Covivio Hotels - 2024 Half-year financial report

FINANCIAL INFORMATION

HALF-YEAR 2024

Contents

FINANCIAL INFORMATION                                                                                                                                                  1

HALF-YEARLY 2024                                                                                                                                                                1

1.  ACTIVITY REPORT AT 30 JUNE 2024   5

1.1.                            Net financial income                 10

1.2.                            Portfolio at 30 June 2024         13

1.3.                            EPRA indicators          17

1.4.                            Related companies    17

1.5.                            Risks and uncertainties            18

1.6.                            2024 outlook              21

1.7.                            Transition tables        22

2.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024           25

2.1.                            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024      26

2.1.1                          STATEMENT OF FINANCIAL POSITION 26

2.1.2                          STATEMENT OF NET INCOME 27

2.1.3                          STATEMENT OF COMPREHENSIVE INCOME        28

2.1.4                          STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY   29

2.1.5                          STATEMENT OF CASH FLOWS                 30

            GENERAL PRINCIPLES                                                                                                                                    31

2.2.1.1.                  Accounting standards                31

2.2.1.2.                  Estimates and judgments         31

2.2.1.3.                  Taking into account the effects of climate change               32

2.2.1.4.                  Operating segments (IFRS 8)    32

2.2.1.5.                  IFRS 7 – Reference table           32

            FINANCIAL RISK MANAGEMENT                                                                                                                 33

2.2.2.1.                  Marketing risk for properties under development              33

2.2.2.2.                  Liquidity risk                33 2.2.2.3. Interest rate risk              34

2.2.2.4.  Financial counterparty risk                 34 2.2.2.5. Lease counterparty risk 34

2.2.2.6.                  Risk related to changes in the value of the portfolio           34

2.2.2.7.                  Foreign exchange risk                35

2.2.2.8.                  Risk related to changes in the value of shares and bonds 35

2.2.2.9.                  Tax environment         35

            SCOPE OF CONSOLIDATION                                                                                                                         37

2.2.3.1.                  Accounting principles relating to the scope of consolidation            37

2.2.3.2.                  Change in holding rate and change in consolidation method            38

2.2.3.3.                  List of consolidated companies               39

2.2.3.4.                  Control assessment   41

            SIGNIFICANT EVENTS OF THE PERIOD                                                                                                       42

2.2.4.1. Business update    42 2.2.4.2. Vauban protocol              42 2.2.4.3. Asset disposals                 42

2.2.4.4          Sale of shares                                                                                                                                                  42

2.2.4.5.         Financing and reimbursement                                                                                                                     42

            NOTES TO THE STATEMENT OF FINANCIAL POSITION                                                                           43

2.2.5.1.                  Portfolio       43

2.2.5.2.                  Financial assets           48

2.2.5.3.                  Investments in equity affiliates and joint ventures              49

2.2.5.4.                  Deferred taxes at closing          50

2.2.5.5.                  Short-term loans        50

2.2.5.6.                  Inventories and work in progress            51

2.2.5.7.                  Trade receivables       51

2.2.5.8.                  Tax and other receivables         52

2.2.5.9.                  Prepaid expenses       53

2.2.5.10.               Cash and cash equivalents        53

2.2.5.11.               Shareholders’ equity 53

2.2.5.12.               Statement of liabilities              54

2.2.5.13.               Provisions for risks and charges               59

2.2.5.14.               Other liabilities           60

2.2.5.15.               Recognition of financial assets and liabilities        60

2.2.5.16.               Accruals        61

            NOTES TO THE STATEMENT OF NET INCOME                                                                                           62

2.2.6.1.                  Accounting principles                62

2.2.6.2.                  Operating income      62

2.2.6.3.                  Net income from disposals       64

2.2.6.4.                  Change in the fair value of properties    64

2.2.6.5.                  Cost of net financial debt          64 2.2.6.6. Net financial income       65

2.2.6.7.          Current and deferred taxes                                                                                                                           65

            OTHER INFORMATION                                                                                                                                   68

2.2.7.1.                  Personnel expenses   68

2.2.7.2.                  Earnings per share and diluted earnings per share             68

2.2.7.3.                  Related-party transactions       69

2.2.7.4.                  Executive remuneration            69

            SEGMENT REPORTING                                                                                                                                  70

2.2.8.1.                  Accounting principles relating to operating segments - IFRS 8          70

2.2.8.2.                  Tangible and intangible fixed assets       70

2.2.8.3.                  Investment properties / properties held for sale 70

2.2.8.4.                  Financial liabilities      71

2.2.8.5.                  Income statement by operating segment              72

            POST-CLOSING EVENTS                                                                                                                                 74

3.  STATUTORY AUDITORS’ REPORT ON THE INTERIM FINANCIAL INFORMATION                75

COVIVIO HOTELS                                                                                                                                                                  75

Period from 1 January 2024 to 30 June 2024                                                                                                                     75

Statutory Auditors’ report on the interim financial information 2024                                                                        75

4.  STATEMENT BY THE PERSON RESPONSIBLE    77

Hotel market: good first-half performance

H1 2024 performance in Europe improved on 2023. At the end of May 2024, RevPAR (revenue per available room) was up 4% on average, as the European market kept up its momentum, bolstered by the increase in occupancy rates and average prices. The best performances were recorded in Southern Europe, notably Spain and Italy, which were up 15% and 8%, respectively. Germany continued to catch up, posting a 4% increase in RevPAR. Meanwhile, France posted more moderate RevPAR growth at 1%, impacted by the postponement of travel plans in the run-up to the Paris Olympics.

These trends are set to continue through June, with performance boosted by Euro 2024 in Germany but declining in Paris in pre-Olympics period.

Memorandum of understanding signed by Covivio Hotels and AccorInvest

In June 2024, Covivio Hotels and AccorInvest signed a memorandum of understanding to consolidate the ownership of jointly owned hotel operating and property companies, in accordance with the terms defined at the start of exclusive negotiations in November 2023. The transaction is expected to be closed in the final quarter of 2024. The memorandum concerns the acquisition by Covivio Hotels of 24 hotel operating companies^[1] - allowing the consolidation of these hotels, which will be owned and operated by Covivio Hotels – in exchange for the transfer to AccorInvest of title to 10 other hotels, which will then be owned and operated by AccorInvest. The agreed value of the property companies transferred to AccorInvest is €208 million^[2], while the value of the operating companies acquired by Covivio Hotels is €266 million3. Based on 2023 figures, the assets transferred to AccorInvest represent annual rental income of €11 million, while the operating companies acquired by Covivio Hotels generate EBITDA of around €31 million.

The deal enables Covivio Hotels to acquire operating companies in major tourist areas with considerable potential for value creation through repositioning and management optimisation. Some of these hotels will continue to operate under Accor brands (under management or franchise agreements), while others will be rebranded.

The agreement also concerns the hotels held under joint ventures by Covivio Hotels, which is also the indirect owner and asset manager of another 60 hotels leased to AccorInvest and held through two joint ventures created in 2010 and 2019, respectively. One of these is 80% owned by Crédit Agricole Assurances and 20% by Covivio Hotels, and the other is owned by Caisse des Dépôts et Consignations, Société Générale Assurances, and Covivio Hotels. The memorandum provides for the acquisition by Covivio Hotels and its partners of 19 operating companies held by these two joint ventures (thereby enabling them to be consolidated as properties owned and operated by Covivio Hotels and its partners) in exchange for the transfer to AccorInvest of six other hotels, which will then be owned by AccorInvest. 

These consolidation transactions for Covivio Hotels and the joint ventures represent a total of €393 million¹ for the hotel property companies sold by Covivio Hotels and its partners, equivalent to that of the operating companies owned and operated by the companies whose shares will be acquired. Upon completion, Covivio Hotels and its partners will have consolidated ownership of 43 hotels and AccorInvest 16.

This hotel exchange transaction will allow Covivio Hotels to reposition a large part of its portfolio and increase its ability to directly influence performance, thereby exploiting a major source of potential growth. 

€77 million in new disposal commitments signed  

Covivio Hotels signed new disposal commitments totalling €77 million Group Share (€83 million at 100%) during the first half, including four hotels in Germany (€31 million), one hotel in Spain (€17 million) and 13 assets in France (€30 million), including three Accor-branded hotels. 

The commitments were signed at a margin of around 11% over end-2023 appraisal values, reflecting strong investor appetite for the hotel industry. 

Slight increase in like-for-like values 

At the end of June 2024, Covivio Hotels held a portfolio worth €5,821 million (€6,432 million at 100%), characterised by: 

-       high-quality locations: the average grade given for "location" by customers on Booking.com is 8.9/10;

-       a diversified portfolio in terms of country (12 countries, none representing more than 33% of the total portfolio) and segment (68% economy/midscale and 32% upscale);

-       long-term leases with the major hotel operators: 16 operators with an average firm residual lease term of

11.8 years.

H1 LfL Yield Yield H1 change¹ 2023² 2024²

      ² Yield excluding duties                                                                                                                                                                     

At like-for-like scope, the hotel portfolio was up 0.5% over six months. This change is primarily attributable to the stabilisation of capitalisation rates and continued revenue growth driven by the good performance of variablerevenue hotels and fixed-rent indexation. 

The hotel portfolio has a 6.0% average yield excluding transfer duties. 

¹ Including transfer taxes.

Hotel portfolio breakdown at 30/06/2024

Revenue growth: +5% like-for-like 

The good first-half performance by the hotel market resulted in hotel portfolio revenue growth of 5.2% like-for-like, with revenues totalling €153.7 million compared to €150.1 million at 30 June 2023.

