The credit rating of A101 LLC (hereinafter, the Company, or A101) reflects the high assessment of the Company’s operational risk profile, low leverage, very high coverage, very high profitability, and strong liquidity. The rating is constrained by very high industry (residential construction) risks and medium score for business size.
A101 is one of the largest residential real estate developers in the Moscow area. The Company is focused on the construction and sale of residential real estate mostly of the comfort and comfort plus segments and implements a range of business class projects in the territory of New Moscow. In November 2023, the current construction portfolio of the Company, according to the Unified Resource of Developers, was 1.33 mln sq. meters.
KEY ASSESSMENT FACTORS
Industry risk is assessed as very high due to the pronounced cyclical nature of the construction industry, high amount of overdue payments, and the substantial number of developer companies that have defaulted over the last five years. The industry the Company belongs to is a significant factor limiting its credit rating.
The high operational risk profile assessment is based on strong scores for market position, geographic diversification, business profile, and corporate governance. The Company is the leader of the residential real estate market in New Moscow with a 31% share for 9M 2023. In the Agency’s view, the residential market of the Moscow area, including New Moscow, is one of the most voluminous, stable and marginal markets; therefore, the geographic diversification of A101 is assessed as very high as per ACRA’s methodology.
The Agency assesses the diversification of the Company’s projects at a medium level. The progress on the Company’s projects is very high: the average sales rate of A101’s apartments is ahead of their average completeness, the deviation of actual construction dates from the planned ones is historically insignificant (with the exception of the COVID-19 pandemic period). The Company engages construction subcontractors, while acting as a general contractor and a technical customer. A significant share of design work is carried out by the Company’s own design institute. In the assessment of the business profile, the Agency also takes into account the Company’s unique experience in integrated development projects, as well as the significant volume of the land bank owned by the Company (over 20 mln sq. meters).
In the Agency’s opinion, the Company’s strategy is successful, consistent and allows it to strengthen its position in the market. The management structure is assessed at a very high level. Risk management and financial transparency assessments are adequate. The group structure is moderately complicated, which reflects the specifics of the residential construction industry and the regulatory environment of the industry.
The Company’s very high profitability is ensured by economies of scale specific to integrated development projects, low historical costs of acquisition of the land bank owned by the Company, high product quality, and cost control at all stages of project implementation. The FFO before net interest and taxes margin for 2022 is 33%, and the weighted average FFO before net interest and taxes margin for 2021–2026 is estimated by the Agency at 24.3%.
Low leverage and very high coverage assessments. In its calculations of the ratio of net debt to FFO before interest and taxes, ACRA adjusts the total debt by the amount of project finance debt secured by buyers’ escrow accounts. The weighted average ratio of adjusted net debt to FFO before net interest for 2021–2026 is estimated by the Agency at 0.4x. The concentration of the Company’s loan portfolio on a single lender and a peak repayment expected in 2025 have a restraining effect on the leverage assessment. At the same time, ACRA notes that the concentration of the Company’s loan portfolio is economically feasible due to the highly favorable lending terms and conditions, while the peak debt repayment does not carry significant risks due to the Company’s very strong free cash flow (FCF). The weighted average ratio of FFO before net interest to net interest for 2021–2026 is estimated by ACRA at 10.7x.
KEY ASSUMPTIONS
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Completing projects as planned.
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No significant price fall in the primary residential real estate market of New Moscow in 2024–2026.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Weighted average FFO before net interest and taxes exceeding RUB 100 bln.
A negative rating action may be prompted by:
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Weighted average ratio of adjusted net debt to FFO before net interest exceeding 1.0x;
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Weighted average ratio of FFO before net interest to interest declining below 8.0х.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Support: no.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to A101 LLC under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
A credit rating has been assigned to A101 LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by A101 LLC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and A101 LLC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to A101 LLC. No conflicts of interest were discovered in the course of credit rating assignment.
