CPI Property Group - Entertainment - Model Update
All,
Please find our updated analysis here
CPI’s Q3 2025 trading statement followed on from its H1 results; valuations have stabilised, LTV is <50%, and the company has access to the SUNs and Hybrid markets. The pricing of the capital already reflects the improved environment. We do not see much upside, but with the majority shareholder stepping back, corporate governance has improved, and we do not see a potential short opportunity. Once it begins to dispose of its German assets (not imminent), CPI will be a leveraged play on CEE, but for now, it admirably lacks the entertainment of the last few years.
Investment Rationale:
- We exited our previous position in the Hybrids as they had tightened so much; the SUNs are now trading inside 6% so they offer little upside.
- The recent GBP300m Hybrid swapped to 7.2% in EUR. With the 7/2030 SUN trading at 5.5%, this seems tight (<200bp). The 7/2030 SUN itself is trading at 5.5% <300bp over the 5-year Bund. However, CPI has momentum, so we do not see enough downside for a short.
- We see maybe a point of upside, and two of downside, but there is little conviction.
We do not see an imminent return to IG ratings at CPI, but the 3.75% July 2028 Reset bonds will be targeted once the rating increase is achieved. The 2028 hybrids trade at c90/€; we don’t see the trade as compelling yet, but we will review it in Q1 2026
- If there is an upsurge in deal activity in Germany, CPI could cash in and sell assets. Some capital could then be allocated to reduce LTV’s and get an IG rating, but this is not a scenario we are expecting before the second half of 2026.
- CPI has addressed the weakness in corporate governance, but having one dominant shareholder will remain a drag, even though Vitek has now stepped back from operational involvement.
- The squeeze out of minorities at Simmo simplifies the structure. There are now two silos, with CPI Property Group directly owning 75% of CPI Europe (previously Immofinanz and Simmo). Additionally, another 7.9% is controlled via derivative instruments.
Key Conclusions:
- Asset valuations have stabilised, and SUNs are now below Asset Yields, showing the capital structure is sustainable.
- CPI has managed to issue £300m of Hybrid securities. The Hybrid market is critical to CPI in the absence of equity as a currency.
- We expect the H1 2025 external sales to have been completed at close to book value.
- CPI has been able to issue SSNs. We are expecting to see more bank debt being rolled.
- Forecast FCF/Interest of c2x is healthy
- Getting an IG rating and regaining access to the Hybrid market will take 12 months at least, despite the SSNs already trading near IG levels.
- Bond maturities are modest in 2026, but total EUR4780m in 2026. CPI has demonstrated access to the capital markets, and we are confident the banks will roll most of the 2026 maturities.
- Corporate governance is better, but investors will need to remain vigilant.
- Falling inflation has led to falling rates, which are helping push up valuations.
- Investment activity is starting to return in CEE.
- Strategy is to move more into development, which will slowly increase risk
- The German assets are seen as too low-yielding and will be sold (over time), with the capital redeployed in higher-yielding CEE assets.
Sep-25
- Asset valuations have stabilised, and there were €165m in positive valuations in the first 9 months of 2025 (<1%).
- Interest expense continues to rise modestly as the cost of capital market debt is well above 2022 levels, but SUN’s yields are now below rental yields, which is sustainable.
- We continue to expect Office space in Germany will be for sale with capital recycled into higher-yielding CEE assets.
- External sales of €875m helped further reduce LTV, a further €100m - 200m are expected in Q4.
- In addition to the Cap Market transactions, CPI bought back SONA's equity participation in a portfolio of Polish assets.
- New SUN Issuance in October 2025: We estimate the addition to the 4.75% 2030 SUNs was placed at around 5.5%. CPI’s cost of debt has risen, like everyone else’s. Despite a 250bp rise of the 2.75% coupon on the SUNs that are being called, the private placement yield is below the EPRA topped-up net initial yield of 5.6% on CPI’s property portfolio.
- Sale of €892m Resi Portfolio internally from CPI Property Group to CPI Europe: The bank debt is moving with the assets (we estimate bank debt LTV of c25%).
- The deal involved just under €900m of assets moving from CPI Property to the CPI Europe subsidiary, with €300m in cash paid to CPI Property and a €300m note issued by CPI Europe.
- Assuming that minorities and tax liabilities are around 10% of the total price, then bank debt on the assets is around 25% (€225m).
- The sale of the Czech Resi assets was announced in August, so the closure announcement was not a surprise. The terms/maturity of the note issued by CPI Europe are not public so far.
I look forward to discussing this with you all,
Aengus
T: +44 203 744 7055