      (*) On a like for like basis                                                                                                                                                                                                                                                               

Hotel lease properties (81% of hotels revenue) 

-       Variable-rent hotels (23% of the hotels revenue): the portfolio is mainly let to AccorInvest, in France and Belgium, and also includes the variable-rent portion of the minimum guaranteed rent leased assets located in Spain, Italy, and the UK. The 9.3% like-for-like year-on-year increase was driven by the excellent performance from hotels in Southern Europe.

-       Fixed-rent hotels (58% of the hotel revenue): rents up 4.4% like-for-like, mainly due to rental indexation (up

5.6% in France, 3.8% in Germany, and 3.6% in Spain).  

The occupancy rate remained at 100% across the hotel portfolio. 

Hotel operating properties (19% of hotel revenue)

Most of these hotels are located in Germany (mainly Berlin) and France. Like-for-like EBITDA for operating properties rose 2.9% year-on-year, mainly driven by good hotel performances in Germany. In addition, the hotels located in Bruges are subject to a work programme. 

Successful refinancing, competitive debt cost, and strengthened liquidity 

Two new financing arrangements totalling €729 million were secured during the first half of the year, enabling the company to refinance upcoming debt payments. In particular, in May 2024 Covivio Hotels carried out a €500 million Green Bond issue with nine-year maturity and a 4.125% coupon (148 bp spread over mid-swap rate). The fixed rate of the issue was largely swapped for a floating rate in order to leverage the Group’s hedging position.  

Covivio Hotels net debt rose from €2,260 million Group Share at 31 December 2023 to €2,373 million. Over the same period, the average interest rate improved by 11 bps, falling from 2.43% to 2.32% at the end of June 2024, while the average maturity increased from 3.6 to 5.1 years. Covivio Hotels had a strengthened debt coverage ratio of 96% at the end of June 2024 (compared with 89% at the end of 2023), with a high hedging maturity of 6.0 years. 

At 30 June 2024, the loan-to-value ratio (LTV) stood at 36.1%. The interest coverage ratio (ICR) was 5.94x, a further improvement compared to the end of 2023 (5.38x).

Covivio Hotels held cash (including undrawn credit lines) of €616 million at 30 June 2024.

As part of its annual review, S&P Global Ratings confirmed Covivio Hotels’ BBB+ stable outlook rating, in line with the overall Covivio rating. This confirmation recognises the solidity of the company’s operational and financial profile. S&P also upgraded Covivio Hotels’ stand-alone rating from BB+ to BBB-.

Recurring net income growth of 7% in H1 2024

H1 2024 recurring net income (EPRA Earnings) came to €119.5 million, up 6.6% from €112.1 million a year earlier, boosted by revenue growth. EPRA Earnings per share amounted to €0.81, up 6.6% from €0.76 the previous year. EPRA NTA (net tangible assets) stood at €3,505 million, compared with €3,550 million at the end of 2023. This amounted to €23.7 per share, down 1.3% compared to the end of 2023, despite the impact of the dividend payment.  Taking into account the fair value adjustment of interest rate hedges and fixed-rate debt, the EPRA NDV (net disposal value) was €3,472 million, from €3,512 million at end-December 2023, down 1.1%. It stands at €23.4/share. 

1.1.  Net financial income

1.1.1. General principles

The interim condensed consolidated financial statements were prepared in compliance with international accounting standard IAS 34 Interim Financial Reporting, as adopted by the European Union. The rules and methods applied are identical at 31 December 2023.

1.1.2. Statement of interim net income

Group Share revenues

On a Group Share basis, Covivio Hotels Group Share revenue totalled €155.4 million for the first half-year of 2024, up by 2.2% compared to June 2023. On a like-for-like basis, hotel fixed rents were up by 4.4%, hotel variable rents by 9.3% and EBITDA from hotel operating properties increased by 2.9% compared to June 2023. This increase is linked to the momentum in Southern Europe of the activity observed during the half-year and the end of the lockdown measures in Europe.

1: Like for Like = like-for-like scope

Operating income, Group Share

Operating income, Group Share amounted to €153.1 million at 30 June 2024, compared with €90.1 million at 30 June 2023. This change is mainly due to the change in the fair value of investment properties (+€57 million).

Net financial income, Group Share 

Financial income mainly consists of:

-       The cost of net financial debt for -€27.6 million, down €1.8 million compared to June 2023, in line with the decrease in the cost of debt;

-       The financial expense on lease liabilities (-€7.8 million), generated by the application of IFRS 16, which consists of restating leases in the same way as finance leases;

-       The positive change in the fair value of financial assets and liabilities for €19 million, taking into account changes in interest rates;

-       Foreign exchange income related to our British, Polish, Hungarian and Czech portfolios for €0.4 million compared to €0.4 million at 30 June 2023.

1.1.3. EPRA Earnings

EPRA Earnings amounted to €119.5 million at 30 June 2024. It is up by 6.6% compared to 2023. Per share, the EPRA

Earnings amounted to €0.81 at 30 June 2024, compared with €0.76 on the same date in 2023, i.e. an increase of 6.6%. 

30/06/2023

Net income Group Share       62,1 - Variation in asset values  39,1 - Income from asset disposals            0,3 - impairment GW Operating Properties       1,9

- Variations in the value of financial instruments         -8,3

- foreign exchange loss on CAPEX Hungary             0,0

- Provision for Operating Properties taxes -7,3

- Interest expense on lease liabilities of more than 100 years     5,1

- Rental charges for leases of more than 100 years   -3,7

- Deferred tax          -1,9

- Taxes on disposals 0,0

- Depreciation of properties managed as Operating Properties   20,7

- IFRIC 21 adjustment              2,1

- Fees and amortisation of loan costs for early repayment          0,1 - Adjustment of Epra Earnings of equity-accounted companies            2,0

                                 EPRA Earnings                                                                                      112,1

                                 Average number of shares in circulation                                           148 135 050

1.1.4. Half-yearly consolidated statement of financial position at 30 June 2024

The simplified consolidated balance sheet (Group Share) at 30 June 2024 is as follows:

Assets                                                                         31/12/2023Liabilities                                             31/12/2023

Tangible and intangible assets                             1 190

Investment property                                               4 425

Investments in equity affiliates                                 205

Financial assets               72Shareholders’ equity3,387 Deferred tax assets                           23Borrowings                     2 361 Financial instruments                     178Financial instruments                         69 Assets held for sale                       162Rental liability                    289 Cash                101Deferred liabilities             206 Others            104Others               146

Total                                                                                                             6 458         6 458

Tangible and intangible assets were stable under the double effect of depreciation and fixed assets in progress (-€20.5 million and € 17.7 million respectively) and the exchange rate variation on the portfolio in the UK (+€2.4 million).

Investment properties decreased (-€170.7 million) over the period mainly as a result of:

-          Signing of the agreement with AccorInvest for an asset swap (-€208 million);

-          The change in the fair value of real estate assets, for an amount of +€17 million;

-          The increase in the value of the pound sterling and the Hungarian Forint, which impacted the value of our foreign portfolio for +€16 million and -€3.8 million respectively.

Assets held for sale also varied due to the signing of the agreement with AccorInvest and the disposals made over the period.

Cash is made up of cash and marketable securities for €463 million, in connection with the new bond issue (€500 million).

On the liabilities side, shareholders’ equity fell from €3,551 million at 31 December 2023 to €3,494 million at 30 June 2024. This change is mainly due to the impact of:

-          positive income for the period of +€133 million

-          the payment of the 2023 dividend for a net amount of -€193 million -   the change in the conversion reserve for -€6 million

A detailed explanation of the various line items is provided in the notes to the consolidated half-year financial statements.

1.1.5. Debt structure

At 30 June 2024, the net financial debt amounted to €2,373 million Group Share.

As a Group Share, net financial debt represents 36.1% of total assets revalued in value including transfer taxes, attributable to owners of the parent and 39.1% of total assets in value excluding transfer taxes attributable to owners of the parent, excluding restatement of commitments.

Features of the debt

The average interest rate on debt was 2.32% (compared to 2.43% at 31 December 2023).

Debt maturity

The average maturity of the debt is 5.1 years at 30 June 2024, vs 3.6 years at 31 December 2023.

Hedging

At 30 June 2024, the debt active hedging spot rate, Group Share, was 96.1%.

The net valuation of hedging instruments amounted to €119 million, Group Share, at 30 June 2024. The change in the value of hedging instruments over the period had an impact on the income statement of €19 million, Group Share, due to changes in interest rates.

1.2.  Portfolio at 30 June 2024

The portfolio of Covivio Hotels is valued at €6,478 million, excluding transfer taxes, i.e. €5,866 million Group Share excluding transfer taxes.

The portfolio of Covivio Hotels breaks down as follows:

                                                                                                                                      ∆ H1 2024           Yield ED     Yield ED H1

                                                                                                                                 (1)             2023(2)                    2024(2)

⁽²⁾ Yield HD: Yield excluding duties.

    ⁽²⁾ For variable income categories, returns are calculated on a rolling year basis (from H2 2023 to H1 2024).                       

On a like-for-like scope, the Hotel real estate portfolio showed strong resilience, posting values up +0.5% over six months. This change is mainly due to the stabilisation of capitalisation rates and an increase in revenues, due to the growth in hotel performances and the indexation of rents.

