COVIVIO (EPA:COV) - Covivio: Activity at end-September 2020

Transparency directive : regulatory news

15/10/2020 20:04

Paris, 15 October 2020, 6:00 pm

                       Activity at end-September 2020

Letting successes in Offices thanks to the complementary nature of Covivio's
solutions and expertise
- 14,600 m2 of new leases signed for 7 years in the third quarter in France,
  Germany and Italy
- Full pre-commercialisation of Wellio Paris Gobelins: 4,500 m2 for nearly 5
  years
- Opening of 1st flex-office Wellio space in Milan end-August, already 61%
  occupied
- Renewals on 23 assets with Orange in France (47,600 m2) for 9 years

Implementation of value-creating development pipeline

- Deliveries of 64,000 m2 of tertiary assets in France and Italy, expected
  value creation of 30%
- First deliveries of residential projects in Berlin comprising 123 apartments
  with 46% margin over total cost

Close to EUR500 million of disposals Group share with 12% margin

- Mainly in Offices (67%) and Germany Residential (25%)
- Well on track to realize Group share target of over EUR600 million in 2020

Operating activity in line with guidance announced in July

- Excellent rent collection rates: 98% in Offices and Residential, 92% in
  Hotels
- Like-for-like rental income growth: +1.5% excluding Hotels
- Hotel performance still impacted by restrictions: revenues down 52% on a
  like-for-like basis

Non-financial ratings: excellence and ambition of ESG strategy rewarded once
more

- Covivio remains the leader in its sector thanks to its A1+ Sustainability
  Rating by Vigeo Eiris
- The Group is ranked among world leaders by ISS-ESG (top 3% worldwide) and
  MSCI (AA rating)

Real estate markets at end-September

After a second quarter marked by the wait-and-see approach, rental activity on
office markets began to recover slowly in the 3rd quarter, particularly in
Greater Paris where take-up amounted to 246,200 m2, up 23% from the second
quarter. Vacancy rates at end-September remained healthy and close to
historically lows at 6.1% in Greater Paris and 3.3% in the major German
cities(1).

Meanwhile, the investment market remains active, particularly in the office
sector, driven by investor appetite for core assets. At end-September, around
EUR34 billion was invested in France, Italy and the major German cities,
illustrating the sustained liquidity on these markets. With a total of EUR2.6
billion, the volume of office transactions on the Italian market even increased
year-on-year, up 4% largely driven by Milan.

The Germany residential market confirmed its resilience(2), with momentum
sustained in particular by the shortage of housing. While the number of
building permits delivered for new housing units is decreasing (down 2% in
July), values continue to grow (up 7% year-on-year). In Berlin, new regulations
are having a noticeable impact on housing units available for rent, leading to
a 66% year-on-year fall in the number of apartment offers.

In the hotel sector(3), performance in July and August exceeded expectations:
the average occupancy rate in Europe rose from 7% in May to 39% in August,
although revenues still fall considerably short of levels achieved in previous
years (RevPar down 55%). The summer spike shows that the need and the desire to
travel are there, materializing as soon as restrictions are lifted. Since
September, the prevailing uncertainty has persisted and restrictions have been
tightened, weighing heavily on performance. Most hotels reopened in Europe, but
occupancy rates remained low in September (between 20 to 35%).

Letting successes in offices thanks to the complementary nature of Covivio's
solutions and expertise

The quality of Covivio's portfolio and the complementary nature of its
solutions and expertise make it a key partner for companies seeking to
transform their workspaces into social platforms conducive to collaboration and
performance. This approach, which combines quality locations, building
development/redevelopment and flexible solutions (in particular since the
launch of the Wellio flex-office offer in 2017), allowed Covivio to sign a
number of commercialisation agreements amid a wait-and-see market.

The success of the project Paris 5th Gobelins is a good example. The building
acquired by Covivio in 2006 and previously occupied by Orange is currently
being restructured and will open in March 2021. This will be the 7th Wellio
space, the flexible offices and services solution developed by Covivio. The
4,500 m2 of this building have been commercialised in September, 6 months
before delivery, for 58 months (link to the press release).

In Milan, Covivio delivered its first flexible space in Italy at end-August,
located in Via Dante 7, close to the Duomo. This building offers 400
workstations over 4,700 m2, with private offices that can be customized,
coworking desks, meeting rooms and areas for different types of events. The
occupancy rate, one month after opening, is already 61%. Among the companies
that have chosen Wellio as their workplace are the Italian branch of Astellas,
a Japanese pharmaceutical multinational that has moved its headquarters into
the building, and Dermalogica, a Californian skincare brand of the Unilever
Prestige group.

(1) Berlin, Frankfurt, Dusseldorf, Hamburg, Cologne, Stuttgart and Munich.
    Office rental market indicators for Milan at 30 September have not been
    published yet.
(2) Sources: Guthmann Real Estate, Destatis
(3) MKG data

Furthermore, 14,600 m2 of new lettings were signed during the quarter, on
average for 7 years firm: in September, Covivio signed a new firm 9-year rental
agreement with a major French group on its IRO building in Châtillon (3,800
m2). In Italy, 2,000 m2 were signed on Corso Ferrucci in Turin, as well as
1,800 m2 in the CBD of Milan (Torre Garibaldi and Piazza San Fedele).

