The “stable” outlook reflects the expectation that PF will sustain its financial position after the TPROP and GRAND acquisitions are completed. PF’s debt to capitalization ratio and operating margin should not deteriorate from the current levels. The net debt to capitalization ratio is expected to stay below 66%. Also, PF is expected to find adequate sources of funds in order to mitigate its liquidity risk.
PF’s ratings and/or outlook could be revised downward if PF’s financial profile slips below the current level. The net debt to capitalization ratio at above 67% and more pressure on liquidity risk will lead to the rating downgrades. On the contrary, the ratings and/or outlook would be upgraded if its financial profile improves, as shown by a net debt to capitalization ratio staying at 60%-65% and the operating margin increasing to 10%-12% on a sustained basis.
The ratings continue to reflect PF’s proven track record in the housing market and accepted brand name in the middle- to high-income segments. These strengths are partially offset by PF’s relatively high financial leverage, low profitability, and concerns over liquidity risk. The ratings also take into consideration the cyclical and competitive nature of the property development industry, plus concerns over the slower-than-expected growth in the domestic economy.
At present, PF has made a voluntary tender offer for TPROP. PF will pay Bt0.57 per share in cash to the shareholders of TPROP who accept the tender offer. Since TPROP is under business rehabilitation, there is a high probability that PF will be able to acquire at least 75% of TPROP. It will cost PF Bt1,820 million to buy all of TPROP’s shares. However, if the tender offer is accepted by less than 75% of TPROP’s shareholders, the transaction will be cancelled. If PF successfully acquires TPROP, PF will have a 40.62% controlling stake in GRAND. Thus, PF must make a mandatory tender offer for all the shares of GRAND. PF will pay Bt1.29 per share in cash to the shareholders of GRAND who accept the tender offer. The total acquisition cost for the remaining shares of GRAND is Bt2,108 million. Under TRIS Rating’s base case scenario, PF will acquire TPROP and GRAND by using both equity and debt financing (around 50:50). PF is expected to increase its capital via a rights offering. The proceeds from the rights offering will be around Bt1,900 million. After the rights offering, PF’s net debt to capitalization ratio (adjusted for operating leases, cash on hand, and restricted deposits) is expected to stay at around 66%, slightly higher than the ratio of 64% and 65.5% recorded at the end of 2014 and March 2015, respectively. PF’s net interest-bearing debt to equity ratio increased to 1.9 times as of March 2015, up from 1.8 times at the end of 2014. Under the terms of PF’s bond covenants, it must keep the net interest-bearing debt to equity ratio below 2 times. If PF cannot raise additional capital as planned, the company is expected to postpone its investments in land and other recurring income assets so that its capital structure will not violate the financial ratio covenants. PF plans to spend Bt3,000 million on land in 2015 and invest around Bt725 million in recurring-income assets.
PF is one of the leading residential property developers in Thailand. The company was established in 1985 by Mr. Chainid Adhyanasakul and was listed on the Stock Exchange of Thailand (SET) in 1993. As of March 2015, PF had 47 existing residential projects, worth a total of around Bt110,000 million. PF’s project portfolio consists of housing (70% of the total portfolio value) and condominium (30%). The average unit price was Bt4.6 million for a housing unit and Bt2.2 million for a condominium unit. At theend of March 2015, PF had unsold units worth Bt31,000 million available for sale (including built and un-built units) and a backlog worth Bt7,000 million.
PF’s presales in 2014 was Bt13,016 million, a 20% year-on-year (y-o-y) growth. Presales during the first quarter of 2015 increased slightly from the first quarter of 2014, climbing to Bt2,773 million. Its total revenue in 2014 increased by 13% y-o-y to Bt12,416 million. Revenue from housing and condominium units accounted for around 60% and 20% of total revenue, respectively. Total revenue during the first quarter of 2015 dropped by 16% y-o-y to Bt2,403 million, due mainly to lower transferred condominium units. Over the next three years, PF’s total revenue is expected to stay at Bt15,000-Bt18,000 million per annum, driving by higher income from condominium units and recurring income from hotels and office buildings.
Its operating margin (as measured by operating income before depreciation and amortization as a percentage of sales) ranged from 6%-9% during 2012-2014, down from 11%-12% during 2009-2011 due to the higher selling, general, and administration (SG&A) expenses. PF’s financial leverage has been high. The large investments needed for its housing and condominium projects caused the debt to capitalization ratio to increase from 61%-62% during 2010-2011 to 65%-69% during 2012 through the first quarter of 2015.
Its liquidity profile during 2012 through the first three months of 2015 weakened due mainly to higher financial leverage. The ratio of funds from operations (FFO) to total debt declined to 2%-3% during 2012 through the first quarter of 2015, from 5% during 2010-2011 and 9% in 2009. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio was only 1 times during 2012 through the first three months of 2015. The company had short-term and long-term debentures worth Bt9,000 million due in 2015, with Bt4,600 million coming due in 2016. PF plans to refinance the maturing bonds by issuing new long-term debentures.
Property Perfect PLC (PF)
Company Rating: BB+
Issue Ratings:
PF156A: Bt2,000 million senior unsecured debentures due 2015 BB+
PF15NA: Bt3,000 million partially guaranteed debentures due 2015 BBB
Rating Outlook: Stable