The hotel portfolio has a 6.0% average yield excluding transfer taxes.                                                                    

Since 2005, the evolution of the Covivio Hotels portfolio has been as follows (in € million):

                         2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023               H1

2024

                                                                       Hotels    Health   Retail premises

Breakdown of rents

Covivio Hotels has excellent visibility over its future cash flows, given the signing of firm long-term leases with tenants who have a solid credit rating and are leaders in their industries.

Annualised rents

Annualised rents and revenues from hotels operating properties amounted to €340.4 million at 30 June 2024 (excluding retail), broken down as follows:

Geographic area

Breakdown by tenant

1.2.1. Lease schedule

The firm residual duration of leases decreased by 0.4 years compared to 31 December 2023, i.e. a firm residual term of 11.8 years at the end of June 2024 (new Roca leases, etc.).

Rents break down as follows by lease end date:

1.2.2. Summary of expert appraisals

At 30 June 2024, the breakdown of the portfolio in value (Group Share) among the real estate appraisers is as follows:

1.2.3. Occupancy rate

The financial occupancy rate measures the ratio between the annualised rents of occupied premises and the annualised rents if the premises were fully let.

The physical occupancy rate indicates the number of m² occupied compared to marketable m².

These two rates were stable at 100% for hotels at 30 June 2024.

1.3.  EPRA indicators

At 30 June 2024, EPRA NTA NAV stood at €3,505 million (or €23.7 per share), a fall of 1.3% compared with 31 December 2023. EPRA NDV NAV was €3,472 million (i.e. €23.4 per share), down 1.1% over six months. New indicators: Description

1.4. Related companies

The main related-party transactions that took place in the first half of 2024 are detailed in Section 2.2.7.3 of the notes to the half-year consolidated financial statements.

1.5. Risks and uncertainties

Covivio Hotels invites its readers to refer to Chapter 2 of its 2023 Universal Registration Document (URD) in which the main risks and control systems put in place by the company have been identified.

The rating of risks is the result of a combined analysis of their potential negative impact (on the company’s valuation, its results, its image and/or on the continuity of its activity) and their probability of occurrence. Once quantified, the gross impact and probability are adjusted for the control systems in place to determine the net risk.

Following the review of risks, those whose level could change in the second half of 2024, via an increase in their net impact and/or their net probability, are presented below. The mechanisms for managing these risks (unchanged) are described in the 2023 URD available on the Covivio Hotels website. The other risks are unchanged to date.

1.5.1. Risks linked to the environment in which Covivio Hotels operates

Unfavourable evolution of the real estate market: fall or stagnation of values and rents  Values

The total assets of Covivio Hotels at the end of 2024 (€7.2 billion in consolidated figures) mainly consisted of the appraisal value of the buildings, which amounted to €6.2 billion (i.e. over 86%). Any change in the value of buildings has a direct impact on the balance sheet total.

The value of the Covivio Hotels portfolio depends on changes in the real estate markets in which the Group operates. Both rent levels and market prices (and consequently the capitalisation rates used for comparison purposes by appraisers) may be subject to fluctuations due to the economic and financial environment. Covivio Hotels recognises its investment properties at fair value in accordance with the option offered by IAS 40.

Thus, a decrease in appraisal values is likely to affect the revalued net asset value of Covivio Hotels and, possibly, its share price.

In the first half of 2024, the value of the hotel portfolio changed on a like-for-like basis by +0.5% (compared to -3.9% in 2023).

Increased borrowing rates may result in higher financing costs for potential investors and buyers, which may discourage some of them from carrying out real estate transactions or acquisitions. This may reduce demand on the market and exert downward pressure on the value of Covivio Hotels’ assets. 

The real estate market is dynamic and reacts to various economic and financial factors. An increase in interest rates may lead to adjustments in capitalisation rates depending on the perception of risks and expected returns. Investors may demand higher yields to offset increased borrowing costs, which may result in higher capitalisation rates.

However, it should be noted that the impact of the increase in revenues expected by Covivio Hotels should limit the negative effect of an increase in rates.

For information purposes, the table below shows the sensitivity of the valuation of lease assets at 30 June 2024 to yield rates (corresponding to the normative annualised rent / appraised value of assets excluding duties):

                                                               Decrease in capitalisation rate               Data as of                Increase in capitalisation rate

   * Total investment properties, excluding development portfolio and rights of use.                                                                                                 

The sensitivity of covenants to changes in appraisal values is presented in Section 1.5.2 “Financial risks”.

Impact of changes in the discount rate on the change in the fair value of real estate assets:

On the basis of a significant sample of the portfolio of hotel leases, the sensitivity of the value of the portfolio to changes in the discount rate can be assessed as follows:

•       If the discount rate drops 25 bps (-0.25 points), the market value excluding taxes of the real estate assets will increase by about 1.9%, or €85 million;

•       If the discount rate increases by 25 bps (+0.25 points), the market value excluding taxes of the real estate assets will decrease by about 1.8%, or €82 million.

Revenues

The European tourism activity was very dynamic in the first half of the year, with a continued increase in average prices and occupancy rates in line with (or even higher than) those of 2023. Group Share revenues for the first half of the year amounted to €155.4 million (+5% on a like-for-like basisvs H1 2023). Nevertheless, the Company remains sensitive to its share of variable income (assets whose rents are likely to change in line with the revenue of hotels as well as the rents of hotels held in Operating Properties) representing 41% of its revenue as of 30 June 2024.

Thus, in the event of a deterioration in the environment, Covivio Hotels could, in addition to a decline in its revenues, suffer value adjustments that could be amplified by the increase in rates.

The Company also benefits from long-term leases, enabling it to have little exposure to the risk of vacancies in the coming years.

The table below shows the sensitivity of the fair value of investment properties to changes in rents. The capitalisation rate was constant at 5.9% (data attributable to the Group’s Share). 

                                                                Decrease in annualised rents                Data as of                 Increase in annualised rents

* Total investment properties, excluding development portfolio and rights of use.

                         -5%                                                                       4 000              -13%               3 692              -20%

                         -10%                                                                     3 771              -18%               3 462              -25%

* Variation compared to the portfolio at 30 June 2024.

The impacts of changes in values on the Company’s covenants are presented in Section 1.5.2 “Financial Risks”.

1.5.2. Financial risks  

Unfavourable change in interest and exchange rates

Borrowings

Covivio Hotels could suffer an increase in its financial expenses on its share of unhedged debt and be more generally limited in its ability to implement its short/medium-term investment strategy.

With an average rate of 2.32%, Covivio Hotels’ debt stood at €2.4 billion, Group Share at the end of June 2024. Its average active hedging rate was 96.1%.

The figures below show the sensitivity of Covivio Hotels’ EPRA earnings to a rise in interest rates.

A 25 bps increase in the three-month Euribor rate would have an impact of -€0.1 million on EPRA Earnings.

A 50 bps increase in the three-month Euribor rate would have an impact of -€0.3 million on EPRA Earnings.

A 100 bps increase in the three-month Euribor rate would have an impact of -€0.5 million on EPRA Earnings.

Foreign Exchange

A variation in the exchange rate between the pound sterling and the euro could have negative consequences on the result of Covivio Hotels and more specifically on the amount of rents received insofar as 13% of its portfolio is located in the UK.

Non-compliance with banking covenants (LTV, ICR) related to decreases in values and/or revenues

The risks related to changes in values and rents are detailed in the developments dedicated to the risk “Unfavourable evolution of the real estate market: fall or stagnation of values and rents” (see above).

In the event of breaching a covenant, Covivio Hotels would theoretically have to repay all of its drawn debt. In practice, however, this risk appears unlikely, as banks generally prefer to renegotiate the financial conditions of the borrowers concerned, as seen during the 2008 financial crisis.

The most restrictive LTV (Loan to Value) covenant applying to Covivio Hotels is 60%, for an effective ratio of 39.1% (banking LTV) at 30 June 2024. As a result, the company could suffer a 34% fall in the value of its assets before reaching its LTV covenant.

The most restrictive ICR (Interest Coverage Ratio) covenant of Covivio Hotels is 200% for an effective ratio of 594% at 30 June 2024.

1.6. 2024 outlook

As the hotel real estate leader in the main European markets, Covivio Hotels plans to take advantage of a growing market and the valuation potential of its portfolio, primarily through the recently announced consolidation transaction on the hotels let to AccorInvest (20% of the portfolio).

1.7. Transition tables

           1.7.1.       Transition tables

                     1.7.1.1.          Transition table of the portfolio

                                                              Portfolio (as of 30/06/2024)                                        €5 866 M

                     1.7.1.2.          Transition table for EPRA indicators

Shareholders’ equity Group - IFRS

€3 324 M

Accounts

The fair value of fixed-rate debt is measured at the risk-free rate and excluding credit spreads.

