CPI Property Group (O5G) Earnings Call Transcript & Summary

Good morning. This is Mart Nemecek, CEO of CPI Property Group. I want to welcome you to today's webcast for our 2019 financial results. Before we begin, please take a moment to open our 2019 management report, which is available on our website, cpipg.com under the Investors section. There's also a link to the report on the landing page for the webcast. I'll be referring to our 2019 management report throughout our webcast today. During the webcast, please feel free to send us questions, and we will do our best to answer everything. Joining me today on the webcast are Tomáš Salajka, Head of Acquisitions and Asset Management; David Greenbaum, CFO; Pavel Mechura, Group Finance Director; Joe Weaver, Director of Capital Markets; and Martin Matula, our General Counsel. I'm proud of what CPIPG achieved during 2019, and I plan to highlight our many successes during today's webcast. However, I understand all of you probably want to hear about the impact of COVID-19 is having on our business and how we responded. I assume some of you want to hear about the recent negative outlook by S&P as well. So we will start with these topics. And let me begin by saying that the government in the Czech Republic and the CEE region reacted early and rapidly to the outbreak. Recently, there was even an article in the Washington Post in the United States, which mentioned the Czech Republic as a model for the effective response. There's lot of solidarity here in Prague. We are all wearing mask and following rules. In Germany, the numbers appear to be better than much of the Western Europe. And David and I have met many of you so many times, and always, we told you that being local, being on the ground really matters. And today, this is true more than ever. We are in regular contact with our tenants. We speak the local language and know the situation on the ground. This is even more important in challenging times than in good times, that I can assure you. And overall, CPIPG is well positioned because our portfolio is large, strong and diversified. 75% of our space across the commercial portfolio remains open and operating normally. This is very important. And we are not overexposed to any single country, any single sector, tenant or property. We have 0 concerns about liquidity and have moved very quickly on the cost side. David, would you like to comment on that as well?

Yes. Thank you, Martin. I just wanted to say a few words on cost upfront before we get into the details of the portfolio. CPIPG was one of the first European real estate companies to make an aggressive move on cost about 2 weeks ago. This came from Mr. Vitek and the Board. As a professionally run family company, we make extremely fast decisions, and this was no exception, no delays, no second guessing. We are all in this together. We are all pulling the same side of the rope. We cut head count, cut bonuses and cut salaries wherever we could across the board. We stopped all but a few remaining acquisitions in Warsaw, cut all but essential CapEx and development spending, cut administrative costs. Frankly, I'm in awe of how fast we did the cut. And you know what, Mr. Vitek and CPI did the same thing during the 2008-2009 crisis, cut quickly, responded quickly. We emerged from that crisis as a winner, and we will emerge from this crisis as a winner, too. I'll also say a brief word about liquidity. CPIPG has more than EUR 500 million in cash, no debt maturities of any significance until 2022 and a EUR 510 million committed undrawn revolver with 11 large banks. Therefore, I hope you all understand CPIPG will not be issuing unsecured bonds anytime soon at the current rates. Based on our estimates, we could wait 3 to 4 years, if needed. CPIPG has 70% unencumbered assets. Our assets in Berlin are secured cheaply and with very low leverage. Cured funding is still available and will be much better priced than what we're seeing in the market today. It's always possible we will buy back some of our bonds if we see the right opportunity. I'm really unhappy with how they're trading, and we appreciate the bondholders who've stuck with us. However, right now, we're focused on preserving cash and seeing how the business develops before we make any moves. Quickly on S&P. We understand that the agencies are cautious. Look, they lost a lot of credibility in '08, '09. And so they need to move fast. We understand that. We appreciate the fact that S&P highlighted our diversity, strong liquidity and commitment to financial policy. I want to say that again, we intend to be high BBB in coming years. This commitment is unchanged. Joe will talk about S&P and ratings in general a little later. Now maybe we can talk about how the business is doing. Tomáš?

