CPI Property Group (O5G) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining the 2020 Annual Financial Results webcast for CPI Property Group. This is David Greenbaum, Chief Financial Officer of CPI PG, and I'm delighted to be joined on today's webcast by Martin Nemecek, our CEO; Tomáš Salajka, Head of Acquisitions and Asset Management; Pavel Mechura, Group Finance Director; and Joe Weaver, Director of Capital Markets. I hope you had a nice and restful long weekends. 2021 has been such a busy year already, so much is happening in the world, so much uncertainty. On the other hand, CPI really sees light and promise on the horizon. We see pent-up consumer savings, pent-up demand to shop, pent-up appetite to travel and pent-up desire to spend time back in the office with colleagues. We believe the COVID marathon, this great unexpected test, is nearly over. After today's presentation, I am hopeful you will have a positive understanding of what CPI PG has accomplished in 2020 and what we can still achieve in 2021 for our bondholders, banks and other stakeholders. Before we begin, a few housekeeping items. On the webcast, you should see a tool for submitting questions. I hope the tool works properly. We can already see some questions coming up, and we're looking forward to answering all of them. We'll try and answer as many as we possibly can. Just so you all know during the webcast, we will be referring to our 2020 management report, which you should see displayed on your screen. If not, you can find it on our website or please reach out and let us know immediately. Now let me turn the floor over to Martin Nemecek, CEO of CPI Property Group.

Thank you, David, and good morning to everyone listening on the webcast. This is Martin Nemecek speaking to you from Prague. I'll begin today's presentation on Page 6 of the annual management report. Here, you can see key figures describing CPI PG's business. We are very proud that CPI PG's business has been continued to grow during the COVID-19 pandemic. Our team and strategy remains very consistent, and I believe there are no great surprises, particularly to those investors who have been following us closely. Total assets of the group are now EUR 11.8 billion, an increase of 11% versus 2019. This was mostly driven by growth in our property portfolio, which increased by 13% to EUR 10.3 billion. Net rental income grew by 15% to EUR 338 million. EBITDA grew 16% to also EUR 338 million, and FFO was up slightly versus 2020. All these figures demonstrate that CPI PG continued to generate increasing levels of income and solid amounts of cash during the pandemic despite challenges in the retail sector and a nearly complete closure of hotels during the year. How did we do it? Well, the group made more than EUR 1 billion of acquisitions in the office sector where rent collections were extremely stable. As you can see on the left-hand side of the page, the group collected 95% of our rent in 2020. Office, residential and logistics collections were close to 100%. The only real challenge were in the retail segment, where collections were still nearly 90% before the effect of any onetime discounts. In total, onetime discounts provided to tenants were EUR 13.3 million in 2020 or just 3.6% of the group -- of CPI PG's gross rent income. Tomáš Salajka will describe this later in more detail, but I find this figure particularly impressive. Soon, high levels of rent collections were definitely a major factor in CPI PG's success during 2020. I want to stress that these amazing collection rates would never have been possible without our local teams because CPI PG has local teams in each location because our teams were never separated from our properties or tenants, this made a big difference. Beyond collections, remaining for a moment longer on Page 6, CPI PG continued to benefit from the fact that our real estate markets are in high demand with strong fundamentals. Occupancy was steady at 93.7%, down just 0.6 percentage points versus 2019. Much of the slight decrease in occupancy was due to properties which were vacated for refurbishment, including several properties in Berlin. In our retail portfolio, occupancy was virtually unchanged at a very high level of 96.7%. Occupancy also increased in residential, reaching a new high of 92.9% in the Czech Republic. You might also be surprised to learn that our rents grew during the COVID-19 pandemic. You can see that increased of 0.8% on a like-for-like basis. Once again, the strongest performance came from Berlin, but we see encouraging signs across all our geographies and sectors. The group had no difficulties renegotiating leases during 2020. In many cases, we're able to renegotiate leases with higher rents and longer terms. This helped us increase the group's WAULT by 0.2 years to 3.6 years. Fundamentally, the portfolio is very stable and, we believe, passed the test of the pandemic. Before we move on, just a quick note on other key financial metrics. The group's net LTV increased to 40.7% in 2020. This was an increase of 4.5 percentage points versus the end of 2019. The reason for the increase in LTV was acquisitions made during the first half which, as I described, made significant contribution to rental income. In the second half of 2020, the group issued hybrids and repaid debt, reducing our LTV by 1.8 percentage points. We continue to watch this very carefully. While an LTV of 40.7% is comfortably within CPI PG's financial policy range, our goal is to return below 40%. Unencumbered assets stood at 70% in 2020, which demonstrates that the capital structure is simple and most are funded through the unsecured bond markets. Our unencumbered assets are also a great source of liquidity. Banks in our region are still active lending, and we are constantly turning down offers for secured loans. The group's interest coverage ratio was 5.4x versus 7.2x in 2019, still above our financial policy target of 4x. The decline in ICR was primarily driven by 2 factors: first, the group issued debt to fund acquisitions; second, there was an impact from a sharp reduction in hotel income and also from discounts provided to retail tenants. We estimate that if hotels and retail had experienced a more norm year, the ICR would have been closer to 6.3x. EPRA NAV was EUR 5.1 billion, up slightly versus 2019. Our credit ratings are unchanged, so Moody's and S&P put CPI PG on negative outlook in early 2020 as the pandemic created all kinds of uncertainty about real estate. We hope that in 2021, the agencies will change their minds and stabilize our credit rating. There is no change in our commitment to credit ratings. Before moving on, I forgot to mention that CPI PG had EUR 1.4 billion of available liquidity at the year-end, including EUR 700 million undrawn revolving credit facility due in 2026. This means we entered 2021 on a very strong footing. Now let me take a moment and turn the floor back to David.

