TRIS Rating Co., Ltd. has affirmed the company rating of Property Perfect PLC (PF) at “BBB-” and affirms the ratings of PF’s partially guaranteed debentures (PF132A, PF143A, and PF153A) at “BBB”, senior secured debentures (PF13NA) at “BBB-”, and senior debentures (PF12NA) at “BB+”. At the same time, TRIS Rating has assigned the rating of “BBB” to PF’s proposed issue of up to Bt3,000 million in partially guaranteed debentures. The outlook remains “negative”. The new issue is guaranteed by Thanachart Bank PLC (TBANK), the bank rated by TRIS Rating at “AA-” with a “stable” outlook. TBANK guarantees to pay up to Bt1,800 million or 60% of the amount of the proposed debenture issue. The proceeds from the issuance of the new debentures will be mainly used to repay PF’s long-term debentures which will come due in November 2012 and February 2013. The “negative” outlook reflects PF’s relatively weak financial profile, resulting from its low profitability and high financial leverage. PF’s financial leverage is expected to be high in the next few years as the company continues to pursue growth opportunities in the residential property segment and to invest in new businesses. The ratings could be downgraded if the company’s total debt to capitalization ratio climbs above the current level in the next 6-12 months. On the other hand, the outlook could be revised back to “stable” should its financial position improve.
The ratings of PF reflect the company’s proven track record in the housing market and its accepted brand name in the middle- to high-income segment. These strengths are partly offset by PF’s weakening financial profile resulting from its relatively low profitability and high financial leverage, due mainly to a large amount of investment in new projects and a mismatch between revenue recognition and expenses of condominium projects. The ratings also take into consideration the cyclical nature of the property development industry and the recent increases in raw material and labor costs.
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. PF mainly focuses on residential property development. The company offers a broad range of residential products including single detached houses (SDH), duplex houses, townhouses, and condominiums. Its products target the middle- to high-end segments, with selling prices per unit between Bt2.5-Bt20.0 million for SDHs, Bt1.7-Bt5.0 million for townhouses, and Bt1.0-Bt5.0 million for condominiums. The revenue from PF’s housing projects remains the major source of income, constituting more than 70% of total revenue during 2007 through the first half of 2012. Revenue from condominium projects increased to 13% of total revenue in 2011 and 18% in the first six months of 2012, up from 9% in 2010, while revenue from the sale of raw land plots was negligible during 2011 and the first half of 2012. PF’s competitive advantage is derived from its well-accepted brand name and large land holdings along future mass transit lines. The company 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, presales of PF in 2011 amounted to Bt9,939 million, increasing by 12% from Bt8,855 million in 2010. Housing presales grew slightly to Bt7,292 million in 2011, from Bt6,716 million in 2010. Presales of condominium units rose by 24% y-o-y (year-on-year) to Bt2,647 million in 2011. During the first eight months of 2012, presales reached a record high of Bt10,198 million, higher than the value of presales for the whole year of 2011. The growth in presales was mainly driven by new condominium projects launched in 2012. Condominium presales jumped to Bt5,167 million in the first eight months of 2012, from Bt2,647 million in 2011 and Bt2,139 million in 2010. Housing presales dropped by 2% y-o-y during the first eight months of 2012. Presales of housing units in the flooded area recovered to around 70% of the level in 2011. TRIS Rating expects that presales volume in the flooded area will be back to the normal level in the remainder of 2012.
Revenue in the first six months of 2012 increased by 4% y-o-y to Bt4,279 million. Revenue from the sale of condominium units soared to Bt786 million in the first half of 2012, from Bt290 million in the same period of 2011. The sale of housing units generated revenue of Bt3,345 million during the first six months of 2012, an 11% drop from the first half of 2011. PF’s profitability remained low compared with most leading property developers. Operating income as a percentage of sales was 12.22% in 2011 and 10.41% in the first half of 2012. Cash flow protection during 2010 through the first six months of 2012 deteriorated. The ratio of funds from operations (FFOs) to total debt declined to 4.87% in 2010 and 5.34% in 2011, from 9.45% in 2009. The ratio was 1.95% (non-annualized) during the first half of 2012. PF’s financial leverage remained relatively high because it made large investments in new housing and condominium projects. Additionally, nearly all condominium projects are under construction. As a result, the debt to capitalization ratio rose from 49% in 2009 to 61%-63% during 2010 through June 2012.
PF’s leverage is expected to remain high, since the company plans to invest new lines of business: retailing and overseas projects. The company plans to invest in several community malls nearby its residential projects. In July 2012, We Retail PLC, PF’s subsidiary, signed an agreement to lease a parcel of land on Ratchadapisek road. The lease will be for 30 years, from 2015 to 2044. The company has to pay an upfront installment of Bt740 million during 2012-2014 and make accumulated lease payments of Bt1,785 million over the 30-year lease period. In addition, in August 2012, PF’s board approved the acquisition of Kiroro Ski Resort from the Mitsui Fudosan Group. The resort is located in Hokkaido, Japan. The acquisition cost was around Bt780 million, covering a 292-rai land plot, two hotel buildings, and other assets related to skiing services. PF’s future investment plans are expected to pressure the company’s financial profile in the medium term. Therefore, the company plans to find strategic partners for its new investments. This will help alleviate the debt burden on PF’s balance sheet and lower the risk of entering unfamiliar businesses, said TRIS Rating.
PROPERTY PERFECT PLC (PF)
Company Rating: Affirmed at BBB-Issue Ratings:
PF12NA: Bt1,500 million senior debentures due 2012 Affirmed at BB+
PF132A: Bt1,500 million senior partially guaranteed debentures due 2013 Affirmed at BBB
PF13NA: Bt1,000 million senior secured debentures due 2013 Affirmed at BBB-
PF143A: Bt500 million senior partially guaranteed debentures due 2014 Affirmed at BBB
PF153A: Bt2,000 million senior partially guaranteed debentures due 2015 Affirmed at BBB
Up to Bt3,000 million senior partially guaranteed debentures due 2015 BBB
Rating Outlook: Negative