Investing.com -- S&P Global Ratings has downgraded its rating on Grand City Properties S.A. (GCP), a subsidiary of real estate company Aroundtown S.A. (AT), from ’BBB+’ to ’BBB’. The move, announced on April 29, 2025, follows a similar action on its parent company, Aroundtown. The downgrade is attributed to sustained tight credit metrics and a delayed disposal path.
S&P Global continues to view GCP as a highly strategic subsidiary of AT, integral to the group’s current identity and future strategy. The ratings agency also lowered its long-term ratings on GCP’s senior unsecured notes to ’BBB’ from ’BBB+’, and its rating on the subsidiary’s subordinated debt to ’BB+’ from ’BBB-’. The ’A-2’ short-term ratings were affirmed, and GCP’s stand-alone credit profile continues to be assessed at ’bbb+’.
The stable outlook for GCP mirrors that of AT. S&P Global expects the company to maintain steady and predictable income from its existing assets and that its overall operating performance will remain stable. Projections for Aroundtown include a debt-to-debt-plus-equity ratio of approximately 50%-52%, a debt-to-EBITDA ratio of 13.0x-14.0x, and EBITDA interest coverage of 2.2x-2.3x over the next 12-24 months.
The rating on AT was lowered to ’BBB’ due to a slower-than-expected deleveraging path and a challenging transaction market. Despite AT’s successful disposal strategy and good track record, recent market volatility and a weaker German economy are expected to hinder the company’s ability to complete about €1.1 billion in previously expected asset sales in 2025. The company is not expected to supplement this shortfall with equity, equity-like instruments, or other measures. As a result, disposal expectations for fiscal year 2025 have been lowered to about €500 million-€700 million, with no disposals anticipated in 2026.
GCP has created headroom under S&P Global’s downside threshold of 45% for debt-to-debt-plus-equity. As of December 31, 2024, GCP reported an S&P Global Ratings-adjusted debt-to-debt-plus-equity ratio of 43.5%, a significant improvement from 49.3% reported a year earlier. The improvement is primarily due to GCP successfully exchanging its non-called hybrid notes, which led to a reassessment of its equity content from 0% to 50%. The company also suspended common dividends and executed asset disposals, achieving slightly positive like-for-like portfolio value growth of 0.5% in 2024.
GCP’s operating performance is expected to remain resilient, supported by positive fundamentals in residential markets. The company reported like-for-like rental growth of 3.8% in 2024, with a stable occupancy rate of 96.2% for its overall portfolio. Positive like-for-like rental growth of 2.5%-3.0% annually is expected in 2025 and 2026.
The company maintains strong liquidity, with a high unrestricted cash position of about €1.5 billion on the balance sheet as of December 31, 2024, an undrawn revolving credit facility of €200 million, and about €125 million in disposal proceeds to be received after the reporting date. These sources are expected to sufficiently cover upcoming debt maturities for the next two-to-three years.
The stable outlook on GCP reflects that on AT and the expectation that the company will continue to generate stable and predictable income from its existing assets. Potential triggers for a downgrade of GCP include an increase in AT’s debt to debt plus equity toward 60%, a decrease in EBITDA interest coverage toward 1.8x, or a material deviation in debt to EBITDA from forecast. An upgrade hinges on AT achieving debt to debt plus equity well below 50%, EBITDA interest coverage above 2.4x, and debt to EBITDA toward 13.0x on a prolonged basis.
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