DGAP-News: CPI PROPERTY GROUP - Financial results for the first quarter of 2020

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

PRESS RELEASE
Luxembourg, 29 May 2020


CPI PROPERTY GROUP - Financial results for the first quarter of 2020

CPI PROPERTY GROUP (hereinafter "CPIPG" the "Company" or together with its subsidiaries the "Group"), hereby publishes unaudited financial results for the first quarter of 2020.

"CPIPG's diversified, high-quality property portfolio and active local asset management were a winning formula during the first quarter of 2020," said Martin Němeček, CEO of CPIPG. "We expanded our role as the leading owner of offices in Central and Eastern Europe and reached new levels of rental income and profitability."

Key highlights for the first quarter of 2020 include:

Total assets increased to €11.1 billion (up 4% from year-end 2019), driven by the acquisitions of four office properties in Warsaw and a 29.4% stake in Globalworth Real Estate Investments Limited ("Globalworth"). The total property portfolio stood at €9.8 billion; Net rental income of €84 million (up 14% versus Q1 2019), reflecting the positive impact of 3.1% like-for-like growth in gross rental income, a slight improvement in occupancy to 94.4% and the income from recent office acquisitions; Total revenues of €164 million (up 0.4% versus Q1 2019); Net business income was €91 million (up 9% versus Q1 2019) and consolidated adjusted EBITDA was €85 million (up 18% versus Q1 2019); Funds from operations (FFO) was €59 million (up 17% versus Q1 2019); More than 98% of Q1 rent was collected by the Group, despite the impact of COVID-19 lockdowns beginning in early March; Net Interest Coverage Ratio (Net ICR) was 6.3x and the Net Loan to Value (Net LTV) was 42%. The Group is fully committed to our long-term financial policy of a Net ICR above 4x and a Net LTV below 40%; CPIPG continued accessing multiple financing channels, issuing GBP 350 million (€411 million equivalent) of 8-year green bonds, SGD 150 million (€99 million) of perpetual hybrid bonds, and HKD 250 million (€29 million) of 10-year bonds during Q1. CPIPG also drew €116 million of secured bank loans and repaid €49 million of Schuldschein loans maturing in 2025; Total available liquidity (including cash and undrawn revolving credit facilities) at the end of the first quarter was above €1 billion.

Updates on the Impact of COVID-19

"The outbreak of COVID-19 was an unexpected challenge for our asset management teams," said Tomáš Salajka, Director of Acquisitions, Asset Management & Sales for CPIPG. "Once again, CPIPG's local expertise and close collaboration with tenants led to excellent results."

Governments across CPIPG's region have successfully eased lockdown restrictions in recent weeks. More than 95% of the Group's property portfolio is now open, excluding hotels.

In the Czech Republic, hotels were permitted to open on 25 May. The Group will gradually increase hotel capacity based on demand, with a continued focus on costs. During the closed period, the Group reduced hotel operating costs by about 70%.

Footfall and turnover in CPIPG's regional shopping centres in the Czech Republic have improved every week since full reopening on 11 May, with some centres now reporting volume near 2019 levels. Tenants and shoppers are adjusting to new hygiene rules and demand for certain non-essential categories (such as services, sports equipment and shoes) has been strong. Restaurants and food courts also opened on 25May to enthusiastic demand.

The quality of CPIPG's properties and tenant base is reflected in the Group's rent collections. The Group has not granted discounts or made meaningful use of rental deposits or bank guarantees. The table below reflects CPIPG's approximate collections for Q1, March and April.
 

  % of portfolio value
(FY 2019) % rent collected,
Q1 2020 % rent collected,
March 2020 % rent collected,
April 2020 Total CPIPG -- 98% 95% 76% Office 46% 100% 98% 91% Retail 24% 96% 90% 48% Residential 8% 98% 98% 96%

Rents are invoiced and collected on varying timetables across CPIPG's portfolio. Following the outbreak of COVID-19, some tenants are paying later than usual, creating a lag in collections. For example, total March collections were reported at 84% on 23 April, versus 95% today. Similarly, the Group expects April collection rates to continue rising.