Thank you very much, Martin. Let's move on to Page 7. Martin covered most of the highlights already, but there's a few points I'd like to emphasize. First, please check out the increases in gross rental income and net rental income. As Martin described, these increases are due to acquisitions, increases in like-for-like rents and careful management of operating costs. Second, please look at hotels. Hotel net income was EUR 40 million in 2019. And by the way, it was about EUR 40 million in 2018, too. In 2020, hotels were shut for much of the year, but because CPI PG has full operational control of our hotels, we were able to cut costs sharply and quickly. Therefore, our hotel segment lost only EUR 3 million. Again, we're not proud of a minus EUR 3 million, but hotels have been very profitable for CPI PG over a long period of time. And I think I speak for all of us when I say I'd love to travel, again, for a variety or more at least for a variety of reasons. Net business income was basically unchanged, which shows that the office acquisition CPI PG made at the end of 2019 and in early 2020 effectively offset the loss of income in hotels. We believe this demonstrates that our strategy was correct. On financing structure at the bottom, Martin already made good points about many of these figures. Okay. So we've all laughed about this concept of EBITDAC, EBITDA excluding COVID. I even bought myself one of those EBITDAC coffee mugs, you can find one on Amazon, if you want one, okay? Of course, this is not how any sensible company measures performance. We need to live in the real world. Still, Martin mentioned earlier how the ICR would have been better in a normal year, and I will quickly mention the same for our debt-to-EBITDA ratio. You can see that net debt-to-EBITDA increased to 12.4x from 11.3x in 2019. I just want to mention that if hotels and retail had a normal year, the ratio would have been closer to 10.6% for 2020, which is a decline from 2019. Now back to Martin to describe how the total portfolio looks today. Martin?

Thank you, David. Now let's move forward to Page 12. For this year's results presentation, we changed the group segmentation to give our investors a clearer picture of how CPI PG organizes our business. CPI PG's key business segments are: office, retail, residential, hotels and resorts and what we call complementary assets. Offices are the group's largest segment, representing 52% of our portfolio by value and 57% of our net business income in 2020. The office segment includes our market-leading platforms in Berlin, Prague and Warsaw. Retail is our second-largest segment, although the share has been declining in recent years. Most -- about 70% of the group's retail is in the Czech Republic where the market is very strong. Residential is 9%, hotels are 7% and complementary assets are 11%, which mostly reflects our highly valuable land bank along with other small investments. In total, 81% of the group's portfolio is located in the Czech Republic, Germany and Poland, and 86% of our income comes from these 3 countries. Despite ups and downs in managing COVID, we believe these countries continue to be underpinned by large, stable economies and good real estate markets dynamics. For 2021 and beyond, we will continue to focus on these core areas while adding selectively in other geographies, such as in U.K. and Italy, where we had been steadily growing our platforms and track records. Let's move on Page 13, where we described changes to the property portfolio in 2020. David, would you like to take us through these slides?

Thank you, Martin. Here on Page 13, as we already mentioned, the group made nearly EUR 1.2 billion of acquisitions in 2020. Nearly all our acquisitions were in the office sector in the CEE region. CapEx was EUR 216 million, down from EUR 240 million in 2019 as the group cut costs across the board. What CapEx did we cut? As you will see from the table detail on this page, maintenance CapEx was basically unchanged, but we decreased spending on refurbishment by more than 25%. Mostly, this reflects our decision to delay certain refurbishments in the retail sector. Development spending continued at a normal pace as the group delivered some important new developments in Berlin and Prague which were 100% leased to tenants. These developments are expected to deliver substantial rental income to the group in 2021. Property portfolio valuations were a big topic during 2020. Some investors and the rating agencies, too, were concerned about what would happen. Well, I'm pleased to report that valuations across our portfolio were basically unchanged in 2020. Let me give you a bit more detail on this. It shows how strong markets are, and it shows how much CPI PG benefits from diversification. As you can see in the table on the right-hand side of Page 13, the total diversified property portfolio valuation rose by EUR 173 million. The total reflects higher valuations in the Czech Republic, Germany and the U.K. The sector's most positively impacted were Berlin office, Czech residential, U.K. residential and our Czech land bank, where the group received some important zoning and master plan approvals. These portfolio gains were partially offset by a decline in retail valuations of about EUR 78 million or about 3% of the retail portfolio. You can also see a decline of EUR 127 million, mostly from hotels, which we classify as PP&E because we operate the hotels. In total, the valuation impact was positive by EUR 46 million before you include the FX effect. So let me quickly discuss the FX effects. In 2020, 26% of CPI PG's property portfolio was valued in Czech Koruna. 41% of our portfolio is located in the Czech Republic, so roughly 60% of the Czech portfolio is valued in Czech Koruna, residential being a good example. During 2020, the Czech Koruna depreciated relative to the euro by about 3.3%. This resulted in a negative noncash valuation effect of EUR 104 million, meaning that the total portfolio valuation for 2020, including FX, dropped by EUR 58 million. Before we move on, I just want to say that the possible FX impact of a declining Czech Koruna has been modeled and disclosed by CPI PG for several years. It's in our statements, you can see it. As described more in the results section, the result was really in line with the predictions that we had. Overall, the Czech Koruna appears to have stabilized in 2021, and we know the Czech National Bank is watching it very carefully. Now let me turn the floor over to Tomáš Salajka, who will first talk about our tenants on Page 14 and then discuss the group's response to COVID-19 along with Joe. Tomáš?

