CPI Property Group (O5G) Earnings Call Transcript & Summary

Hello, everyone, and welcome to CPI Property Group's webcast covering our first half results for 2021. I'm David Greenbaum, CFO of CPI PG. Later on, you will hear from our other speakers, including our CEO, Martin Nemecek; Tomáš Salajka, Head of Acquisitions and Asset Management; Pavel Mechura, Group Finance Director; Joe Weaver, Director of Capital Markets; and Mindee Lee, Manager of Corporate Strategy and Board Secretary. We started doing these webcasts several years ago in keeping with our commitment to be transparent with our bond investors and other stakeholders. We hope you find this session useful, and we are open to any questions that you have. The webcast has a tool for asking questions, please use it, and we'll do our very best to respond. Today, we will cover the performance of CPI PG during the first half of 2021. We will also describe some of our plans for the future. For your reference, we will be presenting the group's half year management report on this webcast. The report should be displayed on your screen. You can also find it on the Investor Relations section of CPI PG's website. Later on, our website will also have a replay of the webcast. For those of you with shorter attention spans, a shorter, updated investor presentation will also be available soon. For now though, we want you to focus on our beautiful half year report. The headline of today's call is we see a much improved business environment. Shoppers are shopping, travel is cautiously resuming and we see strong investor demand for all the real estate asset classes in the places where CPI PG operates. As Martin Nemecek wrote in his message on the very first page of our half year report, we believe CPI PG passed the COVID stress test, and there should be no doubt about the resilience of our portfolio. Martin, I hope I did not steal your thunder too much. Would you please take us through the first half highlights?