In partnership with our retail tenants in the Czech Republic whose units were closed, and in anticipation of Czech government aid to tenants, CPIPG agreed to delay some rental payments until shops were permitted to reopen. On 18 May, the Czech government approved a programme to pay 50% of the rent for tenants whose premises were subject to mandatory closure between 13 March and 30 June. Details around implementation, including the amount and nature of any discounts provided by landlords (expected to be about 30%), are forthcoming.


Key Events Occurring after the end of Q1 2020

On 24 April 2020, the Group acquired a 50.3% stake in Chalubinskiego 8 office building in Warsaw and increased CPIPG's EMTN programme to €8 billion; On 12 May 2020, CPIPG issued €750 million of senior unsecured 6-year green bonds at a rate of 2.75%. Proceeds were used to repurchase about €800 million of bonds maturing in 2022, 2023, and 2024 through a tender offer and open market repurchases; On 28 May 2020, the annual general meeting of the shareholders of the Company was held in Luxembourg (the "AGM"). The AGM approved the statutory and consolidated annual accounts, as well as the allocation of financial results for the financial year ending 31 December 2019. The AGM re-appointed the board of directors and auditors for another year. Similar to previous years, the AGM also renewed a buy-back programme enabling CPIPG to repurchase its own shares. Share repurchases continue to be governed by regulatory requirements and the Group's financial policy.

"The success of CPIPG's latest green bond offering demonstrates that investors appreciate the resilience of the Group's business and our commitment to financial policy," said David Greenbaum, CFO of CPIPG. "Our tenants are getting back to business, our properties are open, and CPIPG is well-prepared for any challenges ahead."


FINANCIAL HIGHLIGHTS

Performance   Q1-2020 Q1-2019 Change           Gross rental income € million 90 77 16% Total revenues € million 164 163 0% Net business income € million 91 84 9%           Consolidated adjusted EBITDA € million 85 72 18% Funds from operations (FFO) € million 59 50 17%           Profit before tax € million 70 33 112% Interest expense € million (18) (12) 47% Net profit for the period € million 62 29 118%               Assets   31-Mar-20 31-Dec-19 Change           Total assets € million 11,127 10,673 4% Property portfolio € million 9,795 9,111 7% Gross leasable area sqm 3,530,000 3,465,000 2% Occupancy % 94.4 94.3 0.1 p.p. Like-for-like gross rental growth % 3.1 4.4 (1.3 p.p.)           Total number of properties* No. 334 332 1% Total number of residential units No. 11,911 11,919 0% Total number of hotel beds** No. 12,416 12,416 0%           * Excluding residential properties in the Czech Republic
** Including hotels operated, but not owned by the Group           Financing structure   31-Mar-20 31-Dec-19 Change           Total equity € million 5,459 5,469 0% EPRA NAV € million 4,985 5,100 (2%)           Net debt € million 4,111 3,300 25% Net loan to value ratio (Net LTV) % 42.0 36.2 5.8 p.p. Secured consolidated leverage ratio % 10.2 9.6 0.6 p.p. Secured debt to total debt % 24.4 24.8 (0.4 p.p.) Unencumbered assets to total assets % 70.0 69.7 0.3 p.p. Net ICR   6.3x 7.2x (0.9x)  

STATEMENT OF COMPREHENSIVE INCOME*

The income statement for the three-month period ended 31 March 2020 and 2019 was as follows:

  INCOME STATEMENT (€ million) 31-Mar-20 31-Mar-19       Gross rental income 90 77   Service charge and other income 32 31   Cost of service and other charges (24) (23)   Property operating expenses (15) (12)   Net rental income 83 73   Development sales 3 15   Development operating expenses (2) (15)     Net development income 1 -   Hotel revenue 17 19   Hotel operating expenses (18) (17)   Net hotel income
Revenues from other business operations (1) 2   Other business revenue 22 21   Other business operating expenses (14) (12)     Net other business income 8 9     Total revenues 164 163     Total direct business operating expenses (73) (79)     Net business income 91 84   Net valuation gain (net of foreign exchange gain) - -   Amortization, depreciation and impairment (5) (14)   Administrative expenses (13) (12)   Other operating income 1 1   Other operating expenses (1) (2)     Operating result 73 57   Interest income 5 3   Interest expense (18) (12)   Other net financial result** 10 (15)     Net finance costs (3) (24)     Profit before income tax 70 33   Income tax expense (8) (4)     Net profit from continuing operations 62 29  