                     1.7.1.3.          Transition table of rental income

                     1.7.1.4.          Transition table of EPRA Earnings

Net income

                                                                                                     Non-controlling     Net Income,                                     EPRA

           (In € million)                                                     100%                                                               Restatements

                                                                                                           interest          Group Share                                  Earnings

IFRS Accounts

Net Rental Income

Managed hotel income

Operating costs

Depreciation of operating assets

Net change in provisions and other

OPERATING RESULT

Income from asset disposals

Result of value adjustments

Income from disposal of securities

Result of changes in scope

OPERATING INCOME

Cost of net financial debt

Interest expense on rental liabilities

Value adjustment of derivative instruments

Discounting and exchange result

Net change in financial and other provisions

Share in income of equity affiliates

Early amortisation of loan issue costs

NET INCOME BEFORE TAX

Deferred tax liabilities

Corporate taxes

         NET INCOME FOR THE PERIOD                                  142,0                    -8,7                 133,3                  -13,8               119,5

                     1.7.1.5.          Managed hotel income

2.1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024

2.1.1  STATEMENT OF FINANCIAL POSITION 

Assets

Liabilities

2.1.2  STATEMENT OF NET INCOME

2.1.3 STATEMENT OF COMPREHENSIVE INCOME

(In € thousand)

Currency translation differences

Other comprehensive income that can be reclassified to profit or loss

Other comprehensive income that cannot be reclassified to profit or loss

OTHER ITEMS OF COMPREHENSIVE INCOME   COMPREHENSIVE INCOME FOR THE PERIOD

of which attributable to owners of the parent company of which attributable to non-controlling interests

  TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD

2.1.4 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

2.1.5 STATEMENT OF CASH FLOWS  

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 GENERAL PRINCIPLES

                                            2.2.1.1.        Accounting standards

The consolidated financial statements of the Covivio Hotels group at 30 June 2024 have been prepared in accordance with the international financial reporting standard IAS 34 “Interim Financial Reporting”. As these are condensed financial statements, they do not include all the information required by IFRS and should be read in conjunction with Covivio Hotels’ financial statements for the fiscal year ended 31 December 2023. 

The financial statements were approved by the Management on 11 July 2024.

•       Accounting principles and methods used

The accounting principles applied to the consolidated financial statements as at 30 June 2024 are identical to those used for the consolidated financial statements as at 31 December 2023, with the exception of new standards and amendments whose application is mandatory from 1 January 2024 and which were not applied early by the Group.

The following amendments, which are mandatory as of 1 January 2024, did not have any impact on the Group’s consolidated financial statements:

•       Amendments to IAS 1 “Presentation of the financial statements - Classification of liabilities as current or non-current”. Non-current liabilities with prepayment clauses. These amendments specify how a company should classify, in the statement of financial position, debts and other liabilities whose settlement date is uncertain. Under these amendments, these debts or other liabilities must be classified as either current or non-current liabilities. The application of these amendments did not lead to significant changes in the presentation of the interim financial statements.

•       Amendment IFRS 16 "Leaseback in a sale and leaseback transaction" The IFRS-IC has published a decision illustrating the application of IFRS requirements on the initial recognition of a saleleaseback with variable rents. This amendment complements the previous IFRIC decision. The application of these amendments did not lead to significant changes in the presentation of the interim financial statements.

•       Amendment to IAS 7 & IFRS 7 "Supplier financing arrangements". These amendments introduced requirements for disclosures by a company about its supplier financing arrangements. These new requirements require the Company to provide users with financial statements to assess the impact of its supplier financing arrangements on its liabilities and cash flows, and to understand the effects of such arrangements on its exposure to liquidity risk and the way in which it could be affected if it were no longer able to use these agreements. The application of these amendments did not lead to significant changes in the presentation of the interim financial statements.

                                            2.2.1.2.        Estimates and judgements

The financial statements have been prepared in accordance with the historic cost convention, with the exception of investment properties and certain financial instruments, which were recognised in accordance with the fair value convention. In accordance with the conceptual framework for IFRS, preparation of the financial statements requires making estimates and using assumptions that affect the amounts shown in these financial statements. 

The significant estimates made by the Covivio Hotels group in preparing the financial statements mainly relate to:

•       the valuations used for testing impairment, in particular assessing the recoverable value of goodwill and intangible fixed assets;

•       measurement of the fair value of investment properties;

•       measurement of the fair value of derivative financial instruments;

•       measurement of provisions.

Due to the uncertainties inherent in any valuation process, the Covivio Hotels group reviews its estimates based on regularly updated information. The future results of the transactions in question may differ from these estimates.

In addition to the use of estimates, Group management makes use of judgements to define the appropriate accounting treatment of certain business activities and transactions when the IFRS standards and interpretations in effect do not precisely address the accounting issues involved. 

                                            2.2.1.3.       Taking into account the effects of climate change 

In 2021, Covivio announced a new carbon trajectory and raised its ambitions to achieve a 40% reduction in greenhouse gas emissions by 2030. This objective, which concerns all Scopes 1, 2 and 3, covers all activities in Europe and the entire life cycle of assets: materials, construction, restructuring and operation. Covivio is aiming for Net Zero Carbon from 2030 on its Scopes 1 and 2.

Covivio Hotels continued its momentum in terms of environmental certification: the proportion of assets with HQE, BREAM, LEED or other specific hotel labels, in operation and/or under construction, reached 94% in mid-2024, in line with the objective of 100% by the end of 2025. At Group level, Covivio has also set itself ambitious targets for reducing the energy consumption of buildings for more than ten years. This strategy actively contributes to achieving the new carbon trajectory. It is accompanied by a strengthened commitment to low-carbon construction and renovation. In addition, in accordance with the European Regulation, Covivio Hotels published at the end of 2023 its eligibility and alignment rates for the second year of application of the Taxonomy Regulation (Chapter 3 of the Universal Registration Document), including this year the Biodiversity target for the hotel operating activity.

In addition, in its financing component and in line with the Group’s greening strategy, Covivio Hotels decided to adopt a Green Financing Framework in June 2023 and suggested that bondholders transform all their bonds into Green bonds.

Finally, in order to better understand the risks and opportunities related to climate change, every year Covivio publishes a report incorporating the recommendations of the TCFD (Taskforce on Climate Financial related Disclosures) and regularly analyses the climate resilience of its portfolio. In June 2023, the Group published its second Climate Report, available on its website.

The inclusion of the effects of climate change had no material impact on the judgements made and the main estimates required to prepare the financial statements.

                                            2.2.1.4.       Operating segments (IFRS 8)

The operating segments of the Covivio Hotels group are detailed in Section 2.2.8.1.

                                            2.2.1.5.       IFRS 7 – Reference table

Liquidity risk                                                                                          § 2.2.2.2

Financial expense sensitivity                                                                  § 2.2.2.3

Counterparty risk                                                                                   § 2.2.2.4

Covenants                                                                                            § 2.2.5.12.7

Market risk                                                                                            § 2.2.2.6

Sensitivity of the fair value of investment properties                                § 2.2.5.1.3

Exchange rate risk                                                                                § 2.2.2.7.                                                 

                                              FINANCIAL RISK MANAGEMENT

The operating and financial activities of the company are exposed to the following risks:

                                            2.2.2.1.        Marketing risk for properties under development

The Group is involved in property development. As such, it is exposed to various risks, in particular risks related to construction costs, late delivery and the marketing of the asset. There were no building projects under development as of 30 June 2024.

                                            2.2.2.2.       Liquidity risk

Liquidity risk is managed in the medium and long term with multi-year cash management plans and, in the short term, by using confirmed and undrawn lines of credit. At 30 June 2024, Covivio Hotels’ available cash and cash equivalents amounted to €928 million, including €449 million in confirmed credit lines, €472 million in short-term investments and cash equivalents and €7 million in granted unused overdraft facilities. 

The graph below shows the maturities of borrowings (in € million) including interest expenses as at 30 June 2024.

Covivio Hotels group debt totalled €2,879.7 million as at 30 June 2024 (see 2.2.5.12).

The interest payable up to the extinguishing of all the debt, estimated based on the outstanding amount as at 30 June 2024 and the average interest rate on debt, totalled €303 million.

Covivio Hotels has been active in the management of its long-term liquidity with the issuance of a 9-year bond for €500 million to secure the refinancing of its 2025 bond maturity (€350 million) and the partial redemption of medium-term debt maturities. The refinancing of its Spanish portfolio was also secured for

€229 million with a maturity of seven years.

Details of the debt maturities are provided in note 2.2.5.12.3, and a description of the banking covenants and accelerated payment clauses included in the loan agreements is presented in note 2.2.5.12.7.

                                            2.2.2.3.       Interest rate risk

The Group’s exposure to the risk of changes in market interest rates is linked to its floating rate and longterm financial debt.

To the extent possible, bank debt is almost systematically hedged via financial instruments (see 2.2.5.12.5). As at 30 June 2024, after taking interest rate swaps into account, an average of 96.1% of the Group’s debt was actively hedged, and the bulk of the remainder was covered by interest rate caps, which resulted in the following sensitivity to changes in interest rates:

•       the impact of an increase of 100 bps on the rates at 30 June 2024 is -€0.5 million on cost of net debt Group Share for 2024;

•       the impact of an increase of 50 bps on the rates at 30 June 2024 is -€0.3 million on the cost of debt Group Share for 2024;

•       the impact of a decrease of 50 bps on the rates at 30 June 2024 is +€0.3 million on the cost of net debt Group Share in 2024.

                                            2.2.2.4.       Financial counterparty risk

Given Covivio Hotels group’s contractual relationships with its financial partners, the company is exposed to counterparty risk. If one of its counterparties is not in a position to honour its undertakings, the Group’s net income could suffer an adverse effect.

This risk primarily involves the hedging instruments entered into by the Group and which would have to be replaced by a hedging transaction at the current market rate in the event of a default by the counterparty.

The counterparty risk is limited by the fact that the Covivio Hotels group is a borrower, from a structural standpoint. The risk is therefore mainly restricted to the investments made by the Group and to its counterparties in derivative product transactions. The company continually monitors its exposure to financial counterparty risk. The company’s policy is to deal only with top-tier counterparties, while diversifying its financial partners and its sources of funding.

Counterparty risk is included in the measurement of cash instruments. At 30 June 2023, the amount is -€4.0 million compared to -€3.6 million at 31 December 2023.

