Muddy Waters is short the credit of CPI Property Group (“CPI PG”). CPI PG’s Berlin office portfolio appears significantly overvalued based on the divergence in its valuation from overall German market trends. This Part 2 addresses CPI PG’s valuations of its purported €19.2 billion investment properties and hotels is significantly inflated. We show that CPI PG seems to significantly inflate the reported vacancy rates in its Prague and Warsaw office portfolios, which seemingly is used to justify inflated asset values. To illustrate the brazenness of CPI PG’s valuation results and techniques, this report focuses on four granular examples of properties that CPI PG carries at a combined value of €627million.
Q4 2023 hedge fund letters, conferences and more
As illustrated by the preceding slide on the Berlin portfolio, we believe the overvaluation issues are far more pervasive than just these properties. We selected these properties because assessing whether, and to what extent, they are overvalued is significantly less subjective than with most of the rest of the portfolio. Three of these properties are land that was undeveloped at the time CPI PG took seemingly egregious gains. Additionally, one building in Berlin for which CPI PG has doubled the carrying value stands out as an obvious overstatementbecause the capex CPI PG has invested pales in comparison.
We also show that CPI PG seems to significantly mislead investors about the states of its Prague and Warsaw occupancy levels. Prague and Warsaw purportedly have the highest and third highest occupancy levels in its office portfolios. These apparent overstatements imply that the valuations for properties in these markets (€2.8 billion) are inflated.
Reuchlinstraße 10-11: TooValuable to Be True?
CPI Very Questionably Doubled the Valuation of a Poorly Maintained Office Complex in Under Four Years to€199 Million
Reuchlinstraße 10-11 Overview
CPI PG seems to have taken obvious improper fair value gains on at least one office property in its Berlin portfolio. Several other German properties’ valuations also produced red flags associated with their condition, vacancies, and/or aggressive timing of new gains and lack of negative adjustments as the property market cools; however, assessing overvaluations on these is more subjective in our view.
At Reuchlinstraße 10-11, we identify ~€87 million, or ~84% of the property’s valuation gains recent, as seemingly unjustified. We arrive at this figure after deducting reasonable local gains from the total valuation gain over the same period.
Reuchlinstraße 10-11 nearly doubled in reported value between June 2018 and December 2021; however, we find no plausible explanation for the dramatic increase in value. Our investigators found the complex in a state of disrepair, implying that is has not even been maintained properly, let alone improved. Notably, there has been no expansion of gross lettable area.
As shown supra, while German office property valuations have declined -10% since mid-2022, CPI PG’s Berlin office valuations remain unchanged. Reuchlinstraße 10-11 seems to be a prime example of how CPI PG manipulates its Berlin office portfolio valuations.
Reuchlinstraße 10-11:
We sent an investigator to examine the Reuchlinstraße 10-11 site to determine the state of the complex. The investigator found “occupancy [apparently] limited with substantial areas vacant. Moreover, as shown in some of the images below, the condition of the building is poor or even derelict in many areas.”
Site visit findings also implied little deployment of refurbishment or maintenance capex, with graffiti and broken windows left unaddressed by Reuchlinstraße10-11’s management.
Reuchlinstraße 10-11: Too Valuable to Be True?
In June 2018, Reuchlinstraße 10-11 had a reported portfolio property value (PP value) of €103 million.
By YE 2022, Reuchlinstraße 10-11’s PP value increased to €199 million—93.2% more.
What about the buildingchanged? Apparently, nothing.
Reuchlinstraße visibly shows insufficient maintenance while its GLA has remained 49,000.
Read the full report here.