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

** Including net foreign exchange gains and losses (including valuation gains classified within valuation gain under IFRS), share of profit of equity accounted investees and other financial gains and losses.


Net rental income

Net rental income increased by 14% to €84 million in the three-month period ended 31 March 2020 primarily due to the acquisition of offices in Warsaw (increase of gross rental income by €10 million) and continuing rental income growth in Berlin.


Amortization, depreciation and impairments

In the three-month period ended 31 March 2020, the decrease in amortization, depreciation and impairments was caused by a goodwill write-off (€7 million) relating to the Group's agriculture business.


Interest expense

The increase of the interest expense from €12 million in the three-month period ended 31 March 2019 to €18 million in the three-month period ended 31 March 2020 related to newly issued bonds in 2019 and 2020.


BALANCE SHEET*
 

  BALANCE SHEET (€ million) 31-Mar-20 31-Dec-19       NON-CURRENT ASSETS         Intangible assets and goodwill 102 107     Investment property 8,194 8,157     Property, plant and equipment 866 886     Deferred tax assets 170 168     Other non-current assets 974 246     Total non-current assets 10,306 9,564     CURRENT ASSETS         Inventories 50 51     Trade receivables 81 81     Cash and cash equivalents 497 805     Assets linked to assets held for sale 17 22     Other current assets 176 150     Total current assets 821 1,109     TOTAL ASSETS 11,127 10,673     EQUITY         Equity attributable to owners of the Company 4,220 4,334     Perpetual notes 1,194 1,086     Non-controlling interests 45 50     Total equity 5,459 5,470     NON-CURRENT LIABILITIES         Bonds issued 3,309 2,871     Financial debts 1,206 1,165     Deferred tax liabilities 799 806     Other non-current liabilities 68 74     Total non-current liabilities 5,382 4,916     CURRENT LIABILITIES         Bonds issued 27 21     Financial debts 65 48     Trade payables 73 86     Other current liabilities 121 132     Total current liabilities 286 287     TOTAL EQUITY AND LIABILITIES 11,127 10,673  

* 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 increased by €454 million to €11,127 million (increase by 4%) as at 31 March 2020 compared to 31 December 2019.

The increase in total assets primarily reflects our acquisitions of a 29.4% stake in Globalworth and investment properties in Warsaw. Growth in total assets was partly offset by cash utilized to fund these acquisitions, together with new issuance. In addition, there was a moderate impact from the valuation of certain properties valued in local currencies (primarily CZK) given the performance relative to the Euro in the quarter.


Total liabilities

Total liabilities increased by €465 million to €5,668 million (increase by 9%) as at 31 March 2020 compared to 31 December 2019. The increase is primarily attributable to issuance of green GBP and HKD bonds of €390 million and €29 million, respectively. The Group also drew new bank loans of €116 million. On the other hand, the Group repaid a Schuldschein loan of €49 million.


EQUITY AND EPRA NAV

Total equity decreased from €5,470 million as at 31 December 2019 by €11 million to €5,459 million as at 31 March 2020. The key changes in equity in the three months period ended 31 March 2020 were as follows:

A decrease of translation reserve by €216 million (due to depreciation of CZK, HUF and PLN) against EUR in the three months period ended 31 March 2020); An increase of perpetual notes due to issuance of new hybrids of €95 million and the interest of €13.5 million. An increase of retained earnings by the profit for the period of €50 million; An increase of revaluation and hedging reserve of €52 million.

EPRA NAV was €4,985 million as at 31 March 2020 which represents a decrease by 2% compared to 31 December 2019. The main drivers of the decrease were described above.
 

