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 SkyGreen Buildings Kft. The agency has also affirmed the senior unsecured debt rating at B+ and the senior secured bond (ISIN HU0000360201) rating at BB. Simultaneously, Scope has withdrawn the issuer rating/Outlook, the senior unsecured debt rating and the senior secured bond rating (ISIN HU0000360201) and decided to cease the analytical coverage for business reasons.

Rating rationale

SkyGreen’s business risk profile is driven by its commercial real estate portfolio exposure to the second-tier investment market of Budapest with stable tenant demand. The last two years have seen the company reshuffle its portfolio through disposals (Eiffel Square building, Millenáris Avantgarde, Váci Greens Building D) and the addition of five category A office buildings: Kálmán Imre, Úri 72, and InfoPark Buildings B, C and I (SPA signed in October 2021). In addition, it has purchased a 100% stake in an investment fund (owner of Váci Greens F) and initiated the purchase of one more asset (in progress). As a result, its Scope-adjusted assets have increased to above EUR 300m at November 2021 (vs around EUR 160m for FY 2020). Despite the additions to its portfolio, SkyGreen remains a relatively small company in a European and domestic context. Weak geographical diversification – all assets are in Budapest – and weak portfolio diversification remain the main rating constraints.

The rating is underpinned by SkyGreen’s investment approach, which results in stable rental cash flow generation and relative high profitability. The portfolio’s average occupancy rate has weakened to around 80% compared to 100% in prior years. However, the seller’s 18-month rental guarantees, covering vacant areas in the newly acquired assets, will lift effective occupancy to nearly 100% across the portfolio.

SkyGreen’s financial risk profile benefits from robust credit metrics. Its Scope-adjusted LTV ratio stood at a low level of 18% in December 2020. This resulted from the company holding a large amount of cash at the end of 2020 after the issuance of a HUF 32bn (about EUR 89m) secured bond (EUR 69m issued at the end of 2020 and EUR 19.4m in the first quarter of 2021). No further external funding is planned, according to the company. Scope expects the Scope-adjusted LTV ratio to increase to around 50% at the issuer level and remain there for the next few years. Debt protection should benefit from high cash visibility in the next few years, backed by the newly acquired assets having medium-term leases and the seller providing a three-year master lease for areas vacant at closing plus an additional EUR 300,000 rental guarantee for areas that become vacant after the transaction is complete.

The HUF 32bn senior secured bond was issued through the Central Bank of Hungary’s Bond Funding for Growth Scheme. The bond benefits from a first-ranking pledge on the Váci Greens E building (EUR 80.6m) and three of the assets to be acquired via bond proceeds (InfoPark B, C and I; about EUR 81.1m). According to the company, remaining resources from the bond are earmarked to finance the acquisition of a fourth asset (InfoPark D; about EUR 48.8m) in a process that is currently being negotiated. The financing gap will be covered by bank loans (EUR 34.8m) that will have a first-ranking mortgage on the property.

Scope notes the risk of potential violations of existing bond covenants, namely the negative pledge and loan/value commitment. Incurring bank debt that ranks senior to the secured bond in order to finance the acquisition of InfoPark D is seen as a potential breach of the negative pledge covenant, although Scope believes the company will address this issue with bondholders in advance. The loan/value commitment (maximum loan/value ratio of 60%) could be potentially breached if the company added more senior financing. However, Scope sees no material risk at this point, as the company has stated that it will not add any further external funding to the structure.

Long-term debt rating

Scope’s recovery analysis assumes a potential default in 2023. The analysis is based on SkyGreen’s liquidation value, considering the company’s portfolio of around EUR 300m. Scope’s methodology and reasonable discounts on the company’s asset base anticipate an ‘above average’ recovery for senior secured debt. Scope has therefore affirmed and withdrawn its senior secured bond emission (ISIN HU0000360201) rating of BB. 

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 Outlooks, (Rating Methodology: European Real Estate Corporates, 15 January 2021; Corporate Rating Methodology, 6 July 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 Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Rigel Scheller, Director
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The issuer Credit Rating/Outlook were first released by Scope Ratings on 4 October 2019. The Credit Rating/Outlook were last updated on 14 December 2020.
The senior unsecured debt Credit Rating were first released by Scope Ratings on 14 December 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
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