Globalworth Real Estate sees credit rating downgraded by S&P Global Ratings

Investing.com -- S&P Global Ratings has downgraded its long-term issuer credit rating on Globalworth Real Estate Investments Ltd. to ’BB’ from ’BB+’ due to a challenging operating environment and low interest coverage ratio. The credit rating agency also lowered its issue rating on the company’s senior unsecured bonds to ’BB-’ from ’BB’. Despite the downgrade, the outlook for the company remains stable.

Globalworth’s operating performance fell short of expectations in 2024 due to higher funding costs and a decrease in its EBITDA interest coverage ratio to 1.8x. The company’s S&P Global Ratings-adjusted debt-to-debt-plus-equity ratio is expected to rise to 42%-43% over the next 12-24 months, up from 39.6% in 2024. This increase is due to the company’s strategy to invest in its portfolio over the same period.

In 2024, the company saw its S&P Global Ratings-adjusted EBITDA margin drop by about 2 percentage points to 77%. This was due to stagnating occupancy rates and an unexpected rise in costs. The company’s overall occupancy rate in 2024 was 86.7%, down from 88.3% in 2023. The company’s EBITDA margin decreased to 77.4% in 2024 from 79.2% in 2023.

Globalworth’s EBITDA interest coverage fell to 1.8x at the end of 2024, well below the previous base case of above 2x. The company’s cost of debt increased significantly to 4.9%, up from 2.89% in 2022 and 3.7% in 2023. The higher funding costs, coupled with a challenging operational environment, have resulted in the company’s EBITDA interest coverage falling below the comfort threshold for a ’BB+’ rating. The average cost of debt is expected to remain at about 5.0% over the next 12-24 months.

Over the next 12-24 months, Globalworth plans to invest in its portfolio. This will likely result in an increase in the adjusted debt to debt plus equity ratio to 42%-43% from 39.6% at the end of 2024. The company plans to make selective acquisitions of about €100 million over the next 12-18 months and expects to spend about €90 million-€100 million in 2025 and about €60 million-€80 million in 2026 on capital expenditure.

Despite the downgrade, Globalworth’s liquidity remains strong, supported by a high cash balance of over €300 million at the end of 2024. The company has limited debt maturing over the next 12 -24 months following its refinancing activities in 2024.

The stable outlook reflects the expectation that cash flows from Globalworth’s income-generating property portfolio will remain relatively stable over the next 12 months, despite current market uncertainty. The company is expected to maintain occupancy rates of about 88%-89% and its debt-to-debt-plus-equity ratio is forecasted to increase to 42%-43% with an EBITDA interest coverage of close to 1.8x and a debt to EBITDA of about 9.0x over the next 12 months.

S&P Global Ratings has stated that it could lower the ratings if the debt to debt plus equity increases toward 60% for a prolonged period, EBITDA interest coverage falls below 1.8x on a sustainable basis, or debt to EBITDA increases closer to 13x. The rating could also be lowered if market conditions worsen and Globalworth’s operating performance weakens beyond the current base case, with occupancy rates declining or the company’s liquidity position deteriorating. Conversely, the rating may be raised if Globalworth’s EBITDA-interest-coverage ratio improves to comfortably above 1.8x on a sustainable basis, the debt-to-debt-plus-equity ratio remains close to 40%, and debt to EBITDA stays below 9.5x. Any upgrade would also depend upon the company’s ability to maintain solid operating performance, including positive like-for-like rental growth, and improving occupancy levels.

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