Thank you, David. So let's talk about how the business is doing in this challenging environment. Please keep in mind these statistics in mind. As Martin already mentioned, 75% of our GLA and rental income relate to spaces which are open. 75% open and operating normally. As we mentioned in our P&L 30% to 40% of our retail space is still open. Grocery stores, pharmacies, pet shops, even flower shops. The residential, office and other sectors are performing normally. Hotels are generally closed, but the hotel sellers are a small percentage of our business, and we can control costs aggressively. I realize many of you want to hear about our rental collections. So with regard to collections, please keep in mind the following: CPIPG invoice is in advance, generally on a monthly basis. March collections were normal or close to normal. And we just invoiced for April and are awaiting for collection data in the coming weeks. There will be naturally some payment delays, which is even in a regular environment, plus individual negotiations and some tenants will take advantage of the government programs. Therefore, we will have more story data in several weeks only. Overall, CPIPG expects challenges regarding collection to be concentrated in units which are closed. As I already said, across our portfolio of retail office are the commercial space, about 75% of the GLA rental income is open and operating. This is probably the best indicator how we expect things to develop. In Berlin, the government has introduced measures which prevent landlords from evicting tenants during the emergency period from April to June. Any unpaid rent is still contractually due with the repayment period until 2022 and a penalty interest rate of 7%. Therefore, it may be cheaper for many tenants to obtain loans from the government rather than delaying payment. Our team has been contacted by a small number of tenants requesting assistance. We are working with these tenants, and we can also consider claiming their security deposits, which are generally 3 months' rent where applicable. In general, we expect a large majority of our office tenants across Berlin, Prague, Warsaw and Budapest, to pay normally or close to normally. Office rental income was 40% of the total CPIPG in 2019, but will be significantly higher in 2020 following the acquisitions in Warsaw in Q4 2019 and Q1 2020, and the group's acquisition of a stake in Globalworth. In the CEE region, the countries are in various stages of introducing measures to protect small businesses, including retailer, which have been requested by the governments to be temporarily closed due to COVID-19. For instance, in Poland, measures have already been implemented. We have only one large shopping center in Poland, and similar to the rest of CEE region, 30% to 40% of our retail units remain open. [indiscernible] of rental delays with a increment pay over time. Our residential collections in the Czech Republic are expected at this point to be steady. Hotel income will be impacted depending on the length of the delay, but all of our estimates suggest that hotels will remain profitable in 2020. Of course, this can change depending on the severity and duration of the outbreak, but we have planned for significant disruption already. And as David says, that please also keep in mind our liquidity position. We have no need for funding, plenty of cash and are prepared to weather the storm. So I think we have done everything we can for the moment to cover the performance of our business. We can promise you more data in the coming months. Rest assured that we are strong and prepared, and our local teams on the ground will prove their value in this environment. Now let me turn the floor back to Martin.

