OREANDA-NEWS. Fitch Ratings (Thailand) Limited has assigned the National Long-Term Rating to TICON Freehold and Leasehold Real Estate Investment Trust's (TREIT) new senior unsecured bonds at 'A-(tha)'. Simultaneously, the agency has affirmed TREIT's 'A-(tha)' National Long-Term Rating. The Outlook is Stable.

The bonds, totalling up to THB1.47bn, will have maturities as long as 2026. The bond proceeds will be used to acquire additional properties.


Debt-Funded Growth: Fitch expects TREIT's net-debt/investment-property value (LTV) to increase above 30% at end-2016, from 20.7x at end-2015, after its planned 4Q16 investment of about THB1.5bn, which will be entirely funded by bond issuance. TREIT says the entirely debt-funded investment is a one-time occurrence and its medium-term financing policy still aims to maintain its LTV at no more than 30%. The revised LTV will be above our initial expectations of TREIT conservatively acquiring assets and although the property investor's credit-metrics remain within Fitch's rating expectations, further debt-funded acquisitions could lead to negative rating action.

Sound Asset-liability Matching: Fitch expects TREIT to maintain sound asset-liability matching. The probability of new three-year maturity bond tranche in this new issue could shorten TREIT's average debt-tenor, bringing forward the earliest debt-maturity to 2019 from 2021. However, as TREIT's existing debts are on 10-year terms, with an average loan maturity of 8.2 years at end-June 2016, the new average debt-tenor would not be less than 5.6 years. The average lease-term to maturity of TREIT's investment-properties was about 3.2 years at end-June 2016, with about 19% of its total leasable area secured by long-term lease contracts expiring during 2023-2027. TREIT's debts are all unsecured and Fitch expects its unencumbered asset-cover to fall, but remain high at about 2.7x at end-2016 (end-2015: 4.0x), after the planned new investment.

Moderate Renewal Risk: Fitch expects global and local economic activity to remain sluggish, suppressing demand for industrial properties in Thailand and constraining TREIT's ability to raise lease rental-rates over the next 12-18 months. This also presents renewal risk, with about 48% of existing lease-contracts based on leased-area expiring by 2017. However, Fitch believes TREIT's high retention-rate and location scarcity mitigates this risk somewhat.

Well-Located Assets: TREIT's rating reflects the contractual certainty of revenue from medium-term lease contracts on its factory and warehouse property-portfolio in Thailand. Fitch expects demand for TREIT's assets to stay satisfactory in the medium-term, with average occupancy of about 90%, due to the strategic location of most of its assets.

Small, with Tenant Concentration: TREIT's investment property-portfolio of THB7.3bn at end-2Q16 is small compared with other local long-established property-investment firms. Its tenant mix is concentrated, with the 10-largest tenants contributing around 50% of revenue at end-2015. This risk is, however, mitigated by some industry diversity among tenants.

Asset Size to Double: TREIT plans to more than double its portfolio over the next three years. Its medium-term investment plan is mostly supported by assets from its major sponsor, TICON group, a leading industrial property-developer in Thailand. TREIT does not have a policy to develop its own properties in the medium term.

Manageable Interest-Rate Risk: All of TREIT's existing debt is based on floating interest-rates and its interest-risk is unhedged. The new bond issue will, nevertheless, have fixed interest-rates, and will represent about 45% of TREIT's combined debts at end-2016.


Fitch's key assumptions within our rating case for the issuer include:

- additional investment of THB1.5bn in 2016, with 100% debt financing, and THB3.5bn per year in 2017-2018, with 25%-27% debt financing

- renewal rate at 85%, with four to six months to seek new lessees

- stable EBITDA margin at about 80%

- no development and no significant maintenance capex over 2016-2018.


Positive: Developments that may, individually or collectively, lead to positive rating action include:

- a larger investment property-portfolio, exceeding THB30bn, with greater tenant and geographic granularity.

Negative: Developments that may, individually or collectively, lead to negative rating action include:

- aggressive debt-funded investment

- a substantial weakening in occupancy rates or negative rental reversions leading to net-debt/investment-property value increasing above 30%, net-debt/EBITDA above 4.5x (previous 12 months to end-June 2016: 3.6x) or FFO fixed-charge coverage below 3.5x (previous 12 months to end-June 2016: 5.0x), on a sustained basis.