Fitch Ratings has published
The Outlook is Stable.
The rating reflects K&B's solid business profile and its strong operating cash flow. The company's targeted pre-sales and limited working capital requirements favour the projects' cash-flow cycle. The recent surge in building costs have been offset by an increase in homes' selling prices. Sales visibility at
Key Rating Drivers
Robust Business Profile: K&B specialises in delivering predominantly one to three bed apartments in
Entering the Managed Housing Business: In the past two years, K&B has been expanding its build-to-rent (BTR) segment, with the aim of creating its own portfolio of assets dedicated to students and seniors accommodations. In 2021, K&B acquired 60% of Neoresid, the French provider of student accommodation, while a few years before, K&B entered into a JV agreement with
Limited Funding Needs for BTR: Fitch believes that investments in BTR can be accommodated within the company's current capital structure, considering the limited number, size and timing of the projects and their funding characteristics. K&B is targeting a capital structure for these BTR projects split between equity and debt (50/50), with debt raised at the project level and non-recourse to the rest of the group. In some cases, K&B may also consider involving third-party equity investors, further limiting its capital commitment. The total 2022-27 investment for the student residences amounts to
Buoyant Market Conditions: Demand for new homes in
Building Costs Increase Offset: In the six months ending
Low Leverage Supports Rating: Funds from operations (FFO) gross leverage at
Derivation Summary
K&B ranks among the top five French housebuilders. With revenues exceeding
The Spanish and the French housebuilding markets are highly fragmented. However, the French one compares favourably due to its supportive regulation, various schemes that help the end-customer, as well as the use of optioned land. The pre-sale rate hurdle of K&B at around 60% is nearly double than that of its
K&B's low leverage is commensurate with its investment-grade rating. The only other Fitch-rated entity with low FFO gross leverage and low total debt/EBITDA is Berkeley (around 1.5x and 1.0x, respectively).
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
FY22 revenues to exceed
Gross margin in the high teens during FY22-FY25
No additional debt incurred and repayment of the existing
Dividends progressively increased based on the expectation of gradually increased activity and profits
Managed housing business funded through a mix of equity and non-recourse debt (50/50) raised at project level
Gare d'Austerlitz redevelopment not included in our forecast
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
FFO gross leverage below 1.0x (gross debt/EBITDA below 0.5x) on a sustained basis
Maintaining prudent development with pre-sale rates of at least 60%
Change in the working capital/turnover ratio below 7% on a sustained basis
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Evidence of weakening risk management policies with pre-sale rates materially decreasing below 60%
Change in the working capital/turnover ratio to above 7% on a sustained basis, impacting liquidity
FFO gross leverage above 2.0x (gross debt/EBITDA above 1.5x) on a sustained basis
FFO net leverage above 1.5x (net debt/EBITDA above 1.0x) on a sustained basis
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Ample Liquidity: At 1H22 K&B's liquidity was abundant, comprising
Issuer Profile
K&B is one of the top five French housebuilders by volumes of units delivered. The company specialises in delivering predominantly one to three bed apartments in
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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