Covivio - 2024 Half-year financial report

1.          2024 FIRST-HALF FINANCIAL REPORT ......................................................................................................................................................... 3

1.1.                Business analysis .................................................................................................................................................................................... 3

1.2.                Business analysis by segment ......................................................................................................................................................... 12

1.3.                Financial information and comments ........................................................................................................................................... 27

1.4.                Financial resources ............................................................................................................................................................................. 34

1.5.                EPRA Reporting .................................................................................................................................................................................... 38

1.6.                Financial indicators of main activities ......................................................................................................................................... 47

2.          RISKS AND UNCERTAINTIES .......................................................................................................................................................................... 49

2.1.                Risks relating to the environment in which Covivio operates ............................................................................................. 49

2.2.                Financial risks ........................................................................................................................................................................................ 50

3.          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024 ............................................................................... 52

3.1.               

3.2.                Notes to the condensed consolidated financial statements ............................................................................................ 58

4.          STATUTORY AUDITORS’ REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION .............................................................. 116

5.          CERTIFICATION OF THE PREPARER ............................................................................................................................................................ 118

6.          GLOSSARY ......................................................................................................................................................................................................... 120

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2024 first-half financial report

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1. 2024 FIRST-HALF FINANCIAL REPORT

       1.1.        Business analysis

       1.1.1.          Revenues: €500 million and €327 million Group share in H1 2024

 ⁽¹⁾ Like-for-like change || ⁽²⁾ Operating Properties (EBITDA)

Group share revenues, up +1.8% at current scope, stand at €326.8 million vs. €321.2 million in H1 2023, due to:

•       The reinforcement of the stake in Covivio Hotels

(+€8 million)

•       The +6.5% increase on like-for-like basis, split between

•       Offices: +8.8% like-for-like, driven by indexation and letting activity;

•       Hotels: a sustained like-for-like revenue increased by +5.2%, due to the continued rebound in variable revenues (EBITDA + variable leases) of +6.1% and a +4.4% like-forlike growth for fixed lease properties;

•       German Residential: a continued robust growth of +3.9% like-for-like.

•       Reduction in office exposure through disposals (-

€14 million);

•       Deliveries of new assets (+€2 million), in Greater Paris and Berlin; 

•       Vacated assets for redevelopment (-€5 million), mostly in Paris Western Crescent and first ring, for conversion into residential or hotel.

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       1.1.2.         Lease expiries and occupancy rates

       1.1.2.1.                   Lease expiries: average firm residual duration of 6.8 years

       1.1.2.1.1.              Average lease duration by activity

                                                                                                       By lease end date (1st break)                                                 By lease end date

       1.1.2.1.2.            Lease expiries schedule

In 2024, lease expiries with first break options represent €25 million, of which €18.0 million are already managed (€3.6 million of hotels, €11.7 million of offices for which tenant has no intention to vacate the property and €2.7 million of offices to be converted into hotels). Only €7.0 million (1.0% of Annualized revenue) are still to be managed in offices, mostly on core assets for which tenant decision is not known yet.

       1.1.2.2.                 Occupancy rate : 97.1% secured, +0.4pt vs. 2023

                                                                                                                Occupancy rate (%)

The occupancy rate continued to increase, by +40bps over six months, to 97.1% for the whole portfolio. This is linked with the rebound in offices by +60bps to 95.1%, thanks to several lettings in Greater Paris.

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       1.1.3.         Breakdown of annualized revenues

                                           By major tenants                                                                                                     By activity

Offices 7%

       1.1.4.        Stable cost to revenue ratio

       1.1.5.        Disposals: €311m of new agreements in H1 2024 

¹ GS : Group share

New disposals and agreements totalled €311 million Group share (€455 million at 100%) at the end of the semester. 

These disposals agreements were made of offices for the largest part, for a total of €142 million Group share, with an average margin of -1.6%. It dealt with 12 offices in France and 9 offices in Italy (mostly from the Telecom portfolio, in regions). 

In German residential, €129 million Group share (€189 million at 100%) of disposal agreements were achieved over H1, with an average premium of +5.6% vs. 2023 book values. Major achievements were the creation of a joint venture with CDC Investment on a portfolio in Berlin, in line with the values at the end of 2023, contributing €93m (Group share) to the disposal program, and, at the same time, the Group continued with its privatisation program, selling €25m Group share (€38m at 100%), at an average premium of 40%. 

