Earnings Call: Q4 2022

Apr 6, 2023

Earnings release

Good morning, everyone, and welcome to CPI Property Group's webcast covering our annual results for 2022. This is David Greenbaum, Chief Financial Officer of CPIPG, and I am delighted to be joined today by Martin Němeček, our CEO, Tomáš Salajka, Director of Asset Management, Acquisitions and Sales, Pavel Měchura, Group Finance Director, Mindy Lee, Head of Corporate Strategy, Petr Mizera, Head of External Reporting, Petra Hajná, our Sustainability Officer, Martin Matula, our General Counsel, and Moritz Mayer, Manager of Capital Markets. That is nine of us in total ready for your questions. As usual, we have chosen a webcast format. During the webcast, we will refer to selected pages of our 2022 management report. You should be able to view pages from our report on the webcast screen, and the full report can be accessed on our website, cpipg.com. We encourage you to ask questions, which you can do through the webcast Q&A tool. We intend to respond to all questions on today's call, so please ask anything you like. Before I turn the floor over to Martin and Tomas, however, I wanted to share a few of my own observations and thoughts. First, I hope you recognize the level of detail in our 2022 management report. Our team puts enormous effort into collecting and analyzing data for the report. Our management report is part of the Group's commitment to transparency, openness, and best-in-class reporting in terms of portfolio performance, financial performance, and ESG performance. CPIPG discloses more detail than many of our peers, and we do it so our investors can make fully informed decisions. Whether you like our company or not, and we hope you do, at least there is plenty of information available about CPIPG. Second, CPIPG understands why investors are unhappy with the performance of real estate bonds in 2022 and 2023. We are disappointed too, because our business is much stronger than the bond market recognizes. Right now, investors are simply negative without regard to property quality or location or asset management skill or track record. We think this attitude is shortsighted and misses the point that not all real estate is the same. Offices in San Francisco and New York and Canary Wharf are not the same as offices in Prague and Berlin or retail parks in Central Europe. We are certain that the negative sentiment will pass. There are so many good things happening in CPIPG's portfolio. The size and scale we have achieved, the quality and diversity, the progress on sales, and deleveraging even while other companies have struggled. Third, speaking of leverage, I hope you have seen our recent tender offer for up to EUR 250 million worth of bonds due in 2026, 2027, and 2028. The tender is part of CPIPG's overall deleveraging plan. We can repay bonds or we can repay other debt. We chose to buy back bonds because our bondholders keep asking for a buyback, and we are listening to you. We tried to offer a decent premium, but the offer is structured as an option, so an investor can simply tell us the price where they are willing to sell. I expect CPIPG will continue doing buybacks over time, particularly when bonds and hybrids are trading at these crazy levels, and when we are able to borrow significantly cheaper from other sources. We are very curious to see the results of the tender offer. If you feel we should be doing something differently in the offer or in the future, you can always let us know. That is my speech for the moment. Now let me turn the floor over to Martin to discuss our results. Martin? David, thank you very much, and a very warm welcome to everyone on today's webcast. This is Martin Němeček, CEO of CPIPG. Let me start on page 5 of our management report. First, I should highlight the incredible size of our company today. EUR 23.5 billion of total assets. Nearly EUR 21 billion of property portfolio. CPIPG is one of Europe's largest landlord, with contracted gross rent of more than EUR 900 million, EBITDA of more than EUR 600 million, and FFO of more than EUR 350 million. The scale of our business is enormous, with a large base of rental income. We are a landlord. We collect rent. We are collecting more rent from more tenants and more assets than ever before. As many of you know, our portfolio grew significantly in 2022 because of our acquisitions of Immofinanz and S IMMO. I will speak more about the acquisitions in a moment, but I want to mention that our income-related measures, such as EBITDA and FFO, only include a partial contribution from our acquisitions because we completed the Immofinanz purchase in May 2022 and S IMMO in November 2022. The balance sheets are fully consolidated as of year-end, but income statements are only proportionate, with Immofinanz included for 10 months starting the beginning of March 2022, and S IMMO included for six months, starting at the end of June 2022. Therefore, in 2023, you can naturally expect income measures to be even better. Continuing with page 5, our occupancy was 92.8%. As Tomas will discuss later, occupancy is stable. The good news is, while occupancy has been stable, our rents have been rising. Like-for-like rental growth was 7.6% in 2022, which is a great result once you consider that growth was mostly organic. Inflation indexation in our rents will only begin to show from 2023. As we mentioned in our management report, our initial assessment is that indexation alone will bring a further 8%+ increase in like-for-like rents in 2023. Therefore, the outlook for rents is excellent. On page 5, I focus on the positives in terms of size, scale, and rental income. I also want to focus on the areas where CPIPG intends to improve. Primarily, this relates to leverage. It reported a net LTV of 50.9% at year-end. We view this level of LTV as unacceptable. It is well above the group's target, which is 40% or below, and we have a clear plan to reduce leverage to 45%-49% in 2023 and lower in 2024 to get us back on track. Our primary plan is to sell assets and reduce debt. Although the group might also consider raising equity, as David Greenbaum will mention later. As you might have seen, our group signed about EUR 400 million of total asset disposals in Q1 2023 alone. Therefore, I am confident in saying that the LTV of 50.9% at year-end was the peak leverage for the group. We are now past the peak and on our way to more normal levels on leverage. I should mention unencumbered assets, which dropped to 54% in 2022 from more than 70% at the year-end 2021. The primary reason for this is Immofinanz and S IMMO, the two Austrian landlords that we acquired last year, had significantly higher proportions of secured debt. We see this as an advantage because both companies had excellent relationship with banks. For example, when we took control of Immofinanz and S IMMO, not one bank decided to exercise a change of control put on a secured loan, even though the bondholders did exercise some puts. This tells you something about the quality of the assets and banking relationship and how sticky the bank loans tend to be. The second reason for lower unencumbered asset is CPIPG has been more active in raising secured debt over the past year. In a normal market environment, we always prefer to issue senior unsecured bonds over borrowing secured loans. We prefer a simple capital structure. On the other hand, right now we are seeing a pricing difference of about 500 to 700 basis points between our secured loans and bond market financing. Until that difference becomes more normal, you should expect that we will continue to borrow secured because banks in our region remain open for business. On page six, we have shown you an overview of CPIPG's business segments. We operate in four segments, and each segment is made up of individual platforms. For instance, office is 48% of our portfolio. Within offices, CPIPG owns the leading platforms in Berlin, Prague, Warsaw, Budapest, Bucharest, and Vienna. These are cities where vacancy is low, construction activity is low, and work from home has not taken hold like we have seen in the U.S. and U.K. Retail is 23% of our portfolio. Retail comprises our regional shopping centers in the Czech Republic and our retail parks, which span across the CEE region and are performing extremely well with nearly 100% occupancy. Residential is 10%, which is primarily our residential platform in the Czech Republic. The group also owns residential in the U.K., and through S IMMO owns residential in Germany, which is gradually being sold, including a large sale just completed in March. Hotels are 5% of our business. This mostly relates to the hotels in CEE region, capital cities, and our resorts in Hvar, Croatia. Lastly, complementary assets are about 14% of total assets. For the most part, complementary assets equal land in the Czech Republic, Germany, and Italy. As a family-owned company with a long-term horizon, CPIPG has seen firsthand that holding land is a good strategic bet. On the other hand, the group is also exploring sales of land and expects to close land sales in the coming quarters, particularly in the Czech Republic and Italy. On page seven, you can