Thank you, David, for the introduction. This is Martin Nemecek, CEO of CPI Property Group. I also want to extend my thanks to all of you who are joining the webcast. I believe the message today is really positive. COVID-19 has been part of our lives for about 18 months but CPI PG continued moving forward. We have really proven the strength of the company and believe we have the right strategy for the future. Let's begin on Page 5 of CPI PG's first half report, which covers all of the key figures. The group's property portfolio now stands at EUR 11.2 billion. And our total assets are EUR 12.6 billion. This clearly places CPI PG among the largest European real estate companies. We were able to grow the property portfolio by about EUR 900 million in H1 through a series of acquisitions and also because strong market continues -- leads to rising values and prices of certain assets. All of the group's income measures rose in H1, including rental income, EBITDA and FFO. Occupancy remained high and we collected 95% of the group's rent in H1. The group has been successful in maintaining occupancy and headline rents in our retail portfolio by providing small discounts usually alongside government support in return for lease extension and settlement on rent receivables. I hope you will agree that record levels of income generated by the group during the time of COVID is a big achievement. Like-for-like rental growth really helped, up 1.9% in the first half, with Berlin up 6.7%. We feel confident that our Berlin portfolio will continue to see strong rental growth in the future. Offices in general have been really solid in our key locations, residential too. Overall, I can say once again that the effect of COVID has been really mild on our business. CPI PG had more than EUR 1.1 billion of liquidity at the end of H1. And our EUR 700 million revolver is currently undrawn. Some of you who analyze our reported debt figures closely should be aware that the group temporarily drew EUR 200 million of our EUR 700 million 5-year revolver for the Globalworth offer, but the balance was repaid after 30th of June. The revolver is now fully undrawn. We'll talk more about Globalworth later in this webcast. Still here on Page 5, you can see that the group's net LTV was 41.9% at the end of H1, up a little bit from the year-end, down a little bit from H1 last year. We have been acquisitive. That's true, but we have also taken measures several times to ensure that LTV stays within our financial policy. Also, as we mentioned in our H1 report, we have a plan, a playbook for making sure that net LTV stays well within our financial policy and generally below 40%. David will elaborate more on this later. Our level of net ICR is 4.8x, remains healthy and within our policy. One thing to keep in mind is that ICR and all of the income-related financial metrics reflects the fact that our hotel business went from about EUR 40 million per year of net income in '18, '19 to minus EUR 3 million in '20 and minus EUR 4 million in H1 2021. During the second half of 2021, we see hotel performance improving, which would result in more positive contribution to the group. For instance, our hotel in Hvar, Croatia had an excellent summer season. So again, to summarize, the portfolio is growing well. We are generating more income than ever before, and we are very strong -- we have very strong capital structure. Now let's move over to Page 10 of our first half report. We have been saying throughout COVID that diversification really mattered. So let me remind you where we operate as a group. Let me begin by saying that while CPI PG values diversification, we do not perceive diversification as the end objective. Our diversification mostly comes from the fact that CPI PG has invested in markets we believe in and that we understand with separate locally managed platforms which fit together perfectly into a centrally organized but locally managed portfolio. CPI PG is a long-term believer in offices which stood at nearly EUR 5.5 billion and represents roughly 50% of the group's property portfolio. We are the leading landlord in Berlin, Prague and Warsaw offices, with a long operating track record. Later on, we'll speak more about the individual dynamics of each market, but we are very pleased with the performance of our offices. The group is also invested in retail, which is about 22% of the portfolio. Our retail is mostly located in the Czech Republic, where the group owns regional shopping centers, retail parks, hypermarkets and supermarkets, which are part of the people's daily lives. Going into COVID, the Czech Republic was not experiencing the overbuilding or high street competition that you see in other European markets or in the U.S. And while e-commerce is widely used for shopping in the Czech Republic, our portfolio was achieving record footfall and sales levels before COVID. During COVID, our retail segment did very well for these reasons and partly because we have many essential shops like grocery stores and pharmacies that never closed during the pandemic. The group also owns residential properties in the Czech Republic and the U.K. Hotels primarily in the Czech Republic and Croatia and we also own land bank, which is strategic for the future. I'll discuss these segments in more detail later on. Geographically, you can see diversification but also specialization. 83% of our properties are located in Central Europe, primarily Czech Republic, Germany, Poland and Hungary. I can say with confidence that CPI PG is the most experienced operator covering all of these geographies. We believe that CPI PG has the best teams and properties. The group is also invested in Italy, about 7% of our portfolio, along with a few other countries like U.K. or -- and Croatia. So you can see the portfolio is large and well diversified. However, the diversification is a natural byproduct of owning leading portfolios in multiple places and managing them well. Quickly touching on Page 11, just a few highlights. On CapEx, the group spent about 20% less in H1 versus the first half of 2020. Maintenance CapEx was steadier at EUR 35 million, but we cut back a little on development and refurbishment just for prudence during COVID. CPI PG's portfolio grew by about EUR 900 million, as I mentioned earlier. EUR 580 million of this growth came from acquisitions in Italy, U.K. and Germany. Our total acquisitions were about 40% lower than H1 2020, but we continued to see an opportunity investment growing while maintaining our financial policy discipline. Alongside -- and aside from acquisitions, the value of our portfolio benefited from some deeply discounted purchases, a very strong market and the continued excellent performance of our Czech residential assets. On Page 12, back to this topic of diversification for a moment. You can see here our top 10 tenants by rental income. I can point out 2 things. First, no tenant is above 2% of our gross rental income, and the top 10 are only 11%. Also, 5 of the top 10 tenants are grocery stores and pharmacies, we did very well during the pandemic. The group's WAULT was unchanged from the year-end 2020. Really no major changes. Leasing activity has been solid with no major issues detected. We continue to keep leases slightly shorter in Berlin to capture rising rents, which has proven to be a good strategy as demonstrated by our consistent positive rental growth in Berlin over the years. As of 30th of June, only 5% of the group's leases were left to be renegotiated in 2021. So today, it would be even less. And only 15% of the leases come due in 2022. So leasing is really not a major concern for us at the moment. Lastly, on Page 14. Just a reminder of CPI PG's key locations. We are the leader in our regions with 83% of our properties located in Central Europe. We have local teams in each country, and we are all closely connected. This will continue to be the core of our business even as we expand in places like Italy and the U.K. Now I will turn the presentation over to Tomáš Salajka to talk about the impact of COVID-19 on our business. Tomáš?

