Covivio - 2023 annual results: Ahead of targets and continued growth in recurring earnings

Paris, 15 February 2024, 6.30 p.m.

2023 annual results

Ahead of targets and continued growth in recurring earnings

“In a real estate market impacted by rising interest rates, Covivio has adapted quickly, notably through €720 million in new disposal agreements. Meanwhile, recurring net income rose, driven by asset management transactions and a +6.4% increase in like-forlike revenues. In 2024, we will maintain our financial discipline while pursuing growth in recurring results.” Christophe Kullmann, Covivio Chief Executive Officer

Strong operational performances 

►       Hotels: negotiations with AccorInvest for a value-creating swap to consolidate OpCos and PropCos 

►       Offices: almost 131,000 m² let or renewed and occupancy increased to 94.5%

►      Residential: accelerating rental reversion of +21% (+31% in Berlin)

►      Occupancy rate (96.7%) and average firm lease duration (7 years) maintained at high levels

+6.4% growth in like-for-like revenues 

►             Consolidated revenues of €1 billion (€648 million Group share), +2.4% on a reported basis and +6.4% like-for-like  ► Offices: like-for-like rental growth of +5.2%

►      Hotels: like-for-like growth of +12.7% (+9% on fixed rents and +19% on variable revenues)

A quality and stronger balance sheet

►      Ahead of disposal target: €720 million in new disposal agreements in 2023

►      Net debt reduced by almost €700 million 

►       Liquidity doubled to €2.4 billion, covering debt expiries until Q1 2026

►       LTV kept under control at 40.8%, despite a -10% decline in like-for-like values

Recurring net income up +1% in 2023 despite deleveraging

►      Recurring net income (adjusted EPRA Earnings) up +1% at €435 million (€4.47 per share) vs. first guidance of €410 million

►       EPRA NTA (net tangible assets) down by -21% year-on-year to €84.1 per share, impacted by property values 

ESG strategy: new progress in indicators, customer satisfaction and ratings 

►      95.3% of our portfolio is certified, with 67% of the office portfolio certified HQE/BREEAM Very Good or above

►      Increase in the proportion of debt linked to ESG objectives to 57% from 38% at end-2022  

►          Strategy acclaimed by our clients and praised by agencies, with our CDP rating upgraded to “A” in February 2024 2024 outlook

Adjusted EPRA Earnings and EPRA NTA, NDV and NRV are Alternative Performance Indicators as defined by the AMF and are detailed in Sections 3. Financial information, 5. EPRA reporting and 7. Glossary of this document. The audit procedures on the consolidated financial statements have been completed. The certification report will be issued after the specific verifications.

Main operational and financial KPIs 

* Adjusted EPRA Earnings

Covivio: a diversified and continuously improving portfolio  

Covivio holds assets worth €23.1 billion (Group share €15.1 billion) in Europe, which it manages in accordance with three strategic pillars:

1.     Central locations in European capitals and the main business and leisure hubs, notably Paris, Berlin and Milan. As a result, 94% of its assets are located in central locations^[1], while 99% are within a five-minute walk of public transport.

2.     An innovative, scalable hospitality approach inspired by hotel expertise to support the transformation of cities and meet changing user expectations. This is reflected in a strengthened operator approach, a bold service policy and customer relationship, alongside a strong flexible offer.

3.     Sustainable development, where Covivio acts as an operator committed to climate transition to create a positive and lasting impact on cities. This objective is illustrated by a bold carbon trajectory (40% reduction in emissions between 2010 and 2030) that has been praised by the main rating agencies. 

The portfolio breaks down as follows: 52% (down 3 percentage points year on year) offices in France, Italy and Germany, of which 69% in city centres and 25% in the Major Business Hubs; 31% (up 1 pp) residential property, mainly in Berlin and large cities in North Rhine-Westphalia; and 17% (up 2 pp) hotels in major European tourist destinations (Paris, Berlin, Rome, Madrid, Barcelona, London, etc.), leased to or managed by leading operators, including Accor, IHG, Marriott, B&B, NH Hotel Group, etc.

Strong operational performances 

Hotels: major new operations in a buoyant hotel market 

Hotel performances remained highly dynamic in 2023. On average in Europe, RevPAR was +16% higher than in 2019 (and +18% higher than in 2022), driven by a +23% increase in average daily rates (ADR), while occupancy improved (up 5.1 pp vs 2022; down 3.6 pp vs 2019). Covivio’s main geographies outperformed, with RevPAR growth of +32% in Italy, +22% in France, +20% in the United Kingdom and +18% in Spain. 

In this context, Covivio continued its asset and brand management strategy to optimise its profitability and guarantee a hotel offer increasingly aligned with user expectations. 

In November 2023, the Group entered into exclusive negotiations with AccorInvest with a view to consolidating their hotel properties and business assets. Through its subsidiary Covivio Hotels,^[2] Covivio owns 54 hotels that are let to AccorInvest under long-term variable rent leases based on revenues. AccorInvest owns the business assets of these hotels and has signed long-term management contracts with the Accor Group. The consolidation would take the form of an exchange of business assets currently held by AccorInvest for hotel properties owned by Covivio. Following this transaction, Covivio would own 24 hotel operating properties and AccorInvest would own 10.  

The agreed value of the properties transferred to AccorInvest is approximately €92 million^[3] (5% yield) and the agreed value of the business assets acquired by Covivio is approximately €114 million⁴ (12% yield). The transaction, which will be accretive for Covivio from the first year (€9 million in additional revenues for a cash outflow of €22 million, Group share), will also enable the performance of these hotels to be optimised over time. Highly profitable Capex programmes (returns above +20%) are therefore expected, offering the prospect of earnings growth and value creation.

Asset management momentum also continued in other parts of the portfolio:

-       In the fixed-rent portfolio, Covivio signed new 15-year leases with Melia on 3 hotels in Spain (Barcelona, Valencia and Malaga) with an increase in fixed rents of around +30% and a return on investment (€15 million at 100%, €6 million Group share) of around 9%. In the second half, a 9-year lease extension was also signed with NH Hotel Group for a hotel in Madrid, with a +15% increase in rent;

-       Capex programmes totalling almost €70 million at 100% (€30 million Group share) have been launched for properties owned by the Group, with a target return of over 15%. During the year, work was carried out at the Westin Grand Berlin to renovate the communal areas (lobby, bar, restaurant, meeting rooms) and at two hotels in Bruges to renovate rooms and communal areas, create management synergies and improve energy performances. 

Offices: strong letting momentum and greater centrality  

In a polarised rental market where demand is concentrated on the most central buildings offering the best environmental and service performance (80% of demand in Milan is on Grade A buildings), Covivio is reaping the rewards of its upscale positioning. Nearly 131,000 m² of new lettings and renewals were signed in 2023, including 40,700 m² in the fourth quarter alone. The occupancy rate, which had fallen to 92.2% at the end of March 2023 following two property deliveries and the departure of a tenant, has since recovered strongly, gaining +230 bps to reach 94.5% at the end of the year (+10 bps vs. 2022). 

