Covivio - Activity at end-March 2024: Continued growth in like-for-like revenues and new growth drivers

Paris, 23 April 2024, 6.00 p.m.

Activity at end-March 2024:

Continued growth in like-for-like revenues and new growth drivers

Significant reinforcement in hotels 

►      Acquisition of the equivalent of €500 million in hotels in exchange for Covivio shares 

►      Increase in hotel exposure to 20% of portfolio Group share (vs. 17% at end-2023)

Strategic partnership in Germany Residential 

►      Creation of a joint venture with CDC Investissement Immobilier for a €274 million residential portfolio in Berlin 

►      Transaction in line with end-2023 appraisal values 

►      Contributing €93 million (Group share) to the disposal programme

Success of the premium offer in offices

►      Numerous lettings during the quarter: 48,800 m² let or renewed

►      New increase in occupancy rate to 95.3% (vs. 94.5% at end-2023 and 92.2% in March 2023) 

►      Positive reversion of 13% on Core assets (94% of office portfolio), including 21% in city centres  

Continued strong like-for-like growth in revenues: +7%

Maintained strong financial discipline 

►      €153 million in new disposal agreements (€219 million at 100%), 2% above end-2023 appraisal values

►      Scrip dividend proposal approved by the General Meeting of 17 April. The main shareholders (43% of capital) have already

committed to take up this option, thereby strengthening the balance sheet from €142 million to €331 million

Successful and recognized ESG strategy

►      Carbon trajectory: 26% reduction at end-2023 (vs. 2010), in line with the reduction target of 40% by 2030

► Further decarbonisation of the energy mix: 80% of directly managed assets (Scopes 1 and 2) now have green electricity contracts

►      Further improvement in ESG ratings: Sustainalytics rating upgraded in March 2024, placing Covivio in the sector top 10  

Major reinforcement in the hotel sector 

On April 19, Covivio and Generali finalized the contribution of 8.3% of the capital of Covivio Hotels held by Generali in exchange for new Covivio shares. Covivio now holds 52.2% of the capital and voting rights of Covivio Hotels. 

This transaction is part of a strategic move to rebalance the portfolio, increasing exposure to hotels (to 20% of Covivio's portfolio vs. 17% at the end of 2023), a sector that has proved its ability to outperform inflation and GDP growth over a long period, and which offers promising growth prospects. 

Growth in overnight stays is expected to reach +5%/year between now and 2030^[1], while future supply represents only 2% of existing hotel stock on average in Europe. In the first quarter of 2024, growth in both average prices and occupancy rates enabled Revenues per Available Room (RevPAR^[2]) to continue its upward trend: +15% in Spain, +8% in Italy, +7% in Germany, +6% in the Netherlands, +3% in France and +1% in the UK

This reinforcement has a positive impact on recurring net income (adjusted EPRA Earnings) per share of around +1% (almost neutral on NAV, at -0.3%^[3]). The 2024 recurring net income target communicated last February (of around €440 million) does not take into account this transaction, the impact of which will be clarified at the time of the 2024 half-year results. Covivio's debt indicators have also improved, with Covivio Hotels boasting an LTV ratio of 34% and a Net Debt/EBITDA ratio of 8.5x.

Following this transaction, Covivio will launch in the coming weeks a public exchange offer⁴ for the remaining share capital of Covivio Hotels, under the same conditions as the contribution by Generali (31 Covivio shares for 100 Covivio Hotels shares, post-dividend 2023). Covivio does not intend to implement a squeeze-out at the end of the offer, nor to carry out a merger within 12 months of the closing of the offer. 

Strategic partnership in German Residential 

In German residential, CDC Investissement Immobilier and Covivio signed an strategic partnership agreement. 

The partnership involves CDC Investissement Immobilier acquiring, on behalf of Caisse des Dépôts, a 49% stake in a portfolio (39% from Covivio Immobilien, a subsidiary owned by Covivio at 61.7%, and 10% from Covivio).

The portfolio, which is representative of Covivio's Berlin residential portfolio, comprises 8 assets located in several of Berlin's most attractive districts (Charlottenburg, Halensee, Schöneberg, Mitte, Prenzlauer Berg, Friedrichshain, Lichtenberg and Steglitz). The portfolio totals around 70,000 m², including 770 flats, 15,800 m² of commercial space and a 274-space public car park.

This transaction was signed on the basis of a portfolio valuation of €274m (at 100%), in line with the appraisal values at the end of December 2023. The mortgage financing backed by the portfolio will remain in place.

The set up of this joint venture illustrates CDC Investissement Immobilier's interest in the Berlin residential market and highlights the quality of the portfolio and the expertise of Covivio's local teams. Covivio will continue to provide asset and property management for the portfolio, implementing an ambitious strategy to improve the portfolio's environmental performance by 2030, in line with the ESG targets of both partners. 

This major transaction for the German residential sector will also contribute €93m (Group share) to Covivio's disposal program. Closing of the transaction, which is subject to usual conditions precedent, is scheduled for Q2 2024.