Thank you, Martin, and hello, everybody. This is Tomáš Salajka, I'm the Head of Asset Management, Acquisitions and Sales for CPI PG. Let me begin on Page 15. I really hope this will be the last time we discuss the impact of COVID-19 on our business. We know that investors want to hear about it, but frankly, the impact on CPI PG has been very mild. And over the last 18 months, we have learned to live with COVID. From where I see it today, our portfolio is operating normally. This is great news. And today, we are mostly focused on moving forward. Still, let me give you the recap on COVID. The first quarter of the year was tough with lockdowns and rising cases of COVID-19. Things started to improve dramatically from April as cases dropped and economies reopened. On the bottom right chart on Page 15, you can see that more than 80% of the group's properties, excluding hotels were open at all times during the pandemic. Retail properties were about 50% open at all times, depending on the rules in various countries. In the Czech Republic, our retail properties include a lot of grocery stores, pharmacies and other essential retailers, which remained open. Many of our tenants in these properties actually experienced higher sales due to pandemic. Now let's move to Page 16. We have been providing that our rent collections during the pandemic, and the numbers have been really good. This is where you can really see the benefit of having group teams on the ground who know our tenants and touch our properties every day. Overall, collections by the group were 95% in H1 2021 before any discounts. Office and residential were close to 100% with office collections only impacted by smaller retail establishments such as a cafe in a lobby, which needed to close during lockdown. Retail collections were about 88% before discounts. We really are proud of these big figures. As you can see on the bottom left hand chart on Page 16, retail occupancy has been steady at 96% to 97% at very high level. We are fortunate that the government of the Czech Republic provided very consistent support for retailers when shops were closed. This helped our collections. It's also worth mentioning that we did not experience any significant tenant bankruptcies or distress in our portfolio. It was really quite limited to a few small fashion retailers. In general, our tenants are extremely healthy. On Page 17, you can see more information about the discounts provided to tenants. In total, the group provided EUR 8.1 million of discounts in H1 2021 which amounted to 4.1% of the group's gross rental income. For the full year 2020, total discounts provided by the group were EUR 13.3 million or about 3.6% of gross rental income. Considering that operations are more or less back to normal in our portfolio and shopping center sales and footfall have returned near to and, in some cases, exceeding pre-pandemic levels, we are fairly confident that the full year discounts for 2021 will be less than in 2020. We are currently expecting EUR 10.9 million of discounts for the full year 2021 or about 2.8% of gross rental income. Thinking forward, to 2022, considering what we see in the portfolio, stable or rising rents, high levels of occupancy and stable tenants, we believe and hope that these onetime discounts will be part of the story, never to be seen again. David, would you like to briefly touch on Page 19 before we move on?

Yes. Thank you, Tomáš. Let's take a brief detour into financing and look at Page 19 for a moment. So we've talked about the fact that CPI PG did very well during COVID. The impact was mild. We collected 95% of the rent before discounts, and we see growth across all income measures. With all of these strengths in mind, we have still been taking proactive measures during 2020 and 2021 to support the capital structure. In January, we issued 10-year bonds and hybrids and repaid bonds and hybrids maturing or callable between 2022 and 2024. This resulted in a fairly material lengthening of our debt maturity profile from 4.8 years at the end of 2020 to 5.3 years as of H1 2021. The level of near-term debt maturities is low. In fact, we could fund all of our debt maturities through 2023, simply with our available liquidity. Therefore, we feel quite good about the liquidity position. You should expect CPI PG to remain proactive in managing our debt maturities going forward. Okay, so my brief detour is finished. Let me turn the floor back to Martin and Tomáš to take you through a bit more detail on portfolio performance. Martin?

Thank you, David. Continuing again on Page 26. Just a reminder of how the group is organized in terms of business segments. Office is 48% of our property portfolio, about half, and includes our market-leading platforms in Berlin, Prague and Warsaw, plus our investments in Globalworth. Retail is 22%, mostly in the Czech Republic, where we are the national leader and where our shopping centers and retail parks did very well before, during and after the pandemic. Residential is 9%. We have the second largest residential platform in the Czech Republic, which performed extremely well during COVID and continues to benefit from the fact that residential prices are rising in the Czech Republic, leading to good valuations and also a positive market for apartment rentals. Hotels and resorts are 7%. We are very proud of our hotels and how well our team performed during the COVID period. Hotels have historically been a significant contributor to the group's net business income, and we expect this to continue. The second half of 2021 has been promising. Our hotels in Hvar had a great summer, and we see signs of travel resuming. Complementary assets are 14%. Included in the segment, our land bank, development, logistics and other assets, which are strategic to the group over the long term. Because the group is a long-term investor, we treat the land bank in particular with the great importance. Now let's talk more about the individual segments. On Page 27, let's talk more about offices. A few highlights. Net rental income in our office segment was EUR 103 million for H1 2021, about a 10% increase from H1 2020. This is due to our acquisitions, strong collections and like-for-like rental growth, particularly in Berlin. Office occupancy was steady in Berlin and rose slightly in Prague. Total office occupancy for the group declined to 90.5%, mostly due to leases which expired in Budapest and Warsaw. In both Budapest and Warsaw, our leasing teams have already re-leased a good amount of the space and we expect occupancy to look better as a result at the year-end. We are not seeing any major structural shifts in office demand, no big requests for reductions of space. Our tenants continue to believe in the future of office and so do we. On Page 29, let me touch briefly on GSG, our office platform in Berlin. Net rental income increased by 10.3% in Berlin relative to H1 2020, and like-for-like rental growth was 6.7%. Berlin continues to be incredibly dynamic market, and tenant demand has not cooled down significantly. As you see on Page 31, our rents in Berlin have been rising and now average about EUR 9 per square meter. However, the ERV of our portfolio is estimated at EUR 14 per square meter and the Berlin market average is closer to EUR 27 per square meter. What we see in Berlin is that when GSG signs a new lease, the new rent is usually substantially higher than the old one. The move-in is higher than the move-outs in almost every case. This gives us confidence that GSG Berlin rents will converge in the ERVs over the time, which should bring very significant income growth to GSG and to the group. Tomáš, would you like to talk about Prague and some of our other markets?