These successes are illustrated by the acceleration in the letting of recently delivered buildings. This is the case for So Pop in Paris/Saint-Ouen, with 11,600 m² let, bringing the occupancy rate from 36% at end 2022 to 71% today. Leases for 11,700 m² have also been signed for Maslö in Levallois-Perret, which is now 87% let (vs. 28% end2022). Covivio has also let 7,700 m² in the Urban Garden building in Issy-les-Moulineaux, which was vacated in

Q1 2023 and is already 70% re-let. In Châtillon, 2,450 m² have been let in the IRO building, bringing the occupancy

rate to 64% (vs 57% at end 2022), while 5,800 m² have been let in the CB21 tower in La Défense, which is now fully let (vs 93% at end 2022). In Germany, 9,200 m² have been let in Zeughaus building in Hamburg, now let at 96% (vs 82% end-2022). 

Meanwhile, Covivio has continued to take advantage of high rental reversion potential on its city centre properties, at +12% on average in 2023, including in Lyon (+14% in Silex² for 2,300 m²) and Milan (+23% for a total of 4,800 m² in the Via Messina and Via Amedei buildings). 

Rental momentum is buoyant in France and Italy (84% of the office portfolio). In Germany, first letting successes were recorded in 2023: the 16,488 m² of new lettings and 47,426 m² of lease renewals helped to increase the occupancy rate by +1.3 percentage points and capture positive rental reversion of +5%. However, the occupancy rate, currently 86.4%, remains impacted by the economic recession and 18% non-core asset segment. In order to accelerate performances improvement, a new asset management team has been appointed, led by Alexei Dal Pastro, CEO Italy of Covivio, now also in charge of German offices. Building on the success of the portfolio repositioning in Italy, Alexei Dal Pastro will bring his in-depth product knowledge and proven management experience.

Finally, Covivio continues to refocus and extract value from its assets. Two former call centers vacated by

Orange are to be redeveloped, with total capex of €135 million for an average marginal return of 6.5%: Grands Boulevards (7,500 m², delivery 2027) and Monceau (11,200 m², delivery 2025). Both projects are located in the Paris CBD, where there is a shortage of quality office space, with a vacancy rate of 2.7% at end 2023 and prime rents of

€1,070/m², up +7% year on year. 

Germany Residential: rising portfolio quality and value extraction amid ongoing housing shortage

The imbalance between supply and demand for residential property widened further in 2023. The population has risen again to over 84 million, while new construction and building permits continued to fall, well short of the government’s target of 400,000 new homes a year. Berlin, for example, is experiencing an acute housing shortage and market rents rose sharply again over the previous year, up 6% for existing flats (to €12.9 per m²) and 9% for new flats (to €19.4 per m²). 

Against this backdrop, Covivio continued to carry out asset management transactions during the year:

-       Capturing rental reversion: the re-letting of around 3,300 leases resulted in positive rental reversion averaging 21% in 2023, and 31% in Berlin; 

-       Continuing to invest in modernisation programmes to improve the quality of the portfolio and reduce energy consumption. €78 million (Group share €50 million) was invested in 2023, with a return of between 5% and 10%;

-       Adding value. Covivio delivered over 227 new housing units (at a cost of €66 million; Group share €44 million) on lands adjoining its buildings or through rooftop extensions. Located in Berlin, these projects have an average rental yield of 5.0% and an average selling price 23% above appraisal values (average sale price

€5,100 per m²). The Group also continued its unit sales programme, with almost 128 units sold for €53 million (Group share €35 million) at an average price of €5,200 per m², 46% above appraisal values. 

A quality and stronger balance sheet

Ahead of disposal program: €720 million in new disposal agreements signed in 2023

In a sluggish investment market, Covivio signed disposal commitments totalling €900 million at 100% (Group share €720 million), at an average of 7.5% below end-2022 appraisal values and an average yield of 4.2%. Covivio is thus ahead of its €1.5Bn disposal program by end-2024, communicated in December 2022, with roughly €920M (61%) already secured.  

Most disposals (77%; Group share €551 million) were office assets, with the aim of rebalancing the portfolio and crystallising value. Covivio notably sold the Anjou building for a yield of 3.5%. An office complex on the outskirts of Montpellier was sold for €78 million, representing a yield of 6.6%. Covivio has also signed a preliminary sale agreement on a vacated non-core office building in Charenton, for €49 million. 

In Germany Residential, the quality of the portfolio enabled us to secure €80 million (€120 million at 100%) in disposal agreements, mainly in Berlin, at an average margin of 16% above appraisal values: €35 million (€53 million at 100%) in unit sales (46% above appraisal values) and €44 million (€67 million at 100%) for four properties sold as a block (in line with 2022 appraisal values). 

In hotels, €65 million (€152 million at 100%) of disposals were signed, mainly involving non-core assets: 10 budget and mid-range hotels in France and 2 business hotels in Spain, +2% above end-2022 appraisal values. 

Finally, Covivio streamlined its non-core portfolio by signing preliminary sale agreements for €24 million (€54 million at 100%) of retail assets. 

Liquidity doubled, covering debt payments until Q1 2026

In 2023, Covivio secured more than €1.9 billion in financing or refinancing (Group share €1.7 billion), 86% of which was ESG-related, with an average maturity of 7 years. With its diversified debt, Covivio was active on both banking and bond markets. 

It secured €735 million in ESG-compliant corporate credit facilities with an average maturity of over 6 years, plus

€495 million in mortgage financing. On the bond market, besides increasing two existing issuances by €99 million each, Covivio issued in November 2023 a €500 million green bond maturing in 2032, at a spread of 168 bps. The issue was largely swapped into floating rates, to take advantage of the Group’s robust hedging position, and has contributed towards extending the Group’s debt maturity.

As a result of our deleveraging and financing) efforts, the Group’s net available cash doubled over the year to €2.4 billion at the end of 2023. This liquidity will be complemented by nearly €300 million (Group share) under preliminary sale agreements to be received in the coming months.

Solid debt indicators

Covivio’s sound balance sheet is reflected in a BBB+ rating and stable outlook from S&P. Disposals during the year helped reduce net debt by almost €700 million year on year to €6.9 billion. This deleveraging enabled to contain the loan-to-value ratio (LTV) at 40.8%, despite the decline in appraisal values. The net debt to EBITDA ratio fell sharply to 12.8x (vs 14.5x at end-2022), while the interest coverage ratio (ICR) remained high at 6.4x.

Debt has an average maturity of 4.9 years (vs 4.8 years at end-2022) and is largely protected against rising interest rates: hedging ratio of 92% and average hedging instrument maturity of 5.9 years. As such, despite the spike in market interest rates, the average interest rate of Covivio’s debt remained under control at 1.50%, vs 1.24% at end2022. 

Revenues up +6.4% on a like-for-like basis

In 2023, rental income increased to €1,011 million (€648 million Group share), up +2% year on year on a reported basis: the decline in office income due to disposals was more than offset by the acceleration in indexation, the recovery of the hotel business and solid growth in Germany Residential.On a like-for-like basis, revenues grew by +6.4%, driven by indexation (3.5 pp), higher rents on re-lettings and lease renewals (0.6 pp) and variable hotel revenues (2.3 pp).

In offices, rental income fell -3.2% following asset disposals in 2022 and 2023, but was up +5.2% on a like-for-like basis, boosted by indexation and dynamic letting activity in all geographies: +4.0% in France, +6.4% in Italy and +6.5% in Germany. 

