Dutch Social Housing Provider Stichting Stadgenoot 'AA' Ratings Affirmed; Outlook Stable
- We continue to forecast that Stadgenoot's EBITDA margin will recover from last year's relatively weak performance, as the company completes its asset management program.
- After reducing debt for the past year, Stadgenoot will likely increase its borrowings over the coming two years to support its capital expenditure program.
- We are affirming our 'AA' long-term issuer credit rating on Stadgenoot. The outlook is stable.
STOCKHOLM (S&P Global Ratings) Nov. 25, 2019--S&P Global Ratings today affirmed its 'AA' foreign- and local-currency long-term issuer credit ratings on Dutch social housing provider Stichting Stadgenoot. The outlook is stable.
We continue to assume Stadgenoot's performance will rebound from a relatively weak 2018. Recovery will stem from strong economic fundamentals in Amsterdam, alongside the company's completion of its asset management program. Although we forecast Stadgenoot's nominal debt will increase, we expect management will remain committed to prudent risk management and contain debt to EBITDA of about 14x.
We incorporate a one-notch uplift into the 'AA' rating from our assessment of the company's stand-alone credit profile. This is because we see a high likelihood that Stadgenoot would receive timely and sufficient extraordinary support from the government of the Netherlands if needed. This reflects our view that Stadgenoot plays an important policy role for the government, since it is a key provider of social housing in the Amsterdam region. Also, we consider that Stadgenoot has a very strong link to the Dutch government, owing to frequent and ongoing oversight from the regulator, Autoriteit Woningcorporaties (Aw). In addition, the Dutch government has a track record of monitoring and facilitating the recovery efforts of housing associations in financial distress so that they return to a sound financial position.
Housing demand in Amsterdam remains solid, on the back of strong population growth, averaging 1.4% annually over the past three years. The average social rent is 51% of the market rent, which we believe further supports the city's strong economic fundamentals. With about 35,000 units under management, Stadgenoot has a secure foothold as one of the city's key providers of social housing. In addition, Stadgenoot operates in a low-risk industry, with stable and predictable earnings and regulatory oversight.
We believe Stadgenoot's low vacancy rates (about 2%) and well-maintained housing portfolio supports asset quality. In addition, we regard the company's management as experienced and risk averse, with conservative financial management and long-term strategies underpinned by regulatory requirements.
As we expected, Stadgenoot posted relatively weaker performance in 2018, owing to the reduction of profitable assets sales weighing on the EBITDA result. Through our forecast period, we anticipate Stadgenoot's performance will recover gradually, as new social housing units start generating revenues, while the company continues to phase out less profitable commercial and garage units.
Dutch social housing guarantee fund Waarborgfonds Sociale Woningbouw (WSW) acts as guarantor for the sectors loans and needed to honor its obligation to two failing associations. As a result, we anticipate that WSW may call on its members, including Stadgenoot, for additional capital, and have reflected this in our base case.
After years of deleveraging as it wraps up its asset management program, Stadgenoot will likely increase its nominal debt by €37 million each year through 2021. The issuances would support Stadgenoot's increasing capital expenditure (capex) as Stadgenoot starts to build out its social rent portfolio. That said, we expect Stadgenoot's debt-to-EBIDTA and EBITDA interest cover ratios to remain stable, supported by conservative debt policies and good operating performance. As Stadgenoot is now scaling back its asset sales, we no longer consider its sizable volumes of unencumbered assets as having an immediate positive impact on our assessment of debt burden.
The Dutch social housing sector benefits from the guarantees provided by WSW. By year-end 2018, WSW guaranteed €1.3 billion of Stadgenoot's outstanding debt. The fund's guarantee is conditional on compliance with a set of financial ratios, which Stadgenoot meets. Our view that Stadgenoot is highly likely to receive support if needed is underpinned by its entitlement to the restructuring fund that WSW has built up using contributions from the housing association sector. WSW, on mandate from the Dutch government, has clear measures in place to protect social housing assets during the recovery and restructuring of a failing entity.
Stadgenoot's favorable liquidity position rests on an ample amount of contracted facilities and internal cash generation, covering 1.8x of coming 12 months liquidity outflows, alongside our view of strong access to external liquidity. We also assess Stadgenoot's access to external liquidity as strong, given its solid relationships with BNG Bank N.V. and ING Bank N.V., and that almost all bank loans are guaranteed under WSW's guarantee scheme, supporting the refinancing of upcoming debt maturities.
Sources of liquidity include:
- Forecasted cash generated from continuing operations of close to €100 million;
- Cash and liquid investments exceeding €80 million;
- Proceeds from asset sales of about €56 million; and
- Committed and available portion of bank facilities amounting to €199 million.
Uses of liquidity include:
- Expected capex of €176 million; and
- Debt service obligations, including interest payments of more than €64 million.
The stable outlook reflects our expectation Stadgenoot will post adjusted five-year-average EBITDA margins of more than 40%, teamed with a contained debt burden and a sustained favorable liquidity position.
We could lower the ratings if Stadgenoot's financial performance deteriorates such that EBITDA falls to less than 40% of revenues for an extended period, or if the liquidity position weakens from its current level. In this scenario, we would likely also review the group's strategy and financial policies.
An upgrade would hinge on a notable strengthening of Stadgenoot's financial position, including improved profitability, thanks to, for instance, improved cost efficiency. Thanks to healthier operating performance, we would also expect Stadgenoot's EBITDA-related debt metrics to strengthen. An upgrade could also occur if we reassessed the likelihood of support from the government to very high.
Related Criteria
- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
- Criteria | Governments | General: Methodology For Rating Public And Nonprofit Social Housing Providers, Dec. 17, 2014
- General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related Research
- Dutch Social Housing Guarantee Fund WSW Outlook Revised To Stable; 'AAA' Rating Affirmed, July 25, 2019
- Summary: Netherlands, Nov. 15, 2019
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| Primary Credit Analyst: | Erik A Karlsson, Stockholm + 46(0)84405924; erik.karlsson@spglobal.com |
| Secondary Contact: | Karin Erlander, London (44) 20-7176-3584; karin.erlander@spglobal.com |
| Additional Contact: | EMEA Sovereign and IPF; SovereignIPF@spglobal.com |
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