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+/Stable issuer rating of Hungarian Real Estate company Kopaszi Gát Zrt. (Kopaszi). Scope has also affirmed the company’s B+ senior unsecured debt rating.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: B+ (unchanged). Kopaszi’s business risk profile remains stable, reflecting its current project pipeline and cash flow visibility. Revenue generation continues to be supported by residential developments and recurring income from commercial assets, which reduces exposure to market cyclicality.

In 2024, Kopaszi completed two residential projects, BRL and BRG, generating approximately EUR 100m in revenue. These developments benefitted from early cost fixation and favourable housing market conditions. The BRK residential project, 30% complete and 31% pre-sold, is scheduled for completion in 2026. Further residential developments, BRI and BRJ, are planned for launch in late 2024 and early 2025, with exits expected in 2027. No handovers are planned for 2025, resulting in an anticipated pause in residential revenue during that year.

A forward-sale agreement for six office buildings, signed in 2023, provides medium-term revenue visibility. The total transaction value is EUR 650m. Completion of the office buildings is expected in 2026. Execution risks associated with the project are mitigated by a fixed-price construction agreement and the credit quality of the customer.

Recurring rental income from retained assets (BOG, BOE, and BHG) remains a stable revenue source. Total recurring revenue is projected at EUR 14m in 2025, driven by higher occupancy rates and inflation-linked rental contracts. Expiring rent-free periods in 2024 and 2025 are expected to further support revenue growth.

Kopaszi’s operating profitability, as measured by the Scope-adjusted EBITDA margin*, turned positive in 2023, supported by residential handovers and stable rental income. In 2024, profitability remained strong due to completed sales from the BRG and BRL projects. Residential developments are expected to generate annual project-level returns of 15%-30%. No residential EBITDA is anticipated in 2025, but rental income will continue to sustain overall profitability. Significant EBITDA contributions are expected in 2026 following the completion of the BRK and forward-sale office projects.

Financial risk profile: B+ (unchanged). The financial risk profile remains stable, supported by strong debt protection metrics and effective cash management. As of 5 November 2024, total debt stood at EUR 176.2m, down from its peak of EUR 230.4m at YE 2023. Approximately 75% of the debt is fixed-rate, with an average interest rate of 5.9%, providing insulation from interest rate volatility. The company’s EBITDA interest coverage is projected to average 18.8x for 2024–2026, reflecting the issuer's ability to meet interest obligations, though pressure is anticipated in 2025 due to limited EBITDA from project handovers.

Leverage, as measured by the debt/EBITDA ratio, was negative in 2022 due to a negative EBITDA. It improved in 2023 with the successful completion of projects, bringing EBITDA to EUR 10.2m. This upward trend continued in 2024, with EBITDA expected to reach EUR 35.4m, driven by the successful exits of the BRG and BRL developments. However, no completions are planned for 2025, leading to a projected EBITDA decline to EUR 5.5m, supported solely by recurring rental income. A significant recovery is expected in 2026, with EBITDA projected to reach EUR 162m, driven by the phased completion of the BRK project and six office buildings valued at EUR 650m.

The loan/value ratio remains stable, supported by the market value of total assets, which is expected to peak at EUR 727m in 2025. Loan/value is forecast to remain below 50% through 2024–2025. Leverage metrics are expected to remain volatile, averaging 14.6x for 2024–2026 under stressed scenarios without cash netting, or 10x when net of cash. These fluctuations are characteristic of the issuer’s project-driven operations and highlight the critical reliance on timely project completions.

While no significant corporate debt facilities are planned, the issuer intends to add only new project-based credit facilities as part of its development plan. The issuer also has access to approximately EUR 35m in undrawn credit lines, providing additional liquidity. Including these facilities, the debt level is not expected to exceed its previous peak of EUR 230m. The issuer's financial stability remains supported by its significant cash position, held largely in risk-free bank deposits earning 6.0–6.5% annually, which offsets some pressure from increased financing costs.