Thank you, David. I'm now on Page 14. Tenant quality and tenant relationships are among the greatest advantages as a landlord along with the attractive nature of our assets. We have about 4,000 tenants, including many multinational companies headquarters in Prague and Warsaw. We manage our tenant relationships actively and carefully through our local teams. If you look at the table, you can see that our top 10 tenants represent just 11.5% of the group's gross rental income. 4 out of our top 10 tenants are grocery stores, Ahold, Tesco, Penny Market and BILLA, all spread across multiple shopping centers and retail parks. We also have our chain. All these tenants saw excellent sales during the pandemic and remained open even during the most difficult periods. We also have large corporate tenants such as Generali, Siemens, CEZ and Continental. Some of you may notice, OVS, the Italian fashion retailer, which is a new entrant to our top 10 table. This came from our acquisition of Nova RE. The portfolio includes both OVS corporate offices in Milan along with a few retail shops. I am glad to report that OVS is coming through the pandemic quite well, and we are not seeing any signs of distress. In fact, this is the theme across our retail portfolio, no significant distress, no major bankruptcies. We can also see decent collection rates, which I will discuss in the next section. On the right-hand side of Slide 14, you can see the WAULT across our portfolio. In Berlin office, WAULT increased from 3.2 to 3.5 years as the group signed longer leases at higher rents. In retail, WAULT increased across the board as leases and renegotiations, and any discussions around onetime rent discounts typically involve significant extension. Some of you may notice the reduction in WAULT in Poland office, but this is really a temporary effect because many of the properties we acquired had shorter WAULTs. Now that our asset management team is plugged in, we will do what we do best, focus on rents, occupancy and tenants. I expect you will see the WAULT in Poland office normalized in 2021. Now let's move on to the impact of COVID-19 and how CPI PG responded. Joe, would you like to begin?

Thanks, Tomáš. Let's move to Page 18. Here, we described the actions taken by CPI PG at the outset of the pandemic. First, we stayed close to our tenants. Unlike some remote owners of properties who fly in management, this was never an issue for CPI PG. During the most difficult and challenging times, we were there alongside our tenants. I believe this made a big difference. Second, we cut costs across the board. Administrative expenses, including headcount, were cut by 11%. Property operating expenses were cut by 15%. Hotel operating expenses were cut by 50%, which was only possible because we operate our hotels. We also cut hotel headcount by about 50%. Moving to Page 19. Here, you can see a chart of open and closed units across the group's portfolio during 2020 and into 2021. The headline is this, more than 80% of the group's portfolio remained open and operated normally during the pandemic. In general, office, residential and logistics were normal, so the closed units were really in retail or retail portions of offices such as cafes. Fortunately, a high percentage of the group's retail tenants are food retailers, pharmacies and other shops which were considered essential during the pandemic and never closed. Now on to Page 20. I want to remind you that more than 70% of the group's retail properties are located in the Czech Republic. The Czech government enacted multiple support programs during 2020 for retailers, which were closed, in general, covering about 50% of the rents during closed periods. Because of this support and because our retail tenants were in fundamentally good shape leading into the pandemic, we were able to preserve occupancy in our retail portfolio at 97%. This is great news because when shoppers come back, as we know they will, we want our tenants to be ready. Indeed, when shops opened in the Czech Republic following the first lockdown in spring, we saw footfall and sales rebound quite quickly, and that is also what we expect in 2021 as vaccination rates take hold and the shops open once again. Now let me turn the floor back to Tomáš to discuss collection rates on Page 21. Tomáš?