EPRA NAV (€ million) 31-Mar-20 31-Dec-19       Equity attributable to owners of the company 4,220 4,335 Effect of exercise of options, convertibles and other equity interests - - Diluted NAV, after the exercise of options, convertibles and other equity interests 4,220 4,335 Revaluation of trading property and property, plant and equipment 1 1 Deferred tax on revaluations 807 807 Goodwill as a result of deferred tax (43) (43) Total 4,985 5,100  

GLOSSARY
 

Alternative Performance Measures (APM) Definition Rationale Consolidated adjusted EBITDA Net business income as reported deducting administrative expenses as reported. This is an important economic indicator showing a business's operating efficiency comparable to other companies, as it is unrelated to the Group's depreciation and amortization policy and capital structure or tax treatment. It is one of the fundamental indicators used by companies to set their key financial and strategic objectives. Consolidated adjusted total assets Consolidated adjusted total assets is total assets as reported deducting intangible assets and goodwill as reported.   EPRA NAV Net Asset Value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business model. Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities within a true real estate investment company with a long-term investment strategy. Funds from operations or FFO It is calculated as net profit for the period adjusted by non-cash revenues/expenses (e.g. deferred tax, net valuation gain/loss, impairment, amortization/depreciation, goodwill etc.) and non-recurring (both cash and non-cash) items (e.g. net gain/loss on disposals etc.). The calculation also excludes accounting adjustments for unconsolidated partnerships and joint ventures. Funds from operations provide an indication of core recurring earnings. Net Loan to Value or Net LTV It is calculated as Net debt divided by fair value of Property Portfolio. Loan-to-value provides a general assessment of financing risk undertaken. Net ICR It is calculated as Consolidated adjusted EBITDA divided by a sum of interest income as reported and interest expense as reported. This measure is an important indicator of a firm's ability to pay interest and other fixed charges from its operating performance, measured by EBITDA. Secured consolidated leverage ratio Secured consolidated leverage ratio is a ratio of a sum of secured financial debts and secured bonds to Consolidated adjusted total assets. This measure is an important indicator of a firm's financial flexibility and liquidity. Lower levels of secured debt typically also means lower levels of mortgage debt - properties that are free and clear of mortgages are sources of alternative liquidity via the issuance of property-specific mortgage debt, or even sales. Secured debt to total debt It is calculated as a sum of secured bonds and secured financial debts as reported divided by a sum of bonds issued and financial debts as reported. This measure is an important indicator of a firm's financial flexibility and liquidity. Lower levels of secured debt typically also means lower levels of mortgage debt - properties that are free and clear of mortgages are sources of alternative liquidity via the issuance of property-specific mortgage debt, or even sales. Unencumbered assets to total assets It is calculated as total assets as reported less a sum of encumbered assets as reported divided by total assets as reported. This measure is an important indicator of a commercial real estate firm's liquidity and flexibility. Properties that are free and clear of mortgages are sources of alternative liquidity via the issuance of property-specific mortgage debt, or even sales. The larger the ratio of unencumbered assets to total assets, the more flexibility a company generally has in repaying its unsecured debt at maturity, and the more likely that a higher recovery can be realized in the event of default.   Non-financial definitions Definition Company CPI Property Group S.A. Property Portfolio value or PP value The sum of value of Property Portfolio owned by the Group Gross Leasable Area or GLA Gross leasable area is the amount of floor space available to be rented. Gross leasable area is the area for which tenants pay rent, and thus the area that produces income for the property owner. Group CPI Property Group S.A. together with its subsidiaries Net debt Net debt is borrowings plus bank overdraft less cash and cash equivalents. Occupancy Occupancy is a ratio of estimated rental revenue regarding occupied GLA and total estimated rental revenue, unless stated otherwise. Property Portfolio Property Portfolio covers all properties and investees held by the Group, independent of the balance sheet classification, from which the Group incurs rental or other operating income.  