In hotels, disposal agreements totalled €40m Group share (€83m at 100%), at an average premium of +10.7% to appraised values. These mainly concerned nonstrategic hotels in Germany and Spain, as well as joint disposals (opco and propco) in France with AccorInvest.

Covivio has an office pipeline of 10 buildings which will generate €93m of revenues 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. Capex still to be spent on the committed development pipeline reach €584 million (€167 million per year by 2027 on average).

This pipeline is highly pre-let (55%, +2 pts compared to end-2023) and will participate to the continued improvement of the portfolio quality towards centrality & grade A buildings (100% of the projects certified “Excellent” or above).  

Expected deliveries before year-end 2024: 2 projects in Milan (The Sign D, Rozzano).

Deliveries from 2025 refer to 8 projects in Paris CBD (Grands Boulevards, Monceau), Paris 1st ring (turnkey development for Thalès), Milan (Corte Italia, Symbiosis G+H), Berlin (Loft), Düsseldorf (Icon) and Berlin (Alexanderplatz). 

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(1) Surface at 100%

(2) Including land and financial costs

(3) Yield on total rents over total budget

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       1.1.7.2.               Build-to-sell pipeline

                                                                                                                                             Total                                           Total 

                                                                                                                                                   ^{1                                                                                                      1}                                                                            Pre-sold

Committed projects                                                                                                                          Units                                    Budget                                       Budget 

(%)

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

Berlin (1 project)                                                                                                                                     92                                                                                                                                                                

Berlin (2 projects)                                                                                                                                  117                                                                                                                                                               

¹ Including land and financial costs

The total margin of the committed pipeline reaches 8%. The current French pipeline is composed of 6 projects

       1.1.7.3.              Managed pipeline

In the long-term, Covivio also owns more than 293,000 m² of landbanks that could welcome new development projects:

•       in Paris, Greater Paris and Major French Cities (180,000 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.

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       1.1.8.      Portfolio

Portfolio value: +2.0% at current scope, -1.3% like-for-like change

¹ LfL: Like-for-Like

The portfolio increased by +2% at current scope, to reach €15.4 billion Group share (€23.0 billion at 100%). This is mostly explained by the reinforcement in hotels, offsetting the impact of disposals in offices.

On a like-for-like basis, the portfolio value changed by -1.3% mostly due to: 

Geographical breakdown of the portfolio at end-June 2024

                               Others

Italy

          Germany

42%

       1.1.9.       List of main assets

The value of the ten main assets (excl. Dassault Systèmes Campus & Thalès Campus) represents 14% of the portfolio Group share, stable vs end 2023.

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        1.2.          Business analysis by segment

       1.2.1.        Offices : 50% of Covivio’s portfolio

Covivio has implemented an overall offices strategy based on centrality, hospitality, and sustainability. This strategy has been executed by increasing investments on best-in-class assets in central locations, improving the quality of the existing portfolio and exiting from non-core areas.

Today, quality has become a much more important driver of future growth for Covivio, which owns offices with high levels of centrality and accessibility, A-quality buildings, and top-level service offering. These offices buildings are located in France (27% of Covivio’s portfolio), Italy (16%), and Germany (7%) totalling €9.3 billion (€7.7 billion Group share) as of end-June 2024.

This offices strategy is bearing fruit, as illustrated by the increase in occupancy rate in 2024, by +60bps to 95.1%.  

Covivio's portfolio is split as follows:

•       Core assets in city centers (69% of Covivio’s office portfolio, +10pts vs. 2020): located in city centers of main European cities (Paris/Levallois/Neuilly, Milan, Berlin, Düsseldorf, Hamburg, and French major regional cities), with high occupancy (97.4%) and 4.8 years WALB.

•       Core assets in major business hubs (25%): includes assets in well-connected business hubs (Greater Paris, Periphery of German cities), with high occupancy (94%) and long WALB (5.6 years), mostly let to long-term partners such as Thalès and Dassault Systèmes. 

•       Non-Core assets (6%): gathers secondary offices assets outside city centers for which the occupancy rate (83%) and the WALB (3.8 years) are lower, with a disposal or conversion into residential strategy. 