Hotel revenues continued to benefit from strong business in 2023, with like-for-like growth of +12.7%. This performance is based mainly on the continued rebound of variable revenue (43% of the hotel portfolio) comprising variable rents with AccorInvest (+19%, driven by the solid performance of the Paris assets) and revenue from operating properties (+19% as well, marked by strong growth in France and gradual recovery in Germany). On assets under fixed leases (57% of the hotel portfolio), like-for-like rents also increased by 9%, driven by indexation (+3.1%), asset management operations (+5.7%).

In Germany Residential, like-for-like rental growth accelerated to +3.9% in 2023 (vs +3.1% in 2022), across all geographies: Hamburg (+4.4%), Berlin (+4.0%), North Rhine-Westphalia (+3.9%), and Dresden and Leipzig (+2.9%). This increase is attributable to indexation (1.7 pp), home modernization programmes (1.3 pp) and re-lettings with a high reversion rate (1 pp). The occupancy rate remains at 99.1%, reflecting the quality and attractiveness of the portfolio, which is located mainly in city centres. 

The average portfolio occupancy rate remains high at 96.7% (vs. 96.6% end-2022), in line with the 10-year average, while the average firm lease duration is almost 7 years. 

Asset values were down -10% year on year in a slowing market 

Faced with the new interest rate environment, the property investment market slowed across most asset classes in 2023, with transactions mainly being carried out by equity investors and end users. According to CBRE figures, volumes across all asset classes were down 47% at €163 billion in Europe in 2023. The sharp rise in capitalisation rates has materialised as 2023 progressed, allowing the property risk premium to return close to its 20-year average (170 bp). In the Paris CBD, the prime office yield is 100 bp higher than a year ago at 4.25%, while the risk premium over the 10-year OAT French government bond is close to 155 bp. 

Against this backdrop, Covivio’s asset values contracted by 10.2% on a like-for-like basis. At the end of 2023, the portfolio was valued at €23.1 billion at 100% (Group share €15.1 billion).  

Office property values fell by -11.7% on a like-for-like basis, with wide variations depending on asset centrality. City centre assets, which represent 69% of the portfolio, fell by 8% and now yield 4.8%. Assets located in the heart of the major business hubs fell by 18% and now yield 6.5%. Finally, the non-core category (6% of office assets), located on city outskirts and directly affected by structural changes in working patterns, recorded the largest fall in value (-21%).

Germany Residential sales were down -10.8% on a like-for-like basis, with a decelerated decline in values in the second half (-7.3% in the first half and -3.7% in the second). The average value of residential assets is €2,461 per m², with €3,052 per m² in Berlin and €1,826 per m² in North Rhine-Westphalia, and the average yield has risen 60 bp year on year to 4.1%. Assets are valued at their block value. 48% of the portfolio, worth €2.2 billion, is already coowned, particularly in Berlin (68%; €1.8 billion), where the unit sale value is 52% above the block value.

In hotels, the portfolio declined by -3.9% year on year on a like-for-like basis, with a solid operating performance largely offsetting the rise in yields (+50 bps year on year). Operating properties outperformed slightly, down -3.7% year-on-year, compared with -4.0% for lease assets. The portfolio has an average yield of 5.9%, with a high risk premium (+300 bps over OAT). 

At the end of 2023, the average yield on Covivio’s assets was 5.1%, up 70 bps on the previous year. 

Recurring net income growth while accelerating deleveraging

Recurring net income of €435 million, up 1% year on year 

Despite the disposal programme and the increase in the average cost of debt, the strong operating performance and lower operating costs enabled recurring net income (adjusted EPRA Earnings) to increase by 1.2% year on year to €435.4 million (-2.5% to €4.47 per share due to the increase in the average number of shares). This result is 6% above the initial guidance (€410 million) and 4% higher than the revised guidance (€420 million).

Covivio’s net income totalled -€1.4 billion, impacted by the decline in values.

EPRA NTA was €84.1 per share, down 21% year on year 

Adjustments to asset values are reflected in the change in net tangible asset value (EPRA NTA), which was down 21% year on year at €84.1 per share (or €8,470 million). Net disposal Value (EPRA NDV) was down 23% at €83.4 per share (or €8,401 million). Lastly, EPRA NRV (net reinstatement value) was €9,327 million and €92.6 per share.  

ESG: new progress in indicators, customer satisfaction and ratings 

Steady growth to 95.3% certified assets 

Covivio has continued to increase the certification rate of its portfolio: the proportion of assets with HQE, BREEAM, LEED or equivalent certification, in operation and/or under construction, now stands at 95.3% (up +2pp vs 2022).

In addition, the proportion of office buildings with the highest levels of certification (Very Good and above) stands at 67% (up 4 percentage points vs. 2022).

This strategy of environmental enhancement on the entire portfolio is actively contributing to the achievement of the

Group’s ESG objectives, in particular its commitment to reduce its greenhouse gas emissions by 40% between 2010 and 2030 (covering Scopes 1, 2 and 3, all activities in Europe and the entire life cycle of the assets: materials, construction, refurbishment and operation).

Further improvement in customer ratings  

Keen to uphold its customer culture and continuously improve its offers, Covivio regularly conducts independent satisfaction surveys. The 2023 results are again very positive. In offices, the Kingsley Survey of 270 end users in France, Germany and Italy revealed an overall satisfaction rating of 3.9/5 (vs a benchmark of 3.6) and a property management satisfaction rating of 4/5 (vs a benchmark of 3.5).

For the sixth year running, Covivio has been awarded a Very Good rating for residential property in Germany by Focus Money magazine, following its Fairest Landlord 2024 study. The Group was one of only four companies to achieve a Very Good rating in all six categories of the study.

In hotels, the average booking.com location grade of our hotels increased by 0.1pt over the year to 8.9/10.

Agency rating upgrades 

In early February 2024, Covivio was once again recognised by the Carbon Disclosure Project (CDP) for its leadership in climate change transparency and performance, achieving an “A” rating, the highest possible. Covivio is one of a select group of companies (1.6%) to have been awarded an “A” rating out of more than 20,000 companies assessed.

In 2023, Covivio also received higher scores from GRESB, which evaluates the ESG policies, action plans and performance of over 1,500 companies operating in the construction and real estate sectors worldwide. Covivio gained 2 points, achieving a score of 90/100 in the Operating Assets category, supported notably by a maximum score of 100% in the Management section and 97/100 in the Development section. The Group has thus retained its 5-star status. 

2024 outlook

In a challenging 2023 real estate market, Covivio is ahead of targets. Balance sheet has been strengthened and strong operational performance has enabled a slight growth in net recurring result, proving the relevance of the Group’s positioning and strategy. In 2024, in a backdrop of expected interest rates decline in Europe and rebuilt risk premium, Covivio is preparing for the rebound. Thus, the Group sets two main targets for 2024: maintain financial discipline and pursue growth in net recurring result. 

Maintain financial discipline 

Proposed dividend of €3.30 per share, with the option of payment in shares

In this context, Covivio will propose to the Annual General Meeting on 17 April 2024 to pay a dividend of €3.30 per share (vs. €3.75 in 2023), with the option of payment in shares. Most of the institutional shareholders on Covivio’s Board of Directors (representing 43% of the capital) have already agreed to opt for the dividend payment in shares. These decisions will enable to keep between €185 million and €375 million.

Disposal target of €580 million by 2024

Covivio aims to dispose of €1.5 billion in assets between December 2022 and the end of 2024. 