Thank you, Joe. On Page 21, next to my photograph, you will see a table summarizing the group's rent collection rates during 2020. Overall, CPI PG collected 95.3% of the rents due during 2020 before discounts or 99% after discounts. Collection rates were near 100% in office, residential, industrial and logistics. In retail, the collection rate was nearly 90% before discounts, which is a particularly remarkable figure considering that some of our retail tenants were closed during much of the year. I believe the high retail collection rates are partially due to the strength of our tenants and as Joe described, the rapid and very successful support programs enacted by the Czech government. Moving to Page 22, we summarized the overall impact. Total discounts provided mostly in retail amounted to EUR 13.3 million or about 3.6% of the group's gross rental income plus, very importantly, whenever we agreed to onetime discounts, we typically also had an extension in the lease term. On average, renegotiated retail leases were extended by an average of more than 8 months at the same headline rents. In fact, this is a key point. Even when onetime discounts were agreed, there was no change to our headline rents. Lastly, moving to Page 23. You can see a picture of one of our retail parks. Retail parks are one of the key winners in our portfolio during 2020 and represent a significant portion of our Czech retail portfolio. It's really important for you to know that our Czech retail parks reached 100% occupancy during the year. Why is that? Well, partially it's because retail parks are convenience focused and have the kinds of shops that are part of people's daily lives which were considered essential during the pandemic. Second, the physical layout and format of the retail parks worked very well during COVID-19 when hygiene and social distancing measures had to be introduced. Third, and this is a factor we discussed for many years, the retail dynamics in the Czech Republic remain very favorable. In the Czech Republic, we have not seen the overbuilding of retail, as you have seen in some western European countries and the U.S.A., and High Street is very limited. In regional cities of the Czech Republic where most of our portfolio is located, our shopping centers and retail parts are the key retail destinations for essentials. These factors should continue to be very supportive for our portfolio in 2021. So in summary, when it comes to COVID-19, you can see that we cut costs, run the portfolio well and collected more than 95% of the rent. We also strengthened our financing structure. David, do you want to describe Page 24 briefly?

Sure. Thank you, Tomáš. Just briefly on Page 24, I want to remind you of changes to CPI PG's debt maturity profile. In the past year, we have undertaken 3 separate liability management exercises. CPI PG repurchased bonds and Schuldschein due in '22, '23, '24 and '25, and we issued new longer-dated bonds. We also repurchased hybrids callable in 2023 and issued some new hybrid bonds. As a result of these transactions, the weighted average maturity of our debt has increased considerably. CPI PG's debt maturities are limited for the next few years, particularly in comparison to our cash flow generation, strong liquidity position and EUR 700 million revolving credit facility which matures in 2026. I've said many times, we could happily survive without returning to the unsecured bond markets for several years if we wanted to. The secured bank loan markets in our region remained very strong, and we're generating lots of cash, plus we have the big EUR 700 million RCF. That doesn't mean we don't love the bond markets, and we absolutely do love our bond investors, and we'd like to continue issuing innovative products such as green and sustainability-linked bonds. However, there really is no pressure. That's the key point. Now let me turn the floor back over to Martin and Tomáš to talk about our business segments, starting on Page 32. Martin?

David, thank you. Okay. So on Page 32, we see a snapshot of the office segment. Office is CPI PG's largest business segment, 52% of the portfolio overall. We have the leading platform in Berlin, Prague and Warsaw as well as in Budapest. Through our 29.6% stake in Globalworth, we also had exposure to Globalworth's office platforms in Poland and Romania. As I mentioned earlier, the group expanded our office portfolio significantly in 2020. We acquired 6 offices in Warsaw for EUR 262 million and spent EUR 676 million on the stake in Globalworth. As mentioned earlier by Tomáš, rent collections in the office sector were nearly 100%. As a result, the contribution from our acquisitions offset the weaker performance in hotels and retail during 2020. On to Page 33. Many of you have asked us about the future of office work. Based on everything we have been hearing based on surveys from CBRE, KPMG and feedback from our employees and tenants, people in our region want to get back in the office. Of course, some remote work is expected and perhaps many of us will not want to spend all 5 days a week in office, but we call this a hybrid working approach, and we see this as the future. It's important to note that CPI PG does not own offices in Silicon Valley or Downtown Manhattan or Canary Wharf. We own offices in Berlin, Prague and Warsaw. In these cities, the average living space are small. Working from home in our geographies is simply not that easy. People are tired, people miss collaboration with colleagues. The leasing activity we have seen suggests that companies are not pulling back from offices. Between Q2 and Q4 2020, the group signed more than a 52,000 square meters of office leases where the average increase in headline rent per square meter was about 30%. This trend is consistent across all our office markets, especially Berlin. So do we believe the office that? No, no way, far from it. On Page 34, you can see office occupancy was 92.4%. This represents a small decrease from 2019, less than 1%, mostly due to properties which were vacated for refurbishment in Berlin and also the completion of Bubenská 1 in Prague, as Tomáš will describe later. Net rental income in office segment increased by 41% to EUR 197 million, primarily due to contribution of acquisitions in Warsaw. We believe this is a fantastic result. Considering that we have limited time, I'll quickly touch on the various office geographies. On Page 36, we have a snapshot of Berlin. Net rental income rose by 15% to EUR 79 million in Berlin. This increase was organic, driven by like-for-like rents. We also completed some developments during the year which will contribute to net rental income in 2021. On Page 38, just a reminder that our rent in Berlin continue to rise every year. In 2020, the average trend across our portfolio was EUR 8.61 per square meter. This is a fantastic increase of nearly EUR 1 from 2019. On the other hand, the average rent in Berlin was EUR 28 per square meter, and sellers have estimated that the ERV of our portfolio is closer to EUR 14. Vacancy in Berlin market overall remains extremely low, therefore, we still see a lot of potential upside in the portfolio. In fact, before we move on from Berlin, I want to encourage all of you to read the surveys and predictions about office in 2021. Berlin is always #1 or #2 on the top 10 list of markets that are expected to outperform. Like I said, not every office market is the same. I'll take a break now, and Tomáš can discuss Prague and Warsaw. Tomáš?

