CPI Property Group
(société anonyme)
40, rue de la Vallée
L-2661 Luxembourg
R.C.S. Luxembourg: B 102 254

Press Release - Corporate News

Luxembourg, 29 November 2024

CPI PROPERTY GROUP publishes financial results for the third quarter of 2024

CPI PROPERTY GROUP (“CPIPG” or the “Group”), a leading European landlord, hereby publishes unaudited financial results for the nine-month period ending 30 September 2024.

“CPIPG’s Q3 operational results were solid, and we made good progress on capital structure and liquidity,” said David Greenbaum, CEO. “While the Group is not immune to macroeconomic trends facing Germany and other countries, we believe the combination of low interest rates and a lack of new construction will support both tenant and investor demand for high-quality CEE real estate.”

Highlights for the third quarter of 2024 include:

• Total assets were €21.7 billion, and EPRA NRV was €6.8 billion.
• CPIPG’s property portfolio was €18.6 billion (versus €19.5 billion at year-end 2023), reflecting completed disposals and negative FX and valuation movements, partially offset by CapEx investments.
• The Group closed over €1.2 billion of gross disposals year-to-date.
• €440 million of signed disposals are expected to close in the coming months, while €400 million of disposals have received at least one letter of intent and/or are in the due diligence stage. The ongoing total disposal pipeline exceeds €3 billion.
• Net rental income increased by almost 3% to €627 million, driven by like-for-like rental growth of 3.6%. Net business income was €671 million.
• Consolidated adjusted EBITDA was €594 million; FFO1 was €311 million.
• Occupancy remained firm at 91% with a stable WAULT of 3.4 years.
• Net LTV was 50%, and Net Debt was reduced by €848 million compared to year-end 2023.
• Net debt/EBITDA declined by 1.3x to 11.8x on an annualised basis versus year-end 2023.
• Unencumbered assets increased to 51%, and Net ICR slightly improved to 2.6x.
• Total available liquidity was €2.1 billion at the end of Q3 2024.
• The average weighted debt maturity (4.4 years) and average cost of debt (3.23%) increased as a result of the new bond issuance in September and the subsequent bond buyback in October.

Key Topics for Investors and Post-Closing Events
 

Market Commentary

Operational performance is solid with positive like-for-like rental growth of 3.6%, though the pace of growth has slowed as inflation normalises. Group occupancy slightly declined by 0.4%. Across our segments, retail continues to perform very well, with a high occupancy of 97%, as consumer spending remains robust. Offices in our region are resilient, due in part to limited construction activity; some recent declines in occupancy (e.g., Warsaw) are expected to be offset by leases signed in Q4. Hotels performed well with rising average daily room rates and improvements in average occupancy.

Timing Effect of Bond Issuance and Tender on Results

CPIPG issued €700 million of long 7-year bonds on 27 September 2024. On 1 October, the Group repurchased more than €671 million of bonds maturing in 2026 and 2027. As a result, both cash and gross debt are temporarily inflated as of 30 September.

Disposals

The Group has completed €3 billion of disposals since our pipeline began in August 2022: about €900 million were completed in 2022, €900 million in 2023 and €1.2 billion in 2024. While activity in Q3 was slower, €440 million of disposals are expected to close in the coming months, while another €400 million have at least one letter of intent signed and/or are in the due diligence stage.

CPIPG’s total disposal pipeline under consideration exceeds €3 billion. The Group targets disposals of more than €1 billion in 2025 and at least €500 million annually in subsequent years. If successful, the Group expects disposals to gradually return Net LTV towards our target level of 40%, which should support an eventual return to investment grade credit ratings.

Czech Residential SICAV Structure

CPIPG is the second-largest residential landlord in the Czech Republic through our subsidiary CPI Byty, with a fully integrated platform across 11,600 units in 14 cities and an occupancy rate of 91.5%. The Czech Republic remains one of the most expensive European housing markets relative to income, which leads to a lack of affordable housing and strong momentum for higher prices. Individual investors in the Czech Republic are keen to participate in the medium to long-term upside of residential real estate.

CPIPG has initiated preparatory works towards creating a Czech SICAV (open-end investment fund) structure which will acquire stakes in our CPI Byty platform. The SICAV will issue share certificates in attractive sizes that will be tradeable for retail investors. The first phase includes plans to sell approximately 10% of the CPI Byty portfolio, with additional sales depending on the fund’s ability to attract investors. Over time, CPIPG expects to gradually reduce our ownership in CPI Byty through the regular sale of fund shares. The process is subject to regulatory approvals.

People Matters

In keeping with CPIPG’s desire to further strengthen management and accelerate the disposal pipeline, we are pleased to announce that Květa Vojtová and Michal Felcman will join the Group at the beginning of 2025.

As a dynamic duo, Květa and Michal will focus primarily on working with country management to execute disposals and will share the title of Group Head of M&A. Both Květa and Michal are joining from CTP. In addition to her M&A role, Květa will serve as Head of Transaction Legal, while Michal will also serve as Deputy COO.