Thank you, Tomáš. Now let's spend some time on the 2019 results because I believe the strength of our business is what prepares us for the more difficult environment of 2020. And let's begin on Page 6 of the management report. At the end of 2019, CPIPG's property portfolio was EUR 9.1 billion, an increase of EUR 1.6 billion from the prior year. This mostly reflects our office acquisitions in Warsaw for the group committed to invest more than EUR 800 million between Q4 '19 and Q1 '20. And I'm pleased to say that we delivered on this promise, and the pipeline is very nearly complete. Our larger property portfolio also reflects higher valuations in Berlin when the properties continued to perform extremely well. For example, our portfolio in Berlin saw a like-for-like rental growth of 10% last year. For the total portfolio, like-for-like grown -- growth was 4.4% for the year. And the total assets increased to EUR 10.7 billion. This is mostly due to the larger property portfolio and our high cash balances due to capital markets activity during the year. And as you can see here on Page 6, our total available liquidity was EUR 1.3 billion at year-end. Revenues, FFO and EBITDA also grew significantly during the year. The company is more profitable than ever. Occupancy remains steady at 94.3% or a very high number. Interest coverage rose to 7.2x, given our strong levels of income and reduced interest expenses. Unencumbered assets increased further to 70%. Page 6 also reminds you that LTV was 36.2% at year-end. As many of you know, because of our acquisitions in the first quarter 2020, LTV is slightly above 40% for the moment. However, the group is committed to our solid investment-grade rating and financial policy, which targets the net LTV of 40% or below. Now skipping forward to Page 8, Group Overview. Just a reminder of our strategy, we are a long-term investor. We focus on income-generating properties and our largest exposure is in the Czech Republic and Berlin. We are active asset managers. We are locals: Czechs in the Czech Republic, Berliners in Berlin. We've said it a number of times, but this is very important now. Local teams in Warsaw and Hungary as well. Everything we do involves local people, which is really a big advantage. So on Page 8, Group Overview, I also want to mention our commitment to investment-grade rating and ESG as well. Financial policy and ESG are fully integrated in our thinking. And CPIPG has now issued 2 green bonds, one in euros and one in sterling, as a demonstration of our commitment to ESG. In this management report, you will also find a long and very detailed section on ESG. Last but not least, David touched earlier on the influence of our shareholder, Mr. Vitek. He is very supportive of the business, and as a member of the Board, he inspires us to take great decisions to protect the business. We are very glad to have him, particularly in the times like this. Now let's move forward to Page 13, where you can see our property portfolio split by geography and segment. As you can see, the majority of our property portfolio and net business income are from Berlin and the Czech Republic. Poland is now the third largest segment by portfolio value and will definitely be the third largest by income in 2020 because our Warsaw office acquisitions mostly occurred in Q4 last year and Q1 of this year. And the income will only be worth most marginal reflected in 2019. Still on Page 13. I want to talk about our property portfolio by segment, and I will emphasize again that we are diversified. You will see that office was 46% of the portfolio by value at the year-end, followed by retail at 24%. That's by value. By income, office is 40%, followed by retail at 39%. But please keep in mind this does not include income from more than EUR 800 million of office acquired in Warsaw in Q4 and Q1 and the 29.4% stake in Globalworth which we also acquired in Q1. So I imagine some of you are asking how should I see the income in light of COVID-19? Let me quite give you some back of the envelope mark. Retail was EUR 135 million of net business income in 2019. As we have told you, 30% or 40% of our outlets remain open. The rest had a normal Q1, will be disrupted for some period of time