The ratings of WHART and its debentures reflect WHART's predictable income stream from medium- to long-term rental contracts with well-recognized tenants, high occupancy rate (OR) of rental warehouse, as well as limited development risk. The ratings are also supported by the growth prospects from asset injection from the trust's sponsor, WHA Corporation PLC (WHA). The strengths are partially offset by tenant concentration, and renewal rates of tenants, which are sensitive to economic conditions.
WHART's investment property portfolio rose from Bt13,083 million at the end of 2016 to Bt25,949 million as of December 2017, with leasable area of warehouse totaling 971,578 square meters (sq.m.). The trust achieved a high OR of 95%, or 97% if the undertaking from the sponsor is included. The 10 largest tenants occupied around 61% of the total leasable area.
WHART's rental and service income experienced strong growth from Bt709 million in 2016 to Bt1,002 million in 2017, or 52% year-on-year (y-o-y), due to new asset acquisition and its merger with WHA Premium Factory and Warehouse Fund (WHAPF).
The profitability of WHART remains very healthy. The operating margin (operating income before depreciation and amortization as a percentage of revenue) was relatively high at 84% in 2017. Similarly, the margin of earnings before interest, tax, depreciation and amortization (EBITDA) of the trust as a percentage of revenue was also high at 95% in 2017. The interest-bearing debt to total asset ratio (LTV) was 28% in 2017, slightly dropping from 29% in 2016. The adjusted debt to capitalization ratio slightly declined to 31% in 2017, compared to 32% in the previous year. The funds from operations (FFO) to total debt ratio was 10% in 2017, dropping from 12% in 2016, as only one-month income from the new assets was consolidated in 2017.
The "stable" outlook reflects the expectation that WHART's property portfolio will generate reliable cash flows and can sustain high level of OR above 90% with sound profitability.
Under TRIS Rating's base case scenario, we assume that WHART's assets will increase by Bt3,000 million per year and the OR will maintain at approximately 95%, including the undertaking from WHA. Operating margin will stay around 80%. The trust is expected to keep its interest-bearing debt to total assets ratio below 35% as per the trust's policy. The EBITDA interest coverage ratio should range between 4-6 times in 2018-2020 and the FFO to total debt ratio will hover in the range of 10%-15%.
The credit rating of WHART could be under downward pressure if the OR notably drops below expectations and/or the interest-bearing debt to total assets ratio stays above 35% for a prolonged period. On the other hand, the rating could be revised upward if WHART's capital structure improves significantly, leading to higher cash flow protection over an extended period.
WHA Premium Growth Freehold and Leasehold Real Estate Investment Trust (WHART)
Up to Bt4,200 million senior unsecured debentures due within 7 years