The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has affirmed the issuer rating of Euroboden GmbH at B+/Stable as well as the BB debt class rating on senior unsecured debt after the H1 2020/21 report.

Rating rationale

The affirmation reflects operating profits for 2019/20 and H1 2020/21 as well as a continued expansion of the issuer’s development pipeline to c. EUR 1.5bn within the past twelve months (+25% y-o-y) fully in line with Scope’s existing financial base case.

With regards to the business profile, assessed B+, the company remains a relatively small real estate developer with a geographical concentration around its two core markets of Munich (76% of estimated pipeline sales) and Berlin (18%) that has again shifted to Munich compared to last year as a result of asset sales in Berlin. Scope nevertheless deems the company’s market shares and visibility in those two cities as robust also in light of continued robust demand for high-quality residential real estate throughout and after the Covid-19 pandemic. Asset quality remains a major credit-positive factor for the company’s business risk profile, with a continuing focus on ‘A’ locations and thus relatively liquid real estate projects. The issuer’s track record and brand name allow for off-market deals, which ensure the constant replenishment and further growth of the project pipeline, as demonstrated in the past business years. Going forward, profitability is expected to stay within a range of Scope-adjusted EBITDA margin of 15% to 30% depending on the timing of project completions. The financial risk profile, assessed B+, benefits from Scope’s expectation of Scope-adjusted EBITDA interest coverage significantly exceeding 1x going forward and of a gradual reduction in the volatility of cash profits via the larger and thus more granular project portfolio. It is constrained by the increase in financial leverage, as measured by the Scope-adjusted loan/value (LTV) ratio, which Scope still forecasts at between 50% and 60% for the next two business years. Furthermore, leverage as measured by Scope-adjusted Debt (SaD) / Scope-adjusted EBITDA is expected in a range of 10x to 11x for the next two years in Scope’s financial base case. The liquidity assessment of the issuer has improved to adequate from weak. While liquidity still suffers from substantial short-term debt and negative free operating cash flows as a result of the ongoing expansion, it benefits from an increased volume of undrawn committed credit lines as well as the fact that a substantial portion of expansion capex is of a discretionary nature. In the case of a weaker-than-expected liquidity situation, project acquisitions as well as constructions starts could be postponed or cancelled. Scope therefore expects the issuer to be able to meet all its financial obligations in a reliable manner.

Outlook and rating-change drivers

The Outlook for EUROBODEN is Stable and incorporates the assumption of an LTV at the upper end of the range between 40% and 60% as well as sales executed at expected prices on the growing project pipeline. Moreover, Scope expects Scope-adjusted EBITDA interest cover of substantially above 1x and ongoing adequate access to capital markets and bank debt to finance short-term debt positions.

A positive rating action would require an improvement of the company’s financial risk profile with LTV of below 40% on a sustained basis.

A negative rating action might be warranted if the issuer shows an LTV of more than 60% on a sustained basis or weakening access to bank financing. This could be caused by the underperformance of its development projects.

Long and short-term debt instrument ratings

As at September 2021 EUROBODEN has c. EUR 85m of senior unsecured capital market debt outstanding. According to Scope’s methodology and reasonable discounts on the company’s asset base, Scope expects an above average recovery of more than 71% thus allowing for a two-notch uplift on the company’s issuer rating. This translates into an affirmation of the BB rating for senior unsecured debt. 

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: European Real Estate Corporates, 15 January 2021), are available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Denis Kuhn, Associate Director
Person responsible for approval of the Credit Ratings: Tommy Träsk, Director
The Credit Ratings/Outlook were first released by Scope Ratings on 28 May 2015. The Credit Ratings/Outlook were last updated on 30 September 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.