At the end of 2023, €920 million in disposal agreements had been signed, thanks to the diversity and quality of our portfolio, which allows us to target a broad spectrum of potential investors: institutional investors, end users, private individuals and hotel operators. 

In 2024, Covivio now aims to finalise its disposal plan, with a target of €580 million, of which €250 million under advanced negotiations. 

A largely refocused portfolio to capture growth opportunities 

Since 2020, Covivio has completed €2.1 billion of disposals, 80% of them in offices, and invested €1.4 billion, mainly through Capex on its assets. This qualitative rotation process has enabled to refocus the portfolio and adapt to changes in the rental market:

-       The portfolio has started to rebalance, with the proportion of offices moving from 60% at the end of 2020 to 52% at the end of 2023.

-       69% of offices are located in city centres, up from 59% at the end of 2020. The remainder now consists mainly of core assets in major business hubs, 93% let with a 6.1 years firm lease maturity. With the rental market becoming increasingly polarised, Covivio’s upscale positioning (centrality, high environmental performance, strong service offering) is paying off, as demonstrated by activity in 2023. 

-       Germany Residential now accounts for 31% of the portfolio and benefits from exposure to the locations most sought after by tenants. The supply/demand imbalance keeps on increasing. In Berlin in particular, where the housing shortage is most acute, a further update of the market indices (Mietspiegel rent index) is expected in Q2 2024 and should help to bolster letting momentum. Covivio can also rely on rents

20% to 25% below regulated rents. Moreover, the average property value of €3,052 per m² in Berlin still reflects a significant reserve of value, as 68% of the assets are divided into co-ownerships and the average selling price in the market is €4,700 per m².

-       The strengthening of the hotel portfolio, which represents 17% of the portfolio, has been accompanied by a refocusing on the best locations. Meanwhile, the sector has once again demonstrated its ability to outperform inflation (average annual RevPAR growth of 3.4% from 2009 to 2023, compared with average inflation of 2.2%). The outlook is favourable, with annual growth in overnight stays in hotels expected to average 5% between 2023 and 2030 in Europe,^[4] underpinned by the more pronounced return of international customers. Business is expected to be buoyant again in 2024, driven notably by major events (2024 Olympic Games in Paris, Euro Football Championship in Germany). 2024 will also see the completion of the asset swap with AccorInvest, which will boost profitability.

Guidance of growing 2024 recurring net income 

Thanks to this qualitative repositioning, Covivio has a bright letting outlook, which should help to offset the impact of deleveraging on earnings, as it did in 2023. Covivio is therefore targeting a continued growth in recurring net income (adjusted EPRA Earnings), to around €440 million in 2024.

The Group also aims to return to a full cash dividend for 2024, with a payout ratio above 80%.

AGENDA

 CONTACTS  

                                  Press Relations                                                 Investor Relations

                                Géraldine Lemoine                                                   Vladimir Minot

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

Louise-Marie Guinet

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

 ABOUT COVIVIO

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

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

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

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

Covivio’s shares are listed in the Euronext Paris A compartment (FR0000064578 - COV), are admitted to trading on the SRD, and are included in the composition of the MSCI, SBF 120, Euronext IEIF “SIIC France” and CAC Mid100 indices, in the “EPRA” and “GPR 250” benchmark European real estate indices, and in the ESG FTSE4 Good, CAC SBT 1.5°C, DJSI World & Europe, Euronext Vigeo (World 120, Eurozone 120, Europe 120 and France 20), Euronext® CDP Environment France EW, ISS ESG, Ethibel and Gaïa ethical indices and also holds the following awards and ratings: CDP (A), GRESB (90/100, 5-Star, 100% public disclosure), Vigeo-Eiris (A1+), ISS-ESG (B-) and MSCI (AAA).

Notations solicited:

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

Extra-financial part:       A1+ by V.E (part of Moody’s ESG Solutions) / 85/100 by S&P

1.  BUSINESS ANALYSIS                12

2.  BUSINESS ANALYSIS BY SEGMENT         20

A. OFFICES               20 B. GERMAN RESIDENTIAL                29 C. HOTELS              35

3.  FINANCIAL INFORMATION                 40

4.  FINANCIAL RESOURCES                   49

5.  EPRA REPORTING          54

6.  FINANCIAL INDICATORS                    64

7.  GLOSSARY              65

1. BUSINESS ANALYSIS

A. REVENUES: €1,011 MILLION AND €648 MILLION GROUP SHARE IN 2023

1: Like-for-like change on 12 months basis || 2: Operating Properties (EBITDA)

Group share revenues, up +2.4% at current scope, stand at €648.0 million vs. €633.0 million in 2022, due to:

„  The revenues of strategic activities increase by +6.4% on like-for-like basis due to:

o Office: +5.2% like-for-like, driven by indexation; o Hotels: like-for-like revenue increased by +12.7% due to the strong rebound in variable revenues (EBITDA

+ variable leases) of +19% and a +8.8% like-for-like growth for fixed lease properties (including UK); o      German Residential: an accelerated growth of +3.9% like-for-like (vs. +3.1% in 2022).

„  Deliveries of new assets (+€17 million), in Levallois, Berlin and Paris 1^st ring. 

„  Asset disposals (-€28 million), mostly offices in France (-€13 million) and Italy (-€13 million);

„  Vacated assets for redevelopment (-€14 million), mainly in Paris Centre West, Western Crescent and first

                         Ring.                                                 

B. LEASE EXPIRIES AND OCCUPANCY RATES 

1. Lease expiries: average firm residual duration of 7.0 years 

Average lease duration by activity 

                                                      By lease end date                                By lease end date

(1st break)

Lease expiries schedule

In 2024, lease expiries with first break options represent €40 million, of which €25 million are already managed (€5 million of hotels and €20 million of core offices). Only €14.7 million (2.1% of Annualized revenue) are still to be managed in offices, mostly on core assets for which tenant decision is not known yet.   

2. Occupancy rate: 96.7% secured, +0.1pt vs. 2022

                                                                      Occupancy rate (%)

The occupancy rate increased slightly to 96.7% for the whole portfolio. Offices occupancy, temporarily impacted in Q1 2023 by two deliveries and one departure in Greater Paris, rebounded by +230bps since then, to end the year at 94.5% (+10bps yoy). 

C. BREAKDOWN OF ANNUALIZED REVENUES

                                         By major tenants                                                                  By activity

7%

D. STABLE COST TO REVENUE RATIO 

E. DISPOSALS: €720M OF NEW AGREEMENTS IN 2023 

1: GS: Group share

New disposals and agreements totaled €720 million Group share (€900 million at 100%) in 2023. Covivio maintained its strategy of qualitative asset rotation. In details, the disposal agreements include:

Most disposals (77%; €551 million Group share) were office and conversion into residential assets, with the aim of rebalancing the portfolio and crystallising value. Covivio notably sold the Anjou building for a yield of 3.5%. An office complex on the outskirts of Montpellier was sold for €78 million, representing a yield of 6.6%. Covivio has also signed a preliminary sale agreement on a vacated non-core office building in Charenton,for €49 million. 

In Germany Residential, the quality of the portfolio enabled us to secure €80 million (€120 million at 100%) in disposal agreements, mainly in Berlin, at 16% average margin above appraisal values: €35 million (€53 million at 100%) in unit sales (46% above appraisal values) and €44 million (€67 million at 100%) for four properties sold as a block (in line with 2022 appraisal values). 