                                            2.2.2.5.       Lease counterparty risk

Covivio Hotels group’s rental income is fairly concentrated among a group of principal tenants (Accor, B&B, IHG, NH etc.) who generate the bulk of annual rental income. 

The Covivio Hotels group is not significantly exposed to the risk of insolvency, since its tenants are selected based on their creditworthiness and the economic prospects of their market segments. The operating and financial performance of the main tenants is regularly reviewed. In addition, tenants grant the Group financial guarantees when leases are signed.

In the first half of 2024, the Group’s revenue continued to grow.  

                                            2.2.2.6.       Risk related to changes in the value of the portfolio

Changes in the fair value of investment properties are recognised in the income statement. Changes in property values can thus have a material impact on the operating performance of the Group.

The investment policy of the Covivio Hotels group seeks to minimise the impact of the various stages of the cycle by choosing investments that:

•       have long-term leases and high-quality tenants, to soften the impact of a reduction in market rental income and the resulting decline in real estate prices;

•       are located in major European cities.

The ownership of real estate assets intended for leasing exposes the Covivio Hotels group to the risk of fluctuation in the value of real estate assets and lease payments.

Despite the uncertainty created by the economic downturn, this exposure is limited to the extent that the rentals invoiced are derived from rental agreements, the term and diversification of which mitigate the effects of fluctuations in the rental market.

Rental income is indexed to rent indexation indices, to changes in Accor revenues and to the likelihood of the application of major underperformance clauses on the portfolio in the United Kingdom for the hotels concerned.

The sensitivity of the fair value of investment properties to changes in rental values and/or capitalisation rates is analysed in § 2.2.5.1.3.

                                            2.2.2.7.       Foreign exchange risk

The Group operates both inside and outside the Euro zone following the acquisition of hotel real estate assets in the United Kingdom, Poland, the Czech Republic and Hungary. The Group protected itself against fluctuations in the pound sterling by financing part of the acquisition in the UK with a foreign currency loan and a currency swap.

Impact of a decrease in the GBP/EUR exchange rate on the shareholders’ equity

                                            2.2.2.8.       Risk related to changes in the value of shares and bonds

The Group is exposed to risks for two classes of shares (see § 2.2.5.2.2 and § 2.2.5.3.2):

•       available-for-sale securities measured at fair value. This fair value is the market price when the securities are traded on a regulated market;

•       shares of companies accounted for under the equity method are measured at their value in use. Value in use is determined based on independent assessments of the real estate assets and financial instruments.  

The Covivio Hotels group made an inaugural bond issue in September 2018, a bond issue in July and November 2021 and a new bond issue of €500 million in May 2024, the characteristics of which are presented in § 2.2.5.12.4. 

                                            2.2.2.9.        Tax environment

The Group does not observe any major changes in the tax environment in France and in other countries impacting the results of the period to 30 June 2024.

Stemming from a project by the OECD and the European Commission, the “PILLAR 2” international tax reform aims to guarantee a minimum effective taxation of 15% of groups with revenue of at least €750 million, and will be applicable from the 2024 fiscal year. 

To date, there are still a certain number of uncertainties regarding the implementation of the rules relating, in particular, to the scope of application (in particular for companies that apply the SIIC regime or equivalent) and the calculation methods. 

As of 30 June 2024, clarifications are still expected from the bodies representing the reform. No provisions for tax relating to the PILLAR 2 rules were recognised in the SIIC scope. 

                                                                                         2.2.2.9.1.          Tax risks

Due to the complexity and formalism that characterise the tax environment in which Covivio Hotels conducts its activities, the Group is exposed to tax risks. After consulting our advisors, if a tax treatment presents a risk of adjustment, a provision is made. 

There is no provisioned tax risk at 30 June 2024, for which the effects would be likely to significantly affect Covivio Hotels’ results or financial position. 

                                                                                         2.2.2.9.2.           Deferred taxes

The impact of deferred tax liabilities therefore mainly relates to investments to which the SIIC regime does not apply (Belgium, Czech Republic, Germany, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Spain, United Kingdom). In the case of Spain, all Spanish companies have opted for the SOCIMI regime exemption. However, there are deferred tax liabilities related to assets held by the companies prior to opting for SOCIMI treatment.

Deferred tax mainly arises from fair value measurement of the overseas portfolio and from the Operating Properties business (German rate: 15.825%, French rate: 25.83%). Please note that the hotel businesses are taxed at a rate of between 30.18% and 32.28% in Germany and that deferred tax liabilities for this business have also been recognised at this rate.

For the UK, 9 of the 12 companies have entered the UK REIT exemption from 1 January 2024. There is therefore no longer any deferred tax on this part of the portfolio.

 SCOPE OF CONSOLIDATION

                                                2.2.3.1.       Accounting principles relating to the scope of consolidation

✓ Consolidated subsidiaries and structured entities – IFRS 10

These financial statements include the financial statements of Covivio Hotels and the financial statements of the entities (including structured entities) that it controls and its subsidiaries.  The Covivio Hotels group has control when it:

•       has power over the issuing entity;

•       is exposed or is entitled to variable returns due to its ties with the issuing entity;

•       has the ability to exercise its power in such a manner as to affect the amount of returns that it receives.

The Covivio Hotels group must reassess whether it controls the issuing entity when facts and circumstances indicate that one or more of the three factors of control listed above have changed.

A structured entity is an entity structured in such a way that the voting rights or similar rights do not represent the determining factor in establishing control of the entity; this is particularly the case when the voting rights only involve administrative tasks and the relevant business activities are governed by contractual agreements.

If the Group does not hold a majority of the voting rights in an issuing entity in order to determine the power exercised over an entity, it analyses whether it has sufficient rights to unilaterally manage the issuing entity’s relevant business activities. The Group takes into consideration any facts and circumstances when it evaluates whether the voting rights that it holds in the issuing entity are sufficient to confer power to the Group, including the following:

•       the number of voting rights that the Group holds compared to the number of rights held respectively by the other holders of voting rights and their distribution;

•       the potential voting rights held by the Group, other holders of voting rights or other parties;

•       the rights under other contractual agreements;

•       the other facts and circumstances, where applicable, which indicate that the Group has or does not have the ability to manage relevant business activities at the moment when decisions must be made, including voting patterns during previous shareholders’ meetings.

Subsidiaries and structured entities are fully consolidated.

✓  Equity affiliates – IAS 28

An equity affiliate is an entity in which the Group has significant control. Significant control is the power to participate in decisions relating to the financial and operational policy of an issuing entity without, however, exercising control or joint control on these policies.

The results and the assets and liabilities of equity affiliates are accounted for in these consolidated accounts according to the equity method.

✓  Partnerships (joint control) – IFRS 11

Joint control means the contractual agreement to share the control exercised over a company, which only exists in the event where the decisions concerning relevant business activities require the unanimous consent of the parties sharing the control.

✓  Joint ventures

A joint venture is a partnership in which the parties which exercise joint control over the entity have rights to its net assets. 

The results and the assets and liabilities of joint ventures are recognised in these consolidated financial statement according to the equity method.

✓ Joint operations

A joint operation is a partnership in which the parties exercising joint control over the operation have rights to the assets, and obligations for the liabilities relating to it. Those parties are called joint operators.

A joint operator must recognise the following items relating to its interest in the joint operation:

•       its assets, including its proportionate share of assets held jointly, where applicable;

•       its liabilities, including its proportionate share of liabilities undertaken jointly, where applicable;

•       the income that it derived from the sale of its proportionate share in the yield generated by the joint operation;

•       its proportionate share of income from the sale of the yield generated by the joint operation;

•       the expenses that it has committed, including its proportionate share of expenses committed jointly, where applicable.

The joint operator accounts for the assets, liabilities, income and expenses pertaining to its interests in a joint operation in accordance with the IFRS that apply to these assets, liabilities, income and expenses. No Group company is considered to constitute a joint operation.

                                            2.2.3.2.       Change in holding rate and change in consolidation method 

There was no change in the scope of consolidation during the first half of 2024.                                                  

                                            2.2.3.3.       List of consolidated companies

Entries and exits from the consolidation scope are presented in the table below at the beginning or end of each business segment.

                                                                                                           Consolidation        % interest         % interest

185 Companies                                                                        Country                 Business sector

                                                                                                          method in 2024           2024                 2023

The registered office of the parent company Covivio Hotels and its main fully consolidated French subsidiaries is in Rue de Madrid – 75008 Paris. The registered office of its main Luxembourg subsidiaries is located at 21 avenue de la Gare, L-1611 Luxembourg.

There are 185 companies in the Covivio Hotels Group, including 150 fully consolidated companies and 34 equity affiliates.

                                            2.2.3.4.       Assessment of control

✓ OPCI Foncière B2 Hôtel Invest (consolidated structured entity)

OPCI Foncière B2 Hôtel Invest, 50.2% owned by Covivio Hotels as at 30 June 2024, is fully consolidated. 

Governance decisions at the OPCI are taken by a majority of the six members of the Board of Directors (Covivio Hotels has three representatives including the Chairman, who has a casting vote in the event of a tie).

Considering the rules of governance that grant Covivio Hotels powers giving it the ability to affect asset yields, the company is fully consolidated.