see our property portfolio on a map. From our administrative headquarters in Prague, a short flight or drive allow us to reach about 80% of our portfolio. Even so, all our assets are managed locally by professionals who are experts in the local markets. Our local roots as a company, our local knowledge, we see these as key advantages versus the competition. On page 8, another perspective on the group's diversification and scale. It is worth mentioning here that overall, I expect the size of the company to decline somewhat in the coming years or two, as we make sales. It is possible we would buy some small things if it makes sense. Yes, but clearly right now, the focus is on reducing leverage and making sales. Now let me turn the floor back to David. David? Thank you, Martin. On page 9, I just want to highlight again the growth of our company. I also want to highlight that while we consolidate all the assets, liabilities, and equity of Immofinanz and S IMMO, the income measures, as Martin mentioned earlier, are only proportional. On the bottom chart, we have provided you a helpful analysis of net rental income on an annualized basis. Now, let me also talk about rental income growth. Martin mentioned earlier that our like-for-like growth was 7.6% in 2022, mostly organic, before the effects of indexation. In our commercial portfolio, I mean, excluding residential, most of the inflation indexation begins from January 2023. So far, all of the indications around passing through inflation to our tenants are positive. Our analysis suggests that indexation alone could deliver EUR 60 million of additional rent this year, or about 8% growth. Page 10 reiterates some of the themes around rising rents, but also touches on occupancy. Overall, you can see that across our highly diversified portfolio, occupancy is fairly high and stable in the low 90s. On the other hand, you will see that overall occupancy has declined a little in recent years. We attribute much of this to one-off situations in offices, particularly offices under refurbishment or subject to re-leasing, and some recently acquired offices from Immofinanz. Tomáš will discuss this later in more detail. However, I want to highlight that steady occupancy plus rising rents is a pretty good mixture for overall cash flow generation. On page 11, let me touch on our real estate valuations. Every year, independent valuers look at the entire portfolio. Overall, the drop in valuations for 2022 was small, about 1%, which is similar to many of our peers. Breaking it down further, as you might expect, office valuations came under some pressure because of higher interest rates and expanding real estate yields. On the other hand, our strong rental growth, plus the expectation for more rental growth due to indexation and strong underlying markets, means that the valuations for offices have held up relatively well. Retail, which is higher yielding, also fared reasonably well. Residential mostly reflects the strong demand in the Czech Republic, where there is an overall shortage of housing. Our land bank also experienced a valuation uplift due in large part to successful permitting applications. On page 12, you can see a very nice photograph of Pavel and a very nice picture of our results. We have already discussed the fact that rental income has grown significantly. All measures of income have grown significantly. On the other hand, debt and LTV have also grown, and ICR has declined. This is the opposite of what we want long-term. Our focus for 2023 and 2024, 100%, the whole organization, is to reduce the leverage back to our target range. That is why we have openly made a forecast of 45%-49% LTV by year-end. Now, let me turn the floor back to Martin to discuss our acquisitions. Martin? Thank you, David. On page 13, I wanted to discuss our acquisitions of Immofinanz and S IMMO. As we mentioned earlier, CPIPG is a family company with a long-term perspective. We have been following Immofinanz and S IMMO for many years because both companies are well-known owners of high-quality properties in our region. We know the assets from bottom up. For years, the banks would come to us and pitch a takeover, but we never saw the right opportunity. Beginning in 2021, we saw the opportunity. The story is long and complicated, but following the failed merger attempts and some changes to the shareholder base, CPIPG was able to acquire a significant block of shares and ultimately launch a tender offer of Immofinanz in December 2021. The S IMMO takeover offer followed in early 2022, which was an important step in unwinding the historical cross-shareholding between the two companies. Overall, the offers were very successful. We acquired 77% of Immofinanz and 92% of S IMMO at a share price, which represents about a 20% discount to NAV. Since the acquisitions were completed, we have made significant progress on synergies. CPIPG is clearly able to exercise our majority shareholder control over the companies. The strategies of the two companies were reshaped. The teams in property and asset management were combined with the goal of finding further efficiencies. So far, operationally, we are very happy with how things are going. On page 14, this is an overview of how we paid for the acquisition. In total, the group spent EUR 3.4 billion to acquire the companies, which was financed with a combination of equity, cash, and bridge financing from 10 banks. Right now, about EUR 1.6 billion of the bridge remains outstanding with a maturity in the first half of 2025. Our goal is to repay the bridge through disposals, secured financing, and possible equity. Thomas will discuss disposals in a moment, but let me briefly touch on financing activities. In 2022, CPIPG was able to issue a lot of bonds in various formats, and we completed several secured loans. In 2023, we have still been able to borrow both on a senior unsecured and secured basis. In Q1 alone, we signed a EUR 100 million, five-year senior unsecured term loan with MUFG and a GBP 35 sterling five-year secured loan against our U.K. assets with the Rothschilds. S IMMO also recently completed a loan for more than EUR 100 million. We expect you will see more secured financing from us in the coming months. Pricing generally is a margin of low to mid 200 or in some cases even below 200. We can still raise financing hundreds of basis points tighter than where our bonds are trading. Now, let me turn the floor over to Tomas to discuss disposals and many other things. Tomas. Thank you, Martin, and hello, everyone. This is Tomáš Salajka, Director of Asset Management, Acquisitions and Sales. On page 15, we discuss the group's progress on disposals. I am in charge of the disposal program, and I promise we are working on this every day. The group began our first disposal program in August 2021, when we announced a target of EUR 1 billion to be completed within the following 12 months. We completed this EUR 1 billion on schedule with sales prices at or above book value. In late 2022, we committed to another EUR 2 billion of disposals to be completed over the next one to two years. So far, since late 2022, we have completed about EUR 750 million of sales, including about EUR 400 million signed this year, which means we are ahead of schedule. Of the EUR 400 million signed this year, we did see small discounts to the recent market value, which was necessary in order to get the deals done quickly. The sales are coming from CPIPG, S IMMO, and Immofinanz. In general, we are focused on selling lower yielding assets in Austria and Germany. Our current disposal pipeline continues to exceed EUR 2 billion, with about 30 projects underway and about EUR 1 billion of letters of intent signed. We continue to make progress. The buyers are a mix of local funds, family offices, and some international investors. Our sales have been for cash, and many of the buyers have not required financing. As I said, sales and reducing leverage are a top priority for the group. Now, since we have covered the strategic points, let me focus back on our portfolio. At the end of the day, the quality of the real estate is everything. On page 21, a snapshot of our tenants. Martin spoke earlier about the diversity of our portfolio, which is made up of individual platforms. We have a large tenant base across these platforms, more than 8,000 tenants representing large international companies, public sector entities, and local companies. Having so many tenants is certainly a more asset management intensive approach, but this is exactly what CPIPG is good at doing. Because of the broad tenant base, no individual tenant can make a huge impact on the group's rental income. Similarly, no individual asset is larger than 1.9% of the group's total portfolio. Our lease profile is well-balanced, but in general, we keep leases on the shorter side, averaging about 3.5 years across the group. We see shorter leases as an advantage, allowing us to be more dynamic on the asset management side. In strong markets like Berlin, shorter leases allow us to raise rents more quickly. In more challenging markets, shorter leases or short lease extensions provide more incentive for a tenant