Thank you, Martin. Now let's talk about the office market in Prague on Page 40. As you can see on this page, net rental income increased by 5% and to EUR 42 million, reflecting stable performance. The value of the portfolio rose to EUR 834 million in 2020, an increase of about 8%. A large portion of this was due to the completion of Bubenská 1, a historic building in Prague, which was completely refurbished to become the headquarters of WPP on an 18-year lease. When it opened, Bubenská was 65% leased, which explains the slight drop in portfolio occupancy to 92.8%. However, I am pleased to report that the office part of Bubenská is now 100% reached. Overall, I would characterize the Prague market is stable. We faced no issues with leasing and signed 23,000 square meters of leases during 2020 with an average rental increase of 1%. Now moving on to Warsaw on Page 43. On this page, you can see a snapshot of our market-leading office portfolio in Warsaw. The portfolio is currently valued at nearly EUR 1 billion. Rental income was EUR 52 million in 2020 relative to EUR 10 million in 2019. Of course, this was mostly due to acquisitions, but it shows how much the group's portfolio has been changed by our shift to offices. On Page 44, you will note that Warsaw office occupancy increased to 94.7% versus 91.4% at the end of 2019. The increase is because of 2 major factors: first, the properties we acquired in 2020 generally had close to 100% occupancy; second, our team was able to further increase the occupancy during the year. The market overall in Warsaw remains healthy, but location really matters. The locations where CPI PG owns properties which are in and around the CBD are growing the best. Very quickly on Page 47. Our portfolio in Budapest had another good year. Net rental income increased by 19% to EUR 19 million. Occupancy increased to 93.5%, and leasing activity was particularly robust where new leases recorded an average 8% increase in rents. Before we move on to other segments, I will ask David to say a word about Globalworth and maybe even cover our development properties. David?

Thank you, Tomáš. On Page 49, just a reminder that CPI PG is the largest shareholder in Globalworth which owns a EUR 3 billion portfolio of mostly office properties in Poland and Romania. So far, we have been a relatively passive investor. We use our special founders rights to appoint an independent Board member, Martin Bartyzal, former Chief Country Officer of Deutsche Bank in Prague, but we haven't taken any other active measures. We like the property portfolio, the management team and the capital structure. We think Globalworth owns excellent properties, which are mostly green-certified, by the way. Globalworth is also a perfect member of the community always on the forefront of social engagement and charitable efforts. And the company is very well run. They collected 99% of their rent in 2020, which is a great achievement during COVID-19, so we're a very happy shareholder. Before Tomáš moves on to retail, on Page 50, you can see a brief summary of our development activities. You all probably know that CPI PG is not a developer. Pure development was less than 1% of the group's total assets in 2020. On the other hand, we continue to selectively develop land bank, as you can see in the Nová Zbrojovka project in Brno, the Czech City in the Czech Republic and also in Berlin. Tomáš also spoke earlier about Bubenská in Prague. The point is we developed to own, and all of these developments which were completed in 2020 will bring substantial rental income to the group in 2021. Now over to Tomáš to discuss the retail sector.

Thank you, David. On Page 51, you can see our retail segment. 71% of CPI PG's retail properties are located in the Czech Republic, followed by Hungary and Poland. We also have small exposures in other countries, however, our local presence and long operating history in the Czech Republic makes a big difference, as you will see in a moment. If you look at Page 52, you will see that retail occupancy was remarkably stable at 96.7% despite the COVID-19 pandemic. Net rental income dropped from EUR 135 million in 2019 to EUR 123 million in 2020, mostly reflecting the onetime discounts provided to mainly tenants in our shopping centers in the Czech Republic, as we described earlier. Excluding the onetime discounts, net rental income would have been unchanged in the segment. On Page 53, you will see more information about the Czech Retail segment. 54% of our assets are shopping centers, mostly regional shopping centers in the Czech Republic. These centers tend to be the best assets in the regional cities, which attract people from miles around to shop for groceries, go to pharmacy or in more normal times, go to a restaurant or movie. We also have retail parts, hypermarkets, supermarkets and convenience stores which have done very well during the pandemic. Our retail parks and hypermarkets reached 100-person occupancy in 2020. Right now, our focus is on maintaining occupancy and quality. It's true that we completed fewer refurbishments in 2020. But to be honest, so much of the portfolio has been furbished in recent years, and we are not afraid to invest when it makes sense. Moving to Page 59. Here, you can see an example of a recent retail development. Spektrum, which opened last month in the Czech Republic with 96% occupancy. We also completed some refurbishments in Mlada Boleslav and Teplice. When shops open up again, we know that shoppers will enjoy our updated offering. Now let me take a break and turn the presentation back over to Martin Nemecek, who will talk about residential and hotels.

