TRIS Rating affirms the company rating of Areeya Property Public Company Limited at ?BB-? At the same time, the company’s rating outlook has been downgraded to ?Negative? or ?delete? From ?Stable? or ?constant? The downward outlook reflects TRIS Rating’s concerns about weaker-than-expected operating results and higher liquidity risks.
The rating also reflects the company’s small revenue base and high leverage level. meanwhile The ratings also reflect TRIS Rating’s concerns about the prolonged spread of the novel coronavirus disease 2019 (COVID-19). This continues to put pressure on the country’s economy and demand for housing.
Key Points Determining Credit Ratings
The performance was weaker than expected.
The company’s performance was weaker than TRIS Rating’s expectations. Although sales were close to estimates, lower gross margins and high interest expenses resulted in the company’s net profit in 2020 to only Bt195 million, about half of TRIS Rating’s estimate. The company also realized a net loss of 84 million baht in the first half of 2021. The company’s gross profit margin dropped to 24% in 2020 and 22% in the first half of 2021, down from 29%-34. % in 2016-2019 and below estimates of 26%-29%. The decline in margins was mainly due to sharp price reductions to boost sales and relatively modest margins from project construction management.
Going forward, TRIS Rating expects the company’s operating income to be at Bt3.05 billion in 2021 and recover to a range of Bt4-4.3 billion per year. The company’s profitability will continue to be pressured by intense competition in the industry. The gross margin is expected to be in the range of 21%-23% and the margin before interest, tax, depreciation and amortization is expected to be in the range of 8%-11% in 2021-2023. still loses over the next 2 years
Liquidity concerns have increased.
TRIS Rating estimates that the company will face increased liquidity risk. Weak performance and large debt loads due each year have raised concerns over the company’s liquidity. As of June 2021, the company’s debt due in the next 12 months was 4.76 billion. million baht, consisting of debentures of 3.64 billion baht, long-term loans of 800 million baht, bills of exchange of 120 million baht, and promissory notes of 200 million baht. The company’s financial liquidity sources are quite limited. As of June 2021, the company has cash on hand of 183 million baht. baht, including undrawn bank loans that can be withdrawn immediately for another 39 million baht, and the company has leftovers in debt-free projects with a selling value of 429 million baht, which can be used as collateral for credit.
The Company has paid off its debentures of Baht 2 billion due in October 2021 with secured debentures. And the company plans to repay the debentures of 1.47 billion baht due in January 2022 and 167 million baht due in February 2022 by issuing a new series of debentures. The new tranche of bonds are secured from existing bonds that mature. However, the company’s weak operating performance and recession have raised concerns over its ability. Company refinance
small income base
TRIS Rating views the company’s revenue base as relatively small compared to most credit-rated real estate developers. The company’s income in 2020 is ranked 15th out of 23 companies rated by TRIS Rating. The company’s revenue in 2020 was Bt5.64 billion, representing 2% of the total revenue of the 23 credit-rated property developers and below TRIS Rating’s forecast. This was mainly due to the high cancellation rate of the condominium project ?Chalermnit? And the impact of COVID-19 The company’s revenue in the first half of 2021 decreased by 14% to 1.67 billion baht due to the new wave of COVID-19 and no new projects launched during the period. such time
In the future, the Company’s property sales revenue is expected to be at the level of 2.5-3.9 billion baht per year. while the revenue from project construction management will be at the level of 460-570 million baht per year in 2021-2023. As of June 2021, sales pending revenue recognition of the Company is at 858 million baht, approximately 769 million baht. It will be delivered in the second half of 2021. The remaining 89 million baht will be delivered in 2024 due to the small sales pending revenue recognition. The Company’s income therefore depends on its ability to generate new sales from new projects and current housing projects unsold. As of June 2021, the Company has 35 residential projects unsold, with a total value. Approximately 209 billion baht (including completed and unconstructed) projects, consisting of 20% detached houses, 25% townhouses and 55% condominiums. About 17% of the residual value of condominium projects is ready-made projects. transfer The company plans to launch a total of 833 million baht in low-rise projects in the last quarter of this year and 1.8 billion baht in low-rise projects and 5.8 billion baht in condominium projects in 2022.
The debt burden is high.
TRIS Rating expects the company’s debt-to-capitalization ratio to stay above 70% over the next three years. Weak performance during the COVID-19 pandemic has led to a level of The company’s debt has increased. Declining retained earnings from losses resulted in a further deterioration in the capital structure. The company’s debt-to-capitalization ratio rose to 71% as of June 2021, exceeding TRIS Rating’s previously projected below 70%, in line with the financial covenants requiring the company to maintain the ratio. The net interest bearing debt to equity ratio is below 3 times, which at the end of June 2021 was 2.06 times. TRIS Rating expects the company will carefully manage its capital structure to comply with its financial conditions. in the next 12 months The company’s cash flow for debt repayment remains weak, with its FFO to debt ratio of 0.3% in the first half of 2021.
under the assumption TRIS Rating expects the company’s debt to capitalization ratio to stay at 70%-73% in 2021-2023. The FFO to debt ratio will range from -2% to -4%. And the earnings before interest, tax, depreciation and amortization to interest expense ratio is expected to stay below 1x over the same period. Fundamental assumptions include a plan to launch low-rise projects worth Bt833 million in the last quarter of this year and new projects worth Bt7.6 billion in 2022. The budget for land purchases will be around Bt230-450 million per year. Over the next three years, TRIS Rating’s projections include a Bt204 million acquisition of land from management with 100% debt incurred in October 2021.
As of June 2021, the Company had consolidated financial liabilities of 7.71 billion baht, including secured debt of 7.18 billion baht. Consequently, the ratio of first-class debt to consolidated debt was at 93% because the ratio exceeds 50% according to the ?debt credit rating criteria? of TRIS Rating TRIS Rating views that unsecured creditors are at a significant disadvantage in the order of claims over assets.
base case hypothesis
TRIS Rating forecasts the Company’s operations during the years 2021-2023 as follows:
? The company plans to launch low-rise projects worth a total of 833 million baht in the last quarter in 2021 and new projects worth a total of 7.6 billion baht in 2022, consisting of low-rise projects worth 1.8 billion baht and condominium projects worth 5.8 billion baht.
? The budget for purchasing land will be approximately 230-450 million baht per year in 2021-2023.
? Operating income will be 3-4 billion baht per year in 2021-2023.
? The gross margin is 21%-23% and the earnings before interest, tax, depreciation and amortization rate is 8%-11% in 2021-2023.
credit rating outlook
Credit rating outlook ?Negative? or ?delete? This reflects the company’s weaker-than-expected operating results and higher liquidity risks.
Factors that could cause a change in credit rating
The rating and/or outlook could be revised upward if the company’s operating performance and capital structure improve, with the debt to capitalization ratio staying below 70% over time. and liquidity concerns were resolved. on the contrary The rating and/or outlook could be revised downward if the company’s operating performance and financial profile show no signs of recovery and deteriorate significantly from the forecast levels. The company’s rating could be downgraded several levels if it fails to refinance its debt as planned.
Relevant credit rating criteria
– Bond Credit Rating Criteria, June 15, 2021
– General Business Credit Rating Method, July 26, 2019
– Key Financial Ratios and Revised Financial Figures, 5 September 2018
Areeya Property Public Company Limited (Areeya)
Corporate Rating: BB-
Rating outlook: Negative
TRIS Rating Company Limited/ www.trisrating.com
Contact santaya@trisrating.com Tel. 0-2098-3000 Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500
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