to stay and save us costs of fit out for a new tenant. Again, this is all part of our asset management intensive hands-on approach with tenants. Now, I will spend some time discussing the individual segments. On page 23 about the office segment. Rental income grew in the segment because of our acquisitions, but also because like for like growth in office was strong at 7.5%. For 2023, the rental outlook is also good, with market rents expected to be stable or slightly rising across our markets. Plus, we have the expected impact from inflation, as David mentioned earlier. Overall, office occupancy has declined slightly to 89.9%, but there are some important factors to consider. First, it is great to see occupancy rising in Warsaw to 95.8%, which is an excellent result considering the market vacancy in Warsaw is about 11%. It shows that we have the right quality locations and leasing teams. Occupancy also rose in Budapest where we are making good progress on re-leasing space that was vacated by two large tenants in 2022. The drop in occupancy in Prague and Berlin was minor and partially reflects our strategy of refurbishing or redeveloping certain properties which might be vacant or partially vacant for a short period. Overall, a significant contributor to lower vacancy was a few of the offices we acquired through Immofinanz, some excellent quality assets in Düsseldorf, which are still in the lease-up phase, and also some smaller assets in local markets. As we mentioned earlier, office in our region is not being impacted by work from home in the same way that you see in places like the U.S. and the U.K. Commute times in our region are shorter. Apartment and home sizes are smaller. People want to be in the office, and tenants are investing money in the office environment. Plus, we do not have a lot of construction activity. Therefore, we continue to see strong fundamentals for the office markets. Moving forward to page 27. I want to point out the continued incredible progress of our portfolio in Berlin. Average monthly rent increased by 8.3%, and our rents increased from an average of EUR 9.55 per square meter to EUR 10.34 per square meter. This progress reflects two things. First, it shows that our properties are a perfect fit for Berlin. What I mean is our properties are red brick buildings, historical with a community atmosphere. Our properties are very well-maintained with many improvements and capital investments over the years. Finally, our properties are affordable relative to the market average rent of EUR 27.2 per square meter in Berlin. We have some properties which are renting at this level or even above, but in general, our rents are more affordable even as they continue rising every year. Our properties fit Berlin perfectly because Berlin is still Germany's most international city and home to so many startups, technology, and creative companies. These companies like our distinctive red brick buildings. Plus, these companies benefit from the fact that we have more than 40 properties in Berlin, a true platform, and we can expand along with our tenants. On page 29, looking at Warsaw, where we have the top platform in the city. As I mentioned earlier, occupancy in Warsaw was 95.8% at year-end. We are clearly outperforming the market. The reason we outperform is the location and quality of our properties and the hard work of our team on the ground. You can see Barbara here on page 29. Her team has really done a fantastic job. With the acquisition of Immofinanz, we added some truly iconic properties, such as the Warsaw Spire. No other landlord in Warsaw can match our offering. Going forward, we remain positive about Warsaw because office construction in recent years has been minimal relative to very steady take-up of new office space. In fact, most brokers in the market are expecting rents to rise due to a supply gap in 2023 and beyond. On page 32, touching briefly on Prague. The portfolio in Prague is very steady, with 93.5% occupancy. People are back in the offices at least three days a week in the Czech Republic, similar to what we are seeing in other cities across our region. In Prague, CPIPG has a mix of new modern space and more historical buildings. Fortunately for us, the market in Prague is fairly small, fairly stable, and construction is limited. Moving forward to page 38, let me speak for a moment about retail. CPIPG primarily owns regional shopping centers and retail parks. Our largest geography is the Czech Republic, where we are the largest owner of shopping centers, but we also own retail parks across the CEE region. Occupancy in our retail is high, as you can see on page 39. 97.9% occupancy across the segment and nearly 100% occupancy in our retail parks. On page 41, you can see our shopping center locations in the Czech Republic spread among the major regional cities. On page 43, you can see our retail parks, a truly incredible network across the region. Retail assets owned by CPIPG are typically grocery anchored. Our properties are part of the daily lives of people, offering the essentials they need. Like what I mentioned about the office sector, retail construction around the CEE region has been limited for a long time. In the Czech Republic, the first shopping center was only built around the year 2000. So we do not have this long culture of overbuilding in retail like we have seen in the U.S., U.K., or the Nordic region. Lastly, a word on residential, page 46. CPIPG owns the second largest residential platform in the Czech Republic called CPI Byty. Gross rental income at CPI Byty increased an amazing 18% last year. We mentioned earlier that the effect of inflation on commercial properties, which across our portfolio are valued in euros and have rents linked to euro inflation, the inflation effect will not be felt until 2023. However, in Czech residential market, the indexation has already begun to show, along with the benefits of our capital investments into the properties, which also translate into higher rents. Because of the lack of housing in the Czech Republic and limited construction, the performance of this portfolio has been excellent. CPIPG also owns some residential in the U.K. and through S IMMO, we have a portfolio in Germany, which is gradually being sold, as I mentioned earlier. Now, I will pause and turn the floor over to Mindy to talk about hotels and complimentary assets. Mindy. Thank you very much, Tomas. Moving on to hotels and resorts on page 50. CPIPG owns and operates a diverse portfolio of hotels valued at almost EUR 1 billion. The group's hotel properties consist of convention and congress hotels, long stay residential hotels, and mountain and island resorts. On page 51, you can see that our properties are primarily located in the Czech Republic, in Prague, and in the regional cities. We also own a gorgeous portfolio of hotels on the island of Hvar in Croatia, plus a few hotels in Budapest, Warsaw, Italy and Vienna. The first quarter of 2022 started off slow, with the Omicron variant leading to muted travel demand. However, activity started to pick up again in the second quarter and led to a strong recovery in travel for the remainder of the year. The chart on page 52 shows hotel revenues reached EUR 165 million for the full year. Revenues more than doubled compared to the year before and even surpassed 2019 levels, partially due to new acquisitions as well as upgrades from recent refurbishment. While leisure travelers showed a more robust comeback in 2022, our diversified portfolio of city and resort hotels allowed us to capture demand from different segments. I would like to highlight that CPIPG directly manages and operates most of our hotel properties. This allows us to cluster and optimize operations, driving revenues and keeping costs low. As a result, we recorded a net hotel income of EUR 46 million for the period. Hotel performance improved significantly last year. Average occupancy for the portfolio was approximately 51%. While still below 2019 levels, you can see on the bottom chart on page 53 that in the latter half of the year, occupancy was tracking closer to 2019 levels. Furthermore, despite concerns about rising inflation and a squeeze on disposable income, robust traveler demand and the return of international travelers from the U.K. and the U.S. have supported the growth in average daily rates or ADR. In fact, ADR growth across the group's portfolio achieved a 6.6% increase versus 2019. Overall, we witnessed the recovery in the hospitality sector post-COVID and are confident that this trend will continue going forward. The pent-up leisure demand, return of corporate travel and events business will support the industry's resilience. Lastly, while we note headwinds and challenges to our operations from increased utility costs and labor shortages, I believe our owner operator model benefits us tremendously by giving us the flexibility to control and manage these risks. Lastly, let me touch on complementary assets on page 55. This segment is predominantly about land bank, which is mostly in Prague, but also includes our industrial and agricultural assets. We treat land bank strategically. As you can