Lastly, 110,000 m2 of leases were renewed during the 3rd quarter. The Group
notably renewed its partnership with Orange covering 23 assets in France
(47,600 m2). The average firm lease term was extended by 6.3 to 8.8 years.

Implementation of value-creating development pipeline

Delivery of 64,000 m2 of tertiary assets in France and Italy

Since the beginning of the year, 6 tertiary assets representing 64,000 m2 have
been delivered with an average expected value creation of 30%. In Italy,
Covivio delivered the Via Dante building (4,700 m2 Wellio space), the first
building of "The Sign" project (9,260 m2), Symbiosis School (7,900 m2) and Duca
d'Aosta (2,600 m2) in Milan, fully let, as well as the last phase (13,730 m2)
of the Corso Ferrucci asset in Turin (45,600 m2 building now 95% let). In
France, the IRO building in Chatillon (25,600 m2) was delivered on 15 September
and is 34% let.

First deliveries of housing units in Germany

Launched in 2017 on the land banks of the Berlin portfolio, the German project
pipeline has now doubled in volume thanks to multiple land purchases completed
over the last few years. 4,000 housing units totalling 285,000 m2 and mainly
located in Berlin are due to be delivered over the next 5 years, at a total
cost of EUR800 million (EUR540 million Group share) and with an average value
creation target of 40%.

A third of these projects (EUR256 million) are committed and the first
deliveries took place this year: 123 housing units (EUR29 million total cost)
with a 46% margin over total cost. The pace of deliveries will be stepped up
over the coming years, with 247 housing units scheduled for 2021 (EUR68
million) and 521 for 2022 (EUR159 million).

Disposal plan well on track: close to EUR500 million Group share with 12%
margin

Since the beginning of the year, Covivio has signed new disposal agreements
totalling EUR491 million Group share (EUR616 million in total) and generating
an average margin of 12% on 2019 year-end appraisal values.

Since the beginning of the year, office disposal agreements totalling EUR190
million have been signed in France, generating a margin of nearly 7% on the
appraisal value, and EUR139 million in Italy, generating a 18% margin. In the
Germany Residential segment, EUR121 million of assets have been sold at an
average margin of 19%. The balance mainly consists of retail assets sold at
prices close to their appraisal values.

Thanks to these new disposals and the dynamism of the office investment market,
Covivio is confirming its target of over EUR600 million Group share of new
disposal agreements signed in 2020.

Finalisation of the acquisition of 8 hotels leased to NH Hotels in the city
centres of major European tourist destination

Confident in the long-term fundamentals of the hotel industry, Covivio
finalised, on 7 September, the acquisition of a portfolio of 8 hotels located
in major European tourist destinations, in Rome, Florence, Venice (2), Nice,
Prague and Budapest (2) at a price of EUR573 million (EUR248 million Group
share) including EUR86 million of works. This portfolio of high-end
establishments in prime locations includes emblematic hotels such as the
Palazzo Naiadi in Rome, the Carlo IV in Prague, the Plaza in Nice and the NY
Palace in Budapest.

Offering a total of 1,115 rooms, these hotels will be operated by NH Hotel
Group via long-term triple-net(4) leases with minimum guaranteed variable rent
offering a minimum yield of 4.7%. The agreement is for an initial term of 15
years firm, extendible to 30 years at the request of NH Hotel Group.

Operating activity in line with end-July guidance

Excellent rent collection rates

Covivio is backed by a solid rental base, composed essentially of large
corporates and residential tenants. Thereby, at end-September 97% of invoiced
rents have been collected, including 95% in the third quarter only. In Offices
and residential, the collection rate is high at 98%. In the hotel sector, 92%
of rent invoiced at end-September was paid (89% in the third quarter).

Revenues at end-September: EUR464 million

Revenues at end-September amounted to EUR464 million (EUR667 million at 100%),
down from EUR511 million at end-September 2019 due to the fall in hotel
revenues (down 51%) against a backdrop of uncertainty and continuing
restrictions. On the other hand, offices and residential buildings continue to
post strong performances, up 1.5% on a like-for-like basis.

