Scope completed its monitoring review for Globe Trade Centre S.A. and its subsidiary GTC Real Estate Development Hungary Zrt. including the current ratings on 19 February 2021. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The BBB-/Stable issuer rating is supported by GTC's market positioning in Central Eastern (CEE) and Southeastern Europe (SEE). The company’s well-located, relatively young property portfolio helps to attract blue-chip tenants. This keeps occupancy high (94% as at end-September 2020) and supports stable cash flow and credit metrics. Credit metrics for the period to end-September 2020 remained in line with Scope’s rating scenario, including a Scope-adjusted loan/value ratio of around 50% (Q3 2020: 48%) and Scope-adjusted EBITDA interest cover of above 3x (LTM to end-September 2020: 3.6x). Rent collection remained comparatively strong at 92% for GTC’s retail portfolio, limiting the overall Covid-19 impact on the gross margin to around EUR 10m for the nine months to end-September 2020. Scope does not anticipate that new lockdowns being implemented across GTC’s markets by late 2020 will negatively impact the company’s cash generation beyond the agency’s rating scenario.

The rating is constrained by ongoing re-letting risk, given GTC’s short weighted average unexpired lease term of three years as at end-September 2020, amplified by its strong exposure to the retail segment (36% of annualised in-place rent as at end-September 2020). Scope forecasts that tenant demand will weaken in this segment, impairing the fair value of GTC’s retail portfolio. The latter has led to limited headroom under bank loan covenants, which poses a continuous threat in the current market environment. GTC issued a profit warning on 21 December 2020 due to a EUR 74m devaluation of its property portfolio for the three months to end-December 2020. However, the company does not expect any additional covenant breaches following this devaluation. Scope understands that available cash will be used to partially repay loans with limited headroom under financial covenants in Q1 2021.

GTC successfully issued a HUF 40bn (EUR 110m) bond in December 2020 via its wholly owned subsidiary GTC Development Hungary Zrt. under the MNB Bond Funding for Growth Scheme (maturity: 12/2030, coupon: 2.25% - denominated in HUF). Furthermore, GTC Real Estate Development Hungary Zrt. plans to issue a new HUF 18bn (approx. EUR 50m) bond under the MNB Bond Funding for Growth Scheme guaranteed by GTC S.A. Proceeds are earmarked to finance real estate acquisition, redevelopment and construction projects as well as refinance existing debt by the issuer and guarantor (or other members of the guarantor’s group). The bond’s tenor will be 10 years with 10% of its face value subject to amortisation seven, eight and nine years after its issuance. The coupon will be fixed and payable on an annual basis¹. Senior unsecured bonds as well as all future debt of GTC Real Estate Development Hungary Zrt. are irrevocably and unconditionally guaranteed by Globe Trade Centre S.A.

1. The sentence regarding the coupon of the bond was added on 23 February 2021.

The methodologies applicable for the reviewed ratings and rating Outlook (Corporate Rating Methodology, 26 February 2020; Rating Methodology: European Real Estate Corporates, 15 January 2021) are available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Philipp Wass, Executive Director

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