2022 Capital Markets Day – A resilient business model

A diversified and high-quality portfolio

Covivio owns a portfolio of €17.8 billion Group share, diversified in terms of asset classes (offices, residential, hotel real estate) and countries (mainly Germany, France and Italy). Building on three strategic pillars (centrality, development and client-centricity), the Group has transformed its portfolio and reinforced its quality:

• 80% of assets were in prime locations at end-June 2022 vs. 55% at end-2015;
• 91% of assets have environmental certifications vs. 35% at end-2015;
• The assets are highly valued by tenants, as illustrated by the 96% occupancy rate and customer satisfaction scores: 4.3/5 for property management satisfaction in offices, Focus Money magazine award for the quality of customer relationships for housing in Germany, Booking.com rating of 8.8/10 for hotels (location).

The portfolio’s resilience is confirmed by the trend in appraisal values against the backdrop of higher yields demanded by investors. The preliminary feedbacks from the portfolio appraisal campaign for the second half of 2022 point to a contained decline of between -2% and -3% in asset values. Based on these preliminary data, portfolio values are expected to be down between -1% and 0% on a like-for-like basis, over the full year.

A sound and robust balance sheet

At end-September 2022, Covivio has a sound balance sheet. Its debt has an average maturity of five years and is composed of diversified funding sources: 49% mortgage loans, 41% bonds and 9% commercial papers (i.e. €756M, more than covered by €1.4 billion undrawn credit lines). Furthermore, cumulative debt maturities between now and April 2024 are very limited, running at approximately €200 million, and are fully covered. Roughly 33% of maturities in 2024 (€479 million) relate to six credit facilities in France and Germany, under renewal and greening process. Only 20% (€300 million) relate to bonds. The remaining 47% (€683 million) is comprised of bank mortgages that are well diversified in terms of asset class and by country: 25% in Germany Residential, 40% in Germany Offices, 30% in Italy Offices and 5% in hotel real estate. No single facility maturing in 2024 exceeds €350 million.
Debt is 86% hedged, with an average maturity of the hedging instruments of 6.5 years.

Strategic adjustments to the environment…

In an environment impacted by inflation and a rise in interest rates, Covivio is adjusting its strategy by prioritising the strength of its balance sheet:

…with unchanged ambitions

With its purpose – Build sustainable relationships and well-being – as its backbone, Covivio aims to pursue its strategy of offering new buildings in central locations that meet the needs of users.
In addition to maintaining a sound balance sheet, the disposal plan by end-2024 will allow for further improvement in the portfolio’s quality. Investments will be more limited and will be focused on the development of prime assets with value creation potential.
Covivio also plans to continue investing to improve its operating assets, notably to reduce its carbon footprint. Covivio has set itself the goal of reducing its greenhouse gas emissions by -40% by 2030 (which includes scopes 1, 2 and 3, with construction and refurbishment). This goal, which exceeds regulatory targets, is backed by a Capex plan estimated at around €30 million per year between now and 2030, large part of which is already included in annual Capex plans.

Well oriented operational trends

Covivio benefits from a favourable operational dynamic in its various activities. As such, revenues at the end of September were up 13.9% on a like-for-like basis, including +4.5% in offices and +85% in hotels. The occupancy rate stood at 96% for an average firm lease term of 7 years. This trend continued in October: variable hotel rents and revenues from hotel operating properties were respectively 12% and 15% above their 2019 levels.
This momentum is expected to continue in 2023 thanks to the acceleration of indexation, the continued strong recovery in hotels and the reversion potential of the portfolio. In offices, assets in city centers (64% of the portfolio) offer a significant reversionary potential. This is the case, for example, with the Paris portfolio (+20% on average). In Germany Residential, rents are 15% to 20% below regulated levels and 30% below market rents. In hotels, the strong business growth, which now significantly exceeds 2019 levels, is supporting the increase in variable revenues. This is accompanied by asset management transactions to free up rental reversion. Since the beginning of the year, the various asset management operations on hotels in France and Spain have enabled to increase their rents by 30% on average.