and hopefully return to normal during the summer or fall. Office was EUR 139 million of net business income in 2019, but this figure should be even larger in 2020 because we spent almost EUR 800 million in Warsaw, as we already said. We have told you that the yields in Warsaw are probably ranging around 5%, so this should produce very good income going forward. Plus we now have 65 million shares in Globalworth and expect to receive a substantial dividend this year. In many cases, income from our new office acquisition could offset any drop in retail. Hotels were at EUR 42 million of net business income in 2019, and this will drop, for sure, so long as the hotels remain closed. But we are able to cut expenses very fast in the hotel segment. Our drop-through ratio is about 50%, which means that for every euro of revenue we lose, we are able to cut costs down by EUR 0.50. Even under the tougher scenarios, we still anticipate that hotels will be profitable this year. So continuing on Page 13, for one more moment, you can still see that the Group generates a lot of income from a diverse range of sources and more than -- that income comes from the office than ever before. Now moving on Page 14. Let me speak briefly about changes to the property portfolio in 2019. The chart on the top right shows that we made EUR 789 million of acquisitions. We spent EUR 240 million of CapEx, made disposal of EUR 77 million and had a valuation increase of EUR 627 million. As we have already mentioned, the majority of the acquisitions for offices in Warsaw and the majority of the valuation increase was in Berlin, where we saw like-for-like growth of 10% and really is still very much booming market. So on Page 14, let me focus on CapEx. Yes, last year, we spent EUR 240 million on CapEx and development. However, in light of COVID-19, I think it's very important for you to know that what is included in CapEx figure. In the table on the bottom left, you can see that only EUR 65 million was what we call maintenance-related CapEx. The rest was refurbishment and new development. I'm highlighting this because it shows you the control and discretion we have over our costs. As David said earlier, we are making cuts whenever we can. And I expect CapEx, in general, will be much lower during 2020, if the current environment continues. On the other hand, we are long-term investor, and we believe in investing back in our properties. So we'll strike the right balance depending on how things unfold. Now moving on Page 15, just a note on our tenants. You'll know that our top tenants include many retailers, which remain open even during the crisis: Ahold, Tesco, Penny, Billa, DM; also large companies like Siemens, CEZ, Ceská Pojištovna, which is part of Generali. This should also give you some comfort around our rental income. On the other hand, our top 10 tenants are only 12.5% of the total rental income. So we are diversified and not particularly exposed to any single particular tenant and its covenant. So on Page 15, on the top right-hand corner, you can see a table covering the WAULT by segment and country. Overall, for our portfolio of WAULT was 3.4 years in '19, basically same as in '18. In Berlin, we continue to keep WAULT relatively short to take advantage of rising rents. However, in 2019, we actually lengthened WAULT slightly from 3.1 to 3.2 years as the leases we are signing at higher rents generally have shorter terms -- sorry, longer terms. Lastly, you can see that we don't have a big spike of leases to renegotiate in one single year. Last, to page 17, before I take break and hand over to Tomáš. Page 17 shows our assets on the map. And I want to remind you that most of our portfolio is located in a fairly small geographic region of Central Europe. We are not remote owners of properties. From our operational headquarters in Prague, we can reach all our locations easily. However, in this environment where none of us are traveling, having a management team on the ground in each location is more valuable than ever. I cannot imagine how difficult it would be for an investor sitting in New York to manage a property in Europe at this moment without a team on the ground. Now let me turn the floor back to Tomáš Salajka.

