CPI Property Group - comment

Our main takeaway from the Q2 call was tidying up CPI's capital structure. CPI is selling its stake in S Immo to Immofinanz, leaving Immofinanz with 100% of S Immo. CPI will sell its 38% stake in S Immo to Immofinanz for c€600m, a discount to the €623m indicated by the squeeze-out offer. We expect the consideration will be a mixture of cash from Immofinanz and an inter-company receivable at the CPI level. On the call, management said the split in the cash/non-cash portion would be partly driven by tax considerations. The potential sale of German residential assets makes sense to us; these are low-yielding West European assets, so rotating into higher-yielding CEE assets fits the company strategy. The Dubai residential assets are also for sale, which will remove a legacy governance issue. - Further hybrid tender offers are likely as keeping hybrid holders onside remains important for CPI; if it gets back its IG rating, it will look to issue further hybrid bonds.

The sale of a €250m equity stake in Polish assets to Sona has been completed, but the Apollo deal in Berlin is on hold; the loss of IG status has reduced the impetus to get the second transaction done, but it could return.