,000 million. Condominiums accounted for 52% of total project value; townhouses and SDHs accounted for 28% and 20%, respectively. The revenue contribution from condominiums is expected to increase by more than 50% of total revenue over the next three years.
TRIS Rating said, AP delivered a strong operating performance in 2007. Its condominium sales reached a record high of Bt10,326 million in 2007, supporting residential presales to almost double from Bt8,072 million in 2006 to Bt15,675 million in 2007. However, presales softened during 2008, dropping from Bt9,009 million in the first half of 2007 to Bt4,433 million for the same period in 2008, because there were fewer new projects launched during the first half of 2008. AP’s presales mix changed dramatically in 2008. The ratio of townhouse sales to total sales increased from 23% in 2007 to 52% in the first half of 2008, while the sales ratio of condominiums decreased from 66% to 27% of total presales for the same period. A major challenge is to sustain sales growth and manage the construction to deliver the Bt15,000 million residential backlog during a period of higher inflation.
AP’s financial leverage continued to increase, reflecting a period of heavy investment in condominiums. AP’s interest bearing debt increased significantly from Bt4,031 million at the end of 2006 to Bt6,678 million as of June 2008 due to investment in a number of high-rise condominium projects and acquisition of land plots for future expansion. Thus, the debt to capitalization ratio continued to increase, rising from 44.4% at the end of 2006 to 53.3% at the end of June 2008. It is expected that financial leverage will continue at this level, since the company plans to move further into high-rise condominium projects, which are more capital intensive and require a longer construction period of more than two years. Driven by condominium transfers in the second quarter of 2008, revenue from real estate sales increased to Bt3,845 million in the first half of 2008 from Bt2,798 million in the same period of 2007.
Operating margins increased to 25.6% in the first half of 2008 from 20% in 2007, mainly reflecting the benefits from government tax incentives. However, the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio decreased from 9.1 times in 2007 to 7.6 times in the first half of 2008 because of increasing leverage.
Demand for residential property depends on the country’s overall economic prospects. The Thai economy is forecasted to grow by 4.5%-5.5% in 2008, following 4.8% growth in 2007. However, the residential property market is challenged by inflationary pressures and political instability. A government stimulus package, effective in March 2008, reduced both the special business tax for residential developers and the transfer fee for homebuyers and property developers. These incentives may provide a short-term boost in demand for residential property. However, consumer confidence remains low, as consumers are uncertain about the overall economy and political uncertainty. In addition, rising inflation and construction costs should force developers to increase selling prices, said TRIS Rating. -- End
Asian Property Development PLC (AP)
Company Rating: Affirmed at BBB+
Issue Ratings:
AP107A: Bt1,500 million senior debentures due 2010 Affirmed at BBB+
AP117A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+
AP118A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+
Up to Bt1,000 million senior debentures due within 2011 Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions
The “stable” outlook reflects the expectation that AP will be able to manage construction of its condominium projects and alleviate the pressure from rising inflation in order to sustain profit margins. Though there will likely be a pressure to use debt to fund its condominium projects, the company’s leverage is expected to remain at the range of 50%-55% over the next three years.
TRIS Rating reported that AP was established in the 1990s by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together now own 36% of the company. During the last four years, revenue from real estate sales averaged Bt5,500 million per year from townhouses (70%-80% of total revenue), condominiums (10%-15%), and single detached houses (SDH) (10%-15%). AP’s main competitive edge stems from prime location of the company’s sites, which focus on downtown area and the capability of management to promptly adjust its project portfolio to match changes in demand. Management shifted its residential property portfolio to focus more in condominium segment to serve demographic changes to more urban living. The average unit price across the portfolio fell to Bt3.8 million, reflecting a strategic shift towards the medium-priced housing segment. As of June 2008, the company had 26 residential projects on hand worth approximately Bt28,000 million. Condominiums accounted for 52% of total project value; townhouses and SDHs accounted for 28% and 20%, respectively. The revenue contribution from condominiums is expected to increase by more than 50% of total revenue over the next three years.
TRIS Rating said, AP delivered a strong operating performance in 2007. Its condominium sales reached a record high of Bt10,326 million in 2007, supporting residential presales to almost double from Bt8,072 million in 2006 to Bt15,675 million in 2007. However, presales softened during 2008, dropping from Bt9,009 million in the first half of 2007 to Bt4,433 million for the same period in 2008, because there were fewer new projects launched during the first half of 2008. AP’s presales mix changed dramatically in 2008. The ratio of townhouse sales to total sales increased from 23% in 2007 to 52% in the first half of 2008, while the sales ratio of condominiums decreased from 66% to 27% of total presales for the same period. A major challenge is to sustain sales growth and manage the construction to deliver the Bt15,000 million residential backlog during a period of higher inflation.
AP’s financial leverage continued to increase, reflecting a period of heavy investment in condominiums. AP’s interest bearing debt increased significantly from Bt4,031 million at the end of 2006 to Bt6,678 million as of June 2008 due to investment in a number of high-rise condominium projects and acquisition of land plots for future expansion. Thus, the debt to capitalization ratio continued to increase, rising from 44.4% at the end of 2006 to 53.3% at the end of June 2008. It is expected that financial leverage will continue at this level, since the company plans to move further into high-rise condominium projects, which are more capital intensive and require a longer construction period of more than two years. Driven by condominium transfers in the second quarter of 2008, revenue from real estate sales increased to Bt3,845 million in the first half of 2008 from Bt2,798 million in the same period of 2007.
Operating margins increased to 25.6% in the first half of 2008 from 20% in 2007, mainly reflecting the benefits from government tax incentives. However, the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio decreased from 9.1 times in 2007 to 7.6 times in the first half of 2008 because of increasing leverage.
Demand for residential property depends on the country’s overall economic prospects. The Thai economy is forecasted to grow by 4.5%-5.5% in 2008, following 4.8% growth in 2007. However, the residential property market is challenged by inflationary pressures and political instability. A government stimulus package, effective in March 2008, reduced both the special business tax for residential developers and the transfer fee for homebuyers and property developers. These incentives may provide a short-term boost in demand for residential property. However, consumer confidence remains low, as consumers are uncertain about the overall economy and political uncertainty. In addition, rising inflation and construction costs should force developers to increase selling prices, said TRIS Rating. -- End
Asian Property Development PLC (AP)
Company Rating: Affirmed at BBB+
Issue Ratings:
AP107A: Bt1,500 million senior debentures due 2010 Affirmed at BBB+
AP117A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+
AP118A: Bt1,000 million senior debentures due 2011 Affirmed at BBB+
Up to Bt1,000 million senior debentures due within 2011 Affirmed at BBB+
Rating Outlook: Stable
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Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions