Tris Rating has affirmed the company rating on property developer Sansiri Plc (SIRI) and the rating on SIRI's existing senior unsecured debentures of 5.5 billion baht at BBB+.

The new issue rating replaces the previous rating of Jan 22, 2019 after SIRI's request to increase the issue size to 5.5 billion baht from 4 billion. The company will use the proceeds from the debentures for business operations.

The ratings on SIRI and its debentures reflect the company's leading position and track record in residential property development, recognised condominium and landed property brands, and diverse product portfolio.

They also reflect SIRI's moderate profitability and expected higher financial leverage from aggressive business expansion, which will lower its cash flow protection.

The ratings also take into consideration the cyclical nature and competitive environment in the residential property development business and concern over the high level of Thai household debt, which affects what homebuyers can afford, especially in the middle- to low-income segments.

SIRI's presales grew by 25% year-on-year to 48.3 billion baht in 2018. Presales from condominium projects drove the growth. SIRI's total operating revenue has ranked among the top three listed property developers for several years. But operating revenue continually decreased from 37.4 billion baht in 2015 to 34.1 billion in 2016 and 31.3 billion in 2017.

Operating revenue during the first nine months of 2018 decreased by 24% year-on-year to 17.4 billion baht. The drop was attributed to SIRI's lower revenue recognition for its condo projects.

Tris forecasts SIRI's operating revenue for last year and this one to stay around 30 billion baht per year, as a few of its condo units will be delivered to customers.

As of Dec 31, 2018, SIRI had 38 existing condo projects (including 12 as joint ventures with BTS Group and three joint ventures with Tokyu Corporation) and 57 landed property projects, with a total remaining value of 80 billion baht (including built and unbuilt units).

SIRI's operating income declined to 9% in the first nine months of 2018 from 13-15% during 2014-17. Its net profit margin was 6% of total operating revenues in the first nine months of 2018, down from 9%-12% during 2014-17.

The company's debt-to-capitalisation ratio was 65% as of September 2018, higher than the 56%-57% posted during 2016-17. Despite its joint ventures partially alleviating the need for funding, SIRI's need for capital to pursue its growth plan remains significant.

SIRI's liquidity is acceptable. At the end of September 2018, the company had 5.01 billion baht in cash and cash equivalents, plus undrawn unconditional credit facilities of project loans from financial institutions of around 68 billion baht.

The stable outlook reflects the expectation that SIRI will be able to sustain its operating performance at the target levels. The company should also be able to deliver the units in its backlog as scheduled.

SIRI's ratings and/or outlook could be upgraded should its financial profile improve to the same levels as its higher-rated peers.

The debt-to-capitalisation ratio should stay below 55% on a sustainable basis. The ratio of funds from operations to total debt should increase to around 15%.

On the other hand, the ratings and/or outlook could be downgraded should SIRI's operating performance and/or financial position significantly deteriorate from target levels.