APM RECONCILIATION

EPRA NAV reconciliation (€ million) 31-Mar-20 31-Dec-19 Equity attributable to owners of the company 4,220 4,334 Effect of exercise of options, convertibles and other equity interests 0 0 Diluted NAV, after the exercise of options, convertibles and other equity interests 4,220 4,334 Revaluation of trading property and property, plant and equipment 1 2 Fair value of financial instruments 0 0 Deferred tax on revaluation 807 807 Goodwill as a result of deferred tax (43) (43) EPRA NAV 4,985 5,100   Net LTV reconciliation (€ million) 31-Mar-20 31-Dec-19 Financial debts 1,271 1,213 Bonds issued 3,336 2,892 Net debt linked to assets held for sale 0 0 Cash and cash equivalents (497) (805) Net debt 4,111 3,300 Total property portfolio 9,795 9,111 Net LTV 42.0% 36.2%   Net Interest coverage ratio reconciliation (€ million) 31-Mar-20 31-Dec-19 Interest income 5 14 Interest expense (18) (54) Consolidated adjusted EBITDA 85 292 Net Interest coverage ratio 6.3x 7.2x   Secured debt to total debt reconciliation (€ million) 31-Mar-20 31-Dec-19 Secured bonds 0 0 Secured financial debts 1,124 1,017 Total debts 4,608 4,105 Secured debt to total debt 24.4% 24.8%   Unencumbered assets to total assets reconciliation (€ million) 31-Mar-20 31-Dec-19 Bonds collateral 0 0 Bank loans collateral 3,339 3,236 Total assets 11,127 10,673 Unencumbered assets ratio 70.0% 69,7%   Consolidated adjusted EBITDA reconciliation (€ million)* 31-Mar-20 31-Mar-19 Net business income 91 84 Administrative expenses (14) (12) Other effects 7 - Consolidated adjusted EBITDA 85 72   Funds from operations (FFO) reconciliation (€ million)* 31-Mar-20 31-Mar-19 Net profit/(loss) for the period 62 29 Deferred income tax 6 1 Net valuation gain or loss on investment property 0 0 Net valuation gain or loss on revaluation of derivatives 0 (4) Net gain or loss on disposal of investment property and subsidiaries 0 0 Net gain or loss on disposal of inventory (1) 0 Net gain or loss on disposal of PPE/other assets 0 (1) Amortization, depreciation and impairments 5 14 Other non-recurring/non-cash items (17) 12 Other effects 3 0 Funds from operations 59 50   Secured consolidated leverage ratio reconciliation (€ million) 31-Mar-20 31-Dec-19 Secured bonds 0 0 Secured financial debts 1,124 1,017 Consolidated adjusted total assets 11,025 10,566 Secured consolidated leverage ratio 10.2% 9.6%

* Includes pro-rata EBITDA/FFO for Q1 2020 of Equity accounted investees
 

Property portfolio reconciliation (€ million) 31-Mar-20 31-Dec-19 Investment property - Office 4,353 4,186 Investment property - Retail 2,129 2,173 Investment property - Residential 700 756 Investment property - Land bank 675 697 Investment property - Development 139 142 Investment property - Industry & Logistics 101 99 Investment property - Agriculture 94 101 Investment property - Other 3 3 Property, plant and equipment - Hospitality 755 775 Property, plant and equipment - Mountain resorts 77 76 Property, plant and equipment - Agriculture 12 13 Property, plant and equipment - Office 6 7 Property, plant and equipment - Residential 5 6 Property, plant and equipment - Retail 1 1 Equity accounted investees/Other financial assets 683 12 Inventories - Development 45 45 Assets held for sale 17 19 Total 9,795 9,111  

For further information please contact:

INVESTORS

CPI PROPERTY GROUP
David Greenbaum
Chief Financial Officer
d.greenbaum@cpipg.com

CPI PROPERTY GROUP
Joe Weaver
Director of Capital Markets
j.weaver@cpipg.com

MEDIA/PR

Kirchhoff Consult AG
Andreas Friedemann
T +49 40 60 91 86 50
F +49 40 60 91 86 60
E andreas.friedemann@kirchhoff.de