(4) Excluding Nice
                                    Revenue    Revenue
                         Revenue    9-m 2019   9-m 2020             Variation
A end-September 2020     9-m 2020    Group      Group              at like-for-
(9 months)               at 100%     share      share   Variation   like scope
                          (EURm)     (EURm)    (EURm)     (%)           (%)

France Offices             181        172        158      -8.1%       +0.9%
Italy Offices              126        110         96     -12.4%       +0.9%
Germany offices             48          5         38       n.a        +2.8%.
Germany Residential        184        116        118      +2.3%       +2.8%

Sub-total offices &
Residential                539        402        410      +1.9%       +1.5%
Hotels                     114         91         45     -51.1%      -51.7%

Total strategic
activities                 653        493        454      -7.9%       -8.3%
Non-strategic
activities
(Retail France
and Italy)                  15         17          9     -45.2%       -4.8%
Total                      667        511        464      -9.1%       -8.3%

Occupancy rate      Lease term
(%)                  (years)

93.0%                  4.5
96.5%                  7.3
73.7%                  4.6
98.7%                  n.a.
93.4%                  5.5
100%                 14.3
94.4%                  7.2
97.8%                  6.6
94.4%                  7.2

In Offices, growth is driven by assets in Paris (+2.5%) and major regional
cities (+5.5%). In Milan, rents increased by 1.4% on a like-for-like basis.
The occupancy rate was 93% in France, curbed by the departure of a tenant from
a building in Paris 15th and the delivery of the IRO project in Châtillon (34%
let). It remains high in Italy (96.5%) thanks to letting successes during the
quarter. Lastly, the occupancy rate in Germany was impacted by the cancellation
of the WeWork lease in Düsseldorf (12 percentage point impact on the vacancy
rate) and the scheduled departure of a tenant in Hamburg. This does not take
into account penalties related to early tenant departures.

In Germany Residential, rental growth remains strong at 2.8% on a like-for-like
basis, driven by North Rhine-Westphalia, Hamburg, Dresden and Leipzig (+3.4% on
average). In Berlin, revenues rose by 2.1% despite the initial impact of new
regulations, currently undergoing judicial review before the Karlsruhe Federal
Court of Justice.

In Hotels, 97% of Covivio hotels are now open but restrictions continue to
weigh on occupancy rates. Income from variable rent indexed to hotel revenues
and management contracts was down 74% on a like-for-like basis. In the UK, the
situation remains challenging with 4 out of 12 hotels closed at the end of
September. In view of the circumstances and the major underperformance clause
included in the lease agreement, no rent has been recognised this year on this
portfolio.

Covivio confirms its EPRA Earnings guidance for 2020, updated at the end of
July, at EUR380 million or EUR4.15 per share. The drop of around EUR100 million
compared to the target announced in February 2020 is due to the impact of the
current crisis, essentially on:
- the hotel business, for around 70%,
- the increase in unpaid rent, principally in retail (10%),
- the slight increase in office vacancy rates (10%),
- and the delays in development projects (10%).

Non-financial ratings: excellence and ambition of ESG policy rewarded once more

Covivio once again obtained the maximum score of A1+ for its Sustainability
rating from Vigeo Eiris and remains the leader in the "Financial services -
Real estate Europe" sector. This assessment rewards Covivio's commitments and
recognises the effective integration of ESG (environmental, ethical, social and
corporate governance) factors in the Group's strategy, operations and risk
management. With an overall rating of 71/100 (compared with 69/100 in 2019),
Covivio has moved up from 7th place to 5th place worldwide, all sectors
combined(5).

Covivio is also ranked among world leaders by ISS-ESG and MSCI, who updated
their ratings in the third quarter. Covivio has retained its ISS-ESG "Prime"
rating, placing it among the top 3% worldwide. Additionally, MSCI confirmed its
AA rating in recognition of the merits of Covivio's environmental strategy.
Lastly, Covivio obtains a very good rating from Sustainalytics, with details
available through the following link.

AGENDA

2020 annual results: 18 February 2021

CONTACTS

Press Relations
Géraldine Lemoine
Tel: + 33 (0)1 58 97 51 00
geraldine.lemoine@covivio.fr

Laetitia Baudon
Tel: + 33 (0)1 44 50 58 79
laetitia.baudon@shan.fr

Investor Relations
Paul Arkwright
Tel: + 33 (0)1 58 97 51 85
paul.arkwright@covivio.fr

Hugo Soussan
Tel: + 33 (0)1 58 97 51 54
hugo.soussan@covivio.fr

(5) Covivio is ranked in 1st place out of 86 rated companies in its sector in
Europe. All sectors combined, the Group is ranked 5th out of 1,602 in Europe
and 5th out of 4,823 worldwide.

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 25 BnEUR 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) and on the MTA market (Mercato Telematico Azionario) of the Milan stock
exchange, 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,
EPRA BPRs Gold Awards (financial + Sustainability), CDP (A), Green Star GRESB
and in the ESG FTSE4 Good, DJSI World & Europe, Euronext Vigeo (World 120,
Eurozone 120, Europe 120 and France 20), Euronext(r) CDP Environment France EW,
Oekom, Ethibel, Sustainalytics and Gaïa ethical indices.
Covivio is rated BBB+/Stable outlook by Standard and Poor's.

Notations solicited:
Financial part:           BBB+ / Stable outlook by Standard and Poor's
Extra-financial part:     A1+ by Vigeo-Eiris

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COVIVIO (EPA:COV) - Covivio: Activity at end-September 2020

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