Tomáš Salajka, a valued colleague for more than 10 years, informed the Board today of his decision to resign from his position as Director of Acquisitions, Asset Management, and Sales at the end of the year. Tomáš also resigned from the Board of CPIPG and the position of Managing Director effective immediately. The entire Group wishes Tomáš the very best for his future endeavours.

Given that Tomáš also resigned from the Group’s Managing Director function, the Board of Directors decided to appoint Zdeněk Havelka and Pavel Měchura as Managing Directors, with immediate effect. Deliberations about potential replacements for Tomáš on the Board of CPIPG are underway.

Financing and Debt Maturities

The Group continues to access multiple forms of liquidity. Today, CPIPG signed binding commitments for a new 3-year unsecured revolving credit facility (RCF). The facility totals €400 million, with an accordion feature for up to €500 million. Lenders in the facility, which will be drawn in Q1 2025 and which will replace the existing RCF maturing in January 2026, are Barclays, Erste Group, Goldman Sachs, Komerční banka, Raiffeisen Bank International and Santander.

CPIPG has issued two benchmark senior unsecured bonds totalling €1.2 billion in 2024, which received more than €7 billion in investor demand. In September, the Group issued €700 million of bonds due in January 2032 and subsequently used the proceeds to repay €671 million of bonds due in May 2026 and April 2027.

In November, the Group issued €150 million of bonds through private placements and used the proceeds to repay ¥2.6 billion of bonds maturing in 2025 and HKD 188 million of bonds maturing in 2026. Proceeds were also used to repay the Group’s RCF, which currently stands at €190 million.

Also in November, the Group signed a €180 million 5-year loan secured by our landmark property Warsaw Spire, replacing a loan that was scheduled to mature in January 2025.

CPIPG’s Near Term Debt Maturities

As a result of the Group’s efforts to repay debt well in advance, CPIPG does not face any meaningful debt maturities until May 2026. The Group’s base case is to repay debt maturities with proceeds from disposals, either at maturity or through further proactive buybacks.
 

CPIPG has not made any decisions yet regarding hybrid bonds (SGD and EUR) which are callable in 2025. The Group continues to favour an approach which is mutually beneficial to the Group and our valued bondholders, and we are greatly encouraged by recent developments in the hybrid market.

Liquidity Analysis

The Group’s liquidity at Q3 2024 was particularly high because of the timing of our bond issue relative to bonds repaid in Q3. Factoring in debt repayment, disposals signed and pending, and active (secured) financing discussions, the Group is confident that we have ample liquidity to cover all debt maturities through 2026.
 

Group Simplification

To advance and accelerate the process of examining feasible strategies to optimise the capital and corporate structure of CPIPG and IMMOFINANZ, the Group has retained financial, tax, accounting, debt, and legal advisors. The initial group of advisors is comprised of KPMG Advisory (Tax & Accounting), as well as KPMG Law, Wolf Theiss, Clifford Chance, and Dentons (legal).

While we recognise that some external stakeholders may wish for faster progress, the matters involved are complex and CPIPG wants to proceed deliberately and carefully. After our initial assessment, and based on current information, the group is currently no longer considering either a fast squeeze-out of IMMOFINANZ or a merger of IMMOFINANZ into CPIPG. All other possibilities are being examined.

Notably, the Group has already made significant progress on simplification. Recently, S IMMO announced that, subject to the decision of the Commercial Court of Vienna, the squeeze-out of S IMMO is expected to be registered with the commercial register on 3 December 2024. Following the squeeze-out, S IMMO will become a 100% owned subsidiary of IMMOFINANZ.

Implementation of White & Case Recommendations

Following the recent governance review conducted by White & Case, CPIPG has committed to implementing all recommended changes.

The Group has completed the update of our Code of Conduct and all our key policies including a new framework for related party transactions. In addition, whistleblowing procedures have been revised and improved to fully align with the EU Whistleblower Directive into local laws whilst creating a robust mechanism for reporting and addressing any relevant concerns.

To strengthen our compliance function, Lucie Salzmanová was appointed as CPIPG’s Group Compliance Officer. Before joining CPIPG, Lucie was an attorney for 11 years, specialising primarily in M&A, real estate transactions, banking, and regulatory matters. In her role as Group Compliance Officer, Lucie will supervise and coordinate compliance officers across the Group and will report directly to the CEO, with additional reporting responsibilities to the General Counsel and the Board of Directors. Lucie will also be responsible for ensuring that technology and software products have been integrated into our SAP systems to automate and enhance KYC and compliance processes.

Establishment of a separate family office is underway to further distinguish the Group from our founder. Milan Trněný has been named general manager of the Vitek Family Office. Arrangements for the appointment of additional employees are ongoing, along with the establishment of separate agreements with external providers for services like IT and accounting. The process is expected to be finalised in the coming months.

Finally, the Group continues to divest selected non-essential assets while taking steps to avoid conflicts of interest. As one example, V Team Prague, s.r.o. has been dissolved and the sponsorship arrangement by CPIPG has been terminated. Other assets are currently in preparation for sale in the coming months. We will continue to keep our stakeholders informed with further updates on these initiatives.