Thank you, Martin. So let's move to Page 22, Business Clusters. Here, you can see my photograph and an outline of the forecasters in which we operate the business: the Czech Republic, Berlin, the hotels and the resorts and the complementary assets. I just want to remind all of you that we are a leader in each of these areas. You will see lots of #1 rankings on the page. Even now in Warsaw, which is part of our complementary assets portfolio, we are close to claiming the #1 ranking in the city. This tells you something about the company and the way we like to run the business. We focus on assets which we understand. We can bring our local teams and local expertise that create a true platform. Now I will briefly run through the various clusters and how they performed in 2019. I will do this as quickly as I can. On Page 23, there is an overview of our portfolio in the Czech Republic. You can see the high occupancy overall at 95.3%. Rents have been fairly stable and grew almost 2% last year. The largest segment of our business are retail, followed by office and residential. In all of these areas, we have #1 or #2 position. Up until now, the Czech market had been benefiting from very low unemployment and strong [indiscernible] growth. Wages have been rising in the past 4 years. Now in this more uncertain environment, we realize it will be more challenging. On the other hand, the Czech government has one of the best fiscal records in the EU and will do everything they can to support the economy. On Page 24, just to touch on the occupancy. Overall occupancy increased because of an increased occupancy in our shopping centers because the market is strong and because investments and refurbishments have continued to attract finance. On the office side, we saw a slight decline in occupancy because we opened a new development, Mayhouse, and because we rotated some tenant in our properties called Marisa West. I will talk more about offices in a moment. Moving to Page 27, just a few details on retail. As you can see, 54% of our assets by GLA are shopping centers followed by retail parks and convenience stores. We primarily own regional shopping centers, usually the dominant or the only modern retail assets in the region to exist. The locations, the diversity of this asset base, in fact, is quite helpful given the outbreak of COVID-19. Our centers, big and small, tend to have food anchors. Many of the convenience jobs are still open. Occupancy, as I have already said, was high in retail for 2019. One thing to note, again, on the Page 27, which is -- that is -- that our net rental income in 2019 actually dropped in Czech retail. This is due to some sales over the past 2 years as well as a higher refurbishment and fit-out costs to improve the quality of the assets. You can see in -- on the bottom, the number of our retailed assets dropped from 182 to 122. This is because we sold several small assets during 2018 and '19. And we focused on owning the assets, owning the best quality properties. In the interest of time, I will skip forward to Page 30. On Page 30, just some data around sales and footfall in the shopping centers. You can see that sales increased by 8.8% and footfall by 5.8% in 2019. This is a very impressive result. How did we do it? Well, I think part of it was due to the strong economy. We really saw these same levels -- the same levels of footfall and sales increases continue into Q1 2020 before we were all surprised by COVID-19. However, I also believe the sales and footfall are due to some other factors as well. First, we have been investing in our shopping centers over the years to ensure they are fresh, they have the right tenant mix and the right level of food and entertainment. Also still on Page 30, you will see our comments around density. It is very important for all of us to remember that building permits are very difficult to obtain in Czech Republic. And we have not seen the overbuilding in Czech Republic as many other Western Europe countries have experienced. Small centers only started here around the year 2000. And there is very little activity outside Prague. So when things open back up, the trend will be the same. We have assets which are destinations for the local community, parts of their lives. We do not expect this to fundamentally change. Skipping forward to Slide 32, just a quick word on office. We primarily own offices in Prague, where we have headquarters for many multinational companies. These are large strong companies. Their offices in Prague are strategic. They employ a lot of people, and we expect them to pay their rents on time. To give you an example of our tenant base, in Luxembourg Plaza, we signed a new lease with Exxon Mobil in 2019, one of the largest leasing transactions in the Czech Republic last year. We are confident in the long-term prospects of the portfolio. On Page 34 now, I will touch very briefly on the residential portfolio. As you can see on the Page 34, our residential portfolio is mostly located in the regions of the Czech Republic. Occupancy is over 90%, an improvement from last year. And also we saw growth in rental income. The residential portfolio is 8% of our business, but is very stable. We like it, we will keep it. So it's good to have it in this environment. On Page 35, touching briefly on development. In general, the group's exposure to development is very small. However, these are 3 notable examples: Bubenská will become the headquarters of WPP, who signed an 18 years' lease. This is a historical building which we are completely refurbishing and also making some very significant improvements to energy efficiency. ZET.office, on the bottom of Page 35, is part of the Nová Zbrojovka redevelopement in Brno. And we have already leased the property to a couple of strong tenants. But of course, we will be much more selective about developments in 2020. But I want to emphasize what we develop is strategic and we develop to hold for long term. I will move on the Page 37 to discuss Berlin. Berlin continues to be a star performer in Germany and a star performer in our portfolio. You can see on Page 37, the occupancy in Berlin is high, 93.4%, and has been growing over the years. Last year, there was a slight decline in occupancy, driven by West Berlin, where we have several properties under refurbishment. As we have already mentioned, Berlin has been a booming city for many years. It's the most international city in Germany, a place people want to live, and job creation has been incredible every year. As a result, demand for space is very strong and like-for-like rental growth for our Berlin office portfolio reached 10.5% last year. I will now move to Page 39.

