DGAP-News: CPI PROPERTY GROUP reports financial results for the third quarter of 2019

Press Release

Luxembourg, 29 November 2019

CPI PROPERTY GROUP reports financial results for the third quarter of 2019

CPI PROPERTY GROUP (hereinafter "CPIPG" the "Company" or together with its subsidiaries the "Group"), the largest owner of income-generating real estate in the Czech Republic, Berlin and the CEE region, hereby publishes its unaudited financial results for the third quarter of the 2019 financial year.

"Thanks to the efforts of our teams, the strength of our markets and the scale and quality of our portfolio, all key business and financial indicators continued on a positive trajectory in the third quarter," said Martin Němeček, CEO of CPIPG. "The planned expansion of our footprint in the attractive Warsaw office market is a natural strategic step and will further establish our position as the leading income-generating real estate company in the region."

Key highlights for the third quarter of 2019 include:

- Property portfolio increased to EUR7.9 billion (up EUR335 million versus year-end 2018), driven primarily by a combination of capex, acquisitions and positive revaluations;

- Total assets increased to EUR9.5 billion (up EUR1.2 billion versus year-end 2018), driven by increases to the property portfolio as well as an increase in cash and cash equivalents;

- Gross rental income of EUR234 million in the first nine months of the year (up 5% versus the prior period), reflecting the combined effects of 3.3% like-for-like growth in rental income, improvement in occupancy to 94.6% and also acquisitions since the prior period;

- Total revenues of EUR491 million in the first nine months of the year (up 12% versus the prior period);

- Funds from operations (FFO) of EUR171 million in the first nine months of the year (up 33% versus the prior period);

- EPRA NAV increased to EUR4.6 billion (up 2% versus year-end 2018);

- Net Interest Coverage Ratio (Net ICR) improved to 7.9x for Q3 2019 (up 3.7x versus full year 2018), reflecting the combination of higher EBITDA generation as well as a reduction of interest costs following significant refinancing activity in 2018;

- Net Loan to Value (Net LTV) decreased to 32.9% (from 36.7% at year-end 2018);

- Unencumbered assets as a percentage of total assets reached a record of 70% (versus 65% at year-end 2018);

- Secured debt reduced to 30% of total debt, relative to 37% at the end of 2018;

- Acquisition of 362,152,327 of own shares for the price of EUR0.30 per share (in total EUR108.6 million) in July 2019;

- Tap issuance of US $100 million (approximately EUR90 million equivalent) of senior unsecured bonds under the Company's EMTN programme in July 2019;

- Acquisition of complex of seven homes in Notting Hill, London in September 2019;

- Total available liquidity (comprising cash and undrawn revolving credit facilities) at the end of the third quarter stood at approximately EUR1.4 billion.

"CPIPG is the first company in the CEE to issue a benchmark Euro-denominated green bond, a testament to our focus on ESG and further demonstration of our ongoing efforts to strengthen and diversify our capital structure," said David Greenbaum, CFO of CPIPG. "The Group now has significant firepower to execute the planned acquisition pipeline in Warsaw while still remaining fully committed to our financial policies and credit ratings."


FINANCIAL HIGHLIGHTS

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

** In connection with the adoption of IFRS 15, the Group changed, in respect of service charges, revenue recognition from net to gross, before deduction of cost of services (refer to the annual management report for 2018 for further detail). The presentation of the statement of profit or loss for the nine-month period of 2018 was adjusted due to the changes in the accounting policy.

*** To provide reliable and more relevant information, the Group reclassified the following items, which are no longer presented separately in the consolidated financial statements:

- Cost of goods sold related to Development sales and Other business were reclassified to Development operating expenses and Other business operating expenses. The comparative information for the period ended 30 September 2018 was adjusted accordingly.

- Net gain/(loss) on disposal of subsidiaries and investees was reclassified to Net gain/(loss) on the disposal of investment property and subsidiaries. The comparative information for the period ended 30 September 2018 was adjusted accordingly.

**** The Group reclassified the effect of changing foreign exchange rates on the revaluation of the investment properties from Other net financial result to Net valuation gain or loss. The comparative information for the period ended 30 September 2018 was adjusted accordingly.

Net rental income
Net rental income increased by 7% to EUR218 million in the nine-month period ended 30 September 2019 compared to EUR204 million in the nine-month period ended 30 September 2018, primarily due to the acquisitions of Atrium office complex in Poland (+EUR2 million) and Futurum Hradec Králové shopping centre (+EUR2 million), as well as the impact of increasing rents in the Berlin portfolio (+EUR5 million).

Net development income
Development sales in the nine-month period ended 30 September 2019 were represented by sales of apartments in Nice (EUR21 million) and sales of family houses in Březiněves (EUR3 million).

Net hotel income
Net hotel income increased in the nine-month period ended 30 September 2019 primarily due to the acquisitions of CPI Hotels Italy (EUR4 million) and Orchard Hotel (EUR1 million) compared to the nine-month period ended 30 September 2018.