 SIGNIFICANT EVENTS OF THE PERIOD

Significant events during the period were as follows:

                                            2.2.4.1.        Business update

The first part of 2024 marks a continuity of activity, with occupancy rates rising and average prices well above the level of 2019. This continued growth is reflected in:

•       an increase in rental income on the variable portion of rents for +€3.3 million;

•       the -€2.0 million decrease in the EBITDA of hotels under management is mainly related to the end of the guaranteed minimum on a hotel in Roissy (-€1 million) and the closure of a hotel in Brugge for renovation work. 

                                            2.2.4.2.        Vauban protocol 

An agreement with AccorInvest was signed on 20 June 2024 and should cover the disposal of 10 assets (€208 million) at the end of the year. In return, Covivio Hotels will receive 24 hotel operating companies already held by the Group. 

The agreement also applies to hotels held in joint ventures (two joint ventures). Covivio Hotels and these partners will acquire 19 business assets in exchange for the sale of 6 assets. 

                                            2.2.4.3.       Asset disposal

During the first half of 2024, Covivio Hotels sold two hotels for €19.8 million net of expenses.

Covivio Hotels signed commitments for two hotels in France (€15.8 million) and four retails (€5.8 million).  As of 30 June 2024, an agreement had also been signed for four hotels in Germany for €30.5 million. 

                                             2.2.4.4        Disposal of securities 

During the first half of 2023, Covivio Hotels signed a preliminary sale agreement on shares of the company Bardiomar (owning an hotel in Spain) for €75 million. A deposit of €1.5 million was received from the future buyer. 

In accordance with IFRS 5, the company’s assets and liabilities have been downgraded to other assets and liabilities held for sale for €7.7 million as assets, in addition to the reclassification of real estate assets (€75 million) and €6.5 million in liabilities. The transaction should be finalised at the beginning of the second half of 2024 following the go-ahead from the Barcelona municipal authorities. 

                                            2.2.4.5.        Financing and reimbursement

Covivio Hotels subscribed on 15 May 2024 to a green bond of €500 million with a maturity of 9 years.  Covivio Hotels made a partial redemption of £130 million (€150 million) out of the £400 million subscribed in 2018. 

Over the half-year, Covivio Hotels also issued commercial paper for €96 million. 

 NOTES TO THE STATEMENT OF FINANCIAL POSITION

                                            2.2.5.1.       Portfolio 

                                             2.2.5.1.1.    Accounting principles relating to tangible and intangible assets

✓ Business combinations (IFRS 3) and goodwill from acquisitions

An entity must determine whether a transaction or event constitutes a business combination within the meaning of the definition of IFRS 3, which stipulates that a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors in the form of dividends, lower costs or other economic advantages.

In this case, the acquisition cost is set at the fair value on the date of the exchange of the assets and liabilities and equity instruments issued for the purpose of acquiring the entity. Goodwill is recognised as an asset for the surplus of the acquisition cost on the portion of the buyer’s interest in the fair value of the assets and liabilities acquired, net of any deferred taxes. Negative goodwill is recorded in the income statement.

To determine whether a transaction constitutes a business combination, the Group considers whether an integrated set of businesses is acquired in addition to real estate. The criteria the Group uses may be the number of assets and the existence of a process such as asset management or sales and marketing units.

The prospective additional costs are appraised at fair value at the acquisition date. They are definitely appraised in the 12 months following the acquisition. The subsequent change of these additional costs is recorded in the income statement.

After its initial recognition, the goodwill is subject to an impairment test at least once a year. Impairment testing consists of comparing the net book value of tangible and intangible fixed assets and related goodwill with the valuation of the hotels in the “Operating Properties” activity carried out by real estate appraisers. 

If the Group concludes that the transaction is not a business combination, then it recognises the transaction as an acquisition of assets and applies the standards appropriate to acquired assets.

Costs of an acquisition classified as a business combination are recognised in expenses in accordance with

IFRS 3 under “Income from changes in scope” in the income statement, while acquisition costs not classified as a business combination are booked as part of the asset value of the acquired assets.

✓ Investment properties (IAS 40)

Investment properties are real estate properties held for purposes of leasing within the context of operating leases or long-term capital appreciation (or both).

Investment properties represent the majority of the Group’s portfolio. 

Buildings which are operating properties are recognised as tangible fixed assets at amortised cost.

Under the option offered by IAS 40, investment properties are assessed at their fair value. Changes in fair value are recorded in the income statement. Investment property is not amortised. 

The Covivio Hotels portfolio is appraised by independent experts who are members of AFREXIM (in particular Cushman, BNP Paribas Real Estate, CBRE, BPCE Expertise, MKG) on a half-yearly basis, with two appraisals, one on 30 June and the other on 31 December.

The assets were estimated at values excluding and including duties, and rents at market value. They are accounted for at their net market value.

The methodology changes according to the type of asset:

        o    Valuation of hotel real estate

The value of hotel real estate was determined by discounting future annual net income on the basis of the following principles:

•       most of the cash flow forecasts were valued over ten years;

•       cash flow is determined on the basis of rental income, which is in turn dependent on hotel real estate revenues, and direct investments by Covivio Hotels are deducted from cash flow;

•       rental income is calculated by applying a fixed rate to hotel revenues. Rates vary depending on the brand and the asset location;

•       discount and capitalisation rates are determined on the basis of risk-free interest rates plus a risk premium related to the property.

o    Valuation of Club Méditerranée in Portugal

The resort was valued by capitalising the rental income that it is likely to generate.

o    Valuation of non-material activities

The restaurants (Courtepaille) were valued by capitalising the rental income they are likely to generate (having regard to the estimated level of the standardised rent that the asset is likely to carry) as well as by discounting all the rental income over the residual term of the lease. 

The resulting values are also cross-checked with the initial yield rate, monetary values per m² of comparable transactions and transactions carried out by the Group.

IFRS 13 “Fair Value Measurement” establishes a fair value hierarchy that categorises the inputs used in valuation techniques into three levels: 

•       level 1: the valuation refers to quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

•       level 2: the valuation refers to valuation methods using inputs that are observable for the asset or liability, either directly or indirectly, in an active market;

•       level 3: the valuation refers to valuation methods using inputs that are unobservable in an active market. 

The fair value measurement of investment properties requires the use of different valuation methods using unobservable or observable inputs to which some adjustments have been applied. Accordingly, the Group’s portfolio is all categorised at level 3 according to the IFRS 13 fair value hierarchy.

✓  Assets under development (IAS 40)

Assets under construction are recognised according to the general fair-value principle, except where it is not possible to determine this fair value on a reliable and ongoing basis. In such cases, the asset is carried at cost. 

As a result, development programmes and extensions or remodelling of existing assets that are not yet commissioned are recognised at their fair value, and are treated as investment properties whenever the administrative and technical fair-value reliability criteria – i.e. administrative, technical and commercial criteria – are met. 

In accordance with revised IAS 23, the borrowing cost during a period of construction and renovation is included in the cost of the assets. The capitalised amount is determined on the basis of fees paid for specific borrowings and, where applicable, for financing from general borrowings based on the weighted average rate of the particular debt. 

✓  Right-of-use (IFRS 16)

In application of IFRS 16, when a movable or immovable asset is held under a lease, the lessee is required to recognise a right-of-use asset and a rental liability, at amortised cost.

Right-of-use assets are included in the items under which the corresponding underlying assets are presented, if they belonged thereto, namely the items Operating properties, Other tangible fixed assets and Investment properties.

The lessee depreciates the right-of-use on a straight-line basis over the term of the lease, except for rights relating to investment properties, which are measured at fair value.

✓  Tangible fixed assets (IAS 16)

Pursuant to the preferred method proposed by IAS 16, managed hotels under the Operating Properties business line (Own Occupied Buildings - occupied or operated by Group teams) are carried at historical cost less accumulated depreciation and any potential impairment. They are amortised over their expected useful life according to a components-based approach.

The hotels operated as Operating Properties are depreciated according to their period of use:

If the appraisal values of the Operating Properties are less than the net book value, impairment is recognised, as a priority on the value of the fund, then on the value of the tangible fixed assets.

✓  Non-current assets held for sale (IFRS 5)

In accordance with IFRS 5, when Covivio Hotels decides to dispose of an asset or group of assets, it classifies them as assets held for sale if:

•       the asset or group of assets is available for immediate sale in its current condition, subject only to normal and customary conditions for the sale of such assets;

•       its or their sale is likely within one year and marketing for the property has begun.

For Covivio Hotels, only assets corresponding to the above criteria and/or for which a preliminary sale agreement has been signed are classified as assets held for sale. 

If a preliminary sale agreement exists on the account closing date, the price of the commitment net of expenses constitutes the fair value of the asset held for sale.           

                                             2.2.5.1.2.     Table of changes in fixed assets 

    (1) The “Leases” section details the right-of-use assets on investment property and the “Transfers” column concerns the indexation of leases as well as the reclassification of the right of an asset held for sale. 

•       Intangible fixed assets

Goodwill on hotels operated as Operating Properties decreased by €0.8 million due to the impairment realised in connection with the appraisal value of one building in France and one in Germany. 

At 30 June 2024, goodwill sensitivity tests were carried out. A decrease of 2.5% in appraisal values would result in additional impairment of €1.1 million and a decrease of 5% in values would result in additional impairment of €2.7 million.

•       Tangible fixed assets

The portfolio of hotels held as operating properties totalled €1,110.4 million at 30 June 2024. They are recognised in the “Tangible fixed assets” line item. In accordance with IFRS, the owner-occupied buildings do not meet the definition of investment property and are measured and recognised at amortised cost.