Tomáš, it's David. I'm just going to jump in real fast. For some of you that are listening, we've received a few questions about which presentation we're referring to. So just as a reminder, we're referring to our 2019 management report. There's a link on the webcast where you can download it or you can go to our web page, cpipg.com, and choose the annual results, and you could download the presentation. And Tomáš is about to move on to Page 39 of the 2019 annual results. So for any of you listening along, it's the management report that we're referring to during this webcast. Sorry, Tomáš, please continue.

Okay. Thank you, David. So I will skip to Page 39 to remind you what our balance portfolio looks like. As a reminder, what we have is primarily red brick buildings, which have -- which were built, in many cases, 60 to 90 years ago. Originally, these were factories which were abandoned by large companies after the second world war and the [indiscernible]. The city of Berlin was founded at GSG in 1965 to reposition this factory office for small businesses. The city invested in these properties over the years and privatized the portfolio in the early 2000s. We purchased the portfolio in 2014. Since then, we have invested further in the portfolio to transform it into the perfect environment for the IT and creative companies. We've just come to define the economy in Berlin in recent years. This is important because on Page 40, you can -- we can talk about rents. On Page 40, you can see that the average rent in Berlin is EUR 26 per square meter. Our average rent is EUR 7.3 per square meter. It has been rising over the years, but it's still well below the market average. This is good in the sense that we still have lots of catching up to do. On the other hand, let me remind you this means our space by comparison to many other landlords remains affordable. Maybe this will help us too during the outbreak of COVID-19. On the upside, Savills has estimated that as we [ rerent ] our properties in Berlin, the average rent should be closer to EUR 14 square meter. This means there is still significant upside, particularly once things get back to normal. On Page 41, just a brief snapshot on our developments in Berlin. Again, development is a small part of what we do. However, given the strength of the market in Berlin, we have undertaken a few refurbishments and developments during last year. You can see 4 examples here. The good news is that all 4 assets have been fully pre-let to very good tenants and at market level rents. We can continue to be very selectively develop this land bank going forward. Skipping forward to Page 43 about our hotels. As you can see, 44% of our hotels are conference and convention hotels. We also have resort hotels, primarily on the Croatian island of Hvar. Last year was the year of much progress for this portfolio. If you skip forward to Page 45, you will see the RevPAR and ADR both increased during the year and occupancy was stable at 67%. We saw growth in both the Czech market and also in Hvar, where we opened the first five-star hotel on the island. Of course, as you all know, the environment for hotel is challenging at the moment. That is why it is important that we operate our own hotels. We have been able to move very aggressively to cut costs, staff, closing of restaurants, et cetera. Even the hotels -- even if the hotels are closed for several months to come, we still expect the portfolio to be profitable. You see, Q1 was normal, Q2 will definitely be challenging. We are cautious but hopeful for Q3 and Q4. On to Page 48, just to speak briefly about complementary assets. This is primarily about Poland, where we now own a portfolio valued at EUR 883 million. Our Polish portfolio is primarily offices in Warsaw. We also have one shopping center in Elblag, in the north of the country, which is the only major center in the city, and a few small retail assets. In general, we are -- we still see opportunities in Warsaw and will continue to acquire offices in Q1. Our investments in Globalworth, which also has a good platform of offices in Poland, is another example of our confidence in this market. Even with the outbreak of COVID-19, we'd be holding -- Poland has a bright view. On Page 52, you will see the progress we have made in Warsaw acquisition pipeline since it was announced in October 2019. We really delivered on this. All the properties are located in Central Warsaw and all are more than 90% occupied with grade international tenants like Google, Bloomberg, Unilever, et cetera. On Page 53, just a snapshot of our portfolio in Poland. You can see, it's now more than 80% office and the occupancy is 96.8%. On Page 54, a snapshot of our portfolio in Hungary. The market in Hungary has continued to perform well, especially in the Budapest office market, which comprises over half of the portfolio. Strong like-for-like performance in this segment was a driver behind growth in net -- the net rental income of over 15% in 2019. Despite political noise, the economy has been strong, and our assets have performed extremely well. We also own some retail and also a small logistic property at Budapest airport. We like the assets we own in Hungary, including the recently developed Balance Hall office, which has recently won numerous awards for innovation. However, we are not looking to significantly expand this portfolio at the moment. I've been speaking for a while, so let me hand the floor back to David to discuss finances.