Thank you, Tomáš. Let's move to Page 61. Here, you can see a snapshot of our residential segment where about 58% of our properties allocated in the Czech Republic, followed by the U.K., where we have been investing very selectively since 2019. As most of you know, residential did really well during COVID-19 pandemic. Net rental income increased from EUR 11 million to EUR 17 million, driven both by the Czech Republic as well as the U.K. Occupancy continued to improve, and we are really seeing the benefit of investments in CapEx over the past few years. Yes, the segment is fairly small compared to office and retail, but we are a very happy owner. As mentioned earlier, collection rates were nearly 100% across the residential segment in 2020. Moving on to Page 67, just to speak briefly about hotels. We already discussed that hotels income dropped from EUR 40 million in 2018 and '19 to negative EUR 3 million in 2020. We are proud of this result because we managed to reduce cost by 50%. This shows the benefit of operating our hotels. For 2021, we are still in wait-and-see mode. In our hotel segment, bookings tend to pick up 1 and 2 months before season begins. Overall, we are really hopeful that the second half of 2021 will be more normal and that you will see a return to modest profitability in 2021, with a real return to normality in 2022. What we hear is that people want to travel. Companies want to schedule conferences to bring teams together once again after more than a year in home office, so we are feeling continuously optimistic. Wrapping up the property portfolio discussions on Page 70. Here, you can see our complementary assets portfolio. This mostly consists of land bank, 73% of the total. We own strategic land bank in the Czech Republic and Germany, plus other places which can be developed over time. There is no rush to develop the land bank, and frankly, we constantly receive offers to buy our land. We also won some industrial and logistic assets plus agriculture assets in the Czech Republic. I'm watching the time and think we should wrap up here and turn the floor over to David and Joe to discuss the financial section. David?

Thank you very much, Martin. I'll start on Page 79. Here, you can see a snapshot of our financial policy guidelines which remain unchanged. First, our commitment to credit ratings. No matter what, no matter how negative or defensive or rationale the rating agencies become, we want to be high BBB, and we will get there in time. Everything we have done in terms of building scale and income through offices contributes to that. Second, our LTV target of 40% or below remains unchanged. Sure, we do have the flexibility to go up to 45% for acquisitions, which we did in H1. But as you can see, we already made progress in H2 towards reducing LTV, and I expect you will see more of this from us in 2021. Joe, would you like to speak about our current credit ratings and how we see it?

Sure. Thank you, David. We're proud of the group's performance during COVID-19, and it gives us confidence for the future. The scenarios predicted by rating agencies at the outset of the pandemic were fairly extreme, and they simply haven't materialized. The resilience of our valuations, occupancy and collection rates in 2020 is clear proof of the strength of our business profile, high quality tenants, strong markets, excellent diversification. As alluded to by David, the acquisitions we made in 2020 laid the groundwork for us to become a high BBB-rated issuer in future, improving our scale, diversification, stability and overall business risk profile. Once COVID-19 subsides, we believe the wisdom of these acquisitions will become even clearer. Furthermore, the measures we took to reduce net LTV in H2 2020 and also in January 2021 clearly demonstrates that we're serious about our financial policy and our ratings. We've also been proactive with debt repayments, improving our maturity profile and enhancing our liquidity, which should be positively noted by our rating agencies as well. As also mentioned by David, the group will continue to implement measures to ensure net LTV remains below 40% over the long term. At the same time, we may make selective acquisitions where we see superb long-term value for the group. Net debt-to-EBITDA will also become more of a focus for us in the future because it's becoming more relevant for our rating agencies. The contribution from recent acquisitions and developments, combined with cost discipline and the receding impact of COVID-19, should support this ratio and our ratings in future. Lastly, before we wrap up and go to Q&A, just a few words on ESG. Over to you, David.

Okay. Thank you, Joe. There is so much to discuss on ESG, and we simply do not have enough time. So I'll quickly describe our accomplishments, but I would encourage any of the investors on the call who have an ESG analyst that wants to have a specialized call with us on ESG, we're delighted to do it. Please reach out and let us know, okay? But moving on to Page 89. Here, you can see a current Board of Directors. As many of you know, our founder and primary shareholder, Radovan Vitek and his wife Marie Vitek, retired from the Board of Directors at the end of 2020. Jonathan Lewis joined as CPI PG's third independent Board member. The Board now consists of 3 executives, 1 nonexecutive and 3 independents. We believe this is a positive change which will benefit the company over the long term. Moving forward again to Page 100. Here, you can see the results of our second employee survey. We had more than 700 anonymous responses from across the company and learned so much. 97% of our employees are proud to work for CPI PG, and 94% say CPI PG is a great place to work. 97% recognize our efforts with regards to CSR. That is fantastic. We also, on the other hand, learned about some of the areas where we can improve human resources, training, management, communication internally. This will be a big focus for us in 2021. We want our employees to love the companies to grow with us. We'll report back on this over the course of the year, but I mean, I would really stress, again, our employees are what made this year of COVID possible. If we weren't on the ground, if we weren't experts in our local markets, if we weren't working hard, we wouldn't have come through COVID so well, and then we think the company needs to be a great place to work for our employees. Okay. Last thing, we're getting deep into the report now, to 106. This page shows you that CPI PG made substantial progress against our environmental targets in 2020. So earlier this year, we decided to make some even stronger commitments. CPI PG is now committed to reduce greenhouse gas emissions by 30% by 2030 across all scopes 1 to 3, up from our previous 20% target and aligning us with Paris Agreement goals. This is actually a big development for the company. And in keeping with this objective, we have also committed to transition the group's electricity purchases to 100% renewable sources by 2024 and again, another big initiative for us. And many of you know that CPI PG has been a larger issuer of green bonds, and we've been vocal about our support for sustainability-linked bonds as a product. While our commitments are definitely backed up with action, I've really just brushed the surface of our plans here. And so as I said earlier, we're always open to discuss this further with our investors. So I think we have covered everything. Somehow, we managed to scroll through 100 pages, and we hope the audio was clear for all of you. Now let's start answering some of the Q&A that we received during the call. I really appreciate the questions from some of you who were very old friends and very well-known to us plus some new names as well.