see on page 56, the land bank we have in Prague includes the extremely well located Bubny site, which is more than 200,000 sq m in the center of Prague. This we treat as a development opportunity for the very long term. We are also progressing on the regeneration and brownfield redevelopment in Brno, where we have delivered a successful new office property, the ZET.office in 2020. This is a long-term project for CPIPG, one where we cultivate a new neighborhood together with the local community. CPIPG also owns several land plots in Berlin, as described on page 57. These land banks are mostly related to strategic plots that can be developed to enhance our existing assets. For example, we will soon complete a small development in the dynamic Kreuzberg district that is part of our existing Adalbertstraße quarter building, adding roughly 2,600 sq m of modern office space. We have been able to achieve headline rents of EUR 30 per sq m per month in line with prime rents in Berlin. Moving on to page 58, we describe our land bank in Italy, predominantly in Rome. These acquisitions were conducted at exceptional discounts to fair value, offering significant upside potential. These acquisitions have come through restructuring of non-performing loans. Many of the discussions have been going on for several years, but we only started completing on these complex deals in 2021 and 2022. We see more opportunities like this, but of course, our primary focus will be on sales. In general, our plan for the Italian land bank is to be developed over time into green, modern, and high-quality residential and commercial complexes, a product that has clearly been lacking in Rome. We will strategically evaluate future development plans carefully on a case-by-case basis over the coming years. Let me hand over to David to discuss capital structure and financial policy. David? Thank you, Mindy. Before I continue with the discussion, I do just want to acknowledge for those of you that are listening, that we seem to be having some quality issues with the call as we go through. I am sure that will make for a lovely transcript. But if there is anything that did not come through clearly, I think most of you know that we are very easy to speak to. So if you did not hear something, please let us know because we do want to try and get all of these messages across. Let me pick up the discussion again on page 66, please. I really want to get one message across clearly. Before Russia invaded Ukraine in early 2022, we had a clear plan to ensure that following our acquisitions of Immofinanz and S IMMO, CPIPG would be able to maintain our credit ratings and our financial policy. LTV of 40% or below or up to 45% due to acquisitions of high strategic merit. That has been our policy since 2018. We went to the rating agencies beforehand, and we validated our plan to keep the rating of mid triple B. Then with the war, everything changed. Big disposals became tougher, hybrid markets disappeared, public equity markets dropped, and financing became more expensive due to higher rates. But even when things changed dramatically, CPIPG was prepared. We have a large base of rental income, solid cash balances, and a $700 million undrawn revolving credit facility. We have unencumbered assets which have been, and will continue to be over time, pledged to banks for secured financing. We also have done a lot of liability management work in the past couple of years, repaying short-term debt, and many times at very nice premiums, by the way. Therefore, we really were well prepared, and there was no liquidity issue even when things got more challenging. But simply because of the success of our offers for Immofinanz and S IMMO, our leverage was too high. Tone on real estate became super negative, and the rating agencies downgraded us one notch to low triple B. The downgrade was painful for us. It is not an experience we want to repeat. We are committed to being a strong investment grade company. Let me be clear. We will get our ratios back into line. We will make disposals. We will raise equity if needed. We will be creative, and we will get the job done. However, we need our investors and our rating agencies to be patient, please. We have already accomplished a lot in a short period of time. I think we have shown you what we are doing very clearly, so we just simply need time to execute. A few more comments on page 66. On hybrids, I will say it again for the record. We love hybrids. We wish the market would treat us better. Hybrids are a great source of equity for our company, particularly a family-owned company where our equity is not liquid. We would like to maintain a good reputation in the hybrid market, but we also need investors to be reasonable with us. Anyway, our next hybrid is not callable till 2025, so we will not make any decisions until that time. But hopefully, you understand how we see it. Hybrids have a different value to CPIPG than a company with more liquid equity. Speaking of equity, this is definitely on the table. We have said it several times during the call. I confirm that we are having the discussions. I think across our company, we really believe and hope that we might not need it, and we would rather get to the end zone through disposals. On the other hand, we want to be prepared and have the option. Therefore, I can confirm we are in discussions. I also want to touch on shareholder distributions. As our investors know, our shareholder borrows and repays loans from the company every year. After we conduct our annual share buybacks, our shareholder typically repays or significantly reduces the loan balance over the subsequent months. In 2022, we reduced the payout ratio to 55% from 65%. For 2023, we will only decide about payouts in Q4, depending on the environment. However, we see regular distributions as important. For instance, a minority shareholder like Apollo wants to see that we make distributions, as this is the only way to have liquidity in our stock. In a strange way, our commitment to distribution is also potentially helpful to hybrid holders. On page 67, just to highlight again, that about 60% of our debt is senior unsecured, 40% of our debt is secured. Immofinanz and S IMMO had a lot of secured debt, and those loans and banking relationships traveled along with the acquisitions. This is a huge advantage. We are not relying just on our bondholders. We also are not relying on only big international banks like Deutsche Bank or Credit Suisse. We have UniCredit, Berlin Hyp, Erste Bank, Helaba, Raiffeisen, and so many others who are active in our region, can see the properties and the quality of what we have, and are still willing to lend at fair rates. As you might have seen in Q1, we raised the secured financing from Rothschild against our U.K. assets. While bond markets remain unattractive, I think you should expect us to raise more secured debt. Lastly, on page 68, you can see our debt maturity profile. The refinancing needs in 2023 are not large, and we are confident to repay our maturing Swiss franc unsecured bonds and rollover or repay any bank financing. We have EUR 2 billion of liquidity, which really covers the next two years without an issue, considering that the group generates a lot of income. Our next significant debt maturity is 2025, which is mostly the bridge financing for Immofinanz and S IMMO. But we intend, as we've discussed, to repay the bridge through disposals. I could go on forever about this, but I hope the messages are clear. Now let us change gears from the financial side and speak for a moment about ESG, and I will turn the floor over to Petra. Petra? Thank you, David. This is Petra Hajná. I am the Sustainability Officer, and would like to walk you through the sustainability update. Starting on page 94, sustainability plays an important role for CPIPG. I would like to stress that we put emphasis and focus on all three legs of sustainability: environmental, social, and governance. From a social perspective, we focus on our internal and external stakeholders. This covers wellbeing of our employees, skill development, and community involvement. In Q1 2023, the group conducted a company-wide employee engagement survey. The overall response rate was high, with 87% of employees providing feedback. The feedback was very positive, with 98% of employees being proud to work for CPIPG, and nearly as many, 97%, finding their jobs meaningful. Social EPRA indicators, including gender pay gap reported for the first time, could be found on pages 95 and 97. Skipping forward to page 99, in July 2022, we further tightened our environmental commitment and revised our target to reduce greenhouse gas intensity of our property portfolio by 32.4% by year 2030 from the 2019 baseline. This is up from our previous target of 20% set in 2019 and 30% set in 2021. In addition, we have kept our commitment to purchase 100% of electricity from renewable sources by year 2024. We are very pleased to inform you that in 2022, our environmental targets were validated by the Science Based Targets Initiative. This means that our targets are verified to be aligned with the Paris Agreement's climate goals well