Net valuation gain
Net valuation gain relates primarily to the Prague office portfolio (EUR39 million), Czech residential portfolio (EUR9 million) and Berlin office portfolio (EUR10 million) in the nine-month period ended 30 September 2019.

Amortization, depreciation and impairments
The increase in amortization, depreciation and impairments in the nine-month period ended 30 September 2019 was affected by the goodwill write-off (EUR7 million), which was recognized in 2014 in connection with the acquisition of the Group's agriculture business.

Interest expense
Interest expense decreased to EUR37 million in the nine-month period ended 30 September 2019 compared to EUR66 million in the nine-month period ended 30 September 2018. The decrease reflects substantial refinancing activity in 2018, resulting in a significant decrease in interest expense from bank loans (decrease of EUR13 million) and bonds (decrease of EUR15 million).

Other net financial result
The negative other net financial result is comprised mainly of foreign exchange losses of EUR38 million in the nine-month period ended 30 September 2019 relating to retranslation of intragroup loans in different currencies (compared to foreign exchange losses of EUR24 million in the nine-month period ended 30 September 2018).


BALANCE SHEET*

* 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 EUR1,226 million to EUR9,485 million (+15%) as at 30 September 2019 compared to 31 December 2018.

The increase in total assets reflects primarily increases in investment property (EUR289 million), property, plant and equipment of (EUR65 million, primarily relating to CPI Hotels), cash and cash equivalents (EUR747 million) and other non-current assets (EUR123 million).

Total liabilities
Total liabilities increased by EUR584 million to EUR4,481 million (+15%) as at 30 September 2019 compared to 31 December 2018. The increase is primarily attributable to issuance of USD bonds (EUR421 million equivalent) and HKD bonds (EUR82 million equivalent), in addition to the drawing of new unsecured Schuldschein loans (EUR170 million). Partly offsetting this was the repayment of bank loans of EUR148 million.


EQUITY AND EPRA NAV

Total equity increased from EUR4,362 million as at 31 December 2018 to EUR5,004 million as at 30 September 2019. The main elements impacting total equity during the period were:

- Issuance of EUR550 million perpetual notes in April 2019, treated as equity under IFRS;

- Profit for the period attributable to the owners of the Company of EUR188 million;

- Share repurchases of EUR-109 million;

- Hedging, translation and revaluation reserve of EUR-5 million, and;

- Changes in the below adjustments to EPRA NAV of EUR18 million.

EPRA NAV was EUR4,572 million as at 30 September 2019, an increase of 2% relative to 31 December 2018. The main drivers of the increase were the factors affecting total equity as described above.

U.S. Litigation Update
On 10 April 2019, a group of Kingstown companies, Investhold LTD and Verali Limited (together, the Kingstown Plaintiffs) filed a claim in the United States District Court of the Southern District of New York against, among others, CPIPG and Mr Radovan Vitek. The claims brought by the Kingstown Plaintiffs against CPIPG include alleged violations of RICO. CPIPG believes that the claims are without merit and were designed to create negative press attention for CPIPG and force an undue settlement.

On 10 September 2019, CPIPG filed a motion to dismiss the New York case based on a lack of jurisdiction and other pleading defects. Rather than replying to the motion to dismiss, on 22 November 2019 the Kingstown Plaintiffs filed an amended complaint in the Southern District of New York court. The amended complaint does nothing to cure the serious pleading defects and jurisdictional infirmities present in the original complaint, and CPIPG will be moving to dismiss the case on substantial grounds in due course.


Key events occurring after quarter-end include:

- Successful issuance of EUR750 million of Reg S senior unsecured 7.5-year green bonds under the Company's EMTN programme in October 2019 at a rate of 1.625%. Following this issuance, total available liquidity sources increased to over EUR2 billion;

- The Company intends to use a significant portion of this liquidity to acquire over EUR800 million of high-quality office properties in central Warsaw, Poland during Q4 2019 and 2020. The acquisitions of Equator IV and Eurocentrum have already closed in November 2019, while preliminary purchase agreements have been signed for Green Corner A and Equator II. Discussions on several other significant assets are also in advanced stages.

- CPIPG's subsidiary CPI FIM SA acquired an entity which owns three luxury residential properties in the south of France and 67 million shares of CPIPG (0.7% of shares outstanding). The Group expects to continue reducing its exposure to France through asset sales, and has a strong track record in this regard. CPIPG now directly owns 362,152,327 of its own shares (4% of its own share capital and voting rights). The voting rights associated with the shares held by the Company are temporarily suspended. In addition, CPI FIM SA now directly owns 252,302,248 of CPIPG shares (2.8% of shares and voting rights) and indirectly owns 67,000,000 of CPIPG shares (0.7% of shares and voting rights).

Investor Contacts:

David Greenbaum
Chief Financial Officer
CPI Property Group
[email protected]

Joe Weaver
Director of Capital Markets
CPI Property Group
[email protected]

Media / PR Contact:

Kirchhoff Consult AG
Andreas Friedemann
Borselstraße 20
22765 Hamburg
T +49 40 60 91 86 50
F +49 40 60 91 86 16
E [email protected]


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