OREANDA-NEWS.  Fitch Ratings says that the weaker Jakarta office market will have no rating impact on Indonesian developer PT Pakuwon Jati Tbk (Pakuwon, BB-/Stable) because it remains supported by its market leadership in Surabaya and solid investment property portfolio.

Pakuwon recently lowered its 2015 marketing sales target by 11.7% to IDR3trn from IDR3.4trn . The company cited the weak office business as a reason for the revision and said it will delay the launch of its Kasablanka office project to 2016.

Cushman & Wakefield said that office transactions and inquiries in Jakarta softened during the first three quarters of 2015 and the property consulting company expects overall office occupancy to decline significantly and rents to remain under pressure in the short term due to additional supply of space from new buildings being completed.

Fitch, however, believes that the company's cash flows will not come under significant pressure with the lower marketing sales target stemming from of the delay in the office launch. Marketing sales will continue to be supported by sales of landed house in Surabaya, where the company is the market leader. Pakuwon's marketing sales in 3Q15 rose 25% yoy to IDR2.5trn, with more than 60% of the sales derived from the company's projects in Surabaya.

In addition, Pakuwon's solid investment property portfolio will help to moderate the volatility of cash flows from the development business. Fitch expects Pakuwon's investment property to generate solid recurring EBITDA of IDR1.2trn in 2015 (2014: IDR980bn). As the company adds more investment property, its recurring EBITDA in 2015 and 2016 will comfortably cover its interest expenses by more than 2.0x, the threshold at which negative rating action might be considered. Recurring interest coverage was 3.2x in 2014.

The company is likely to increase spending on land acquisition to around IDR1trn in 2015 (2014: IDR309bn), but Fitch does not believe that this will pressure the company's rating. In our analysis, we estimated that the company will spend around IDR750bn on land acquisition. Furthermore, opportunistic land acquisition will be supported by ample cash balances of IDR2.6trn at end-September 2015.