Thank you, Tomáš. I'll pick up on Page 62 of our 2019 management report. So on Page 62, I just want to remind you of our financial policy. Last year, we tightened the financial policy to target a long-term LTV of 40% or below or up to 45% for acquisitions with high strategic merits. Although we ended the year with an LTV of 36.2%, the acquisition of a stake in Globalworth plus additional office acquisitions in Warsaw, mean that the LTV will be slightly above 40% at the end of Q1. We plan to do everything we can, even in a challenging environment to stay within our targets. We are fully committed to our financial policy. Still on Page 62, you can see we have an ICR target of 4x or above. We were at 7.2x for 2019 and expect to stay comfortably above this target. Lastly, we have clarified our intention to continue retaining FFO. Unlike most real estate companies who pay out majority of FFO as dividends, we have a policy of no dividend, limited share repurchase and intend to retain at least 50% of FFO every year. I want to emphasize, this is one of the easiest ways for us to reduce leverage and retain cash: by limiting distribution. It's a great tool for us to have in an uncertain environment like 2020. You don't need to worry about whether we will cut our dividend because we don't have one. On Page 63, I just want to highlight that we have been an active issuer on the market. We are very proud of our recent green bond issues in euros and sterling. We have used proceeds from our issuances for acquisition, but also to repay debt. In fact, we recently repaid some of our Schuldschein. Going forward, this will be our strategy: If and when we issue again, it's very likely we would use the proceeds for refinancing. On Page 64, just a reminder that the level of our unencumbered assets is now up to 70%. The largest portion of our unencumbered assets are income-generating properties. This gives us significant potential sources of liquidity and, frankly, a potential source of competition for our bond investors. Banks still like to lend against income-generating properties. We want to keep a high level of unencumbered assets. But at 70%, this is well above what we need for our credit ratings. So we'll continue to keep a close eye on the pricing. Still at the moment, you can see at the bottom of Page 64, senior unsecured debt is now 75% of total. It's quite a change from 3 to 4 years ago when the situation was completely reversed. On Page 65, just to highlight our debt maturity profile and liquidity. We have very limited debt maturities in 2020 and 2021. The only meaningful maturities begin in 2022. And we also have lots of liquidity. This prepares us well for 2020. We can wait comfortably for a very long time. There is no need to go to the market. Lastly, I want to take a moment to talk about credit ratings and ask Joe Weaver to talk briefly about the recent negative outlook from S&P and our credit ratings in general. Then we can move on to answer some of the Q&A that we've received during the webcast. Joe?

Thanks, David. CPIPG is proud of our ratings: BBB with S&P, Baa2 with Moody's and A- with Japan Credit Rating Agency. We're committed to preserving and improving our ratings over time, and we've said this to you a number of times before. Let me explain some background to the S&P rating action. As we said, CPIPG views everything through the lens of our financial policy, which states that our LTV target is 40% or below or up to 45% temporarily in the case of acquisitions with high strategic merits. We felt that the opportunity to become the largest shareholder in Globalworth and continuing to expand our office footprint in Warsaw, warranted going slightly above 40% for a short period. Increasing the share of offices in our portfolio turned out to be a very smart decision in this environment. It's helpful for the rating agencies, too. The idea is to build scale in terms of portfolio value and income generation, increased diversification, increase our exposure to offices, all important factors for rating upside over time. S&P and the other agencies are actually nervous about developments in the retail sector and hotels in the current environment. S&P aimed a Bazooka at the entire sector, and we've seen a slew of rating actions over the last few days, and there's likely more still to come. And we understand the caution to some degree. But we also plan to demonstrate to you and to them how CPIPG's performance will be different. Now a negative outlook typically has a horizon of up to, say, 2 years. The action taken by S&P now gives CPIPG some time and breathing space to enact all sorts of measures, which allow -- will allow us to deliver and reduce leverage, retaining FFO, possibly raising equity or more -- or doing more disposals. We are happy that S&P pointed out the benefits of the diversification of our portfolio and our high liquidity. We're in close touch with S&P and our other agencies, and as I've said, we have taken and will continue to take strategic steps to preserve and improve our ratings over time.

Okay. So let's move on to the Q&A now. We received quite a few questions during the call, which are great. I think some of them we've answered now but let's start with one of the questions we've received about government measures and what we're hearing about government measure with rent. Martin Matula?

So the question is, are there government -- is there government pressure to provide assistance to tenants in any of the countries? Is only rent deferral being considered? Or could there also be any rent waiver? And I would kindly ask Martin Nemecek to answer the question.

