OREANDA-NEWS. March 30, 2015. Fitch Ratings says Guangzhou R&F Properties Co. Ltd's (BB/Stable) 2014 annual results are in line with expectations and have no impact on the Chinese property developer's rating.

Guangzhou R&F's contracted sales in 2014 increased 29% to CNY54.4bn, but it missed its contracted sales target of CNY60bn, reflecting the continued slowdown in the Chinese residential property market. Its 2014 contracted sales by gross floor area rose 20% to 4.05m sqm, while the average selling price (ASP) for contracted sales increased 7.7% to CNY13,432 per sqm.

EBITDA margin dropped to 28.2% in 2014 from 33.7% in 2013 due to lower recognition of commercial property sales and lower recognised ASP. Churn weakened and the ratio of total contracted sales to total debt was at 0.65x at end-2014, slightly lower than the 0.69x a year earlier. Fitch expects EBITDA margin to improve to around 30% and contracted sales to total debt to rise to around 0.7x-0.8x in the next 12-18 months, supported by an increase in commercial property sales recognition and higher overall contracted ASP in 2015.

The company's total debt was driven higher by issuance of perpetual securities during 2014. The company's outstanding perpetuals rose to CNY15.6bn at end-2014 from CNY1bn at end-2013, sending total debt, including perpetuals, 35.6% higher to CNY83.3bn at end-2014 from CNY61.4bn at end-2013. As a result, leverage, measured by net debt/adjusted inventory, increased to 51.7% at end-2014 from 44.1% at end-2013, but Fitch expects this to improve due to normalised land bank acquisition in 2015-2016.

The company's management has indicated that its land acquisitions are likely to return to normal levels of around CNY5bn-7bn in 2015-2016. This will help the company to manage its total debt in the next 12-18 months, after it purchased substantial amounts of land with premium payments of around CNY41.5bn in 2013-2014.

For a more detailed analysis of the rating drivers and sensitivities for Guangzhou R&F, please refer to the rating action commentary "Fitch Revises Guangzhou R&F's Outlook to Stable from Positive', dated 8 September 2014 and available at www.fitchratings.com.