In hotels, €65 million (€152 million at 100%) of disposals were signed, mainly involving non-core assets: 10 budget hotels in France and 2 business hotels in Spain, +2% above end-2022 appraisal values. 

Finally, Covivio streamlined its non-core portfolio by signing preliminary sale agreements for €24 million (€54 million at 100%) of retail assets. 

F. INVESTMENTS:  €340M (GROUP SHARE REALIZED IN 2023 

€340 million Group share (€412 million at 100%) of capex were realized in 2023 (vs €452 million Group share in 2022), to improve the quality of our portfolio and create value: 

„  Capex in the development pipeline totaled €222 million Group share (€239 million at 100%),

„  €118 million Group share (€174 million at 100%) relate to works on the operating portfolio of which €76 million in German residential of which 2/3 modernization, generating revenues. 

G. DEVELOPMENT PROJECTS:

1. Deliveries: 68,550m² of offices delivered in 2023

Five offices projects were delivered in 2023 in the Greater Paris and in Berlin:

„  Maslo in Levallois (€216 million total cost & 20,800 m²), 87% let vs 28% at end-2022;

„  DS Campus Extension in Vélizy-Villacoublay (€67 million cost Group Share & 27,500 m²), 100% let to Dassault Systèmes;

„  L’Atelier in Paris (€102 million total cost & 5,850 m²), operated by Wellio;

„  Beagle in Berlin (€16 million total cost & 5,100 m²), 100% let;

„  Xylo in Fontenay-sous-Bois (€33 million total cost & 9,300 m²), 0% let.

2. Committed Office Pipeline: €1.7 bn Group share, 53% pre-let 

Covivio has a €1.7bn Group share pipeline of office buildings in France, Germany, and Italy, the bulk of it (85%) in the city centers of Paris, Milan and Berlin, where demand for prime assets is high. This pipeline is highly pre-let (53%) and will participate to the continued improvement of the portfolio quality towards centrality & grade A buildings.  

„  Two projects were committed in 2023: Grands Boulevards and Monceau, both in Paris CBD, for €135 million of capex and a yield on capex of 6.5% (total yield on cost of 4.5%).

„  The pipeline at end-December 2023 is composed of 10 projects (costs in Group share):

                                                                                                 €833m

                                             Next 12 month                                            Beyond 12-month

                                3 projects in Milan (The Sign D,        7 projects in Paris (Grands Boulevards,

                             Rozzano) and Berlin (Loft)               Monceau), 1^st ring (Thalès 2), Milan (Corte

Italia, Symbiosis G+H), Düsseldorf (Icon)and  

Capex still to be spent on the committed development pipeline reaches on average €170 million per year by 2027.

47%

1. Business analysis - Group share 

2023 results

¹  Surface at 100%

²  Including land and financial costs

³  Yield on total rents 

17

1. Business analysis

3. Build-to-sell pipeline 

Total 

                                                                                                                             Total                               ₁

                                                                                                                                    1                         Budget                   Pre-sold

     Committed projects                                                      Units                 Budget  

_(€m, 100%)                      (€m, Group   (%) share)

     Berlin (1 project)                                                                  92                            28                           18                          0%

                                                                                                                                 42                           42                        83%

                                                                                                                                 20                           20                      100%

     Berlin (2 projects)                                                               117                            83                           55                          0%

                                                                                                                                 68                           34                        86%

                                                                                                                                 17                           17                      100%

¹ Including land and financial costs

„  Seven projects were delivered in 2023, for a total budget of €74 million (€86 million at 100%), with a 9% margin.

„  At the end of 2023, the German pipeline is composed of 3 projects located in Berlin, where housing shortage is the highest in Germany, totaling 209 residential units and a total cost of €73 million Group share.

„  The current French pipeline is composed of 6 projects located mainly in the Greater Paris and Bordeaux, representing 804 residential units, a total cost of €152 million Group Share. 91% of the projects are already presold. 

„  The total margin of the committed pipeline reaches 9%.

4. Managed Pipeline

In the long-term, Covivio also owns more than 322,000 m² of landbanks that could welcome new development projects:

-               in Paris, Greater Paris and Major French Cities (209,000 m²) mainly for turnkey developments; -    in Milan with Symbiosis (23,000 m²) and Porta Romana (76,000 m²); -     and approximately 14,000 m² in Germany, mostly in Berlin.

H. PORTFOLIO

Portfolio value: -10.2% like-for-like change 

¹ LfL: Like-for-Like                                                                                                                                                                             

                                                                                                                                                                         18

1. Business analysis

The portfolio decreased by -10.2% like-for-like (-€1 771 million) to reach €15.1 billion Group share (€23.1 billion in 100%) mostly due to: 

„  Overall in offices, asset values were down -11.7% on a like-for-like basis, with substantial disparities between the relative resilience of city centre assets (69% of the portfolio), down -8.1%, and the more pronounced fall of -20.9% in the non-core category (6% of the office portfolio);

„  Germany Residential recorded a -10.8% decrease on a like-for-like basis, across all geographies and an average yield up from 3.5% to 4.1% (+49bps like-for-like increase in capitalization rates); Assets are valued at their block value. 48% of the portfolio, worth €2.2 billion, is already co-owned, particularly in Berlin (68%; €1.8 billion), where the unit sale value is 52% above the block value.

„  In Hotels, portfolio showed better resilience (-3.9%), with an average yield increasing from 5% to 5.9%, mostly driven by the indexation (+45bps) and the increase in capitalization rates (+20bps like-for-like), offset by good operating performance. 

Geographical breakdown of the portfolio in 2023

I. LIST OF MAIN ASSETS

The value of the ten main assets represents 15% of the portfolio Group share, stable vs end 2022.

2. BUSINESS ANALYSIS BY SEGMENT 

A. OFFICES: 52% OF COVIVIO’S PORTFOLIO

Covivio has implemented a strategy based on centrality, hospitality, and sustainability. This global strategy is particularly reflected in its office portfolio, characterized by high levels of centrality and accessibility, A-quality and toplevel services offer. This strategy is bearing fruits, as illustrated by the increase in occupancy rate in 2023, +10bps to 94.5%. 

Covivio owns offices in France (27% of Covivio’s portfolio), Italy (17%), and Germany (8%) totalling €9.4 billion (€7.8 billion Group share) at end-December 2023. 

Covivio's portfolio is split as follows:

conversion into residential strategy. 

1. European office market: confirmed polarization, slowdown in investments¹

        1.1.      French offices: continued rise of prime rents 

Take-up in Greater Paris office market reached 1 932 100 m² in 2023, down -17% year-on-year: 

► Paris Centre West continued to outperform, with take-up declining by -12% year-on-year to 573,700m² 

► Paris inner city counted for 46% of the total take-up in Greater Paris (vs. 40% on average over the last 5 years).

The immediate offer increased by +10.2% YoY to 4.8 million m² and the vacancy rate now stands at 8.4%, up by +70bps year-on-year, but with strong disparities: 

► In Paris CBD, vacancies decreased by 10bps to 2.7%.

