CPI Property S A : Quarterly financial report - Q3 2022 Results - EN

CPI Property Group (société anonyme) 40, rue de la Vallée L-2661Luxembourg

R.C.S. Luxembourg: B 102 254

Press Release - Corporate News

Luxembourg, 30 November 2022

CPI PROPERTY GROUP publishes financial results for Q3 2022

CPI PROPERTY GROUP (hereinafter "CPIPG", the "Company" or together with its subsidiaries the "Group"), a leading owner of income-generating European real estate, hereby publishes unaudited financial results for the nine- month period ended 30 September 2022.

"CPIPG's results reflect much of the positive impact from our acquisitions in 2022," said Martin Nemecek, CEO. "The combined Group's power to generate income is truly amazing, which reflects the quality of our assets, markets, tenants, and local teams."

Highlights for the third quarter of 2022 include:

• CPIPG's property portfolio was €21.2 billion (vs. €13.1 billion at year-end 2021) as the Group consolidated the property portfolios of IMMOFINANZ and S IMMO, partially offset by disposals of more than €700 million during the first three quarters of 2022. Total assets reached €23.7 billion.
• Income statement figures (gross and net rental income, hotel income, etc.) include seven months contribution from IMMOFINANZ and three months contribution from S IMMO due to the dates of consolidation.
• Gross rental income was €529 million (+79% vs. Q3 2021), net rental income was €441 million (+67%) and consolidated adjusted EBITDA was €437 million (+61%) driven by acquisitions, stable occupancy at 93.3% and a strong 7.9% like-for-like growth in gross rental income.
• The Group believes we have the potential to achieve €1 billion in revenues in 2022. As of H1 2022, total contracted rent was €865 million.
• Hotels reported a net income of €34 million (similar to the same period in 2019) because of a strong recovery in demand and improvement in operational performance.
• Net business income rose to €479 million (+70% vs. Q3 2021) while FFO was €280 million (+34%).
• EPRA NRV (NAV) grew by 22% to €8.6 billion.
• Total liquidity was €2 billion, including €915 million of undrawn revolving credit facilities.
• Net Loan-to-Value(LTV) increased to 48.6%, reflecting cash spent on acquisitions in Q3. The Group's current top priority is to reduce LTV via disposals and other possible measures.
• Net ICR stood at 3.4x.
• Unencumbered assets decreased to 54%, reflecting the high proportion of secured debt at IMMOFINANZ and S IMMO.

"The Group is highly focused on preserving liquidity, reducing leverage and making disposals, but we realise the process could take 12 to 24 months depending on the market," said David Greenbaum, CFO. "The good news is that CPIPG continues to obtain attractive bank financing and execute significant sales despite a tough market backdrop."

Notable Events Occurring during and after Q3

In September, the United States Court of Appeals for the Second Circuit affirmed in total the judgement of the United States District Court for the Southern District of New York, dismissing the lawsuit filed in April 2019 against CPIPG, Radovan Vitek (the "CPIPG Defendants"), and other parties. The lawsuit concerned a group of Kingstown companies, Investhold LTD and Verali Limited (together, the "Kingstown Plaintiffs") who filed a claim against the CPIPG Defendants and other parties alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") in the United States. The Court of Appeals considered the Kingstown Plaintiffs' arguments and found them without merit.

In November, CPIPG refinanced and upsized a portion of our €750 million secured bank loan in Berlin, which matures in 2024. The new loan was signed for €515 million, with an additional €200 million of proceeds received, and matures in 2029. The loan was concluded with the existing lender (BerlinHyp) at terms similar to the original loan in 2017.

Secured bank loans remains available across CPIPG's core markets at pricing which is hundreds of basis points tighter than the unsecured bond markets. Because of CPIPG's proactive approach to refinancing in past years, we are confident that debt maturities in 2023 and 2024 can be managed via cash flow, bank financing, and disposals.

On 21 November, CPIPG announced the results of the additional acceptance period for the S IMMO tender offer, wherein we achieved a final direct and indirect stake equal to 88.37% of the share capital of S IMMO. Together with the acquisition of IMMOFINANZ (of which CPIPG owns 76.87%), the Group achieved our strategic objective of creating one of Europe's largest landlords, owning the best real estate platforms in Central and Eastern Europe.

The purchase of S IMMO shares was funded via CPIPG's bridge financings, which have final maturity dates in H1 2025. The current bridge balance is approximately €1.65 billion. CPIPG expects to repay the bridge primarily via disposals, along with bank financing. In total, CPIPG spent €3.4 billion to purchase our stakes in IMMOFINANZ and S IMMO, of which €2.7 billion was funded with bridge drawings. About €925 million of the bridges have already been repaid via capital markets transactions, secured loans and disposals.

In November, CPIPG conducted our annual distribution via share buybacks, but reduced the payout ratio from 65% to 55% of FFO 1.

Since H1 results were announced at the end of August, CPIPG made further significant progress on the disposal pipeline, closing sales with gross proceeds exceeding €300 million. Net proceeds from the €300 million of sales (after repayment of associated secured debt) were approximately €190 million.

The Group's disposal pipeline still exceeds €2 billion, excluding the recent successful closed disposals. Currently, more than half of our disposal pipeline has received letters of intent from one or more buyers outlining the transaction parameters. A meaningful portion of these transactions are in advanced stages of due diligence and documentation, and the Group hopes to announce additional significant disposals before year-end and during Q1 2023.