below two degree scenario. CPIPG belongs among the first companies in the region to have the targets validated by the Science Based Targets Initiative. As you can see on page 100, CPIPG's third party ESG ratings continue to improve. In 2022, we further improved our CDP score to B, which is management level from B minus in 2021 and C in 2020. In Q1 2023, our Sustainalytics ESG risk rating improved to 12.6 of 100, placing us among top 6% issuers globally, and our MSCI ESG rating improved to triple B from previous score double B. The upgrade stems from the increasing share of green certified buildings in our portfolio. As of December 31, 2022, 32.1% of our portfolio in terms of GLA was certified, and in terms of total value, 37.5% was certified. Almost 90% of CPIPG certified green buildings were BREEAM very good and above, and LEED Gold and above. Moreover, we are active in many industry bodies around ESG. For instance, I sit on the board of the Czech Green Building Council. We are a member of the Hungarian Green Building Council and Polish Green Building Council. I would like to emphasize that CPIPG understands our responsibility as a large landlord and employer in our region, and we are committed to being part of the dialogue around ESG in our region going forward. The group recognizes the importance of engaging with tenants. Therefore, green leases and green memorandums are executed. Several office tenants in Hungary as well as majority of arms retail tenants in the Czech Republic such as Ahold, Tesco, Penny Market signed the green leases and green memorandums. Moving on to page 101, CPIPG strives for continuous improvement of reporting each year. For 2022, we managed to fully incorporate all Immofinanz and sImmo's assets into our environmental reporting tools, including the baseline date. The reporting approach and methodology and the 2022 EPRA key environmental performance indicators results by asset type and geography are disclosed in key management reports on pages 101 and 102. Our ski resorts and farms are reported separately due to differences in operational characteristics, and you can see that on page 103. On pages 104 and 106, you can see that the group outperformed the required 2022 greenhouse gas emissions intensity reduction target by 15.2% and the water intensity reduction target by 11.2%. The electricity from renewable sources increased significantly to more than 40% in 2022. CPIPG's report was verified by CI2 company, a regional partner for CDP reporting, as complying with ISO 14064 and the GHG Protocol, and was awarded the CI2 conformity certificate. The report was prepared in cooperation with and advisory services provided by the University Centre for Energy Efficient Buildings of the Czech Technical University in Prague. CPIPG cooperates with UCEEB since 2018. Moving on to page 107, in accordance with the EU taxonomy regulations, the group identified and reported three eligible economic activities, 4.1, 4.8, and mostly 7.7, acquisition and ownership of buildings. The group's taxonomy eligible and alignment of turnover, capital expenditures, and operating expenses for 2022 relating to the environmental objectives of climate change mitigation and adaptation to climate change was assessed and disclosed in the standardized reporting table. In 2022, 95.6% of turnover, 83.9% of CapEx, and 86.3% of OpEx were EU taxonomy eligible. In terms of alignment, 7.4% of turnover, 10.6% of CapEx, and 6.6% of OpEx were reported for 2022. CPIPG is a leader in sustainable financing, having issued four green bonds, one sustainability-linked bond, and one sustainability-linked loan. In January 2022, the group introduced sustainability finance framework, combining both sustainability-linked and green bond frameworks. The framework is available on our website. Green bond allocation and green bond impact reporting is part of the management report starting on page 108. As of December 31, 2022, 100% of net proceeds from the issued green bonds were allocated to the eligible assets, mostly to certified green buildings, 84.2%, followed by equity investments representing 7.5%, and sustainable farming with the test certificate accounting for 5.1%. The environmental impact of the green bond portfolio for green buildings represents annual greenhouse gas reduction of 1,721 tons of CO2 equivalent. Renewable energy projects photovoltaic plant in Berlin represented annual greenhouse gas reduction of 1,771 tons of CO2 last year. Last but not least, sustainable farming represented 91,478 of soil enrichment with fertilizer in 2022, double amount compared with the last year's result. According to the green bond framework, CPIPG is committed to verifying its reporting by an independent third party. Sustainalytics has reviewed the green bond impact reporting as part of the annual review process performed in March 2023. The annual review letter can be found on our webpage. Now, I will turn it back to David. David? Okay. Thank you very much, Petra, and thanks to all of you for listening. We've really covered everything, business performance, finance, strategy, ESG. Now let's go to your questions. We have received a lot of questions, and Moritz is our designated reader today. Would you like to begin asking the questions, Moritz? Sure. Thank you, David. The first question is, away from the tender, what are your plans for the bonds with more immediate maturities? For example, the Swiss franc issued that matures in October. Will these simply be repaid at maturity? The answer to that one is that, for anything that's near term, the general idea is that they'll be repaid with cash on hand, or cash from disposals. We have 2 billion of liquidity, big revolving credit facility. We're confident about rolling over bank loans. The bonds will simply repay. So easy one. Thank you. The next question is, David Greenbaum, I hear you on the market being irrational, but the market can stay irrational for a long time. I have never seen such a bad sentiment and bad liquidity in bonds performing of a company, and it is only getting worse. No wonder you prefer secure debt, but if you want to avoid credit downgrade, it seems to me that an equity raise is needed. If this is a credible option for you, why wait? Sure, the equity raise will become more expensive the longer you wait. Thank you. Hopefully you can hear that we're reading these questions word for word, all right? The answer to this is simply, and I touched on it earlier, equity is on the table. It is something we are exploring. Please do not mistake lack of news reported on the tape for lack of understanding and action. We also see the benefit. Like I said, we hope we don't need it, but simply when you need it, you need to have already got it ready. You can't do it when you need it. You need to do it before you really need it. So we understand that. Hopefully, having successfully raised equity with Apollo in 2021, that gives you some sense that this is not our first time, and that we have some friends. So please just give us some time to execute. Moritz, do you want to ask the next one? Okay. The next question. Do you have any update on the Cyprus version of the long-running litigation attempts against you? Moritz, thank you. This is Martin Matula, Group General Counsel of the company. I have been actively managing this litigation, and this new Cyprus case is basically recycling old allegations and claims used in RICO case in New York, which was finally dismissed in 2022. We believe that this is yet another forum shopping attempt by the same disreputable parties, and there is no real update. We have not been served yet, but we can tell you that we hired the best law firm in Cyprus, and we are actively working on our defense. We are confident that these ridiculous claims will continue to fail, and as always, we will keep our investors updated about the progress in this case. Thank you. Thanks, Martin. The next question is, given the sector backdrop, does it make sense to sell non-income producing assets more aggressively, even at higher discounts, especially your land bank in Berlin and Prague sticks out? I can take this one. Martin Němeček. I can confirm that we started disposal process for a variety of properties, including the land bank. We have seen a good demand, and we are in discussion with several bidders for our land bank. As mentioned before, decreasing the leverage and completion of sales is our priority. This has been taken into account for our discussions, including the price. Thank you, Martin. The next question is, how likely is that you make shareholder distributions for 2023? Well, I think I covered that. We will decide only in Q4 2023, and I think we have another question about this later on. But I would just say to you, we can't in the same sentence talk about raising equity and talk about not making any distributions, because ultimately any shareholder in a company like ours will want to see that we are able to make distributions. That's what this company is set up to do, is to generate recurring rental income and a very reliable stream of income. We need to find balance. We've already shown flexibility on this. We reduced the payout