The column increases and depreciation of tangible fixed assets (-€2.7 million) mainly consists of:

-       depreciation and amortisation for the period for -€20.5 million of assets already present at 31 December 2023;

-       work carried out in Belgium (€12.1 million), Germany (€2.4 million), France (€1.2 million) and

the renewal of equipment in hotels in operation (€1.4 million);

The “transfers” column (€1.1 million) mainly includes the indexation of long-term leases treated in accordance with IFRS 16. 

•       Investment properties and assets held for sale

Under IFRS, investment properties and assets held for sale are measured in accordance with the fair value principle. A reclassification of other assets held for sale was carried out in connection with the agreement to sell the shares of a company in Spain holding an asset.  

The increases in investment properties (€5.1 million) mainly consist of:

-       the impact of rent-free periods net of linearisations for €1.9 million;

-       work for €1.9 million in Spain, €0.8 million on B&B hotels in France and €1.2 million on Accor hotels. 

Disposals of €16.3 million relate to the sale of two hotels. 

The change in fair value increased by €20.9 million over the period and is linked to the slight increase in appraisal values over the half-year and new commitments signed. 

The foreign exchange impact of €15.6 million over the half-year is mainly due to the increase in the pound sterling (€19.9 million) less the decrease in the Hungarian Forint (-€3.8 million).

The amount of the “Disbursements related to acquisition of tangible and intangible fixed assets” line item in the Statement of Cash Flows totalled -€22.4 million. It corresponds to the total of the “Increases” column, ignoring the impact of charges (-€21.5 million) in the table of changes in fixed assets i.e. +€21.2 million (excluding rights of use) restated for the change in trade payables on fixed assets (+€1.0 million) and the impact of the step rental schemes and rent relief included in the appraisal values (-€1.9 million). 

                                             2.2.5.1.3.     Appraisal parameter

The Group has not identified the best use of an asset as being different from its current use. Consequently, the application of IFRS 13 did not lead to a modification of the assumptions used for the valuation of assets. In accordance with IFRS 13, the tables below provide details of the ranges of unobservable inputs by business segment (level 3) used by real estate appraisers:

                                                                                                       Yield rate                                                              Appraisal

                                                                               Yield rate                                 DCF discount           Average

Grouping of comparable assets               Level                                     (weighted                                                                 value

                                                                             (min. – max.)                                     rate              discount rate

                                                                                                       average)                                                                (in €M)

Level 3  6.5% - 10.0%                                                                                   7,1%           8.6% - 12.1%             9,1%

As of 31 December 2023, the data was as follows: 

                                                                                                     Yield rate                                                               Appraisal

      Grouping of comparable                                   Yield rate                                 DCF discount           Average

                                                        Level                                     (weighted                                                                  value

                   assets                                              (min. – max.)                                     rate              discount rate

                                                                                                     average)                                                                 (in €M)

Impact of changes in the yield rate on the change in the fair value of real estate assets:

Weighted

Yield

(In € million)                      average yield                              Yield +25 bps

-25 bps

•       If the yield rate excluding taxes drops 25 bps (-0.25 points), the market value excluding taxes of the real estate assets will increase by €203.2 million;

•       If the yield rate excluding taxes increases by 25 bps (+0.25 points), the market value excluding taxes of the real estate assets will decrease by -€186.6 million. 

Impact of changes in the discount rate on the change in the fair value of real estate assets:

On the basis of a significant sample of the portfolio of hotel leases, the sensitivity of the value of the portfolio to changes in the discount rate can be assessed as follows:

•       If the discount rate drops 25 bps (-0.25 points), the market value excluding taxes of the real estate assets will increase by about 1.9%, or €85 million;

•       If the discount rate increases by 25 bps (+0.25 points), the market value excluding taxes of the real

estate assets will decrease by about 1.8%, or €82 million.

                                            2.2.5.2.        Financial assets

                                             2.2.5.2.1.     Accounting principles related to financial assets

✓  Other financial assets

Other financial assets are made up of investments in non-consolidated companies.

These securities are recognised upon acquisition at cost plus transaction costs. They are then recognised at fair value in the income statement on the closing date. The fair value is arrived at on the basis of recognised valuation techniques (reference to recent transactions, discounted future cash flows, etc.).

Non-consolidated securities are valued at their fair value and changes in value are recorded either in shareholders’ equity or in the income statement, depending on the option chosen by the Group for each of these securities in accordance with IFRS 9.

Dividends received are recognised when they have been approved by vote.

✓  Loans

At each closing date, loans are recorded at their amortised cost. Moreover, impairment is recognised and recorded on the income statement when there is an objective indication of impairment as a result of an event occurring after the initial recognition of the asset.

                                             2.2.5.2.2.     Table of financial assets

(1)    Ordinary loans mainly consist of subordinated loans to equity affiliates for €50.9 million, to an unconsolidated company (€0.7 million) and guarantee deposits paid to municipalities in Spain (€4.6 million).

(2)    Prepayment on equity investments to acquire shares in a company in Portugal that will hold a hotel.

(3)    Investment in an unconsolidated company.

                                            2.2.5.3.       Investments in equity affiliates and joint ventures

                                             2.2.5.3.1.     Accounting principles related to investments

Investments in equity affiliates and joint ventures are accounted for by the equity method. According to this method, the Group’s investment in equity affiliates or joint ventures is initially accounted for at cost, increased or reduced by the changes, subsequent to the acquisition, in the share of the net assets of the affiliates. The goodwill related to equity affiliates is included in the book value of the investment, if it is not impaired. The share in the earnings for the period is shown in the line item “Share in income of equity affiliates”. 

The financial statements of equity affiliates and joint ventures are prepared for the same accounting period as for the parent company, and adjustments are made, where relevant, to adapt the accounting methods to those of the Covivio Hotels group. 

                                             2.2.5.3.2.     Table of investments in equity affiliates and joint ventures

Investments in equity affiliates totalled €207.1 million as at 30 June 2024, compared with €204.6 million as at 31 December 2023. The change in profit (-€8.6 million) includes changes in the fair value of buildings (-

€3.6 million) and financial instruments (-€0.2 million).

A memorandum of understanding has been signed with AccorInvest to consider the acquisition of 19 hotel going concerns of which the portfolio companies already hold the premises against the sale of six hotels in the portfolio. The transaction should be completed at the end of 2024.

As a reminder, the OPCI Iris Invest 2010 and Iris Holding France holding companies were set up in 2010 and hold a portfolio of thirty-two Accor hotels in France, Belgium and Germany and a B&B Hotels portfolio of thirteen hotels in France and one hotel in Belgium.

The OPCI Campinvest holding company was formed in 2011 and owns a portfolio of 19 Campanile hotels in France. 

SCI Dahlia, formed in 2011, held a portfolio of seven Accor hotels in France. Following the change of operator in 2022, two hotels were transferred to the B&B Hotels brand.

The Phoenix portfolio was acquired in July 2019 and now includes twenty-three Accor hotels in France, two Accor hotels in Belgium and two B&B Hotels.

2.2.5.3.3. Breakdown of the shareholding structure of the main equity affiliates and joint ventures

                                           IRIS HOLDING        OPCI IRIS                 OPCI                                            OPCI OTELI     KOMBON SAS JOURON SPRL

SCI DAHLIA

                                                France             INVEST 2010     CAMPINVEST                                       (Phoenix)            (Phoenix)            (Phoenix)

Covivio Hotels group

                                             2.2.5.3.4.    Main financial information on equity affiliates and joint ventures

Total non-current Total current Total non-

                                             Balance                                                                    liabilities                 liabilities             Financial             Rental              Cost of net              Consolidated

           ⁽                                                                            current               ^Cash

            ^{In € thousand)}                    sheet total                                                                  excluding                excluding            payables            income           financial debt         net income

assets financial debt                financial debt

                                            2.2.5.4.       Deferred taxes at closing

Given the regimes applicable in France (SIIC regime), Spain (SOCIMI regime) and the UK (REIT regime), the potential tax savings on tax losses carried forward from real estate activities in these countries are not counted.

Impact on the income statement                                            -6 064                                                                                                           

In accordance with IAS 12, deferred tax assets and liabilities are offset for each tax entity when they involve taxes paid to the same tax authority.

Deferred tax liabilities linked to unrealised gains on fixed assets relate to the Hotels segment for €123 million and the Operating Properties segment for €84.1 million.

The Hotel sector fell from €123 million to €130.6 million, mainly due to the slight increase in appraisal values on portfolios abroad.

                                            2.2.5.5.       Short-term loans

                                            2.2.5.6.       Inventories and work in progress

The Covivio Hotels group’s inventories and work-in-progress derive wholly from the hotel operations of the Operating Properties business.

                                            2.2.5.7.        Trade receivables

                                             2.2.5.7.1.    Accounting principles related to trade receivables 

Trade receivables consist of operating lease receivables and receivables from hotels under operation. These items are measured at amortised cost. In the event that the recoverable value is lower than the net book value, the Group may be required to account for an impairment charge through profit or loss.

✓ Receivables from operating lease transactions

For operating-lease receivables, a provision for impairment is made at the first non-payment. The impairment rates applied by Covivio Hotels are as follows:

•       no provisions are set aside for existing or vacated tenants whose receivables are less than three months overdue;

•       50% of the amount of the receivable for existing tenants whose receivables are between three and six months overdue;

•       100% of the total amount of the receivable for existing tenants whose receivables are more than six months overdue;

•       100% of the total amount of the receivable for departed tenants whose receivables are more than three months overdue.

The arithmetical impairments arising from the rules above are reviewed on a case-by-case basis to factor in any specific situations. Receivables may also be booked as impaired even before a non-payment situation arises.