FINANCIAL HIGHLIGHTS*

Performance		Q1-Q3 2022	Q1-Q3 2021	Change
Gross rental income	€ million	520	291	79.0%
Net rental income	€ million	441	265	66.5%
Net hotel income	€ million	34	10	252.8%
Total revenues	€ million	885	474	86.7%
Net business income	€ million	479	282	69.6%
Consolidated adjusted EBITDA	€ million	437	272	60.6%
Funds from operations (FFO)	€ million	280	208	34.4%
Net profit for the period	€ million	977	801	22.0 %

Assets		30-Sep 2022	31-Dec 2021	Change
Total assets	€ million	23,723	14,369	65.1%
Property portfolio	€ million	21,172	13,119	61.4%
Gross leasable area	sqm	6,759,000	3,667,000	84.3%
Occupancy	%	93.3	93.8	(0.5 p.p.)
Like-for-like gross rental growth*	%	7.9	3.3	4.6 p.p.
Total number of properties**	No.	888	367	142.0%
Total number of residential units	No.	17,233	11,755	46.6%
Total number of hotel rooms***	No.	7,992	7,025	13.8%

• Based on gross rent, excluding one-time discounts, CPIPG standalone
• Excluding residential properties in the Czech Republic
• Including hotels operated, but not owned by the Group

Financing structure		30-Sep 2022	31-Dec 2021	Change
Total equity	€ million	9,949	7,695	29.3%
EPRA NRV (NAV)	€ million	8,554	7,039	21.5%
Net debt	€ million	10,282	4,682	119.6%
Net Loan-to-value ratio (Net LTV)	%	48.6	35.7	12.9 p.p.
Net debt/EBITDA	x	17.6x	12.7x	4.9x
Secured consolidated leverage ratio	%	18.1	9.8	8.3 p.p.
Secured debt to total debt	%	37.6	27.0	10.6 p.p.
Unencumbered assets to total assets	%	54.4	70.4	(16.0 p.p.)
Unencumbered assets to unsecured debt	%	182	267	(85 p.p.)
Net ICR	x	3.4x	4.6x	(1.2x)

• Income statement figures (GRI, NRI, net hotel income, net business income etc.) include seven months contribution from IMMOFINANZ and three months contribution from S IMMO due to the dates of consolidation.

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT*

		Nine-month period ended
(€ million)		30 September 2022		30 September 2021
Gross rental income	520.1	290.6
Service charge and other income	208.6	93.7
Cost of service and other charges	(185.9)	(74.4)
Property operating expenses	(101.4)	(44.8)
Net rental income		441.4		265.1
Development sales	0.4	12.1
Development operating expenses	(0.5)	(9.3)
Net development income		(0.1)		2.8
Hotel revenue	116.1	47.8
Hotel operating expenses	(82.1)	(38.2)
Net hotel income		34.0		9.6
Revenues from other business operations
Other business revenue	39.8	29.9
Other business operating expenses	(36.4)	(25.1)
Net other business income		3.4		4.8
Total revenues		885.0		474.1
Total direct business operating expenses		(406.3)		(191.8)
Net business income		478.7		282.3
Net valuation gain	298.0	790.7
Net gain on disposal of investment property and subsidiaries	39.5	1.2
Amortization, depreciation and impairment	(59.5)	(22.4)
Administrative expenses	(91.5)	(40.1)
Other operating income	292.3	4.7
Other operating expenses	(5.0)	(3.7)
Operating result		952.5		1,012.7
Interest income	9.5	16.4
Interest expense	(136.6)	(69.0)
Other net financial result	225.6	1.1
Net finance income/ (costs)		98.5		(51.5)
Share of gain of equity-accounted investees (net of tax)	33.1	3.9
Profit before income tax		1,084.1		965.1
Income tax expense	(107.3)	(164.2)
Net profit from continuing operations	976.8		800.9

* 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 €229.5 million (79.0%) to €520.1 million in Q1-Q3 2022 primarily due to rental income generated by IMMOFINANZ (€163.7 million) and S IMMO (€38.4 million), the contribution of other acquisitions, and strong like-for-like growth.

Property operating expenses

In Q1-Q3 2022, property operating expenses increased by €56.6 million to €101.4 million primarily due to the acquisitions of IMMOFINANZ and S IMMO.

Net hotel income

In Q1-Q3 2022, hotel revenues increased by €24.4 million to €34.0 million due to the recovery in travel demand and the lifting of COVID-19 restrictions after Q1 2022.

Net gain on disposal of investment property and subsidiaries

Net gain on the disposal of investment property and subsidiaries of €39.5 million resulted from sales of certain Czech subsidiaries and other investment property.

Amortization, depreciation and impairment

Amortization, depreciation and impairment increased by €37.1 million to €59.5 million in Q1-Q3 2022 due to impairment of receivables of €20.6 million, which are largely driven by the full write-off of purchase price receivables (€12.9 million) from Russia by IMMMOFINANZ. Impairments of property, plant and equipment (€6.0 million) which were negative in H1 2021 (release of impairment of €10.8 million).

Administrative expenses

In Q1-Q3 2022, administrative expenses increased by €51.4 million to €91.5 million primarily relating to IMMOFINANZ and S IMMO acquisitions (€37.3 million and €2.8 million, respectively) including associated one-off costs.

Other operating income

In Q1-Q3 2022, other operating income represented primarily bargain purchases resulting from the acquisitions of IMMOFINANZ and S IMMO for a total of €285.9 million.

Interest expense

Interest expense increased by €67.6 million to €136.6 million in Q1-Q3 2022 due to the acquisitions of IMMOFINANZ and S IMMO (€43.7 million and €6.9 million, respectively) and an increase in the volume of bonds issued (€17.0 million).

Other net financial result

In Q1-Q3 2022, other net financial result of €225.6 million reflects predominantly the changes in the fair values of financial derivatives (gain of €181.6 million) and foreign exchange gains.