The ratings reflect the trust's high quality assets located in prime areas of Bangkok, the reliable cash flows received from contract-based rental income, and the conservative financial leverage policy. The ratings also take into consideration the future growth opportunities of the trust, supported by assets from its major sponsors. However, the ratings are partially constrained by portfolio concentration on two assets and top-10 tenant concentration in terms of leasable area and revenue contribution.
The property portfolio of the trust concentrates on two office buildings, Park Ventures Ecoplex (PKV) and Sathorn Square (SSQ), sponsored by Univentures PLC (UV) and Golden Land Property Development PLC (GOLD). As of December 2017, GVREIT managed 100,600 square meters (sq.m.) of office space, worth about Bt9,800 million at fair value. Both buildings have achieved high occupancy rates (OR) and rental rates. At the end of December 2017, the average ORs of PKV and SSQ were 97.7% and 96.7%, respectively. The average rental rates for overall tenants in PKV and SSQ were Bt1,000 per sq.m. per month and Bt803 per sq.m. per month, respectively. The 10 largest tenants occupy around 40% of the total leasable area.
Rental and service income of the trust was Bt276 million during the first quarter of 2018 (October-December 2017), a 3% year-on-year (y-o-y) growth. Rental and service income from the top-10 tenants constituted around 30% of the total. TRIS Rating's base case scenario assumes the two buildings will generate Bt1,000 million in rental income annually over the next three years.
The margin of earnings before interest, tax, depreciation and amortization (EBITDA) of the trust as a percentage of revenue was quite high at 83% in 2016, 79% in 2017, and 93% in the first quarter of 2018, supported by high ORs and rental rates. The interest-bearing debt to EBITDA ratio was 2.6 times as of December 2017. The debt to capitalization ratio has held at 24% since GVREIT was founded. The trust's liquidity is adequate, as the ratio of funds from operations (FFO) to total debt was 30%-31% during fiscal year 2016 (FY2016) through the first quarter of 2018. The EBITDA interest coverage ratio has held steady at 4-7 times.
RATING OUTLOOK
The "stable" outlook reflects the expectation that GVREIT's property portfolio will generate reliable streams of cash flow over the next three years. TRIS Rating assumes the two office buildings to sustain high ORs and achieve favorable rental rates as targeted. Over the next three years, GVREIT's financial profile will remain strong as the interest-bearing debt to EBITDA ratio should remain below 3.5 times and the debt to capitalization ratio should stay below 30%.
RATING SENSITIVITIES
GVREIT's ratings and/or outlook could be revised downward if the interest-bearing debt to EBITDA ratio increases above 4 times for a prolonged period. In contrast, GVREIT's future ratings and/or outlook could be revised upward if the trust acquires more properties and can diversify the tenant base in its portfolio, while maintaining a strong financial profile.
Golden Ventures Leasehold Real Estate Investment Trust (GVREIT)
Issuer Rating: A-
Issue Rating:
Up to Bt2,000 million senior unsecured debentures due within 10 years A-
Rating Outlook: Stable