✓ Receivables of hotels under operation

Receivables of hotels under operation are impaired according to payment deadlines.

The receivables and theoretical impairments arising from the rules above are reviewed on a case-by-case basis in order to factor in any specific situations.

                                             2.2.5.7.2.     Table of trade receivables

Charges to be reinvoiced mainly comprise the rendering of charges on the portfolio of Operating Properties in Germany.

Gross trade receivables, with a balance of €76.5 million at 30 June 2024, mainly comprise: 

•      trade receivables in the Operating Properties segment amounted to €42.2 million (an increase of €26.1 million compared to December 2023) in line with the June estimate. By way of comparison, at 30 June 2023, these receivables amounted to €45 million;

•      trade receivables from the Hotels segment for €34.3 million (compared with €41 million at 30 June 2023) of which:

▪  €4.2 million in deferred rent not yet due in Spain and € 1.1 million in deferred rent not yet due in Italy, Hungary and the Czech Republic;

▪  €4.5 million of unpaid receivables in France, fully impaired; ▪ unpaid June 2024 receipts and prepaid rent.

Impairment of trade receivables amounted to €5.4 million. They mainly concern retail in France for €4.1 million. 

Invoices to be issued for €19.4 million include the re-invoicing of the full-year property tax for €12 million. 

Breakdown of trade receivables due:

The line “Change in working capital requirements on continuing operations” on the Cash Flow Statement consists of:

The changes in trade payables are also explained by the recovery in activity in the Operating Properties segment.

                                            2.2.5.8.        Tax and other receivables

Other tax receivables (€16.5 million) mainly concern VAT receivables for (€10 million).

The other receivables item (€7.9 million) mainly concerns the Operating properties business (€4.2 million), in particular the call for funds of Le Méridien expenses (€2.9 million) for the first half of 2024 and €3.7 million for leased properties.

Current accounts have fallen and are exclusively from Foncière Loisirs Vielsam (€0.9 million).

                                            2.2.5.9.        Prepaid expenses

Prepaid expenses relate to the Operating Properties business for €2.6 million and hotel leases for €2.5 million. 

                                             2.2.5.10.     Cash and cash equivalents

2.2.5.10.1. Accounting principles related to cash and cash equivalents

Cash and cash equivalents include cash, short-term deposits, and money-market funds. These are shortterm, highly liquid assets that are easily convertible into a known cash amount, and for which the risk of a change in value is negligible.

2.2.5.10.2. Statement of cash and cash equivalents

At 30 June 2024, the portfolio of money market securities consisted mainly of traditional money market funds (Level 2).

•       Level 1 of the portfolio corresponds to instruments whose price is listed on an active market for an identical instrument;

•       Level 2 corresponds to instruments whose fair value is determined using data other than the prices mentioned for Level 1 and observable directly or indirectly (i.e. price-related data).

                                             2.2.5.11.     Shareholders’ equity

2.2.5.11.1. Accounting principles related to shareholders’ equity

✓ Treasury shares

If the Group buys back its own equity instruments (treasury shares), these are deducted from shareholders’ equity. No profit or loss is recognised in the income statement when Group Shareholders’ equity is purchased, sold, issued or cancelled.

2.2.5.11.2. Change in shareholders’ equity

The statement of changes in shareholders’ equity and movements in the share capital are presented in note 1.1.4.

The Combined General Meeting of 17 April 2024 approved the payment of an ordinary dividend of €193 million, i.e. a dividend of €1.30 per share. 

The -€5.7 million change in currency translation differences recorded directly under net position mainly comprises the following:

-     effect of fluctuations in the pound sterling for +€9.3 million (the closing rate was €1.179760 compared to €1.151930 at opening);

-     effect of fluctuations in the Hungarian forint for +€4.2 million;

-     effect of fluctuations in the Czech koruna for -€0.9 million; 

-     impact of net investments abroad (IAS 21 and IFRS 9) on Covivio Hotels for -€1.9 million, broken down into:

o    exchange differences linked to long-term borrowings and loans by Covivio Hotels denominated in GBP (+€10.1 million),

o    the change in fair value of the cross-currency swap as a result of the currency movement (-

€8.2 million).

At 30 June 2024, the share capital consisted of 148,141,452 fully paid-up shares with a par value of €4.00.

                                                                              Shares              Treasury             Shares

Transaction issued                        shares         outstanding

This half-year, there was no movement on the liquidity agreement. 

                                             2.2.5.12.     Statement of liabilities

2.2.5.12.1. Accounting principles related to the statement of liabilities

Financial liabilities include borrowings and other interest-bearing debt. 

At initial recognition, financial liabilities are measured at fair value, minus the transaction costs directly attributable to the issue of the liability. They are then recognised at amortised cost based on the effective interest rate. The effective rate includes the nominal rate and actuarial amortisation of issue expenses and issue and redemption premiums.

Financial liabilities of less than one year are posted under “Current financial liabilities”.

Companies belonging to the Covivio Hotels group hold real estate assets via finance lease agreements: finance leases (Operating Properties) or long-term leases / construction leases. In this case, the liability recognised as counterparty to the asset is initially recorded at the lower of the fair value of the real estate asset and the present value of minimum lease payments. This debt is amortised as the contracts expire and give rise to the recognition of a financial expense.

The rental liability related to long-term leases/construction leases is presented on the line Short-term or longterm rental liabilities in the balance sheet and the financial expense in the item Interest charges on rental liabilities.

✓ Derivatives and hedging instruments

The Covivio Hotels group uses derivatives to hedge its floating rate debt against interest rate risk (hedging of future cash flows) and exchange rate risk.

Derivative financial instruments are recorded on the balance sheet at fair value. The fair value is calculated using valuation techniques that use mathematical calculations based on recognised financial theories and parameters that incorporate the prices of market-traded instruments. This valuation is carried out by an external service provider.

Given the characteristics of its debt, Covivio Hotels does not qualify for hedge accounting. All derivative instruments are accounted for at fair value, and changes are reflected in the income statement, with the exception of the portion of the cross-currency swap hedging exchange rate risk, which is described as net foreign investment hedging.    

2.2.5.12.2. Debt tables

(1) These are loans to partnerships from shareholders other than Covivio Hotels. At 30 June 2024, the balance of €4.3 million mainly consisted of companies in the Operating Properties portfolio in Germany.

In the first half of 2024, the Covivio Hotels group subscribed to a new bond issue for an amount net of fees of €495 million and issued new commercial paper for €96 million. 

The line “inflows related to new borrowings” in the cash flow statement (+€592.6 million) corresponds to the column Increase in interest-bearing borrowings (+€585.8 million) and the increase in the loan in pound sterling (+€5.1 million) restated for lease liabilities (-€1.6 million). 

The “Repayment of borrowings” line of the cash flow statement (-€169.7 million) corresponds to the column decrease in interest-bearing borrowings (-€161.0 million), restated for currency translation differences (-€6.2 million) and the impacts of lease liabilities (-€2.1 million). 

Net financial debt is presented below: 

2.2.5.12.3. Bank loans

The table below outlines the characteristics of the borrowings taken out by the Covivio Hotels group and the amount of the associated guarantees (principal amount over €100 million):

                                                                                                             Appraisal         Outstanding                              Initial

Date of

(In € thousand)               Secured debt                                                         value                debt at                                nominal        Maturity

signature 30 June 2024      30 June 2024

(1) Value excluding duties of collateralised assets (mortgages or pledges of securities of companies holding them).                                                                

The borrowings are valued after their initial recognition at cost, amortised based on the effective interest rate. The average interest rate on debt of the consolidated debt of Covivio Hotels at 30 June was 2.32% (versus 2.43% at 31 December 2023). 

Collateralised fixed assets represented 54.4% of total fixed assets. This collateral is provided for the same term as the underlying financing.

Breakdown of borrowings at their par value according to the time left to maturity and by interest-rate type:

Commercial paper                                                    309 000           309 000                                           0                    0

                                                                            309 000           309 000                                           0

                                                                         2 879 695           410 883                                                                  

2.2.5.12.4. Bonds

The characteristic features of bonds are as follows:

Features

The bond debt in the consolidated financial statements stood at €1,449 million at 30 June 2024. 

The fair value of these bonds at 30 June 2024 was €1,351.8 million compared with €858.3 million at 31

December 2023, after the new €500 million bond issue in May 2024. 

The difference between the net book value and the fair value of fixed-rate debt (valued at the risk-free rate, excluding loan spreads) was -€97.2 million at 30 June 2024. The impact of the loan spread would be +€6.8 million.

2.2.5.12.5. Derivatives

Derivative financial instruments consist mainly of rate hedging instruments put in place as part of the Group’s interest rate hedging policy. These derivative instruments are recognised at their fair value and changes are recorded in the income statement, as they are not eligible for hedge accounting under IFRS 9.

In accordance with IFRS 13, the fair values include the counterparty default risk (CDA/DVA) for -€4.0 million as at 30 June 2024 compared with -€3.6 million as at 31 December 2023.

The “Unrealised gains and losses relating to changes in fair value” line in the Statement of Cash Flows (€41.6 million), which makes it possible to calculate cash flows from operating activities, incorporates the impact of changes in the value of cash instruments (-€20.7 million) and the change in the value of Investment Properties (-€20.9 million).

The -€8.2 million impact on shareholders’ equity corresponds to the change over the period in the exchange rate on cross-currency swaps used to hedge our UK investments.

Breakdown of hedging instruments by maturity of notional values: