The credit rating of A101 LLC (hereinafter, A101 LLC or the Company) reflects the high assessment of the Company’s operational risk profile, very low leverage, very high coverage, large size of business, high profitability, and strong liquidity. The rating is constrained by very high industry risk (residential construction).
A101 LLC is one of the largest real estate developers in the Moscow area. The Company is engaged in the implementation of residential, commercial, office and other real estate projects in the New Moscow area. As of November 2024, the current housing construction portfolio of the Company, according to the Unified Resource of Developers, was 1.4 mln sq. m. The total construction area, taking into account commercial and social infrastructure, according to the Company, is 2.2 mln sq. m.
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 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 39% share for 9M 2024. In the Agency’s view, the residential market of the Moscow area, including New Moscow, is one of the most voluminous, stable and profitable markets and therefore the geographic diversification of A101 LLC is assessed as high as per ACRA’s methodology.
The Agency also assesses the diversification of the Company’s projects as high. The deadlines and conditions of implementation of the Company’s projects are very high — the average sales rate of A101 LLC’s apartments is ahead of their average completeness, the deviation of actual construction dates from the targets 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 ACRA’s opinion, the Company’s strategy is successful, consistent and allows it to strengthen its market position. The Company’s plans involve maintaining sales in 2024 in physical and monetary terms at the level of 2023. The Agency notes that despite the negative trends in the primary housing market, by the end of 9M 2024, the Company is moving toward successful implementation of its 2024 objectives. For example, the Company’s sales in August to September 2024 demonstrated a rapid recovery after the July decline and, overall, by the end of Q3, almost reached the level of Q1 this year.
The management structure is assessed at a very high level. ACRA notes the growth of the Company’s financial transparency — A101 LLC began publishing operating results in 2024, the Company’s website contains an analyst’s handbook and presentation materials for investors. The Agency has upgraded the Company’s financial transparency score to high. Risk management is assessed as adequate. The group structure is moderately complicated, which reflects the specifics of the residential construction industry and the industry’s regulatory environment.
The Company’s 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.
Very low leverage and very high coverage assessments. In its calculations of the ratio of net debt to FFO before interest and taxes, ACRA has adjusted 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 2022–2027 is less than 1.0x, according to the Agency’s estimates. ACRA notes the concentration of the Company’s loan portfolio on a single lender. At the same time, in the Agency’s opinion, the concentration of the Company’s loan portfolio is economically feasible due to highly favorable lending terms. The weighted average ratio of FFO before net interest payments to net interest payments for 2022–2027 is estimated by ACRA at over 8.0x.
KEY ASSUMPTIONS
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Completion of projects as planned;
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No significant price fall in the primary residential real estate market of New Moscow in 2025–2027;
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Loosening of the Bank of Russia’s monetary policy in H2 2025.
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:
- Size of the Company’s current construction portfolio increasing to 2 mln sq. m and higher project diversification.
A negative rating action may be prompted by:
- Weighted average ratio of adjusted net debt to FFO before net interest payments exceeding 1.0x coupled with the average ratio of FFO before net interest payments to interest payments declining below 8.0х.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): a.
Support: none.
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 Assigning Credit Ratings 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.
The credit rating of A101 LLC was published by ACRA for the first time on December 6, 2023. 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 additional services to A101 LLC. No conflicts of interest were discovered in the course of credit rating assignment.