But Martin Matula, would you like to start with the first question?

Sure. Thank you, David. So the first question is the following. Can you please comment on your financial policy, i.e., what is your strategy with respect to the ratings and leverage? And are you planning to issue more hybrid capital? David, Joe, would you like to comment on these?

Sure. I'll start, and there's a couple of questions around this general topic. I mean I discussed the financial policy in the presentation. It remains unchanged. We think our strategy is a really good one. The strategy is to be a high investment-grade rated company, which means you need a portfolio of the size, scale, you need the diversification of income, you need to demonstrate execution. But we think that aiming towards high BBB over the long term is a very sensible strategy, and we're doing everything that we can to grow within that context, meaning that we need to grow to get there. On the other hand, we want to grow in a very sensible way which keeps in line with the financial targets. We really like being in -- on a positive track record with the rating agencies. Now the second part of the question is, are you planning to issue more hybrid capital? This also touches on some of the other questions, some of you rightly point out that there is not significantly more hybrid capacity. Joe can touch on that a little bit. At the moment, we are watching that extremely carefully, and we appreciate that the rating agencies also see that we're being very proactive around managing that ratio. And that any time if we're above, for instance, the S&P limit that there's an intention to get back down very, very quickly. We have a good relationship and sort of understanding with the rating agencies on that, which has been, I think, quite productive. But there's really -- therefore, you can see that there's no more immediate plans to issue hybrid capital. Certainly, I can't rule out issuing hybrids in the future, but we have to be very mindful of this ratio. We're not going to ruin the effect of our hybrids by somehow inadvertently crossing an important threshold. So that covers, and I think there's a few -- I mean, Joe, do you want to comment on the hybrid sort of that ratio and the percentages and how we -- where we are and how the rating agencies see it?

Sure. So I think, David, you touched on the key points really. But of course, we have to maintain very close watch of where we are vis-à-vis, in particular, S&P's adjusted hybrid capacity or adjusted capitalization ratio which the threshold is 15%. We are kind of around the limit at the moment. We are, of course, confident that with the measures that we've taken in the last 12 or more months, that over time, we will kind of grow back into restoring capacity again in addition to other additional measures that we might take. So we -- but at the same time, as David said, right now, there isn't a great deal of capacity, so further deleveraging is likely to come from other measures which we would consider. But at the same time, it's also important to note, already, we've been talking, of course, about our 2020 results. In January, we did improve our LTV through additional hybrid issuance. Obviously, we went a little bit closer to the hybrid capacity threshold, but on the flip side, improved a little bit our trajectory on the net LTV. And I think the plan really long term is to be below 40% net LTV going forward.

Look, in terms of other measures that we might take to manage where we are with our rating agency ratios, we've always been, I think, open about the fact that CPI PG considers a range of options. We have 10 very dedicated banks who bring us ideas. We do think there is appetite for our equity as we ever want to issue it. Certainly the response to our hybrids and bonds has been good. There's lots of appetite for our assets. There's lots of things that we can do to dynamically manage this. At the end of the day, we take it very seriously. We also recognize that we're in the hands of rating agencies who may not -- we're doing our very best to give an accurate picture of what's going on, on the ground, but sometimes the rating agencies take a view on how they see the developments. And time will only tell who is correct, I guess. But ultimately, we're really doing everything we can to grow within a financial framework which points us towards high BBB over time, and that's really the corporate objective. So let's -- I think we've covered actually the first couple of questions. Martin Matula, do you want to move on to the next one?

Yes, David. The next one is the following. Your headroom to rating agencies, credit metrics are diminishing and outlooks are negative. Will you take measures to improve these headrooms?

Joe, do you want to or -- all right, I can just take it. I think we've kind of covered this already. At the end of the day, we -- first off, keep in mind, the company continues to retain FFO. We're reinvesting back into the company. We, again, have various options at our disposal. We -- again, we are close to our rating agency metrics, but we're very carefully watching them, and we want to stay on the right ratings trajectory. So I think we can move on to the next question, Martin.

And the next question ask us to expand on the following. Mr. Vitek used the proceeds received from the share repurchase to repay loans to CPI PG. David, if you could explain this one, please?