Liquidity: adequate. Kopaszi’s liquidity position is adequate, including cash reserves of EUR 170.3m as of end-June 2024, undrawn credit lines of EUR 38.9m as of November 2024, and a back-loaded debt maturity profile. The next maturity of only EUR 300,000 is due in December 2024, followed by EUR 10.7m in 2026, reducing immediate refinancing pressures. The long maturity of the issued bond further ensures that upcoming short-term maturities remain manageable.

Even if free operating cash flow turns negative in the coming years due to increased working capital requirements, committed investments will be financed through a combination of internal resources and dedicated credit lines allocated for specific developments. Liquidity management remains a critical focus, driven by the significant cash flow requirements associated with large-scale projects such as Amarus. The liquidity buffer is particularly important in 2025 to ensure flexibility for ongoing operations and payment schedules.

The company expects to receive milestone payments for the Amarus project, with the next payment due in January 2025. However, revenue recognition for these payments will be deferred until 2026, when the project is completed.

Supplementary rating drivers: credit-neutral. Supplementary rating drivers have no impact on the issuer rating.

Outlook and rating sensitivities

The Outlook is Stable and reflects Kopaszi's ability to maintain its market position and operational stability in the Hungarian real estate sector. Revenue visibility is supported by a strong project pipeline, including residential developments and forward-sale office projects (representing a backlog of 8x), along with recurring rental income from retained commercial assets (BOG, BOE, and BHG). These factors help to mitigate earnings volatility during transitional periods, such as 2025, when no residential project completions are planned. The Stable Outlook assumes the continued successful execution of Kopaszi's development pipeline and no significant delays in project completions or material deterioration in market conditions.

The upside scenarios for the ratings and Outlook are (collectively):

1. A stronger business risk profile, driven by a significant increase in size, as measured by the development pipeline, leading to greater geographical diversification and project granularity, supporting more stable cash flow. This scenario is currently considered remote.
    
2. Debt/EBITDA stabilised below 8x on a sustained basis.

The downside scenarios for the ratings and Outlook are (individually):

1. Debt/EBITDA remaining well above 12x on a sustained basis, which is not being offset by a high pre-sale rate of above 90%.
    
2. Liquidity weakening, for example, due to reduced access to bank financing or higher-than-anticipated cash absorption from the execution of Kopaszi's development pipeline. This scenario is currently considered unlikely, given the issuer's continued high level of cash.

Debt rating

In January 2022, Kopaszi issued a HUF 34.45bn (EUR 86.7m)¹  senior unsecured corporate bond (HU0000361308) under the MNB Bond Funding for Growth Scheme. The amortisation schedule of the 10-year, fixed-interest instrument assumes repayments of 10% of the face value annually from the 5th to 9th anniversaries, followed by a 50% balloon payment at maturity in 2032.

Proceeds from the bond were allocated to finance future developments, refinance the first-ranking mortgage-backed loan provided by EXIM Bank, and partially refinance the second-ranking mortgage-backed shareholder loan. The bond carries a fixed coupon rate of 5.75%.

Scope’s recovery analysis is based on a hypothetical default scenario at year-end 2025, assuming outstanding senior secured debt of EUR 116.6m, senior unsecured debt of EUR 91.8m (bond), in addition to senior secured payables of approximately of EUR 514.3m. The recovery estimate is assessed as "average," reflecting high sensitivity to distressed asset valuations and the structural subordination of senior unsecured creditors to secured creditors at the property SPV level. The senior unsecured debt rating has been affirmed at B+ (equal to the issuer rating).

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

All rating actions and rated entities

Kopaszi Gát Zrt.

Issuer rating: B+/Stable, affirmation

Senior unsecured debt rating: B+, affirmation

*All credit metrics refer to Scope-adjusted figures.
 
1. EUR:HUF = 397.2, on 31 Sept 2024

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, (General Corporate Rating Methodology, 16 October 2023; European Real Estate Rating Methodology, 28 March 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
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 these 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 and/or Outlook 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: Patrick Murphy, Analyst
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 19 January 2022. The Credit Ratings/Outlook were last updated on 12 December 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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.