► In the first ring, the vacancy rate remains at high levels, increasing by 290bps to 15.4%

Prime rents in Paris continued to increase, reaching an all-time high of €1,070/m²/year (+7% vs. 2022), while remaining stable in other areas. Incentives in Greater Paris increased slightly to 25.4%, up +80bps YoY, with strong disparities across sub-markets: 

► Slight increase in Paris CBD, +20bps at 15.9%

► Higher increase in La Défense, +200bps at 35.9%

¹ Sources: CBRE, Cushman & Wakefield, Savills, BNP Real Estate 

                                                                                                                                                                         20

Office investments in Greater Paris totaled €4.7 billion over 2023, down –56% YoY. Prime yields increased over the year, +100bps in Paris CBD to 4.25%.

        1.2.      Milan offices: still a dynamic letting market 

The Milan office market recorded a total take-up of 412 000 m² (-15% year-on-year but still +8% above 5-year average) after a record year in 2022. Demand remained focused on buildings in prime locations, offering good level of services, as demonstrated by the level of grade A/A+ properties, which now count for 80% of the total take-up in Milan. 

The average vacancy rate in Milan decreased by -50bps YoY, to +11.1% at end-2023, with strong disparity between the centre (where most of Covivio’s portfolio is located) and the periphery: 

► In Milan CBD, the vacancy rate stood at 5.9%, a slight increase of +40bps over one year, and decreased by 1pt to 3.4% in the semi-centre 

► In the periphery, the vacancy rate increased by 80bps to 17.5%.

The intense demand for high-quality spaces, combined with the scarcity of grade A assets, contributed to the stabilisation of prime rents in Milan at €700/m²/year.

With a total amount of €1.1 billion invested (-78% YoY), €0.73 billion for Milan (-79.9% YoY), the Italian office investment market was limited in 2023. Prime yields now stand at 4.25% in Milan CBD (+50bps YoY) and 4.75% in Milan Centre (+50bps YoY).

        1.3.      Germany offices: -26% in take-up, but prime rents up +6% yoy 

Take-up in Germany top six markets in 2023 decreased by 26% year-on-year to 2,233,600 m², impacted by economic slowdown and working from home impact.  

Vacancy rates reached 5.6% on average, up +80 bps YoY. Berlin (4.4%) and Hamburg (3.9%) recorded the lowest vacancy rates, followed by Munich at 5.5%, while in Frankfurt and Dusseldorf vacancy levels remained higher, respectively at 9.7% and 8.2%. 

Prime rents grew on average by +7.4% across 2023, with varying performances: Strong growth in Düsseldorf (+19%), while Munich (+9%) and Berlin (+4%) also experienced decent growth. In Hamburg, prime rents stabilized in 2023, while Frankfurt suffered negative growth (-6%).

Investment volume in German Offices declined by -79% YoY in 2023 to €4.6 billion. Prime yields now stand at 4.4% on average for the top 6 cities in Germany, up +100bps YoY. 

2. Accounted revenues: +5.2% on a Like-for-Like basis

                                                                100%                                                   Group share                            

1 LfL: Like-for-Like

Compared to last year, rental income decreased by -€10.6 million, mainly due to: 

„  Like-for-Like rental growth (+€14.7 million) of +5.2%, mostly driven by the impact of strong indexation:

„  Disposals (-€26.4 million) realized in 2022 (-€14.9 million) and in 2023 (-€11.5 million),

„  Positive contribution from office pipeline (+€1.7 million), the impact of vacated assets to be redeveloped 

(-€13.9 million), being offset by deliveries of new assets (+€15.6 million), shared between 2022 deliveries (So Pop, Streambuilding, Goujon) and 2023 deliveries (Maslö, DS Campus, Beagle).

3. Annualized revenue

                                                                                    100%                                                       Group share

The decrease is mainly explained by the following variations:  

„  The decrease in France (-11%) is driven by the release of premises in Western Crescent and disposals in Major Regional Cities.

„  The increase in Italy is mostly explained by the stability of the portfolio with an increased occupancy rate (98.7%) and a significant WALB (6.3 years).

„  The increase in Germany (+6%) is mostly explained by the Offices portfolio in Berlin and the delivery of Beagle in Berlin.

4. Indexation

Fixed-indexed leases are indexed to benchmark indices (ILC and ICC in France and the consumer price index for foreign assets) :

-       For current leases in France, 93% of rental income is indexed to ILAT; 5% to ICC ; The balance is indexed to ILC or the IRL.

-       In Italy, the indexation of rental income is usually calculated by applying the increase in the Consumer Price Index (CPI) on each anniversary of the signing of the agreement. 

-       Rents are indexed on the German consumer price index for 42% of leases, 10% have a fixed uplift and 32% have an indexation clause (if CPI goes above an annual increase between 5% and 10%). The remainder (16%) is not indexed and mainly let to public administration.

5. Busy rental activity: 130,860 m² renewed or let during 2023

Surface

(€ million - FY 2023)

(m²)

     Vacated                                                            112,804

     Lettings                                                              79,933

     Renewals                                                           50,927

2023 was a dynamic year for letting activity. 130,860 m² have been signed or renewed in 2023, with the main lettings shown below:

„  79,933 m² have been let or pre-let in 2023, of which:  o            11,658 m² on Levallois Maslö, now 87% let, o         11,613 m² on Paris Saint-Ouen So Pop, now 71% let.

o              7,738 m² on Atlantis in Issy-les-Moulineaux, vacated early 2023 and already 70% relet, o 7,164 m² on Paris Cap18, o               4,242 m² relet in La Défense-CB21, now 100% let, o   1,439 m² on Boulogne Grenier, now 100% let, o 4,560 m² of pre-lettings on the development portfolio (Rozzano), o 9,190 m² on Zeughaus in Hamburg, now 96% let, o     4,054 m² on FAC in Frankfurt

„  50,927 m² have been renewed, of which 47,426 m² in Germany, mainly: o 11,575 m² on FAC in Frankfurt, o      7,901 m² on CCC in Frankfurt, o       6,711 m² on Zeughaus in Hamburg, o    4,432 m² on ABC in Düsseldorf.

„  112,804 m² were vacated, mostly in France (93,267 m²) and Germany (14,309 m²) o 28 317 m² for redevelopment (€9.4 million of top up rents, Group share), 24% for new offices, 76% to be converted into residential,

_o 45,572 m² on assets to be relet, of which 19 409 m² have already been relet, o 38 915 m² on assets under disposal agreement.

6. Lease expiries and occupancy rate

6.1. Lease expiries: firm residual lease term of 5.4 years

In 2024, €34.7 million of leases will expire, of which €20 million already managed. €14.7 million are still to be managed (2.1% of Covivio annualized revenues), mostly on core assets for which tenant decision is not known yet. 

6.2. Occupancy rate: 94.5% at end 2023

„  In France, the occupancy rate decreased by -30bps to 94.1%, compared to 94.4% at end-2022, mostly due to one vacated asset (Atlantis, already 70% relet) and one delivery in Q1 2023 (Maslö, now 87% let). 

„  In Italy, the occupancy rate level increased by +30bps to 98.7%, compared to 98.4% at end-2022, due to new lettings.

„  In Germany, the occupancy rate increased by +130 bps to 86.4% vs. end-2022. This is mainly linked to lettings, especially on Zeughaus in Hamburg and on CCC in Frankfurt.  