Yes. This is a question that comes up from time to time, so we might as well address it. You can see this in more detail in our management report. There's been quite a bit of disclosure, and we've been disclosing the shareholder loans for many years. At the end of the day, this is, CPI PG, as you all know, is a family company. We have been on a journey over the last couple of years to implement strategies around shareholder returns that are very sensible that keep with our desire to retain cash. But because Mr. Vitek founded this company more than 25 years ago, there are legacy things in place. What you can clearly see in this year is that the share repurchase that was done -- so just to be -- as I understand it, Mr. Vitek sold back just -- or bought -- sold back through -- just over 350 million shares at just over EUR 0.61 per share, working out to about EUR 213 million. That was the shares that were repurchased by CPI PG, but the cash was then returned to the company in consideration for repayment of shareholder loans. The shareholder loan balance had been rising a little bit year-over-year. The total was just slightly less than EUR 350 million at the end of the year, but again, this share repurchase was actually a big step forward in reducing that. You may also be aware that CPI PG did not make any distributions last year. That's an important thing to note. So shareholder loans, to a large extent, were sort of a bridge between -- and share repurchase, which is how we've been returning capital to our shareholder. But the direction of travel on shareholder loans very clearly is towards using them much more sparingly in the future. And we have the distribution policy in place around FFO, which is still very much the focus for the company right now, but under, I'd say, constant review.

Great, David. Thank you very much for the answer. Now we have a question about retail exposure. Please remind us the split by asset type shopping center, high street retail, stand-alone assets? What's the tenant industry mix? And I will ask Tomáš Salajka to answer this one.

Thank you, Martin. A lot of this information is on the Page 53 and Page 54 which relates to the Czech retail. Of course, it's not the full group's actually picture, but I just remind you that Czech Republic consists of 75% of the retail of the whole group, so it's pretty a great picture for the whole group as well. And it shows that shopping centers are approximately 54% of the retail exposure. The rest, mainly retail parks, supermarkets, hypermarkets and hobby markets are slightly above 40%. And this is plus/minus the same for the whole group. On the Page 54, we can see the tenancy split, again, very similar for the whole group: 26% fashion; then 12% food and beverage; 11% grocery stores; et cetera, et cetera. So this is the picture.

Thank you, Tomáš. The next question deals about the Board of CPI. CPI Board has witnessed important changes in 2020. Should we expect further evolutions with regards to the Board's composition? David, would you answer, please?

Well, can I just say that we -- this is a constant topic for us. We're thinking about it, but we really believe the Board today is a very good reflection of where the company wants to be. We are still and will always be a family owned company. On the other hand, we're trying to operate at the top international standards, so having 3 independent members of the Board for us is really a huge change and a huge evolution over the last couple of years. We think the Board has a good balance, and we're really happy with the members who have joined. So personally, I think the Board is in a very nice place for the moment and the Board committees. On the other hand, we will continue to look at things as they evolve, and that's really all I can say about that.

Thank you, David. The next one is about dynamics in terms of demand for offices in green-certified buildings versus noncertified buildings. David, will you continue on this?

Look, I'll say something, and I'll see if Martin or Tomáš want to add. I would just say, in general, yes. In general, you do see different dynamics in terms of demand for offices and green-certified building versus noncertified buildings. When I say demand, I would say sort of investor demand, third-party investor demand in purchasing a property. If you -- certainly, if you have a choice between a property that is green or not green, of course, you look at the relative return metrics, but ultimately, if the green property still offers an attractive return. The thing about green is that they tend to be operating efficiently, right, and that is a good thing. Green is actually good business and then these properties operate well, so yes, they will naturally command a bit of a premium, which makes pursuing good quality, green acquisitions ever more difficult, but certainly, we've been able to do it. Tomáš, Martin, would you like to add anything there?

Yes. I would say, David, I fully agree. And on top of it, I would say, on acquisition side, it's more kind of a standard now to buy green-certified buildings if they -- especially when they are relatively new. And second thing, I think it's actually in respect of tenants when we are negotiating with tenants more and more. Especially from the big tenants, there is a requirement to be part of a green building or actually to occupy a green building to have some measures, so it's definitely a trend which is going on, and we are trying to react on it, and we're trying to be prepared.

Thank you, Tomáš. Thank you, David, for all the answers. We're running out of time. And the last question that we received is about acquisition appetite for 2021 compared to 2020 and disposals pipeline, if any. So David or Tomáš, would you comment, or Martin maybe? David?

Martin -- well, actually -- Martin Nemecek if you'd like to, otherwise, I will gladly take it.

As you know, CPI PG has been very acquisitive in recent years, and I think we really made a good strategic move to acquire more office properties in Warsaw as well as the stake in Globalworth, as was mentioned during the webcast. We are still looking around for good acquisitions, but we are very selective. We want that every asset that we buy to fit in our portfolio strategy, so to be in the locations where we had the teams and also have a long-term perspective for us, so means that we can increase the brand or we can increase the value. But as we also mentioned during the webcast, we see some selective opportunities in other locations like in the U.K. where we recently made a very nice acquisition of Savile Row, and we are also building some portfolio in Italy where the prices are attractive. But our strategic focus on the Central Europe means Berlin, Prague, Warsaw has not changed.

Look, I don't have anything further to add. Again, we've been very consistent with our strategy. As I said, growth within the financial policy is really our objective and the credit ratings and continuing to earn your support. And we really want to thank all of you for spending the time on this webcast. You know how to find us. We're delighted to take any further individual questions, please reach out. Thank you so much, and we can end the webcast now.