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

KEY RATING DRIVERS

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.

Source: Fitch Ratings