Strong rebound in occupancy rate since Q1

7. Portfolio values

7.1. Change in portfolio values: -17.5% on offices 

The portfolio value decreased by - €1,661 million since year-end-2022 (-17.5%), mainly driven by:

„  - €1,038 million from Like-for-Like value drop (-11.7%), due to cap rate extension and repricing on assets needing repositioning,

„  + €265 million invested in development projects and upgrading works on assets in operation; „ - €716 million from disposals.

7.2. Change on a like-for-like basis: -11.7%

„ Overall, the -11.7% value decline is mostly linked to the market environment. There were strong disparities between assets in the city centers (the major part of our portfolio, 69%), down -8.1% year-on-year, Major Business Hubs down -18% and non-core assets down -20.9%.

The average yield increased by +75bps to 5.5%.

8. Assets partially owned

Partially owned assets are the following:

-    CB 21 Tower (75% owned) in La Défense.

-    The Silex 1 and 2 assets in Lyon (50.1% owned and fully consolidated).

-    So Pop project in Paris Saint-Ouen (50.1% owned and fully consolidated).

-    Streambuilding project in Paris 17^th (50% owned and fully consolidated).

-    The Dassault campuses in Vélizy (50.1% owned and fully consolidated).

-    The New Vélizy campus for Thales (50.1% owned and accounted for under the equity method).

-    Euromed Centre in Marseille (50% owned and accounted for under the equity method).

-    Coeur d’Orly in Greater Paris (50% owned and accounted for under the equity method).

     2. Business analysis - Group share German residential – 2023 results

B. GERMAN RESIDENTIAL: 31% OF COVIVIO PORTFOLIO 

Covivio operates in the German Residential segment through its 61.7% held subsidiary Covivio Immobilien. The figures presented are expressed as 100% and as Covivio Group share.

Covivio owns around ~41,100 units in Berlin, Hamburg, Dresden, Leipzig, and North Rhine-Westphalia, representing €7.2 billion (€4.7 billion Group share) of assets. 

Covivio is mostly exposed to A-cities in Germany, with a 100% exposure to metropolitan areas above 1 million inhabitants and 90% in cities above 500 000 inhabitants. Covivio targets the high-end of the housing market. 

Exposure to Berlin, where housing shortage is the highest in Germany, represents 56% at year-end 2023. Covivio’s portfolio in Berlin is of high quality, with 68% of buildings built before 1950 and 68% of the surface already divided into condominiums.

1. Supply/demand imbalance increased again in 2023, supporting rents 

„  In Germany, the demand for housing continued to rise since the start of the year, in a context of increasing number of inhabitants while building completions, around 270 000 units in 2023, remain far from the Government target (> 400 000 units / year). 

„  This shortage continues to support rents in Germany and especially in Berlin. Average rents of new buildings in Berlin increased by +9% to €19.4/m² in 2023, while for existing buildings rents increased by +6% to € 12.9/m² according to Riwis/Bulwiengesa.

„  German residential investment market (for multi-family buildings above 30 units) was down -38% in 2023 versus the prior year, to €7.5 billion. The private market was also impacted, as shown by private real estate loans recorded by the Bundesbank, decreasing -37% year-on-year to €161 billion.

„  Average prices slightly decreased yoy, by -4% for existing buildings, to €4,750/m², still well above the current valuation of Covivio’s residential portfolio (€3,052/m² in Berlin). The average square meter price for new buildings also decreased, by –2.8% to €7,000/m². 

In 2023, Covivio's activities were marked by:

„  Accelerated rental growth: +3.9% on a like-for-life basis (vs. +3.1% in 2022); and

„  -10.8% value decline on a like-for-like basis, due to the increase in interest rates.

2. Accounted rental income: +3.9% like-for-like  

of which Residential  235.0 151.7 245.1 158.2 +  4.3% +3.2%  85% of which Other com. ²  37.8 24.8 41.1 26.9 +  8.5% +8.7%  15%

1 LfL: Like-for-Like || 2 Other commercial: Ground-floor retail, car parks, etc

Rental income amounted to €185.1 million Group share in 2023, up +4.8% (+€8.5million) thanks to:

„  In Berlin, like-for-like rental growth is +4.0% (+€ 3.6 million), driven by the indexation (+2.0 pts) and relettings (+1.4 pts) with high uplift (+31% in 2023).

„  Outside Berlin, like-for-like rental growth was strong in all areas (+3.8% on average, +€3.2 million) due to the reletting impact (including modernizations) and the indexation.

3. Annualized rents: € 189.4 million Group share

¹ Other commercial: Ground-floor retail, car parks, etc || 2 North Rhine-Westphalia

The portfolio breakdown remained relatively stable over the past few periods, with Berlin generating slightly above 50% of total rental income (stable vs 2022), through residential units and some commercial units (mainly ground-floor retail).

Rental income (€8.6/m²/month on average) offers solid growth potential through reversion vs. our achieved reletting rents in all our markets including Berlin (25%-30%) Hamburg (20%-25%), Dresden and Leipzig (10%-15%) and in North RhineWestphalia (20%-25%).

4. Indexation 

Rental income from residential property in Germany changes depending on multiple mechanisms.

4.1. Rents for re-leased properties:

In principle, rents may be increased freely, provided the property is not financed through governmental subsidies. 

As an exception to the unrestricted rent setting principle, cities like Berlin, Hamburg, Cologne, Düsseldorf, Dresden and Leipzig have introduced rent caps (Mietpreisbremse) for re-leased properties. In these cities, rents for re-leased properties cannot exceed the public rent reference (Mietspiegel) by more than 10%, except in the following conditions: 

„  If the property has been modernised in the past three years, the rent for the re-let property may exceed the +10% limit by a maximum of 8% of the costs to modernise it.

„  In the event the property is completely modernised (work amounting to more than one-third of new construction costs excl. Maintenance), the rent may be increased freely.

„  If the rent received from the previous tenant is higher than the +10% limit, then the previous rent will be the limit in the case of re-letting.

Properties built after 1 October 2014 are not included in the rent cap.

4.2.  For current leases:

For residential tenants, the rent can generally be adjusted based on the local comparative rent (Mietspiegel), which is usually determined based on the rent index. In addition to this adjustment method, an index-linked or graduated rent agreement can also be concluded. A successive combination of adjustment methods can also be contractually agreed (e.g. graduated rent for the first 5 years of the contract, followed by adjustment to the local comparative rent).

Adjustment to the local comparative rent: The current rent can be increased by 15% to 20% within three years, depending on the region, without exceeding the local comparative rent (Mietspiegel). This type of contract represents c.

90% of our rental income.

4.3.  For current leases with work carried out:

If works have been carried out, rents may be increased by up to 8% of the cost of work excl. maintenance, in addition to the possible increase according to the rent index. This increase is subject to three conditions:

•       The works aim to save energy, increase the utility value, or improve the living conditions in the long run.

•       The rent increase takes effect 3 months after the declaration of rent increase.

•       The rent may not be increased by more than €3/m² for work to modernise the property within a six-year period (€2/m² if the initial rent is below €7/m²).

5. Occupancy rate: a high level of 99.1%

The occupancy rate stands at 99.1%. It has remained above 98% since the end of 2015 and reflects the Group's very high portfolio quality and low rental risk.

6. Portfolio values: €7.2 billion (€4.7 billion Group share)

6.1. Change in portfolio value: -10.8%

In 2023, the portfolio’s value decreased by -10.8% to €4.7 billion Group share, driven by the like-for-like decrease in value of €640 million.