This transaction takes place against a backdrop of housing shortages in Germany, particularly in Berlin. At the end of March 2024^[4], asking rents in Berlin for new rentals in existing apartments were up +1.9% over three months and +7.7% over one year. At the same time, selling prices for apartments in Berlin are stabilizing: after a -6% fall in 2023, prices are up +0.4% in the first quarter of 2024, at €4,564/m².

Success of premium offer in Offices

Portfolio transformed by the implementation of a premium approach 

Offices have gradually evolved from traditional spaces dedicated to individual work into more flexible environments that foster collaboration and innovation. These changes in office use are a broader reflection of changing user needs and demonstrate the growing importance of the work environment to employee productivity and satisfaction. 

Against this backdrop, Covivio has been extensively developing and transforming its office property portfolio since 2015, with its premium approach as its backbone, based on three strategic pillars: 

► Central locations: 94% of Covivio’s office properties are located in the centre of major European capitals and business hubs, notably Paris, Milan and Berlin. 

► High ESG performance: quality buildings committed to the climate transition for sustainable and resilient cities. At the end of 2023, 93.8% of offices held environmental certification, while 67.2% held the highest levels of certification (Very Good or higher). 

► An innovative and progressive hospitality approach: Covivio designs tailor-made, flexible and scalable workspaces inspired by hotel industry codes to keep pace with the transformation of cities and changes in use. The rollout of the flexible Wellio offer since 2017 is a prime example, with its all-in-one approach that provides users with the services, flexibility and advice they need to meet all their real estate needs.

At the end of 2023, core assets accounted for 94% of Covivio’s office portfolio, up from 72% in 2015, including 69% in city centres, compared to 48% in 2015, and 25% in the major business hubs. This strategic positioning at the heart of Europe’s major cities enables the Group to increase its occupancy rate across all assets, capture high reversion in city centres and, lastly, benefit from lease indexation thanks to its solid rental base.

Strong recovery in occupancy and high rental reversion in Q1 

Thanks to its strategic positioning and innovative offer, Covivio enjoys highly favourable rental dynamics across its entire office portfolio. Nearly 49,000 m² of new leases and renewals were signed in the first quarter of 2024. 

Over the quarter, Covivio let an additional 2,700 m² at Maslö in Levallois-Perret, now 100% let (up 56 percentage points year on year). 1,800 m² have also been let in the Urban Garden building in Issy-les-Moulineaux, which is now 85% occupied a year after it was vacated. Several rental successes are also worth noting in Germany: 2,330 m² in the Sun asset in Munich (75% occupied) and 1,270 m² in the Zeughaus building in Hamburg (96% occupied). In Milan, 30,000 m² were renewed at the Lorenteggio site. 

As a result, the occupancy rate was up sharply by 3 pp year on year and up 0.8 pp quarter on quarter at 95.3%. 

This positioning has also enabled the Group to capture the high rental reversion potential of core assets (+13% on average, +21% for assets located in city centres). This was particularly the case in Paris CBD (+22% on 3,661 m² in the Avenue Delcassé building), Berlin (+43% on 1,438 m² in the FischerIsland asset) and Milan CBD (+39% on 867 m² in Via Messina).

Continued growth in like-for-like revenues: +7% at end-March

Revenues at end-March totalled €154.0 million Group share (€237.0 million at 100%), stable on a current basis, with the impact of disposals offset by a continued strong operating performance. 

On a like-for-like basis, revenues increased by 7.1%, following 5.2% growth the previous year. Three growth drivers contributed to this performance, with lettings contributing 2 pp, rental reversion 1.3 pp and indexation 3.4 pp. 

In offices, like-for-like growth reached a record 10%, benefiting from a strong recovery in occupancy (4 pp), reversion (1.1 pp) and continued indexation (4.9 pp). 

In Germany Residential, like-for-like growth was sustained at 4%, driven notably by indexation (1.6 pp), modernisation works (1.2 pp) and the positive effect of re-letting (1.4 pp). Rents renegotiated over the quarter were up by an average of 20%, including an increase of 32% in Berlin. 

Lastly, growth continued in hotels, with organic growth of 4.6%, of which 5% on fixed rents and 3% on variable revenues. 

The occupancy rate also increased by 0.4 percentage points over the quarter to 97.1%, with an average fixed lease term of 6.7 years.

Maintained strong financial discipline 

€153 million in new disposal agreements at end-March 

In an investment market that continued to slow in the first quarter of 2024, Covivio remained active and signed new disposal agreements worth €153 million (€219.5 million at 100%), with an average margin of 2% over end-2023 appraisal values and an exit yield of 4.2%.  

Residential asset sales in Germany accounted for the bulk of disposals, for a total amount of €114 million (€165 million at 100%) and an average premium of 3% over appraisal values: in particular, €98 million (€142 million at 100%) of block sales (including the strategic partnership with CDC Investissement Immobilier) in line with appraisal values and €13 million (€19 million at 100%) of unit sales with a positive margin of 38%. The Group also signed new agreements worth €40 million (€54 million at 100%) on mature office space or space to be converted to residential, with an average margin of 1% over appraisal values.

