OREANDA-NEWS. Fitch Ratings has affirmed China-based residential property developer Times Property Holdings Limited's (Times Property) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. The senior unsecured rating is also affirmed at 'B+', with Recovery Rating at 'RR4'.

Fitch has also assigned Times Property's outstanding USD305m 12.625% senior notes due 2019 and CNY1.5bn 10.375% senior notes due 2017 ratings of 'B+.' The notes are rated at the same level as Times Property's senior unsecured rating because they are regarded as direct and senior unsecured obligations of the company. The full list of rating actions is at the end of this commentary.

Times Property's ratings are supported by its steady contracted sales growth, prudent land replenishment strategy, and improving funding structure. The ratings are constrained by the company's high geographical concentration in Guangdong Province and its small land bank. We expect Times Property to be under persistent pressure to replenish land bank in its core markets - Guangzhou, Foshan, and Zhuhai - which may keep its leverage at a relatively high level.

KEY RATING DRIVERS
Strong 2015 Contracted Sales: Times Property's contracted sales rose 28% in 2015 to CNY19.5bn, well ahead of the company's original target of CNY16.5bn. The average selling price (ASP) for contracted sales dropped 17% in 2015 due to a larger share of sales from cities outside Guangzhou with lower ASP and a shift in product mix towards mid-end products. The ASP drop was more than offset by a 55% increase in gross floor area (GFA) sold during the year. Times Property maintained high sales efficiency with contracted sales/total debt at 1.3x as of end-June 2015 (1.37x at end-2014).

Improving Funding Structure: Times Property continued optimising its capital structure by actively tapping both offshore and onshore bond markets in 2015. It raised a total of CNY6.9bn from bond issuance in 2015. The company repaid all of its trust loans that had higher interest costs, effectively reducing its funding cost to 10.6% in 1H15 from 12.8% in 2014. Fitch expects the company to further reduce its financing cost, considering Times Property's proven track record in issuing new bonds at more favourable rates in 2015 and the easing domestic financing environment.

Land Replenishment Pressure: Fitch expects Times Property to face pressure to acquire land in view of its small land bank in core markets and slower-than-expected conversion of land from its urban redevelopment projects in Guangzhou. Times had 10 million square metres (sqm) of land as of end-June 2015, with 14% located in Guangzhou, 35% in Guangdong's Tier-2 cities (Foshan, Zhuhai and Zhongshan), and 51% in two less-developed noncore cities - Qingyuan and Changsha. Its land bank in the core markets will last the company two to three years at the current pace of development, and 11 years in the noncore markets.

In 2015, Times Property acquired eight parcels of land in Guangzhou, Foshan and Zhuhai, with total land premium of around CNY6bn and average unit cost at around CNY6,000/sqm in 2015 (2014: CNY2.9bn with unit cost at CNY2,625/sq.m).

Rising Leverage: Times Property's leverage is higher than that for its 'B'-category peers. Leverage, as measured by net debt to adjusted inventory, increased to 40.2% at end-June 2015 from 38.7% at end-2014. Fitch expects leverage to remain high at around 40% in the next three years mainly due to high land premium to be paid, which Fitch estimates at around 40% of the company's annual contracted sales value.

Concentration in Guangdong Province: Times Property is a regional property developer focused on Guangdong Province with exposure in Guangzhou, Foshan, Zhuhai, Zhongshan and Qingyuan. It also has some operations in Changsha in Hunan province. 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 to increase by 8% per year over 2016-2018;
- Average selling price for contracted sales to increase by 10% for 2016, and 5% for 2017-2018;
- Gross profit margin at around 22%-26% in 2016-2018.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Net debt/adjusted inventory sustained below 35%
- Contracted sales/total debt sustained above 1.2x
- EBITDA margin sustained above 20%(1H15: 22%)

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Net debt/adjusted inventory sustained above 50%
- Contracted sales/total debt sustained below 1x
- EBITDA margin sustained below 15%

FULL LIST OF RATING ACTIONS
Long-Term Foreign-Currency IDR affirmed at 'B+'; Outlook 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 assigned at 'B+', Recovery Rating at 'RR4'
CNY1.5bn 10.375% senior unsecured notes due 2017 assigned at 'B+', Recovery Rating at 'RR4'.