Reuters logo
Fitch Revises TREIT's Outlook to Negative, Affirms 'A-(tha)'
February 21, 2017 / 10:10 AM / 9 months ago

Fitch Revises TREIT's Outlook to Negative, Affirms 'A-(tha)'

(The following statement was released by the rating agency) BANGKOK, February 21 (Fitch) Fitch Ratings (Thailand) Limited has revised the Outlook on TICON Freehold and Leasehold Real Estate Investment Trust's (TREIT) National Long-Term Rating to Negative from Stable and has affirmed the rating at 'A-(tha)'. Simultaneously, the agency assigned the national senior unsecured rating at 'A-(tha)'. The Outlook revision reflects TREIT's weakening occupancy rate and delays in its expanding its portfolio to lower tenant concentration. KEY RATING DRIVERS Weakening Occupancy: TREIT's occupancy rate dropped to 78% in December 2016 following the expiration of a rental guarantee on its assets, from an average occupancy of about 90% during the year. One of the company's 10 largest tenants also terminated its lease in June 2016. The lower occupancy rate did not meet Fitch's expectation of an average rate of around 90% for the year. Moderate renewal risk also exists, as 27% of the company's lease contracts, based on leased area, will expire in 2017, although this is mitigated by TREIT's high retention rate and location scarcity. Fitch expects TREIT's occupancy rate to increase to 87%-88% in 2018. High Tenant Concentration: TREIT has high tenant concentration, with the 10-largest tenants contributing around 50% of revenue in 2016. Fitch expects concentration risk to persist longer than initially forecast, as a change in TICON group's major shareholder caused the group to suspend asset sale transactions. As TICON group is TREIT's main sponsor, this delayed TREIT's portfolio growth in 2016 and possibly into 2017. The prospects for TREIT's portfolio growth depend on the policies of TICON group's new management, which have not been finalised. TREIT is seeking assets from other developers, but the potential asset size would not compensate for the assets available from TICON group. Currently, TREIT does not have a plan to develop its own properties. Debt-Funded Growth: Fitch forecasts TREIT's net-debt/investment-property value to have remained at about 20% at end-2016, after its planned 4Q16 investment was cancelled. However, as TREIT's medium-term financing policy aims to maintain net-debt/investment-property value at about 30%, it is possible that TREIT will fund its investment through debt. The company's credit metrics remain within Fitch's rating expectations, but further debt-funded acquisitions could lead to negative rating action by increasing financial leverage above our expectations. Sound Asset-Liability Matching: Fitch expects TREIT to maintain sound asset-liability matching. TREIT plans to issue senior unsecured bonds with maturities of three, five and seven years to refinance its existing bank loans. This should shorten TREIT's average debt tenor from more than seven years to less than five years, bringing forward the earliest debt maturity to 2020 for three-year tranche bonds, from 2021 with a small instalment for its existing bank loans. The average lease term-to-maturity of TREIT's investment properties was about 3.2 years at end-2016, with about 19% of its total leasable area secured by long-term lease contracts expiring between 2023 and 2027. TREIT's debts are all unsecured with unencumbered asset-cover of 4.0x at end-2016. Well-Located Assets: TREIT's rating reflects the contractual certainty of revenue from medium-term lease contracts on its modern factory and warehouse properties, which are in strategic locations in Thailand. DERIVATION SUMMARY TREIT is significantly smaller than WHA Corporation Public Company Limited (BBB+(tha)/Negative), a leading developer of industrial estates and built-to-suit industrial properties for rent in Thailand. TREIT has higher earning visibility from its property rental business and no development risk exposure, while WHA has a large development exposure with project completion risk and about 60% of its EBITDA come from its industrial land sales business, which is subject to cyclical demand. TREIT's financial leverage is significantly lower than that of WHA, although it could increase in the medium term, and TREIT has high financial flexibility given unencumbered asset cover of 4.0x and an earliest debt maturity in 2020. WHA's financial leverage has surged due to acquisitions in 2015 and it faces a large debt repayment burden in 2016-2017. TREIT has a property portfolio size and tenant diversification level that is similar to that of Siam Future Development Public Company Limited (SF, BBB(tha)/Stable), a leading community mall developer in Thailand. However, SF has development risk exposure and TREIT has a significantly higher EBITDA margin of 75%-80%, compared with SF's 40%-45%. TREIT also has much lower financial leverage, but the gap could narrow over the medium term. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Additional investment of THB1.2bn in 2017, with 100% debt financing, and THB3.5bn per year in 2018, with 20% debt financing. - Renewal rate of 85% with four to six months to seek new lessees in 2017-2018. - EBITDA margin of 74%-80% in 2016-2018. - No development or significant maintenance capex over 2017-2018. RATING SENSITIVITIES Developments that may, individually or collectively, lead to negative rating action: - sustained weakening in the occupancy rate to below 85%; - net-debt/investment-property value increasing above 30% (end-September 2016: 20.8%), net-debt/EBITDA above 4.5x (previous 12 months ending September 2016: 2.3x) or FFO-fixed charge coverage below 3.5x (previous 12 months ending September 2016: 7.0x) on a sustained basis; and - inability to expand the portfolio efficiently to improve its top-10 tenant concentration to below 40% of revenue. Fitch may revise the Outlook to Stable from Negative if TREIT demonstrates that the negative rating guidelines are unlikely to be met on a sustained basis. LIQUIDITY Comfortable Liquidity Levels: Fitch expects TREIT to have enough liquidity in the next two to three years to comfortably cover interest payment, with EBITDA/interest expense expected at above 4.0x. Minimal maintenance capex over is expected for the next two to three years. Contact: Primary Analyst Somruedee Chaiworarat Director +66 2108 0160 Fitch Ratings (Thailand) Limited Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330 Secondary Analyst Nichaya Seamanontaprinya Associate Director +66 2108 0161 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. Additional information is available at Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below