TRIS Rating Co., Ltd. has assigned the rating of “BBB+” to the proposed issue of up to Bt1,500 million in senior debentures of Asian Property Development PLC (AP). At the same time, TRIS Rating has also affirmed the company and current issue ratings of AP at “BBB+”. The outlook remains “stable”. The ratings reflect AP’s track record in the residential property development industry; an accepted brand targeting 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 strengths are partially offset by the cyclical nature of the property development industry; intense competition in land acquisitions; and the company’s aggressive expansions in condominium projects in recent years, which have led to a high financial leverage compared with peers.
The “stable” outlook reflects the expectation that AP will be able to manage construction of its condominium projects and transfer the completed units to customers. Although there will likely be a pressure to use debt to fund the development of condominium projects, leverage is expected to maintain at 50%-55% in the medium term.
TRIS Rating reported that AP was established in the 1990s by Mr. Anuphong Assavabhokhin and Mr. Pichet Vipavasuphakorn who together owns approximately 34% of the company as of May 2010. The company develops a variety of products from downtown townhouses, to condominiums and single detached houses (SDH). Sale contributions from each product type vary year by year as the company adjusts its residential project portfolio to match market demand. Over the last three years, townhouse generated 30%-53% of total sales. Condominium sales contributed 35%-53%, while SDHs contributed 12%-17% over the same period. AP’s main competitive edge stems from the prime locations of the project sites, which focus on downtown area and management’s ability to promptly adjust project portfolio to match changes in demand. As of March 2010, the company had approximately Bt7,462 million worth of project values available for sale. Condominiums accounted for 50% of the total project values remaining for sale. Meanwhile, townhouses and SDHs accounted for 35% and 15%, respectively. The average unit price across the portfolio as of March 2010 was around Bt4.6 million.
TRIS Rating said that AP’s operating performance from 2009 through the first quarter of 2010 remained strong. Revenue from residential property sales in the first quarter of 2010 was Bt6,035 million, compared with Bt2,702 million in the same period a year earlier. Meanwhile, property sales in 2009 was Bt12,317 million, up 26.6% from 2008. The strong top line performance reflects greater revenue contributions from condominium projects, in particular “The Address Chidlom”, and benefits from the government tax incentives. Operating income before depreciation and amortization as a percentage of revenue has remained acceptable at 23%-27% since 2008. The profitability ratio is expected to decline by 3%-4% after most of the government tax incentives expire in May 2010. The funds from operations to total debt ratio in the first quarter of 2010 was at 10.2% (non-annualized), after remaining stable at 22%-25% during 2008 to 2009. Earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio stood between 9-12 times from 2009 to the first quarter of 2010. Total debt at the end of the first quarter of 2010 was Bt9,427 million, up from Bt7,942 million at the end of 2009. Total debt to capitalization stayed quite stable at 50.5% as of March 2010 and is expected to remain at this level in the medium term.
The residential property market was volatile in 2009, reflecting the national political instability and the global financial crisis. Although it recovered in the second half of 2009, the market remained relatively slow and has been increasingly dominated by major developers. After delivering favorable performance in 2009, almost all large developers have set quite aggressive expansion plans for the next two to three years. Acquiring lands at appropriate locations will likely be more expensive. As most government tax incentives will expire in 2010, therefore, demand for residential property in 2010 will depend heavily on consumer confidence and the pace of economic recovery. TRIS Rating expects to see demand for residential property in 2010 to gradually recover alongside the growth in the domestic economy, said TRIS Rating. -- End
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+ AP122A: Bt1,000 million senior debentures due 2012 Affirmed at BBB+ Up to Bt1,500 million senior debentures due within 2014 BBB+ Rating Outlook: Stable
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