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Related Research
Rating Action:

Moody's assigns a Baa2 rating to CPI Hungary Investments Kft. and its new senior unsecured bonds, guaranteed by CPI Property Group

03 Aug 2020

Frankfurt am Main, August 03, 2020 -- Moody's Investors Service, ("Moody's") has today assigned a Baa2 rating to CPI Hungary Investments Kft. ("The Issuer") and its new HUF 30 billion backed senior unsecured bonds (ISIN HU0000359898), guaranteed by CPI Property Group ("The Guarantor"). The outlook on CPI Hungary Investments Kft. is negative.

RATINGS RATIONALE

The Baa2 rating assigned to CPI Hungary Investments Kft. and its new issuance of HUF 30 billion backed senior unsecured bonds reflects the backed nature of the bonds, which are fully and unconditionally guaranteed by CPI Property Group rated Baa2 with negative outlook. The tenor of the bonds is 10 years with bullet maturity and an annual coupon of 2.25% in local currency terms.

We understand that the proceeds from the issue will be general corporate purposes which, according to the company, may include capital expenditures, acquisitions, developments, debt repayment or retention of cash. The proceeds will also be allocated in line with CPI Property Group's Green Bond Framework.

The bonds will rank pari passu with all other existing and future senior unsecured obligations of the Issuer and the Guarantor. The bonds benefit from financial covenants (calculated on a consolidated basis for the group, being the Guarantor and its subsidiaries), that limit the group's leverage to 60% and issuance of secured debt to 45%, and set a minimum interest coverage level of 1.9x, in line with the documentation of the Guarantor's EUR 8 billion Euro Medium Term Note Programme.

The holders of the new backed senior unsecured bonds will be subordinated to the existing secured bank debt. As of 31 December 2019, 25 per cent of the group's indebtedness (including bonds issued and financial debts) was secured by pledges over property in its portfolio.

The Guarantor's Baa2 long-term issuer rating reflects the company's strong business profile supported by the good quality of its portfolio and its robust geographical and segment diversification. It further considers management's solid operational execution and its commitment to balanced financial policies. This, together with an excellent liquidity profile and strong access to debt capital markets, even in uncertain times, will help the company to navigate through the expected less benign operating environment. For further information on the Guarantor's long-term issuer rating, please refer to Moody's press release dated 20 May 2020: https://www.moodys.com/research/--PR_424698.

RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook incorporates the risk that the coronavirus outbreak puts greater pressure on the occupier and investment sentiment in the group's core markets. Against the backdrop of an economic contraction in 2020 and uncertainty around the pace of recovery in 2021, we anticipate that the group could face more challenging operating conditions, including weaker rental growth prospects and downside pressure on capital values. However, we recognize that the group has financial flexibility to protect its rating, supported by its clear financial policy.

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

Negative rating pressure could develop if a heightened uncertainty about the economic impact of the coronavirus pandemic translate into sustained weakened real estate market fundamentals leading to sharply declining rents and property values across its core operating segments and jurisdictions. Other factors that could lead to a downgrade of CPI Property Group include:

- Moody's-adjusted gross debt/total assets sustained above 45% or material deterioration of Moody's-adjusted net debt to EBITDA beyond the current level (below 13x prior to the impact of COVID-19)

- Moody's-adjusted fixed-charge coverage ratio sustained below 3x

- A widespread and structural inability to maintain or improve footfall, overall retail sales or retail sales per square metre (sqm) in its retail assets

- Its hotel operations contributing a materially higher proportion than the current 9% of the company's portfolio

- A sharp and persistent depreciation of local currencies against the euro that would force the company to heavily discount rents (particularly in its retail portfolio) on a long-term basis

Upward rating pressure is unlikely at this point given the negative outlook, but could arise if CPI Property Group:

- Continued demonstration of solid execution and prudent financial policies through real estate cycles, alongside a balanced growth strategy and an excellent track record of access to all forms of debt and equity capital

- Moody's-adjusted gross debt/total assets falls towards 35% coupled with a declining net debt to EBITDA ratio from the pre-crisis level below 13x, alongside financial policies that support the lower leverage

- Moody's-adjusted fixed-charge coverage ratio sustained above 4x

- Maintenance of strong liquidity and a long-dated well-staggered debt maturity profile, with a record of successfully addressing any refinancing needs well ahead of maturity, combined with a high-quality unencumbered asset pool in strong jurisdictions and an unencumbered asset ratio well above 60%

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

CPI Property Group owns a diversified and good-quality €9.1 billion portfolio of 332 properties as of 31 December 2019 (which includes offices, retail properties, hotels with 12,416 beds) and 11,919 residential units. The company's properties in the Czech Republic (Aa3 stable) and Berlin (Aa1 stable) account for 73% of its portfolio. The portfolio generates around €345 million annual net business income.

The company's portfolio split by value as of 31 December 2019 is 46% office, 24% retail, 9% hotels, 8% residential and a sizeable land bank that makes up around 8% of its portfolio, as well as 2% developments. Other properties represent 2%. The company is listed on the Frankfurt Stock Exchange, with a market capitalisation of ca. €6.1 billion as of 29 July 2020. Radovan Vitek controls 94% of CPI's voting shares.

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

This rating is 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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
Asst Vice President - 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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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