Thank you, Martin. On Page 33, you can see that the net rental income in our Prague office portfolio rose by about 10% from H1 2020 to H1 2021. This is mostly due to the contribution from a recent development, Bubenska, along with stable rents and a small rise in occupancy, which increased to 93.1% at the end of June. Moving on to Page 36. Our offices in Warsaw have continued to perform well. Net rental income rose to EUR 28 million from EUR 95 million the year before. Office rents in our Warsaw portfolio were up 0.5% on a like-for-like basis, but the new leases were even better. The team signed almost 24,000 square meters of new leases in H1 2021, with an average increase in headline rent of close to 10%. Now you might know that Warsaw has seen quite a lot of office supply in recent years. You might also heard that Warsaw office vacancy rose to around 12% in H1 2021 for the whole Warsaw office market. All of this is true, but it's very important to understand the districts of Warsaw. Where CPI PG owns properties in CBD, the vacancy has been much lower and the supply much less. CPI PG's Warsaw office vacancy at 9% is quite a bit better than the market. And as we mentioned earlier, much of our vacancy is due to specific tenant move-outs, and we expect year-end occupancy to be higher than what we reported for H1. Also, the volume of new offices under construction in Warsaw has dropped considerably to the lowest levels since 2010. Therefore, we believe there might be a shortage of space, particularly in the CBD area in the not-too-distant future. This would help the market. So overall, our performance in Warsaw has been good, better than the market. On Page 39, let me briefly touch on Budapest. It's a small part of our office portfolio, only 6%. But the team in Budapest have done an excellent job and drove higher net rental income in H1 2021. Occupancy dropped to 82.2%, but this is really just a timing issue because we had to decrease expiries at Arena Corner and Andrássy 9. The space in Andrássy 9 has mostly been filled, and Arena Corner is expected to be filled soon. So we see this drop as a temporary one. We have some of the best offices in Budapest, modern and green, and our leasing team has been very active. In fact, as we highlight on Page 39, new leases signed during H1 at an average increase in headline rent of 9%. David, would you like to discuss Globalworth?

Sure. Thank you, Tomáš. On Page 41, just a snapshot of our investment in Globalworth. As many of you know, we bought a stake in Globalworth in 2020 and became the largest shareholder with a stake of more than 29%. Globalworth is similar to CPI PG in so many ways. Globalworth has a modern green portfolio of offices in Warsaw and Bucharest. The company is well run with local teams and an investment-grade capital structure. To us, the acquisition made perfect sense. In H1 2021, we took another step forward and formed a joint venture with Aroundtown. Aroundtown, as you probably know, is one of the largest owners of European real estate with a focus on Germany and the Netherlands. The company is highly rated and very strong. When we formed the joint venture, together, we immediately owned 51% of Globalworth because Aroundtown already had about 22%. We launched a tender offer for the remaining shares and got about 9% back. Now, the joint venture owns about 61% of Globalworth. The overall cost to CPI PG for this offer was only about EUR 13 million, 1-3. And what we got in return was clear control of Globalworth through our joint venture. So once again, from our perspective, this was a very sensible thing to do. Globalworth's performance in H1 2021 was good. Rent collections are strong, and we believe they have excellent properties. Going forward, we and Aroundtown believe there are multiple opportunities to optimize Globalworth's performance and portfolio. We will have more information about that for you over time. Until then, just know we are a very happy controlling shareholder. Before Tomáš moves on to retail on Page 42, you can see a brief summary of our recent office developments. You probably know that CPI PG is not a developer. We are a landlord. Pure development remains a very small portion of our portfolio. On the other hand, we continue to selectively develop land bank in the Czech Republic and Berlin. We develop to own, and all of the developments which were completed in 2020 will bring substantial rental income to the group in 2021 and beyond. So now Tomáš, back to you on the topic of retail.

