“A-” to CENTEL’s proposed issue of up to Bt500 million in senior debentures. The outlook has been changed to “stable” from “negative”. The ratings reflect CENTEL’s diverse sources of cash flow from the hotel and quick service restaurant (QSR) businesses, strong position in the QSR business, and a diverse hotel portfolio comprising properties with solid market positions.
The ratings also take into account the support from the Central Group. However, these factors are partially offset by the nature of the hotel industry which is seasonal and highly sensitive to uncontrollable external factors, and the low margins of the QSR industry. Both industries are viewed as highly competitive, considering the huge supply of hotel rooms in key tourist destinations and aggressive promotion to counter QSR competitors. From late 2010, CENTEL’s operating performance has improved as the tourism industry recovered and political violence ceased. However, the company’s leverage level is considered high, pushed upwards mainly by an expansion in the hotel segment during the last four years.
The “stable” outlook is based on the expectation that CENTEL will fully benefit from the completed hotel projects which shall result in growing cash flow from operation. The financial profile is expected to strengthen, with the target of the interest-bearing debt to EBITDA ratio not exceeding 3.5 times.
TRIS Rating reported that CENTEL was founded in 1980 by the Chirathivat family to own and operate a hotel in Thailand. CENTEL currently operates more than 5,800 rooms at 31 hotel properties in key tourist destinations in Thailand, and six hotel properties in overseas. CENTEL’s own properties account for 61% of total rooms across 14 hotels, four of which are joint venture properties. Except for the Sofitel Centara Grand Hua Hin, which is managed by Accor International, CENTEL manages hotel properties under its “Centara” brand. Sofitel Centara Grand Bangkok and Novotel Centara Hat Yai are managed by CENTEL under Accor franchises. CENTEL operates its QSR businesses under its subsidiary, Central Restaurants Group (CRG). CRG’s portfolio consists of several international franchised QSR chains, such as: KFC, Mister Donut, Auntie Anne’s, Pepper Lunch, Beard Papa’s, Chabuton, Cold Stone Creamery, and Caf? Andonand, plus its own brand RYU Shabu Shabu. The QSR business covered a combined total of 512 outlets countrywide at the end of March 2011. During the past five years, revenue from QSR businesses contributed approximately 54%-60% of total revenue, while revenue from the hotel segment contributed the rest.
TRIS Rating said, the political violence during the second quarter of 2010 cut the confidence of travelers, which adversely affected the tourism industry. As a result, demand for hotel rooms slumped. The overall occupancy rate (OR) of CENTEL’s own properties fell from 60.7% in 2009 to 58.1% in 2010. Meanwhile, the overall OR of hotels in Thailand was 50.2% in 2010. CENTEL’s average revenue per available room (RevPAR) also dropped, falling by 5% compared with the previous year. However, the tourism industry quickly rebounded in late 2010 through the first quarter of 2011, as the political climate improved. In addition, several countries lifted their travel warnings for Thailand. Foreign tourist arrivals grew by 8.4% y-o-y in the fourth quarter of 2010 and 14.5% y-o-y in the first quarter of 2011. As a result, in the first quarter of 2011, the company’s OR rebounded to 70.6% and RevPAR also increased, climbing by 10% y-o-y to Bt3,155.
Even though the tourism industry weakened in 2010, CENTEL’s total revenue grew by 11% to Bt9,141 million. The growth was because QSR sales rose by 16% while hotel revenue increased by 6% in 2010, owing to the first full-year performance of Centara Grand Mirage Beach Resort Pattaya. In the first quarter of 2011, total revenue continued to rise, increasing by 18% y-o-y to Bt2,914 million, due to a recovery in the number of foreign tourist arrivals, the opening of Centara Grand Beach Resort Phuket, and continued growth in the QSR segment. The operating profit margin of CENTEL improved from 15.0% in 2009 to 16.2% in 2010. In the first half of 2011, the operating profit margin rose to 25.2% due to economies of scale in the QSR segment and revived hotel operations.
CENTEL’s liquidity is considered to be improving. The funds from operations (FFO) to total debt ratio increased from 10.0% in 2009 to 10.8% in 2010 and to 6.4% (non-annualized) in the first quarter of
2011. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio was sustained at 4.9 times during 2009-2010 and stood at 7.5 times in the first quarter of 2011. CENTEL anticipates an improved performance in 2011, because of a better post-election political climate. In addition, the company has completed all its hotel development projects, which are expected to begin generating profits and cash flow soon.
CENTEL’s debt to capitalization ratio has been above 60% since 2009 and stood at 63% at the end of March 2011 due to the expansion in the hotel segment during the last four years. CENTEL spent over Bt10,000 million mainly to develop and invest in hotel properties in key tourist destinations, i.e., Bangkok, Krabi, Pattaya, Phuket and the Maldives. However, the total debt to capitalization ratio is expected to decline as the company has no significant investments planned for the next few years. As of March 2011, the company had available commercial bank credit lines of approximately Bt2,900 million, said TRIS Rating.
Central Plaza Hotel PLC (CENTEL)
Company Rating: Affirmed at A-
Issue Ratings:
CENTEL127A: Bt600 million senior debentures due 2012 Affirmed at A-
Up to Bt500 million senior debentures due within 2016 A-
Rating Outlook: Stable from Negative