ratio last year. But again, we're a long way from making this decision, and let's see how the year goes and how much progress we continue to make against all of our other objectives. Thank you. The next question is, can you delever meaningfully by selling assets given the encumbrance of the portfolio? Can we delever meaningfully by selling assets given the encumbrance? Well, I'd just say one of the advantages we always had is that we have a significant portion of unencumbered assets. We have over EUR 10 billion of unencumbered property assets. I would say the answer to that question is yes, we can. Thank you. The next question, what was the rationale for the asset sales between CPI and Immofinanz and S IMMO in 2022? The sales of Hungarian offices from S IMMO to CPI and Immofinanz, acquisition of retail properties in CEE. Back in 2022, after we finished the acquisition of Immofinanz and S IMMO, we started a strategical project of aligning their portfolios in line with our strategies. Therefore, Immofinanz acquired retail parks from CPIPG and became, in fact, undisputed champion in this segment in CEE. S IMMO, on the other hand, was a strong Hungarian office landlord, and therefore it acquired other offices in Budapest from CPIPG and Immofinanz, and became again a specialist in this field within the CPIPG. Also, these sales helped to allocate available cash within the group and repay debt or support the current bond buyback. Thank you, Martin. The next question is, can you discuss any changes in incentives offered to tenants in the office segment, in particular in Germany and the Czech Republic? Yes. I think in principle for our portfolio, we don't see big changes in particularly Germany and Czech Republic. Of course, if you go to some actually weaker assets, which luckily we don't own so many, then you can see bigger fights for the tenants, but it's not our case. What I heard also from my colleagues in Berlin is that the A class offices in Berlin probably have to give a little bit more incentives today compared to, let's say, 2 years ago. But it doesn't apply to our properties, which are, as we mentioned before, offering much lower rent and a different type of tenants, typically smaller tenants, startup companies, technology, et cetera. I hope it helps. Thank you, Thomas. The next question is, how much in terms of percentage of your 2023 and 2025 bank loans are expected to be extended versus repaid? The second part of the question is, what is the likelihood of the bridge loan lenders agreeing to extending maturity should CPIPG make such a request? So- David. Martin, you can go ahead. My comment on the bank loans, as we mentioned throughout the call, the banks in our region are open for business. We are currently in discussion with several banks on several financing. Therefore, I can say that we will not be able to extend any bank loan if we want to do it. There will be some repayments, but rather small, but otherwise, we expect the bank loans that we will be able to roll them over. On the second half of the question around the likelihood of bridge loan lenders agreeing to extend maturity should we make such a request. What I would say is, I think we have already demonstrated to our banks that we are paying the bridge down, in fact, in line with the schedule that we have articulated. Our phones are not ringing off the hook with our banks complaining about the bridge. From our perspective, simply, we are going to keep working down the bridge balance. I think if we decide that we need to or want to extend the bridge maturity, I think that discussion will depend on ultimately how much progress we have made and where the balance is at the time and what the sentiment is at the time. But I have no indication that the banks are feeling concerned about us and they see the schedule we've outlined, and we're sticking to it. Okay. Sorry, Moritz, you want to do the next one now? Sure. Thank you for the comments on work from home trends in CEE. Do you see much working from home in the German office portfolio? Maybe I can comment. Not for our tenants. Typically, we are focused on small and medium type of companies, and these companies are not so much affected by this work from home. So we don't see it in our portfolio, to be open. Thank you so much. The next question is equity raise commentary from new investors or includes Mr. Vítek? Well, what I'd say is, over time, we've done both. Mr. Vítek has always been supportive of the company. On the other hand, the company has grown to such a degree that we really need the strength of a third party sometimes. That's one of the reasons that we began this relationship with Apollo. I would just say in general, we're very open to equity investment from third parties. Again, we want to protect the rating. We want to do things that are sensible. On the other hand, we still are believers in the quality of what we own, and so we are not at a discount party here. At the end of the day, we believe in what we have. We will work with investors who are reasonable. Sorry. Let's move on to the next one. Moritz. Okay. Thank you, David. The next question is, thank you for the presentation. Can you clarify how much in debt has CPI holdco, how much remains on the bridge financing, and how will you raise sufficient liquidity to repay EUR 769 million of 2023 maturities? I'll try and cover that to make sure I sort of understand the question properly. I would just say, keep in mind that when it comes to The group has EUR 2 billion of liquidity right now. So that's cash and undrawn revolving credit facilities. Okay? Even assuming that the company is generating no income, we already have cash, but the good news is the company generates quite a bit of income. We are still able to borrow fresh money from the market. We are encumbering assets. We've even raised senior unsecured financing just in March. Really, from our perspective, the plan is very simple, continue with the disposals to repay the bridge, look at equity as a way to accelerate the repayment of the bridge and the debt reduction, and look at secured financing, which again, is hundreds of basis points tighter than where our bonds are trading. I think we feel comfortable that through a combination of all of these things that we'll have no issue dealing with any of the coming year's debt maturities. Thank you. The next question is on, there is concern over office assets performance and ability to pass through indexation. What comfort can you give that this can be done without seeing vacancies increasing? I can answer in principle. We had this discussion before actually we started to index the rents for this actually inflationary situation today. It seems that there is absolutely no problem to pass this indexation to the tenants in office segment. We had some small discussions in the office, sorry, in the shopping centers, but at the end it was very minimal number of tenants who wanted to challenge it. But I think everybody understands that there is inflation and actually the rents have to rise. We don't think that, and we don't see it in the numbers, that actually this would be an issue to pass it so far. Actually, we are also, let's say as we mentioned before, we are operating in markets which are relatively strong performing. We don't think this should be a concern. Thank you, Tomas. The next question is, at GSG, you note that the potential rent of the portfolio is assessed at EUR 14.4 per square meter per month versus in-place rents of around EUR 10.34. Market average is EUR 27.32 per square meter. You mentioned in the report that you are optimistic that rents would increase towards the market average over time. What level of investment would be required to get to the assessed market for the portfolio as it stands? How realistic is it to achieve anywhere close to market average on this portfolio? If so, how much investment would be required? I can also answer on this one. The market average for the whole office segment in Berlin, it will be always higher than our portfolio because we have also assets in the east part of Berlin, which will keep rents definitely lower than actually the market average. So I don't think we will be ever at this EUR 27 for the whole portfolio, but definitely in some areas we should target it and we should be targeting even higher rents in some places. What should be done, actually, we will continue doing what we are doing. So we will invest into the premises which are being vacated. We are improving the quality of our assets, the feeling from them. This is what is asked by the new type of tenants coming, like the startup companies, technology companies, IT companies et al. These are companies definitely that are able to pay higher rents that we are used to from the past, but we have to improve slightly what the feeling from the assets. So far, and I think it will continue the same direction, we have typically invested approximately between EUR 15 million to EUR 20 million per year into this program of improving the premises which are being vacated. And the returns are typically over 15%, 20% IRR on this. General investment, sorry. Thank you, Tomas. The next question is