Thank you, Martin. So first of all, we really monitor closely what the government is proposing in all the countries where we operate. We have lawyers, again, on ground, reading everything, what is produced. And I have to say, it's really changing environment. What is really positive is, first, that in the Czech Republic, in Germany, the measures so far introduced are really just for rental deferment for 3 months. We'll be able to invoice the rent. We'll be able to collect it after the situation improves within 12 or 24 months. So we'll not be deprived of the rental income. In Poland, the situation is, to some extent, similar. Only the government introduced a waiver of a small portion of the rent for 3 months on the retail that are really closed. And we calculated the potential impact on our P&L, and it's well below EUR 2 million. On the other hand, the benefit for the landlord will be that the rentals will be extended by 6 months after the expiry. So do you really think that the measures so far are not detrimental at all to our business rather helpful in general to the overall real estate business? Next question? Thank you, Martin. David, if you can organize on Martin Matula.

The next question is, out of EUR $.3 billion liquidity position at the financial year in 2019, how much will be expensed on committed Warsaw acquisitions in 2020?

Okay. So let me give you a bit of back of the envelope math on the liquidity position. So we told you that we have a liquidity position of EUR 1.3 billion at year-end. As most of you know, we raised about EUR 500 million in senior unsecured and hybrid bonds during Q1. So that gets you to sort of EUR 1.8 billion. We -- we'll spend -- we spent less than EUR 200 million in Warsaw in Q1. We acquired the stake in Globalworth as well. And frankly, that's what gets us to the current position, which is around EUR 1 billion of liquidity between cash represented by about EUR 500 million and a revolver of EUR 510 million. So right now, very comfortably at just about EUR 1 billion of liquidity. In terms of what remains in Warsaw, it's very small, less than EUR 100 million. And that's it. As I said, we have cut everything else. We've cut the acquisition pipeline, cut CapEx, cut salaries, everything. We're really controlling costs. We felt it was important to continue and complete our Warsaw acquisition pipeline, which we've committed to do. And frankly, as we've said several times, this Warsaw acquisition pipeline, the acquisition of Globalworth, these are the perfect things for us to own at these moments because offices are open, tenants are coming to work. We have large international tenants at headquarters. This gives us a very comfortable position in this uncertain environment.

David, thank you very much. There is a next question: You mentioned the potential of buyback bond. Can you elaborate a little bit on this, please? David, would you mind continuing, please?

Sure. So look, we look at our maturity profile every day. We know what we have maturing in the coming years. We watch our bond prices very carefully. I receive quotes from multiple banks, and we see where things are trading. In general, right at this moment, our focus is on cutting costs, doing everything we can to extract the best possible outcome in the coming months. However, we're watching the bonds on a regular basis. And if we feel there's a good opportunity to repurchase some of our bonds that are maturing in the coming years and to refinance or pre-finance in a sensible way, we've always said that this is something we will consider. We're not under pressure to do it. And therefore, at this moment, we're just going to wait and see. On the other hand, we don't enjoy seeing where the bonds are trading at all. But right now, the sensible thing for us to do is to maintain high levels of liquidity. And we really do believe that when the storm cloud parts, our investors will see that we've managed the crisis in a very good position. But I would just say, we're constantly looking at it, constantly thinking about how we could potentially look at pre-financing some of our short-term maturities. And we're always open to ideas from some of our investors. And some of you have very kindly offered ideas about it. So we'll consider that as we go through the next couple of months.

Thank you very much. We received another question: Could you share the current headroom for the financial covenants of the existing debt?

Sure. I would just say the financial covenants are -- we've got lots of room under our financial covenants. So in our EMTN program, as one example, the ICR covenant is 1.9x, and we were at 7.2x at the end of the year. And our LTV covenants is 65%. And as we said, we'll be slightly above 40% on the LTV at the end of Q1 due to the acquisition. So we have an enormous amount of flexibility under our covenants.

Thank you, David. That was the last question received so far.

If there's nothing else, I just want to thank all of you for the questions. Thank you for attending, and please remember Joe Weaver and I are available. We get lots of questions from investors. Hopefully, you all feel we answer quickly. When you have a question, if there's a follow-up, reach out, we'll answer any question that you want. We love spending time with our investors, and we appreciate your continued interest in CPI Property Group and your support. Thank you very much.