In addition, more than €250 million in asset sales are under advanced negotiations. 

Payment of the 2023 dividend in shares

The Annual General Meeting of 17 April 2024 approved the proposed dividend of €3.30 per share, with the option of payment in shares, thereby helping to maintain financial discipline. 

Most of the institutional shareholders with seats on the Board of Directors, representing 43% of the capital and voting rights, have already agreed to take the scrip dividend option, representing a minimum capital increase of €142 million, and which could reach €331 million. 

The issue price of the new shares will be €38.61 per share and the subscription period will run from 23 April to 7 May 2024, with settlement-delivery on 27 May.

Successful and acclaimed ESG strategy 

95.3% of the portfolio certified

Covivio continues to make progress in the certification of its portfolio: the proportion of assets with HQE, BREEAM, LEED or equivalent certification, in operation and/or under construction, now stands at 95.3% (up 2 percentage points vs. 2022). In addition, the proportion of office buildings with the highest levels of certification (Very Good and above) stands at 67.2% (up 4 percentage points vs. 2022).

This strategy of improving the environmental performance of our portfolio is actively contributing to the achievement of the Group’s ESG objectives, in particular its commitment to reduce its greenhouse gas emissions by 40% between 2010 and 2030 (covering Scopes 1, 2 and 3, all activities in Europe and the entire life cycle of the assets: materials, construction, refurbishment and operation). At the end of 2023, Covivio was in line with this objective, with a reduction of 26% since 2010.

Further decarbonisation of the energy mix and improvement in portfolio energy consumption 

Thanks to its energy performance plan, Covivio has achieved a 21% reduction in its energy intensity in its commercial scope between 2019 and 2023 (including single-tenant buildings) and is now ahead of the target of a 25% reduction by 2030. 

Renewable energy has great potential to reduce the carbon footprint of a building. To date, 80% of the assets directly managed by the Group (Scopes 1 and 2) benefit from a green electricity contract (compared to 68% in 2019). The Group has set a target of 100% green electricity for directly managed assets by 2030. These efforts, combined with improvements in the portfolio’s energy efficiency, enabled the Group to reduce carbon intensity by 16% between 2022 and 2023.  

Further improvement of ESG ratings to excellent levels

In early February 2024, Covivio was recognised by the Carbon Disclosure Project (CDP) for its leadership in climate change transparency and performance, achieving an A rating, the highest possible. Covivio was one of only 1.6% of companies to receive an A rating out of more than 20,000 companies assessed. 

In March 2024, Sustainalytics upgraded Covivio’s rating by 2 points to 5.9 (from 7.9 in 2022), assessing its level of ESG risk as “negligible” and placing it in the top 10 in its sector and the top 30 globally. 

2024  outlook 

In February 2024, Covivio announced a target for continued growth in recurring net income (Adjusted EPRA Earnings) in 2024, expected to be around €440 million. 

This target will be updated at the time of the half-yearly result, to take into account the ongoing reinforcement of exposure to the hotel sector and the evolution of operating trends. 

AGENDA

 CONTACTS  

                                  Press Relations                                                 Investor Relations

                                Géraldine Lemoine                                                   Vladimir Minot

Tel : + 33 (0)1 58 97 51 00   Tel : + 33 (0)1 58 97 51 94 geraldine.lemoine@covivio.fr         vladimir.minot@covivio.fr

Louise-Marie Guinet

Tel : + 33 (0)1 43 26 73 56 covivio@wellcom.fr

 ABOUT COVIVIO

Thanks to its partnering history, its real estate expertise and its European culture, Covivio is inventing today’s user experience and designing tomorrow’s city.

A preferred real estate player at the European level, Covivio is close to its end users, capturing their aspirations, combining work, travel, living, and co-inventing vibrant spaces.

A benchmark in the European real estate market with €23.1 bn in assets, Covivio offers support to companies, hotel brands and territories in their pursuit for attractiveness, transformation and responsible performance.

Build sustainable relationships and well-being, is the Covivio’s Purpose who expresses its role as a responsible real estate operator to all its stakeholders: customers, shareholders and financial partners, internal teams, local authorities but also to future generations and the planet. Furthermore, its living, dynamic approach opens up exciting project and career prospects for its teams.

Covivio’s shares are listed in the Euronext Paris A compartment (FR0000064578 - COV), are admitted to trading on the SRD, and are included in the composition of the MSCI, SBF 120, Euronext IEIF “SIIC France” and CAC Mid100 indices, in the “EPRA” and “GPR 250” benchmark European real estate indices, and in the ESG FTSE4 Good, CAC SBT 1.5°C, DJSI World & Europe, Euronext Vigeo (World 120, Eurozone 120, Europe 120 and France 20), Euronext® CDP Environment France EW, ISS ESG, Ethibel and Gaïa ethical indices and also holds the following awards and ratings: CDP (A), GRESB (90/100, 5-Star, 100% public disclosure), ISS-ESG (B-) and MSCI (AAA).

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Financial part:               BBB+ / Stable outlook by Standard and Poor’s