CPI Property Group - comment

A fairly dull call from CPI was welcome after three years of fireworks. Hybrid issuance is going to remain challenging, and the perpetual resetting in November is more likely to be exchanged rather than called. In the recent market weakness, the CPI SUNs have softened with the 2031 €, yielding over 7% and the 2028 Perp at over 10%. CPI has cash to meet upcoming maturities. We will be looking at CPI over the next week to update our view.

Ratings will not rise to IG levels until the ICR is improved. The company expects significant changes in LTV and ICR to be in 2027/2028, with some progress in 2026. Asset sales over the next 12 months are expected to lean more towards non-income-generating assets, including residential developments and land bank sales. The long-term LTV target is <40%, and part of this will be from increasing the value of non-yielding assets through development, which has its own risks. We expect the German assets to be targeted for sales, as they are lower-yielding. However, 1/3rd of the Berlin assets is in the Kreuzberg area, which has seen higher vacancy rates (IT departures post- COVID. This may give CPI pause in executing any plan to recycle capital into higher-yielding assets in CEE. Management thinks that S&P’s BB+ (neg) rating may be moved in line with the Ba2 (stable) rating at Moody’s. Issuing new Hybrids will require an IG rating at the family level. In 2026/2027, there will be more sales of non-yielding assets. The disposals will reduce interest costs, without reducing income. LTV will also fall.

Over the next two years, management forecast €900m of proceeds from the development of Residential assets, we estimate that this would increase ICR from 2.2x to 2.3x. ICR could also be reduced through a possible transaction involving landbank transactions in Czechia, which would further raise ICR.

CPI is also seeking to sell lower-yielding assets, which we expect will focus on the German Real Estate portfolio. These asset sales will also contribute to improving the ICR.