any reason for requesting withdrawal of the S&P rating on Immofinanz? Well, I would just say to you that in a normal world, our plan was always would be that CPIPG would be the unsecured bond issuer in the future. We, S IMMO and Immofinanz both have some senior unsecured bonds, but we have always tried to keep our debt very plain vanilla and uniform, at the level of CPIPG. So we just didn't see long-term, a high likelihood that Immofinanz would be a bond issuer in the future. And that's really the rationale behind it. Most of their bonds have matured or been paid off, so. Thank you, David. The next question is, what are your long-term plans for your stake in Globalworth, which you share jointly with Aroundtown in a joint venture? Can I just say, Globalworth is subject to the same kinds of themes that we are. I think ultimately, the team there is doing a great job running that portfolio. There is a new CEO, Dennis Salinas. We are really happy with how he is doing. There is a lot of good talent and people on the team, very knowledgeable in the local markets in Poland and Romania. And we have really continued to be impressed with how they run the portfolio. They have some of their own objectives that they need to achieve in terms of reducing their leverage and disposals and other things that Globalworth is trying to achieve. But I think we are very happy with what the management team is doing and how they are running it. And our partnership with Aroundtown on it is good. Frankly, the management team runs Globalworth, and they have a mostly independent board, and it functions quite nicely. So no other sort of updates that I can offer you in terms of plans. We are satisfied with how it is working out. Thank you, David. The next question, would you sell an entire segment hotels given the relative positive transaction backdrop for the asset class? And if so, can you comment on the valuation at above 20 times EBITDA, which seems aggressive for owner/operator hotels, which can be generally more like in the 10 to 14 times? Mindy, do you want to take that one? Sure. What I would say is that the hotel portfolio valuation obviously took a hit in the time of COVID, and we are only starting to see that valuation come back up. I think in the future, we would probably be opportunistic if there is a good price for the segment. But at this point in time, we are open, as David Greenbaum has mentioned previously as well, on the disposal pipeline. In terms of the valuation, which may seem aggressive for owner-operated hotels, my general comment on that is that I think you do not see as many, I guess, owner/operator models. More of the time you do see a management contract, and I think that is roughly in line in terms of the valuation. Thank you, Mindy. Can I also just add there. On the general spirit of selling larger things, what I would say is we believe that we have the flexibility and the time that we have bought ourselves by having a fairly long dated debt maturity profile to think very carefully about what we want to sell. I would also say that larger transactions at the moment are difficult because larger transactions typically involve a buyer who likes to issue corporate bonds, and we have not seen many real estate companies issuing corporate bonds. What we have been doing, and as I think you can see from our disposal activity, we have been doing more medium-sized disposals. But that is working quite well because it is a very different kind of investor base. I think we are always open to offers on things and to consider the best way to navigate through this. But hotels have also been part of our business for a very long time. We are very proud of what we have. We like the segment, and it has recovered, as Mindy said, very nicely from COVID. Thank you, David. The next question is this one: Have you discussed the deleveraging plan with the rating agencies post-2022 results? Is current leverage in their estimates? Can I say, and Moritz maybe. Well, actually, Moritz, why don't you answer this one? You're the rating agency expert. I think we're in frequent discussion with the rating agencies. We also typically proactively update them. I think we had our last more formal review in autumn last year after we got downgraded. I think the rating agencies, they saw our disposal plan. They knew our target, which was publicly communicated. I think also, as we mentioned before, we're in line on the disposal progress. I think also another concern, we're continuing to raise financing at significant lower costs than the bond markets would imply. I think as long as we continue to execute what we promised, we're well on track. And of course, they updated their forecast. I think they saw our plans, our business plan, and it's included in their expectation. Okay. You've answered your question, and let's see, do we have one or two more left, it seems like? Thank you, everyone, for sticking with us this long. Let's also make sure we didn't miss anything. What else do we have left, Moritz? The next question is, what is the rent reversion over rent to market rents across office and retail portfolios? How do you see this evolve in 2023 as the economy weakens? Tomas? Yeah, I can try to answer. We don't see any big issues so far, especially in the strong markets. Yeah, I think, as I mentioned before, the indexation seems to be going quite well. There is no problem to pass it on to tenants. Actually, it was a very positive evolution for us and for actually other owners as well. How the rent reversion will look like, it will always depend on the quality of the market and quality of the assets. There, I think we are mostly in a relatively strong market in the office, like Berlin, Prague, Warsaw. I think there we don't expect any big issues. I expect there will be some discussions in Budapest and Bucharest to some extent, but hopefully not too much. We don't see it yet, but as you mentioned, the future is uncertain. We don't think the main markets will be affected too much. Smaller markets to some extent, but we don't know exactly yet. It's hard to predict details. Thank you, Tomáš. Just jumping a bit ahead, I missed one question. Where do you see 2023 interest expenses given the step-up in bridge margin? Can you please remind us what the step-up margin is? I actually don't think we've disclosed publicly what the margin is. What I can say about interest expense is, it very much, of course, depends on how much debt we're able to repay over the course of this year and ultimately the pace of the disposals. I think it's fair to assume that interest expense will remain around current levels or rise, of course, as we refinance at higher rates over time. The bridge financing was at a very low spread to start, and I think it was stepping up by something like 25. Mindy, do you remember 25 basis points a quarter or something like that? Somewhere around there, yes. Yeah. The bridges have been running now for the better part of a year or more. So you can imagine there has been an escalation of the spreads. Can I just say, we're now talking spreads that are similar to where we're borrowing in the secured lending market, not similar to where our bonds are trading or anything like that. Clearly the bridge is there. It is escalating in terms of the cost, which is why again, we want to repay the bridge because it is getting more expensive. On the other hand, we want to buy back bonds because our bond investors have been asking us to. So we're trying to balance the two. Thank you, David. The next question is, can you give us more granularity on anticipated EUR 60 million in rental growth from indexation in 2023? The answer for that, I do not know if Pavel or anyone else wants to raise their hand on this one. I am not sure we can really give you more granularity just yet. In fact, this was our best estimate at a calculation to try and give some guidance to our investors about how we think it is going. We will try and provide more data on that in the coming quarters, so that you can see it. Or maybe we can do interim kinds of updates for you. But I do not think we really have much more granularity available except that we expect all segments to contribute. As I think we highlighted in the presentation, the Czech residential segment already saw some uplift, quite a significant uplift, last year. We expect Czech residential and really the commercial assets all to contribute to that higher net rental income or gross rental income. Thank you. The next question is on the EPRA cost ratio. The EPRA cost ratio increased to 31% in 2022 from 23% in the previous year. What was the driver of this increase? What should we expect in the current year? Martin Němeček, maybe you want to take this one. Or I can. David, please start and I will complement. Okay. Around the EPRA cost ratio. Yes, it did increase. I'd say part of that was due to a higher OpEx, due to inflation, with some delay on the income side, and higher administrative costs due to the acquisitions of Immofinanz and S IMMO. We really think that the combination of administrative synergies that will come this year, and the effect of indexation on rents should decrease the cost ratio