TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Central Plaza Hotel PLC (CENTEL) at “A-” with “stable” outlook. The ratings reflect CENTEL’s diversified cash flow from the hotel and quick service restaurant (QSR) businesses, strong position in the QSR business, and a diverse hotel portfolio with strong market positions. The ratings also take into account support from the Central Group. However, these strengths are partially offset by the seasonal nature of the hotel industry, which is sensitive to external factors, and the highly-competitive and low-margin nature of the QSR industry. Along with the potential impact from a global recession which is expected to hit the tourism industry worldwide, additional concerns are CENTEL’s continuing expansion in the hotel business, which requires substantial investments that will drive leverage higher during the next three years. The leasehold contract of Sofitel Centara Grand Bangkok made with the State Railway of Thailand (SRT) will expire in December 2008. The risk of the leasehold contract renewal is also a moderate concern.
The “stable” outlook is based on the expectation that CENTEL will maintain its financial cushion to cope with the impact from the global economic downturn, which will ultimately hit domestic hotel operators. The company’s rating or outlook will be negatively impacted if its financial performance falls below TRIS Rating’s expectations or if the company continues an active expansion plan by declaring new capital expenditures. TRIS Rating also expects to see CENTEL reduce the leverage level, as measured by total debt to capitalization, from the current level of 60%, in the medium term.
TRIS Rating reported that CENTEL was founded in 1980 by the Chirathivat family to own and operate a hotel in Thailand. CENTEL currently manages 13 four- and five-star hotels (more than 2,800 rooms) in eight provinces in Thailand. During the first six months of 2008, nearly 80% of hotel revenue was derived from five major properties: Sofitel Centara Grand Bangkok, Sofitel Centara Grand Resort & Villas Hua Hin, Centara Grand Beach Resort Samui, Centara Grand Beach Resort Krabi and Centara Grand @ CentralWorld. Except for Sofitel Centara Grand Hua Hin, which is managed by Accor International, CENTEL manages hotel properties under its own brand, ‘Centara’. Sofitel Centara Grand Bangkok and Novotel Centara Hat Yai are managed by CENTEL under an Accor franchise. CENTEL also operates the QSR business under its subsidiary, Central Restaurants Group (CRG). CRG’s food portfolio consists of six international and regional franchised QSR chains: KFC, Mister Donut, Pizza Hut, Baskin Robbins, Auntie Anne’s and Pepper Lunch. CENTEL operates a combined total of nearly 490 outlets countrywide.
TRIS Rating said, revenue from the QSR business remains CENTEL’s largest contributor, accounting for around 60% of total revenue over the last five years; the rest was generated by the hotel business. In the first half of 2008, driven by growth in the hotel business, total revenue increased to Bt4,082 million, from Bt3,515 million for the same period of 2007. QSR sales increased slightly by 11%, from Bt2,113 million to Bt2,345 million as the number of QSR outlets grew. Revenue from hotel operations significantly increased by 24% driven by the opening of Centara Grand @ CentralWorld in early 2008. Average revenue per available room (RevPAR) grew by 14% over the same period.
CENTEL’s debt to capitalization ratio continued to increase from 44%% at the end of 2005 to 60% in June 2008 as total debt increased from Bt2,364 million to Bt6,552 million. In the first half of 2008, CENTEL continued expanding by spending Bt1,400 million for three properties in Bangkok, Pattaya and Phuket. The ratio of CENTEL’s funds from operations (FFO) to total debt stayed at around 18%-20% over the last three years, while its earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio weakened to 6.4 times, from 8-10 times in 2006-2007. In October 2008, CENTEL disposed of Centara Grand Samui to Centara Hotels & Resorts Leasehold Property Fund (CTARAF or the Fund), generating net cash (net of related expenses) of Bt1,400 million. CENTEL will use the proceeds to fund its committed capital expenditures (CAPEX) and partially repay short-term debt.
It is expected that a potential global recession, caused by the recent world financial crisis, will negatively impact many major tourist countries and will ultimately challenge the world tourism industry. Many hotel operators are expected to focus more on domestic demand or seek new emerging market countries, which have been less impacted from the global crisis, to substitute the softening demand from developed countries. Since Thailand tourism industry performed quite well during the first half of 2008, the impact from the crisis shall not be felt in 2008, but the performance in 2009 will be a challenge. The viability of the hotel property owners and operators mainly relies on the financial health, which can serve as a cushion during the downturn of the cycle, said TRIS Rating. -- End
Company Rating: Affirmed at A- Issue Ratings: CENTEL092A: Bt300 million senior debentures due 2009 Affirmed at A- CENTEL096A: Bt1,200 million senior debentures due 2009 Affirmed at A- CENTEL096B: Bt1,300 million senior debentures due 2009 Affirmed at A- Rating Outlook: Stable
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 result obtai