Thank you, David. Let's continue on Page 44 of the presentation. At the risk of repeating myself, the retail properties owned by CPI PG have performed extremely well during COVID-19. Net rental income rose in H1 2021 versus H1 2020, which is really impressive considering that Q1 and Q2 of 2021 were mostly in lockdown. Occupancy in the retail segment is 96.5%, which is also excellent. This shows you how much work our local teams have done. In addition to collecting the rent, it's important to keep tenants in our shopping centers and retail parks to ensure the right mix of offering as shoppers return. Moving forward to Page 46, just a few statistics to share with you. When nonessential retail reopened in the Czech Republic on the 10th of May, footfall and sales quickly rebounded in our shopping centers. Footfall in May 2021 was 25% higher than May 2020, which is quite impressive considering our shopping centers had already opened in May 2020 following the first COVID lockdown. More than 25% increase in footfall, we saw tenant sales up sharply, up 50% versus 2020 and about 10% up versus 2019 pre-COVID. We have been telling our investors that retail properties in the Czech Republic are different. Our properties are essential. Retail in the Czech Republic is not overbuilt like you see in other countries. Unemployment is low, wages are growing, shoppers are spending. And we have clearly seen that happening in the recent months. Martin, would you like to speak about residential and hotels?

Thank you, Tomáš. On Page 53, there is a picture of our residential segment. We saw growth in residential net rental income during H1, mostly driven by the Czech Republic, where we saw an increase of almost 25%. During the entire COVID period, demand for residential properties in the Czech Republic has been super strong. In fact, prices have risen to a degree where it's difficult for many local people to buy, which helps the rental market. We have the second largest rental portfolio in the country. As Tomáš mentioned earlier, unemployment is low, wages are rising. It's all very helpful for the residential segment in addition to retail. Touching on U.K. residential for one moment. Just to mention that this segment, while fairly small, has been performing really well too. We are focused on the luxury portion of the market places like Hampstead, Notting Hill, St. James Wood -- St. John's Wood, sorry. We purchased properties at very attractive prices and have been really pleased with the rents plus the U.K. luxury market has definitely strengthened since we entered in late 2018. Therefore, our timing has been excellent. Moving on to hotels on Page 59. CPI PG most loan hotel in the Czech Republic, in Prague and in the regions. We also own a beautiful portfolio of hotels on the island of Hvar in Croatia, plus a few hotels in Budapest, Italy and Warsaw. Hotels faced their biggest challenge even during -- ever during COVID. Not since September 11 '21 have seen such a large scale shutdown in travel, and of course, COVID lasted much longer. I'm really proud of what our team was able to accomplish during the period. We have told you for many years that operating our own hotels was a distinct advantage, and the COVID times definitely proved to be true. On the bottom right-hand chart of Page 59, you can see how much we cut hotel operating expenses. Considering that hotels generated about EUR 40 million of net rental income for the group during 2018 and 2019, in H1 2021, the fact that the portfolio reported a net loss of only EUR 4 million, we see as a positive. Now the travel is resuming, we are optimistic that hotels will return to normal. Just quickly on Page 60, some more detail on the hotels. As you can see on the bottom left-hand chart, occupancy has been a really rollercoaster experience because of lockdowns. However, if you look at recent months, occupancy is gradually reaching normal levels once again. In normal times, the breakeven occupancy is about 25%. During COVID times, it was much lower because we controlled the cost and staffing much more tightly and also received some government support. Lastly, let me touch on complementary assets on Page 62. These assets are mostly land bank, which is mostly in Prague. We treat land bank strategically, as you can see on Page 63, the land bank we have in Prague includes the incredible Bubny site, which is more than 200,000 square meters in the center of Prague. David will touch on disposals later, but I want to highlight that we received a lot of offers for our various land bank plots at prices well above book value. We have always told you the land bank was a source of potential liquidity, and I think you will see that too. On Page 64, just a reminder that we also own land plots in Berlin. We have been quite successful in opening new developments in Berlin over the past years. And in 2021, we acquired new plots of more than 80,000 square meters near the new airport, along with 50% stakes in 3 new developments in Central Berlin, throughout the JV with [ Middlegap ]. Overall, the development activity in Berlin is small compared to the size of our portfolio, but we see this as an important asset for the future. Now let me turn the floor over to David for more information on the financial picture. David?

