CPI PG: Depreciation of real estate due to price developments, debt remains close to 50%

Real estate company CPI Property Group (CPI PG) reported net rental income growth of 25.9% y/y to EUR 796 million in 2023, where most of the growth was due to the significant acquisitions of Immofinanz and S-Immo from 2022. Rent growth from of existing areas was 7.9% y/y, mainly due to rent indexation due to inflation. Space occupancy remained at a solid 92.1% (92.8% in 2022). However, due to the drop in real estate prices, the company had to write off EUR 1.14 billion from the value of the investment portfolio (approx. 6% of the total value), primarily on the portfolio of offices in Berlin (approx. half of the write-off) and also on the Immofinanz and S-Immo portfolios. Depreciation was thus the main reason why the company reported an operating loss of EUR -487 million (a year earlier +702 million) and a net loss from continuing operations of EUR -877.5 million (vs. +558 in 2022). We note that this is an accounting item that does not affect cash flows.

Due to depreciation, the Loan-to-Value (LTV) debt ratio rose year-on-year from 50.9 to 52.3%. However, the company said that this ratio would now be 49.8% when the other signed divestments were included. In total, CPI PG has signed divestments worth EUR 2 billion since August 2022, with EUR 900 million of these divestments already completed or to be completed in the 1st half of this year. The divestment pace is slightly ahead of the plan, which included the sale of EUR 2 billion of assets by August of this year. To further reduce debt and maintain an investment grade rating, management has earmarked an additional €2bn of assets for sale over the next 12-24 months. The interest coverage ratio fell to 2.5x from 3.2x a year earlier, but this was largely due to the payment of interest on the bridging acquisition loan. This should be paid by the middle of this year. CPI PG management also said that Apollo Funds’ potential €450m equity entry into GSG’s Berlin portfolio is awaiting completion of documentation. Similarly, the group is considering acquiring equity investors in Poland and Italy. The results of the CPI PG were significantly affected by the depreciation of the value of assets, which is based on the market development of prices and which, in our view, was not surprising at its pace. Considering that the company keeps debt close to 50% thanks to the announced divestitures and that it has announced further divestitures, we evaluate the results neutrally.

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