The table below summarises the governance changes suggested by White & Case and the status.
 

Cyprus litigation

CPIPG is aware of a recent article in the Financial Times regarding the ongoing litigation in Cyprus, including references to an injunction and possible ring-fencing of assets.

The Group’s last update on this topic was published on 31 July 2024. Since that time, nothing has changed. CPIPG continues to interpret the case as an obvious effort by the plaintiffs to coerce the Group into an undue settlement through negative press coverage. CPIPG is confident that the plaintiffs have no valid claim.

As of today, the interim injunction is not effective, and the Group continues to appeal the order. If ever deemed effective, the effect of the interim injunction would be that Mr. Vitek and CPIPG (jointly) must not reduce their total assets below €535 million compared with group total assets today of €21.7 billion. Press coverage about pledging cash, or a so-called “asset freezing order” are misleading. So long as total assets of the Group do not drop below the threshold, the injunction allows (and is specifically intended to allow) the Group to continue operating in the normal course of business. No bank accounts or assets belonging to CPIPG or Mr. Vitek would be restricted as a result of the injunction so long as the threshold amount is safeguarded.

Distributions

The Board of Directors is expected to resolve on the Group’s distribution for 2024 before year-end. Management expects to propose a distribution that is meaningfully less than the stated policy of distributing 65% of FFO.

FINANCIAL HIGHLIGHTS
 

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT*

* The presented financial statements do not represent a full set of interim financial statements as if prepared in accordance with IAS 34

Gross rental income

Gross rental income increased by €6.4 million (1%) to €699.2 million in Q1-Q3 2024 compared to Q1-Q3 2023.
The increase was driven by acquisitions with effect of €8 million. Overall like-for-like rental growth was 3.6%, partly offset by effect of disposals in the period.
 

Net service charge income

Net service charge income increased by €8.2 million in Q1-Q3 2024 compared to Q1-Q3 2023, primarily due to profit from sales of energy (of €11 million).
 

Net hotel income

Net hotel income decreased by €20.9 million (36%) compared to Q1-Q3 2023 due to deconsolidation of certain hotels portfolio in Q1 2024.
 

Net income from other business operations

Net income from other business operations decreased by €1.8 million (29%) compared to Q1-Q3 2023 due to disposal of ski resort in Crans Montana in Q1 2024.
 

Net valuation loss

Net valuation loss of €167.8 million in Q1-Q3 2024 represented primarily revaluation loss generated by S IMMO (€83 million), IMMOFINANZ (€28 million), selected office portfolio in Prague (€33 million) and one project in Italy (€12 million).
 

Net loss on the disposals

Net gain on disposals primarily relates to loss from sale of the mountain resort in Crans Montana (€10 million) and sale of one project in Italy (€8 million).

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION*

* The presented financial statements do not represent a full set of interim financial statements as if prepared in accordance with IAS 34
 

Total assets

Total assets decreased by €239.3 million (1%) to €21,691.0 million as at 30 September 2024 compared to 31 December 2023. The decrease relates primarily to decrease of investment property (by €557.1 million), related mainly to IMMOFINANZ and S IMMO disposals, and decrease of property, plant and equipment (by €540.4 million), related to the sale of hotels portfolio to the newly established joint venture and transfers to investment property and assets held for sale.
 

Total liabilities

Total liabilities decreased by €380.8 million (3%) to €13,292.2 million as at 30 September 2024 compared to
31 December 2023, primarily due to a repayment of financial debts (by €1,268.1 million) and decrease of deferred tax liabilities (by €92.5 million). On the other hand, bonds increased by €999.0 million due to issuance of new bonds.
 

Equity and EPRA NRV

Total equity increased by €141.6 million from €8,257.2 million as at 31 December 2023 to €8,398.8 million as at 30 September 2024. The movements of equity components were as follows:                   

• Decrease due to the loss for the period of €46.9 million;
• Decrease due to the loss from sale of NCI (Pierogi) of €83.3 million;
• Decrease in translation reserve of €71.6 million, revaluation and hedging reserve of €17.0 million and €34.0 million, respectively;
• Increase in retained earnings due to the sale of hotel portfolio to a newly established joint venture of €23.8 million;
• Net interest to perpetual notes holders of €42.1 million;
• Increase of NCI in the period of €328.5 million.       

EPRA NRV was €6,830 million as at 30 September 2024, representing a decrease of 3% compared to 31 December 2023. The decrease of EPRA NRV was driven by the above changes in the Group’s equity attributable to the owners and decrease in fair value of financial derivatives (€52.7 million).
 

GLOSSARY

APM RECONCILIATION

* Includes pro-rata EBITDA/FFO for Q1-Q3 2024 and Q1-Q3 2023 of Equity accounted investees.

 *Annualised.

 For further information please contact:

Investor Relations

Moritz Mayer
Manager, Capital Markets
m.mayer@cpipg.com

For more on CPI Property Group, visit our website: www.cpipg.com

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^* Totals might not sum exactly due to rounding differences.