S&P Global Ratings has downgraded CPIPG’s rating from BBB- to BB+ with a negative outlook. CPIPG has communicated an update for its stakeholders concerning recent events and news.
The Group, as it declares, had no indication a downgrade was coming. S&P was made aware of CPIPG's recent bond issuance plans and assigned a BBB- rating to the transaction. At year-end 2023, Group credit metrics were within S&P’s rating guidance. The company recently outlined to the rating agencies the additional steps that CPIPG will take within months around disposals, minority equity, debt repayment, capital structure, and governance. As the company explains, their efforts to simplify the group by preparing for the squeeze-out of S Immo by Immofinanz are positive for bondholders.
The company does not consider the immediate impact of S&P’s downgrade as significant. CPIPG estimates interest expense will increase by about €3 million in 2024 and between €10 to €20 million in 2025, depending on the pace of debt repayment. None of the Group’s financing arrangements contain any cancellation options or similar provisions, and therefore CPIPG’s liquidity position is unaffected.
CPIPG also explains recent news related to its London acquisition. As the company states in its press report, Metrogate is a 21,700-square-foot freehold property in Kensington which is leased to a student accommodation provider. In Q2 2020, the owner of Metrogate, Laroche Investment Limited, agreed to sell the property to Pisach Residential Limited at a price significantly below market value because the tenant had stopped paying rent due to COVID-19 restrictions. The closing process was elongated due to the backdrop at the time. Before the completion date, Pisach began marketing a 50% stake in the property to other investors at a higher price, because the tenant had resumed paying rent. Metrogate Melrose Investments Limited, one of the investors approached by Pisach, subsequently approached CPIPG about a potential purchase; we, in turn, decided to buy a 100% stake. CPIPG paid £19.5 million for the property, or £900 per square foot. The transaction underwent full legal due diligence (CPIPG was advised by law firm Memery Crystal).
As CPIPG embarked on its disposal strategy from August 2022, it earmarked Metrogate for sale given its modest size, potential investor interest and high probability of completion. The sale price in 2024 was equal to CPIPG’s reported book value as of 31 Dec 2023, which was lower than the initial acquisition price as a result of softer UK real estate prices since the acquisition date. The buyer of Metrogate, who is an experienced investor in the local market, was represented by a top-tier UK law firm, Mischon de Reya, which confirmed that the buyer is not a politically exposed or sanctioned person.
CPIPG also explains an acquisition of Buxmead, a property consisting of 20 apartments in Hampstead. Developed by Harrison Varma, it was initially successful, with nine apartments sold at more than £2,000 per square foot. As the post-Brexit environment slowed down sales, Harrison Varma began to experience difficulties with development loans provided by a leading UK bank. As a result, the bank required the developer to conduct an open market tender (via Savills) for the sale of the remaining 11 apartments. This was a competitive process, and CPIPG was selected as the winning bidder. CPIPG was represented by CMS on the purchase, who conducted full due diligence. The purchase price was financed by CPIPG with a bridge loan provided by Barclays and Deutsche Bank.
At the point of acquisition, the individual units were mostly shell and core and not ready for rental or sale. The units required further capital investments of several million pounds, which took a further two years to finalise. Thus, the purchase price was about £1,000 per square foot, significantly lower than the other fully completed units, as identified by our short seller. That is because, as CPIPG explains, it got exceptional value by bailing out a troubled developer and their lender. CPIPG is in the process of selling the Buxmead apartments.
CPIPG commented also on its continued progress on disposals. The Group’s subsidiary, S Immo AG, announced the disposal of several commercial and residential assets across German cities for a total transaction volume of €255 million. Year-to-date, CPIPG has closed more than €600 million of disposals (€340 million in Q1 2024), including assets in Germany, Poland, Romania, Italy, and Dubai. CPIPG has also signed more than €600 million in further disposals (including the recent S Immo announcement) that will close in the coming months. Cash received by the Group will be primarily used to reduce leverage.
