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 its B+/Stable issuer rating on Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt. (BIF) and the BB- rating on its senior unsecured debt. Simultaneously, Scope has withdrawn the issuer rating/Outlook and the senior unsecured debt rating for business reasons.

Rating rationale

BIF’s business risk profile benefits from the portfolio’s exposure to the second-tier investment market of Budapest and stable tenant demand. The company’s portfolio is diversified across segments, including office buildings, hotels, parking garages and residential developments. Key performance indicators for BIF’s property portfolio have remained strong in the last twelve months. Total revenues were HUF 6.1bn in 2020 (17% YoY) and HUF 2.4bn to June 2021. This performance was supported by the company’s rental revenue activities, which have held up well in the last months. The portfolio’s average occupancy rate has remained at around 90% in the last few years and some assets in the portfolio are currently under development. Profitability, as measured by the Scope-adjusted EBITDA margin, has also remained strong at above 50% in the last few years. The Covid-19 crisis did not have a material impact on rent collections from the office segment’s core portfolio of properties but did affect the hospitality segment, with the company booking impairments of around HUF 68m to June 2021. As of September 2021, BIF has not reported other significant effects on its rent collections, with less than 1.3% overdue.

The rating continues to be constrained by the company’s small size and market shares, with total assets of around HUF 66bn (about EUR 180m) as of June 2021. Weak geographical – with all assets located in Budapest – and tenant diversification – top 10 tenants account for 66% of rental income as at September 2021 – further constrain the rating. Cluster risk arises from the major asset in BIF’s portfolio, the Vigadó Palace, although this is partially mitigated by the lease extension agreed in the third quarter of 2021.

BIF’s financial risk profile benefits from strong credit metrics. The company’s leverage, as measured by the Scope-adjusted loan/value ratio, stood at 19% and Scope-adjusted debt protection was 15.3x for the last twelve months to June 2021. In the last twelve months, the company has focussed on upgrading some office buildings. BIF initially planned to partly finance the investment with the issuance of a bond under the MNB Bond Funding for Growth Scheme. However, it has now opted for alternative sources for the initial phase of the business plan and does not expect to place the bond in the short term. Scope foresees a certain increase in leverage due to the investment phase planned for the next few years, but the ratio is likely to remain below 40% going forward. BIF’s liquidity is adequate, as unrestricted cash (HUF 8.7bn as of June 2021) covers short-term debt due in the next twelve months (around HUF 611m to June 2021). Liquidity is further enhanced by available credit lines of HUF 2.5bn as of June 2021.

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: Rigel Scheller, Director
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 November 2019. The Credit Ratings/Outlook were last updated on 24 November 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.