TRIS Rating Co., Ltd. has assigned the company rating to Property Perfect PLC (PF) at “BBB-” and has affirmed the ratings of PF’s existing senior secured debentures at “BBB”. The outlook remains “stable”. The ratings reflect PF’s proven track record in the residential housing market and accepted brand name in the middle- to high-priced segment. The strengths are partly offset by weak profitability and cash flow generation compared with its peers. The ratings also take into consideration the slowing economy which will cause lower demand in the residential property market, the cyclical nature of the industry, and tighter credit policies of commercial banks, which limit access to mortgage financing by homebuyers. The issue ratings are enhanced after incorporating the land value of 25 rai in Metro Sky Sukhumvit and 176 rai along route 345, which are pledged as collateral. If the appraisal value of the collateral is less than 1.68 times the outstanding value of the debentures, the issue ratings will not be enhanced.
The “stable” outlook reflects the expectation that PF will be able to sustain its operating performance during the period of economic slowdown and low consumer confidence. Profitability and liquidity are expected to improve continually over the next few years. Despite the huge investments needed for construction of condominium projects, leverage should remain at an acceptable level at 50%.
TRIS Rating reported that PF is one of the leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Ngowsirimanee and was listed on the Stock Exchange of Thailand (SET) in 1993. After concluding a debt-equity swap as part of a debt restructuring, the creditors became the major shareholders. As of May 2009, the three largest creditors, Japan Asia Group Ltd., MJL Intertrade Co., Ltd., and Natee International Law Office Co., Ltd., together held a combined 22.87% of total stakes. PF offers a wide range of products including single detached houses (SDH), duplex houses, townhouses, and condominiums. Its products target middle- to high-income customers with prices per unit ranging from Bt1.7 million to Bt20 million for housing units and from Bt1.2 million to Bt4 million for condominium units. In 2008 through the first half of 2009, housing sales remained the largest source of revenue, contributing 72% of total revenue, while condominium sales accounted for the rest. The company’s competitive edge stems from its well-accepted brand name and large land holdings along future mass transit lines, especially in the Rattanathibet area. PF differentiates its residential projects by providing grand central facilities to homeowners. This feature has become one of the company’s key selling points.
TRIS Rating said, PF’s presales in 2008 reached a record high of Bt6,354 million, rising from around Bt6,000 million per year in 2006 and 2007. Presales declined slightly to Bt4,507 million during the first eight months of 2009, a 4% drop from the same period of 2008. The drop was the result of a slowing residential property demand due to unfavorable economic conditions and lower consumer confidence. Revenue increased to Bt6,266 million in 2007 and Bt7,538 million in 2008, much higher than Bt4,477 million in 2006, due mainly to transfers of the Metro Park Sathorn Phase1 and 2 projects. Due to deteriorating consumer confidence, a weak economy, and political uncertainty, PF’s financial performance in the first six months of 2009 was weaker than the same period in 2008. The company’s revenue weakened by 30% from the first half of 2008 (which included a one-time housing sale of Bt510 million to Property Perfect Fund (PFFUND)), falling to Bt2,712 million. Profitability deteriorated as the adjusted operating profit margin was 13% during the first six months of 2009, down from 15% in 2008. Cash flow protection strengthened in 2008 as the funds from operations (FFO) to total debt ratio increased to 19.37% from 8.65% in 2007 before weakening to 4.39% (non-annualized) for the first half of 2009. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was 3.30 times in 2008 and 2.39 times during the first six months of 2009.
The residential property market was volatile over the past year, reflecting national political instability and the global financial crisis. Despite the government tax incentives, which allow a new house transaction of up to Bt300,000 to be deducted from personal income tax, the residential property market in Greater Bangkok is expected to track the overall economy and will remain sluggish in 2009. To maintain credit quality, developers must prudently manage liquidity and preserve sufficient financial flexibility to meet obligations during uncertain economic environment, said TRIS Rating. -- End
Company Rating: BBB- Issue Ratings: PF112A: Bt300 million senior secured debentures due 2011 Affirmed at BBB PF128A: Bt800 million senior secured debentures due 2012 Affirmed at BBB Rating Outlook: Stable
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