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 B+ rating on Wingholding Zrt. and revised the Outlook to Positive from Stable. Senior unsecured debt rating has been affirmed at BB-.

Rating rationale

The Outlook change to Positive is mainly driven by the issuer’s lower-than-expected leverage, with a Scope-adjusted loan/value ratio of below 60% as per the full-year 2020 audited report.

Scope maintains its assessment of the business risk profile at BB along with the issuer’s profitability and asset quality. Recent acquisitions in Poland have improved geographical diversification, client granularity and led to a substantial increase in portfolio size and visibility, strengthening Wingholding`s market position. But the credit-positive effects are partially offset by the increased development risks accompanying the dynamically growing project volume.

Scope continues to assess the financial risk profile at B+. This is due to the remaining execution risks on the timely and profitable sales of assets, which the issuer is still dependent on as shown by its Scope-adjusted interest coverage from recurring (rental and service) revenues, estimated at still below 1.0x. Scope expects free operating cash flow to remain volatile during 2021-23 as the company is anticipated to continue expanding the business and disposing of assets.

Scope-adjusted EBITDA interest cover is forecasted to return above 2.0x from 2022, driven by an increase in profits from asset sales, which incorporates discounts on future profits driven by the uncertainty on development projects including time of delivery among others. Moreover, Scope’s updated financial forecast sees the Scope-adjusted loan/value ratio sustained in the 50%-60% range, which implies upside on the financial risk profile once the Scope-adjusted EBITDA interest coverage from recurring (rental and service) revenues reaches above 1.0x.

Liquidity is adequate, based on the increasing recurring revenues from the investment portfolio, the sufficient buffer of unencumbered assets and a significant portion of discretionary expansion capex.

Outlook and rating-change drivers

The Positive Outlook is based on the continued growth of the issuer’s investment property and development portfolios. The Outlook also incorporates Scope’s expectation that recurring cash flows from rents will increase further, the Scope-adjusted loan/value ratio will stay between 50% and 60% and SaD/EBITDA will gradually decrease towards 10x in the coming years.

A negative rating action might occur if the Scope-adjusted loan/value ratio reached more than 60% or SaD/Scope-adjusted EBITDA remains moderately above 10x on a sustained basis. The increase in the loan/value ratio could be triggered by market value declines prompted by reduced rental income or a deterioration of real estate market sentiment in Hungary while higher-than-expected leverage could be caused by delays in property sales.

A positive rating action might be warranted if the issuer can maintain the Scope-adjusted loan/value ratio below 60% while showing SaD/Scope-adjusted EBITDA of around 10x both on a sustained basis and in line with Scope’s expectations.

Long-term and short-term debt ratings

Scope’s base case assumes a successful issuance in Q3 2021 of roughly HUF 30bn senior unsecured corporate bond volume under the Hungarian Central Bank’s Bond Funding for Growth Scheme.

Scope’s updated financial forecast also resulted in an ‘above-average’ recovery rate for senior unsecured debt holders in a hypothetical liquidation scenario in 2023. The senior unsecured creditors benefit from an above-average unencumbered asset ratio of around 2.5x going forward. This results in a senior unsecured debt instrument rating of BB-, one notch above the issuer rating.

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 Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation YES
With access to internal documents                                     YES
With access to management                                               YES
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: Philipp Wass, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 27 August 2019. The Credit Ratings/Outlook were last updated on 6 May 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.