down below 30% once again. Thank you. The next question, I think it was partially covered, but I just repeat it. How are you thinking about your stake in Globalworth? Can that be a potential source of liquidity for you? Yeah, I think I've more or less covered it, that we're very happy with the Globalworth team. We're not looking to do anything that I. There's no news to discuss about Globalworth and our view on it. We're very happy with how it's being run. Can it be a potential source of liquidity? The only thing I'd say is, I think investors are still underestimating the appeal of Central and Eastern Europe. We're hearing every week about investors looking at the market, and I think a lot of people realize that within Europe, and particularly if you start looking at real estate fundamentals, that in fact, CEE is a very good place to be. Look what's happening in Poland. Look at the demographic shifts after the war. There's a lot of reasons to believe that the story around CEE is positive. We have seen CEE assets being sold recently, including a large portfolio in Romania. I would just say, I am sure that there would be interested investors should we ever look to sell something like Globalworth, in the same way that we have had plenty of interested investors buying other assets from us. But at the moment, we are very happy with our investment. Thank you, David Greenbaum. The next question is on transaction markets. How do you see the transaction market evolving? Is there a target for total disposals in full year 2023? Which assets are easiest to sell, and how do you therefore see the portfolio evolving as you look to dispose of assets to reduce debt? Tomas, do you want to take this one? Okay, I will. How do we see the transaction market evolving? I think it is clear the transaction market is definitely not easy. It is much worse than it was before the war. We do not expect this will dramatically change this year. Maybe there will be some positive evolution second half of the year, but it is hard to actually evaluate it. At the same time, the target for the disposals is we had the target, which is EUR 2 billion in two years. We have sold actually EUR 750 million so far, close to EUR 800 million. For this year, we already signed to close EUR 400 million. I expect we will actually close another EUR 600 million to EUR 800 million through the end of the year. It is actually many transactions ongoing. Of course, we need to focus on assets which make sense for us, but also which are sellable on the market. We focus on the assets mainly in Germany and mainly in Austria and actually low-yielding assets, which for us makes more sense actually to dispose. In Germany, I would also mention that actually we focus mostly on the kind of small type of assets or on portfolio of small assets where we can divide the asset into small packages, which is easier to find buyers. If you have an asset which is big, one big actually asset, let's say EUR 150 million-EUR 200 million, it is definitely much tougher to find a buyer than when you have an asset which is worth EUR 5 million-EUR 10 million and you can package it with more similar type of assets. I would say this is what is our focus, and so far it works. I think with the teams and the diversification we have, we hope to continue giving you some comfort that we are selling as planned. The next question. Do you know if rating agencies expectation of peak interest rates features in the rating of CPIPG? What risk is there they downgrade even if you hit your targets? Well, Moritz, I feel like this is another self-answering question, so you should start, and I will add to you. For us, at the end, it's a decision up to the rating agencies. I think we've provided a clear and detailed plan. Of course, we're looking into the sector. We saw that rating agencies taking increasingly, let's say, more aggressive steps on the ratings. But I think from our side, we don't have it in our control in that terms what they decide at the end. We will execute what we promised, and that's the best we can do for the moment. I would just say the rating agencies are supposed to be forward-looking. This is what I remember from my debt capital markets days. They're supposed to be multiple years forward-looking, and there's nothing to suggest that the outlook for valuations in Central and Eastern Europe is as bad as it is in other parts of the world because of all the factors we've discussed. There's every reason to believe that we can and will continue to make disposals and reduce our leverage, which to me clearly suggests that we should be able to maintain our current credit ratings, and that ultimately once we get through this part of the cycle, that we will have emerged with a company of enormous scale, and we'll be able to climb back up in the ratings to get to our original goal, which was still to be high triple B. We haven't lost sight of that either. We can never rule out that the rating agencies would do something that we don't want them to do, and even if we hit our targets, there's always a risk. But we hope that they understand that we're really working on this and that we have a very good plan, and we are executing. It's not just talk. We are executing. So far on the disposals, we're on schedule. Ahead of schedule. Thank you, Dan. The last question I see, how long are your rates hedges in terms of tenor, typically? I can take this one. If the question really relates to hedging bank financing, then the answer is very simple. For the entire tenor of the loan. Nowadays, the banks request almost in all cases that the loan is hedged. So that the bank, and also us, can calculate the debt service for the future. Therefore, we can say that now we can really predict what will be the cost of bank financing for the future. So the answer is for the entire tenor of the loan. I also imagine that the question was intended to kind of cover advanced hedging agreements. I would say we have had some success as a group hedging rates at opportune times. That has been helpful. Certainly, we do not have sort of a programmatic approach to hedging in that some real estate companies very wisely had hedged all of their rates years ago. We did not do that. But we do have a very highly fixed rate portfolio. Ultimately, the margins at which we are able to finance in the secured loan market, and even some unsecured loans, are still attractive. The yield of our portfolio is still quite high. So we have that to work with as well. Maybe final comment from my side. Of course, at the moment, we are also enjoying the hedges that we made when we took some of the secured financing in the past years. Yep. Absolutely. I would have one last final question. Are we able to have more details on the EUR 1 billion of LOIs timing expectation-wise? Tomas, I will start with this one. We are trying to give our investors as much information and indication as we possibly can about what is going on. We want you to know that we are taking the disposals very seriously. Tomas has a large team. They have 30 projects that they are working on. Ultimately, I am sure that the team will deliver. Of the EUR 1 billion LOIs, an LOI demonstrates that a buyer is very serious. They have submitted a letter to us with a price attached. They have usually asked for exclusivity. A due diligence process begins. Someone on the other side starts spending money, usually, to actually examine whether they are ready to purchase the asset. That is a serious thing that we enter into. Not every LOI ultimately turns into a sale. Ultimately, we have the ability within our pipeline because, number one, the pipeline exceeds our needs. The identified pool of assets exceeds what we think we need to do in order to reduce leverage back into target. We have the ability to market different things to different investors at different times and choose our markets well. The goal is to convert as many of these LOIs into sales. Again, EUR 400 million in Q1 is not a small figure. I expect we will continue to have success both on disposals and on financing. Tomas, I might have taken all the words out, but do you have anything you would like to add there? No, I think, David, you mentioned it clearly. I think we also mentioned that in our plans, we are more conservative. We do not expect everything which is like an interest will actually end up as a sale. We have a lot of things ongoing, but we do not believe that everything will be 100% successful, so we take some actually probability, some success rate, and that is actually how we look at it. As David mentioned, we can also replace a sale by another sale if actually it is needed and required. Thank you. I don't have any additional questions on my screen. Okay. Well, thank you, Moritz. Thank you to everyone who joined this webcast. We've been here for an hour and a half. All of you should know that we are here to discuss more. If you want to speak to any one of us, we're available. We want to give you all the information. Thank you very much for your interest in CPI Property Group, and have a great day. That does conclude our conference for today. Thank you for participating. You may all disconnect.