6.2. Change on a like-for-like basis: -10.8% 

1 LfL: Like for Like || 2 Other commercial: Ground-floor retail, car parks, etc || 3 NRW: North Rhine-Westphalia

The average value of residential assets is €2,559 per m², with €3,052 per m² in Berlin and €1,826 per m² in North RhineWestphalia, and the average yield has risen 60 bp year on year to 4.1%. Assets are valued at their block value. 48% of the portfolio is already co-owned, particularly in Berlin (68%), where the unit sale value is 52% above the block value.

In 2023, values decreased -10.8% on a like-for-like basis versus end-2022, reflecting the increase in interest rates. The average yield of the portfolio is up +60bps to 4.1%.

7. Maintenance and modernization CAPEX

In 2023, CAPEX totalled €117 million (€41.3 /m²; €76 million in Group share) and OPEX came to €21 million (€7.3 /m²; €13 million in Group share).

On average, modernization projects, which totalled €78 million in 2023 (€50 million in Group share), have an immediate yield close to 5%, going up to 10% post relettings. 

2023

C. HOTELS: 17% OF COVIVIO’S PORTFOLIO 

Covivio Hotels, a 43.9%-owned subsidiary of Covivio as of 31 December 2023, is a listed property investment company (SIIC) and leading hotel real-estate player in Europe. It invests both in hotels under lease (fixed or variable) and hotel operating properties.

The figures presented are expressed at 100% and in Covivio Group share (GS).

Covivio owns a high-quality hotel portfolio worth €6.4 billion (€2.5 billion in Group share), focused on major European cities and let or operated by major hotel operators such as Accor, B&B, Mariott, IHG, NH Hotels, etc. This portfolio offers geographic and tenant diversification (across 12 European countries) and asset management possibilities via different ownership methods (hotel lease and hotel operating properties).

1. Hotel performances at historically high levels 

In 2023, hotel performances proved to be exceptional despite an uncertain macroeconomic environment marked by inflation, rising interest rates, and geopolitical tensions.

                                              Increasing                                              …Driven by                                       …And improving

                             REVPAR in 2023 in Europe…                      strong averageprices…                            occupancyrates

Sources: MKG, STR.

„  Covivio Hotels' key European markets have significantly surpassed their 2019 performances, with RevPAR in Europe at +16%, ranging from +6% for Germany to +32% for Italy.

„  The Pricing Power of the hotel activity became more obvious in 2023. Average daily rates beat 2019 levels by +23% on average in Europe in 2023, with nice performances among our main exposures: +35% in Italy, +25% in France, +23% UK and +16% in Germany. 

„  The French market, the world's leading tourist destination, records a RevPAR increase of +22%.

„  Tourist attendance in the European Union has returned to a level close to pre-pandemic times. The outlook for 2024 is very promising in Europe, especially in France, with numerous events such as the Olympic Games or the or the European Football Championship in Germany. 

„  On the investment side, the transaction volumes in hotels recorded in Europe in Q3 YTD 2023 reached €9.4 billion, stable vs. 2022, showing better resilience than other asset classes in 2023. Spain and France continued to attract the lion’s share of investments. 

Assets partially owned by Covivio Hotels include mostly: 

-          91 B&B assets in France, including 89 held at 50.2% and 2 held at 31.2%

-          25 AccorInvest assets in France (23 assets) and Belgium (2 assets), between 31.2% and 33.3% owned.

2. Accounted revenues: +12.7% on a like-for-like basis 

¹ LfL: Like-for-Like 12 months                                                                                                                                                

Hotel revenues increased by +12.7% like-for-like (+€16.2million Group share) compared to 2022, due to:

„  Lease properties:

-          AccorInvest variable leases portfolio (17% of hotels revenues and 20% of the hotel portfolio), which is indexed on hotel turnover, increased by +18.9% like-for-like compared to 2022, driven by intense touristic activity. These midscale and economy hotels are located in France and Belgium;

-          Fixed leases (60% of hotel revenues and 57% of the hotel portfolio): mostly through positive indexation (+€2.3 million) and asset management (+€4 million).

„  Operating properties (23% of the hotel revenues and 23% of the hotel portfolio): mainly located in Germany and in the north of France. The increase from €26.4 million to €32.3 million (Germany +€0.8 million & France +€1.3 million) was driven by the recovery of the market dynamic.

3. Annualized revenue

Breakdown by operators and by country (based on 2023 revenues), totalling €144.9 million in Group share:

Revenues are split using the following breakdown: fixed (60%), variable (17%) and EBITDA on management contracts (23%).

4. Indexation

Fixed leases are indexed to benchmark indices (ILC and ICC in France and consumer price index for foreign assets).

5. Lease expiries: 12.2 years hotels residual lease term

6. Portfolio values: -3.9% like-for-like

6.1. Change in portfolio values 

At end-2023, the portfolio amounted to €2.5 billion Group share, down by €87 million compared to year-end 2022, essentially explained by the negative like-for-like change in value (€102 million).

6.2. Change on a like-for-like basis: -3.9%

At the end of December 2023, Covivio held a unique hotel portfolio of €2.5 billion group share (€6.4 billion at 100%) in Europe. This strategic portfolio is characterised by:

„  High-quality locations: average Booking.com location grade of 8.9/10 and 89% in major European city destinations.

„  Diversified portfolio: in terms of countries (12 countries, none representing more than 33% of the total portfolio), and segment (67% economic/midscale and 33% upscale).

„  Major hotel operators with long-term leases: 16 hotel operators with an average lease duration of 12.2 years.

The portfolio value decreased by -3.9% Like-for-Like, a mix of:

-          Lease properties (-4.0%): This decline, primarily attributed to the rise in cap rates, was counterbalanced by a positive income effect resulting from the improved hotel performance and rent indexation;

-          Operating portfolio (-3.7%): The value of German hotel fell by 4.5% in 2023, reflecting market performance and a rise in interest rates. Good performance for the French portfolio with a value increase of +2.4% thanks to one asset in the south of the France which was renovated and to the rebound of market performance.

                     Portfolio breakdown by value                                  89% in major European

                                     and geography                                                       destinations

3. FINANCIAL INFORMATION AND COMMENTS

Covivio’s activity involves the acquisition or development, ownership, administration, and leasing of properties, particularly Offices in France, Italy and Germany, Residential in Germany, and Hotels in Europe. 

Registered in France, Covivio is a public limited company with a Board of Directors.

The German Residential information in the following sections include some Office assets owned by the subsidiary Covivio Immobilien.

CONSOLIDATED ACCOUNTS

3.1. Scope of consolidation 

On 31 December 2023, Covivio’s scope of consolidation includes companies located in France and several European countries. The main equity interests fully consolidated but not wholly owned companies are as follows:

3.2. Accounting principles

The consolidated financial statements have been prepared in accordance with the international accounting standards issued by the IASB (International Accounting Standards Board) and adopted by the European Union on the date of preparation. These standards include the IFRS (International Financial Reporting Standards), as well as their interpretations. The financial statements were approved by the Board of Directors on 15 February 2024.

3.3. Simplified income statement - Group share

„  €624.4 million net revenue (+2%)

Net revenue in Group share increased especially thanks to both dynamic rental activity in all business lines and strong operating activity in hotels, despite impact of disposals in offices.