Thank you, Martin. Let's pick up on Page 71. The group's financial policy remains the same. You can see the 6 key points. We are still targeting a net LTV of 40% or below -- 40% or below or up to 45% due to strategic acquisitions. On 30th of June, we were at 41.9% because of the acquisitions we have done in the last 18 months. I'll come back to this in a second. The group's ICR was 4.8x, which is above our target of 4x, but there is definitely a COVID effect here because of hotels and retail discounts. If the world was more normal, the ICR would have been closer to 5.5x. You may accuse me of using EBITDAC like the coffee mug adjusting for COVID with funny math, but it's a very real effect, hotels will come back, and we believe retail discounts are a thing of the past. Therefore, our ICR is above target and still has plenty of room to improve. Our commitment to credit ratings and financial policy is really strong. We know many of you are wondering what CPI PG can do to address the LTV and strengthen our ratings profile after periods of acquisition activity. So let me give you some specifics. Let's go all the way back in the presentation to Page 8. We skipped over this at the beginning, but now is the perfect time to discuss it. So on Page 8, we outline some of the measures that CPI PG plans in order to recharge our financial strength after periods of acquisition activity. First, the Board of Directors recently approved an intended plan to raise up to EUR 500 million of equity via issuance of ordinary shares. The first EUR 100 million is already done from our shareholder, Radovan Vitek. Mr. Vitek is prepared to contribute more, if needed, to support our financial ratios and credit ratings. We are also in discussion with third-party investors. But to be honest, we are extremely disciplined on price. We see a lot of upside in this portfolio and have no interest to sell shares cheaply. CPI PG has also announced an intended disposal plan for up to EUR 1 billion to be executed within the next 6 to 12 months. This will also be dependent on pricing, but considering the kinds of offers we have been receiving for some of our assets at prices well above book value, we will definitely look to proceed with disposals. Proceeds would partially be used for debt repayment and partially recycled into new acquisitions. For those of you who have been following us for years, you know that our shareholder has always been philosophically a long-term holder and does not like to sell or certainly not to sell cheap. However, considering the offers we've received and also to make sure we have plenty of different open channels to meet our financial policy, disposals are on the table. Lastly, I'll mention our project in Italy. In August, we announced a partnership with DeA Capital, a large, experienced and very well-respected asset manager in Italy. The goal of the partnership is to transform Nova RE, our listed Italian REIT, into a leader in the market. CPI PG acquired control of Nova RE at the end of 2020 for a very attractive price. Now we plan to reshape the company into an Italian champion with a great portfolio, strong shareholder backing and a liquid stock. DeA Capital has agreed to purchase 5% of Nova RE from us immediately and also intends to participate in a future capital raising of Nova RE for up to EUR 1 billion, of which EUR 300 million would be in cash. We are looking to proceed with this transaction. As soon as we can, preparations are already underway. We just have to deal with market timing and regulations and other preparations. But we and DeA Capital plus our bankers are very confident that a new primary offering of shares will be successful this year or early next. This will be a terrific new channel of equity for CPI PG. I'm really looking forward to this one. Joe, before we wrap up, do you want to say a few words about the rating agencies, just to hit off some of the inevitable questions from our investors?

Sure. Thank you, David. It's now been almost 18 months since our ratings were placed on negative outlook by S&P and Moody's. And we really hope that by delivering on the meaningful and concrete measures outlined by David, that it will enable us to stabilize the outlook as soon as possible. Financial policy and ratings really are central to our strategy as a company. Fortunately, the group's business profile has remained very, very solid. The resilience of our valuations, occupancy, rents and collection rates are all clear proof of CPI PG's fundamental strength which has only been enhanced by our recent acquisitions. The rating agency concerns revolve primarily around our financial profile, and that is a factor that we can control and address through our deleveraging efforts. Getting a little bit technical here for those who are into the ratios, but S&P's adjusted debt to debt plus equity and Moody's adjusted gross debt to total assets. We're only slightly outside the respective BBB and Baa2 thresholds at the end of the first half of 2021. And taking the corrective measures outlined by David should see a swiftly reestablish headroom below those thresholds. CPI PG is also constantly looking at opportunities to reduce gross debt through opportunistic debt repayment, and that will also help with our Moody's rating as well. Now we often focus primarily on net LTV as a proxy for our financial profile and rating agency balance sheet ratios. However, we do also recognize that net debt to EBITDA and interest cover are also critical for our ratings. And therefore, they've also become more of a focus for us as a company. Positively, these ratios will benefit going forward from deleveraging measures, but also more materially from the recovery in our hotels business and the contribution from recent acquisitions and developments. Now back to David to wrap up. David?

Thank you very much, Joe. I think we've covered all of the major points. Now we are really excited to go through some of the questions which you have submitted during the webcast. Now I've received a little bit of communication from some of our investors that the webcast tool has been challenging to use. So if you can't get your questions in now, you can feel free to reach out later, and we will do our very best to reply. So let's go to the questions that were submitted during the webcast. Mindee, would you like to read the first question?

Sure. Thank you, David. Let's jump right into the first question. The planned EUR 2 billion capital raise of Nova RE gave an indication on the significant scale of your Italian assets pipeline relative to CPI PG's current gross asset value. Can you please elaborate on CPI PG's medium-term plans in Italy? Can you also please elaborate on the other capital recycling options between the owner and CPI PG, CPI PG and Nova RE and CPI PG and Globalworth. David, would you like to take this question?

Sure, sure. Well, our property portfolio is now more than EUR 11 billion, EUR 2 billion is what the Board of Nova RE approved but our plans are for a primary offering of more like EUR 1 billion later this year or early next year. If you think about a primary offering of EUR 1 billion, we assume a fairly significant portion of the EUR 1 billion would be through contributions of assets, both from CPI PG and others in exchange for shares. I really do want to highlight we've had a lot of investors express interest in selling assets to Nova RE in exchange for shares if they can end up with a more liquid stock. I think it would really be something unique for the Italian market. So we've said that the target, by the way, is to raise EUR 300 million of fresh cash from third-party investors through this re-IPO of Nova RE. So overall, I would say that the re-IPO of Nova RE could be a way for CPI PG to recycle some of our Italian assets. But importantly, as we always plan to own more than 50% of Nova RE on a consolidated basis, it would allow us to introduce equity into the company, and it would have a deleveraging effect. The second part of the question was around the sort of the medium-term plans in Italy and other capital recycling that we might contemplate. I would say medium term, the plan is to continue focusing on the re-IPO of Nova RE. We also plan to continue to pursue acquisitions of assets in Italy on a very selective basis when we think we can find fantastic things to buy at deep discounts to market pricing. Regarding other capital recycling, I believe I've covered this now by reviewing our disposal plan. In terms of capital recycling from or to our shareholders, that's not a major priority at this moment. I can't rule it out in the future, but nothing meaningful is on the horizon. I would just say we're keeping all of our options open. And what we've been demonstrating to you, our investors and to our rating agencies is that we are developing new channels to enhance our flexibility and to really support the capital structure and financial policy. So let's -- I hope that question is answered. And let's go to the next question.

Sure. The next question is relating to Globalworth. Do you intend to increase your share in Globalworth and submit an improved acquisition offer?

Unfortunately, Yes, yes. I'll try and answer this one. Unfortunately, this is one of those questions that we just simply cannot answer. What I'd say is for right now, the focus is on -- we're very happy owning 61% of Globalworth. We feel that gives us all of the operational control that we would ever require. Now our plan is to roll up our sleeves, along with our partner Aroundtown and really figure out what the right next steps are for Globalworth. But in general, if it ain't broke, you don't need to fix it. The company is running well. They have great properties. They have a great team. We're not expecting sort of any major transformations of Globalworth in the near term, but we're keeping all of our options open. We don't see a need to do anything else at this moment. So I'll give it a few more seconds to see if any of you, intrepid investors want to submit any more questions. Let's see if anything else pops up on the screen. It looks like a no. So that's it for the questions. And I really want to thank all of you for joining. We really care about our bondholders and our other key stakeholders. You know you can reach us any time, don't hesitate to reach out, and we hope you are pleased with our performance. And once again, thank you for your trust and interest in CPI PG. Have a great day.