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Rating Action:

Moody's affirms Globalworth's Baa3 ratings and changes outlook to stable

11 Nov 2021

Frankfurt am Main, November 11, 2021 -- Moody's Investors Service, ("Moody's") has today affirmed Globalworth Real Estate Investments Limited ("Globalworth" or "the company") Baa3 long-term issuer rating and the Baa3 ratings on its €550 million senior unsecured notes due 2022, its €550 million senior unsecured euro medium term notes maturing 2025 and its €400 million senior unsecured euro medium term notes maturing 2026. At the same time Moody's changed the company's rating outlook to stable from negative.

RATINGS RATIONALE

The affirmation of the company's Baa3 rating reflects the company's prime quality of its office portfolio, leading market position and a strong tenant base, which supported a resilient rental income generation through 2021, notwithstanding the pandemic-driven softening of occupier and investment dynamics in its main markets Government of Poland -- A2 stable - (53% of its contracted rent as of 30 June 2021) and Government of Romania -- Baa3 stable - (47% of its contracted rent).

Company's financial leverage is moderate, supported by management's strong commitment to a disciplined capital allocation. Earnings-based credit metrics will remain somewhat weak until year-end 2021, however we expect that these also improve over the next 12 to 24 months, supported by the initiated recovery of its occupier markets, in line with the expected significantly stronger economic activity from this year on.

Against structural changes leading to hybrid workspace models, we expect a more resilient tenant demand and investment appetite for high-quality type of properties with strong energy credentials such as those owned by Globalworth. In the medium-term the strong economic growth potential of its key markets will likely continue fuelling future demand for office space.

Challenges to the rating include higher downside risks to properties' valuation and access to capital in Romania and Poland than those in core European countries; current discount to net asset value (NAV) and concentrated ownership limiting a broader access to equity markets, mitigated by the solid financial standing and the explicit support of controlling shareholders such as CPI Property Group (Baa2 negative) and Aroundtown to company's existing financial policies and investment grade rating.

Earnings-based credit metrics will likely remain weakly positioned with respect to rating guidance until year-end 2022; however the stable outlook reflects Moody's expectation that the company will return to solid operational performance that will lead to a strengthening of its Moody's adjusted fixed charge coverage ratio towards 3x and a declining Moody's adjusted net debt to EBITDA to levels below 10x from 2023 on. We expect immediate pressure on pricing and occupancy from new office supply in its main markets to be largely mitigated by the high quality of Globalworth's office properties, historical solid tenant retention and its disciplined development approach; all the latter will enable the company to gradually increase occupancy while benefitting from additional earnings contribution of pre-leased-projects to be delivered over the next 12 to 24 months. The outlook also reflects Moody's expectation that the company will maintain credit metrics commensurate with its publicly communicated financial policy, of maintaining its LTV at below 40%.

The stable outlook further reflects the affirmation of the Government of Romania's Baa3 sovereign rating with stable outlook. The rating is supported by Moody's expectation that Romania's post-coronavirus growth potential will remain underpinned by a dynamic private sector and the commitment of foreign-owned companies operating in Romania. As well as the country's moderate institutions and governance. For further information on the sovereign rating action, please refer to Moody's press release dated 15 October 2021: https://www.moodys.com/research/--PR_455848.

LIQUIDITY

Globalworth's liquidity is strong with a high cash balance of €460 million and adequately sized RCF of €215 million (undrawn), enhanced by a large pool of unencumbered investment properties exceeding €2.7 billion.

Moody's-adjusted funds from operations will be between €80 million and €85 million per year from 2022 on. These funds together with existing liquidity and incoming cash proceeds from signed disposals will comfortably cover all expected cash needs in the next 12 to 18 months.

The company continues building a solid track record in accessing the public capital markets, hereby pro-actively managing refinancing risk. As a result, the outstanding balance of its 2022 bond will be comfortably covered from cash on hand. Debt maturities concentration from 2025 will require refinancing well in advance.

Our liquidity assessment also considers that the company benefits from broad pool of banking partners and a strong relationship with them.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade could occur if the company:

» returns to growing its asset base while maintaining a solid operating performance characterized by occupancy rates at least in line with historic levels of around 95% and like-for-like net rental income growth across its portfolio, in a favourable operating environment

» continues building a track record in accessing all forms of debt and equity capital

» maintains Moody's-adjusted gross debt/total assets below 35% coupled with a declining net debt to EBITDA ratio

» keeps Moody's-adjusted fixed-charge coverage ratio above 4.0x

» maintains strong liquidity and a long-dated well-staggered debt maturity profile while successfully addressing any refinance needs well ahead of maturity

» maintains a robust unencumbered assets ratio with a high-quality asset pool in strong jurisdictions

Negative rating pressure could develop in case of:

» Failure to stabilise operating performance, reduce vacancy rate and ease price pressure on rents, or if property market fundamentals were to weaken further

» Effective leverage maintained above 40% for a prolonged period of time or a sustained increase in its net debt/EBITDA ratio

» Fixed-charge coverage ratio remaining below 3.0x on a sustained basis

» Failure to address debt maturities well in advance

» Increase in its development pipeline towards 10% without meaningful pre-letting ratios

ESG CONSIDERATIONS

Globalworth has a modern investment portfolio, with 73% developed or refurbished in or after 2014. As of H1 2021, 92% of the standing commercial portfolio was BREEAM "Very Good", "Excellent" and "Outstanding" or LEED "Gold" and "Platinum" or EDGE certified, with the remaining part currently under certification. This helps attract and retain tenants looking for energy-efficient office space to optimise operating costs while achieving their own environmental targets, which often include reducing energy consumption. Investment demand for future-proof properties like the ones held by Globalworth will also remain strong in the context of rising regulation.

Globalworth is publicly listed in the London AIM market, which imposes minimum requirements on the company's quality of financial reporting and governance, which is an advantage over privately controlled non-public companies. The observance of balanced financial policies including a long-term LTV target of less than 40% supports the company's good track record in accessing the capital markets.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

As of 30 June 2021, Globalworth owned a €2.8 billion standing property portfolio located in Romania (largely within Bucharest's central business district area) and Poland, which had €185.2 million contracted annual rental income. The company is listed on the London AIM market, with a market capitalization of €1.34 billion as of 09 November 2021.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ana Luz Silva Robles
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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