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Fitch Revises Times Property's Outlook to Positive; Affirms 'B+'
January 12, 2017 / 3:06 AM / a year ago

Fitch Revises Times Property's Outlook to Positive; Affirms 'B+'

(The following statement was released by the rating agency) HONG KONG, January 11 (Fitch) Fitch Ratings has revised the Outlook on Times Property Holdings Limited (Times Property) to Positive from Stable. The Long-Term Foreign-Currency Issuer Default Rating (IDR) has been affirmed at 'B+'. Fitch has also affirmed the China-based homebuilder's senior unsecured rating and the ratings on its outstanding notes at 'B+' with Recovery Rating of 'RR4'. The full list of rating actions is at the end of this commentary. The Outlook revision reflects the significant increase in Times Property's scale while maintaining a consistent financial profile. The ratings are supported by its good execution track record but constrained by the need to consistently replenish its land bank with quality sites, which results in fluctuation in leverage. Fitch may take further positive rating action if Times Property is able to maintain leverage, measured by net debt to adjusted inventory, below 45% and keep a land bank sufficient for three years of development. KEY RATING DRIVERS Larger Scale, Strong Sales: Times Property's contracted sales rose 50% in 2016 to CNY29.3bn, beating its annual target of CNY21.5bn by more than 35%. The average selling price (ASP) for contracted sales climbed to CNY11,860/square metre (sq m) in 2016 from CNY9,010/sq m in 2015, mostly due to better market performances in Foshan and Zhuhai. Fitch estimates that Times Property would have maintained high sales efficiency with contracted sales/total debt at 1.4x at end-2016 (1.4x at end-June 2016). Improving Land Bank: Times Property had 12 million sq m of land as of end-June 2016, with 19% located in Guangzhou, 38% in Guangdong's Tier-2 cities (Foshan, Zhuhai and Zhongshan), and the rest in less-developed noncore cities - Qingyuan, Dongguan and Changsha. Fitch estimates the company increased its land bank in its core markets (Guangzhou, Foshan and Zhuhai) to 2.9 years of development activity at end-2016 from 2.3 years at end-2015. High-Cost Land Acquisitions: Times Property started to acquire higher-priced land parcels in its core markets from 2015 to expand the share of products that appeal to upgraders and to solidify its foothold in Guangzhou and core Tier 2 cities, such as Foshan and Zhuhai. It bought several land parcels in Foshan and Zhuhai at above CNY12,000/sq m, resulting in an weighted average land acquisition cost of more than CNY8,500/sq m in 2016, compared with around CNY6,000/sq m in 2015 and less than CN3,000/sq m before 2014. However, Fitch expects Times Property to add two to three projects from urban redevelopment sites annually, to complement high-cost land acquisitions from public auctions. Higher Leverage: As a result of higher-cost acquisitions, leverage increased to 40% at end-June 2016 from 35% at end-2015. Fitch expects leverage to fluctuate while Times Property expands, particularly as the government has implemented a series of policies since October 2016 to curb excessive increases in housing prices. The company's maintenance of sales at current levels would be key to managing the fluctuations in leverage. Fitch will consider taking positive rating action if Times Property is able to maintain its leverage below 45%. Concentration in Guangdong Province: Times Property is a regional property developer focused on Guangdong Province in southern China. Guangzhou, Foshan and Zhuhai together accounted for more than 85% of the total contracted sales in the past three years. We believe that Times Property will concentrate on expanding within Guangdong Province and is unlikely to expand into other provinces in the near term. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Contracted sales sustained above CNY30bn in the next three years. - Gross profit margin (including capitalised interests) maintained at 20%-25% over 2017-2019. - Attributable land premium around 45% of total contracted sales in the next three years. RATING SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to positive rating action include: - Net debt/adjusted inventory sustained below 45% - Contracted sales/total debt sustained above 1.5x - EBITDA margin sustained above 20%. (1H16: 20%) - Land bank sufficient for three years of development Negative: Future developments that may lead to the Outlook reverting to Stable: - Failing to maintain the positive guidelines FULL LIST OF RATING ACTIONS Times Property Holdings Limited Long-Term Foreign-Currency IDR affirmed at 'B+'; Outlook revised to Positive from Stable Senior unsecured rating affirmed at 'B+', Recovery Rating at 'RR4' USD280m 11.45% senior unsecured notes due 2020 affirmed at 'B+', Recovery Rating at 'RR4' USD305m 12.625% senior unsecured notes due 2019 affirmed at 'B+', Recovery Rating at 'RR4' CNY1.5bn 10.375% senior unsecured notes due 2017 affirmed at 'B+', Recovery Rating at 'RR4' Contact: Primary Analyst Vanessa Chan Director +852 2263 9559 Fitch (Hong Kong) Limited 19F, Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Chloe He Associate Director +86 21 5097 3015 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017442 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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