Take-up in Greater Paris office market reached 853,400 m² in H1 2024, down -5.1% year-on-year. At the same time, customer demand continues to polarize, as the preference for best places continues to increase: 

•       Paris inner city outperformed, with take-up up +12.2% year-on-year to 428,900m². 

•       Paris inner city counted for 47% of the total take-up in Greater Paris (vs. 40% on average over the last 5 years).

The immediate offer increased by +5% over the last six months to 4.98 million m² and the vacancy rate now stands at 9.0%, up by +30bps year-to-date, but with strong disparities: below 3% in Paris CBD and close to 15% in the first ring and La Défense. 

Scarcity of best assets in city centers continues to impact positively prime rents, reaching all-time levels in

Paris at €1,070/m²/year (+7% yoy), and with transactions currently under marketing at

€1,200/m²/year. Incentives in Greater Paris increased slightly to 26.0% in H1 2024, up +50bps vs. end-2023, with maintained disparities across sub-markets, from 13.1% in Paris North-East to 42.8% in La Défense. 

Office investments in Greater Paris totaled €985 million over H1 2024, down –65% YoY. Prime yields remained stable over the first semester, at 4.25% in Paris CBD. Mood in the investment market seems improving over the last weeks, looking at the increased number of transactions under negotiations (of which > €500m at yields around 4%).

       1.2.1.1.2.                 Milan offices: dynamic letting market and better investment market

Milan office market recorded a total take-up of 185,000 6.7% and the periphery. m² in H1 2024, -9% year-on-year. Demand is still

The intense demand for high-quality spaces, combined

focused on buildings in prime locations, offering good with the scarcity of grade A assets, contributed to a

level of services, as demonstrated by the level of grade new increase of prime rents in Milan, at €750/m²/year

A/A+ assets, which count for 80% of the total take-up in

(+7% year-on-year), according to DILS. Milan.

With a total amount of €830 million invested in H1 2024,

The average vacancy rate in Milan was up by +10bps in the Italian office investment market rebounded strongly

Q1 2024, to +11.3%, with strong disparity between the compared to last year (€400 million). Prime yields

centre (where most of Covivio’s portfolio is located), at stabilized, at 4.25% according to BNP Real Estate.

       1.2.1.1.3.                 Germany offices: +4.5% in take-up, prime rents up +5% yoy on average

Take-up in Germany top six markets in H1 2024 7.8%.  increased by +4.5% year-on-year to 1,164,000 m²,

Prime rents grew on average by +5.1% vs. H1 2023, with

boosted by Dusseldorf (+33%), Munich (+17.5%) and Berlin varying performances: strong growth in Düsseldorf and

(+11%). 

Munich (+11%), +2% in Frankfurt and stable in Berlin.

Vacancy rates reached 5.9% on average, up +30 bps

Investment volumes in German Offices declined by -22%

over six months. Hamburg (4.2%) and Berlin (5.2%)

YoY in H1 2024 to €1.6 billion. Prime yields stabilized since

recorded among the lowest vacancy rates, followed by end-2023, at 4.4% on average for the top 6 cities in

Munich at 5.8%, while in Frankfurt and Dusseldorf

Germany (of which 4.25% in Berlin and Hamburg, 4.5% in

vacancy levels remained higher, respectively at 10% and

Frankfurt and Dusseldorf).

       1.2.1.2.                  Accounted revenues: +8.8% on a Like-for-Like basis

                                                                                                                              100%                                                                                                             Group share

Compared to last year, rental income decreased by -€7.4 million, mainly due to:  

•       Strong like-for-Like rental growth (+€12.1 million) of • Impact of vacated assets to be converted into +8.8%, a very good performance mostly driven by hotel or residential (-€5.1 million) partially offset by the impact of strong indexation (+4.4pts deliveries of new assets (+€2.2 million), contribution) and letting activity,

•       Some base effects with 2023 indemnities (-€3.3 • Disposals (-€13.2 million) realized in 2023 (-€7.2 million compared to 2023).

million) and in 2024 (-€6.0 million),

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       1.2.1.3.              Annualized revenue

       1.2.1.4.              Indexation

Fixed-indexed leases are indexed to benchmark indices the Consumer Price Index (CPI) on each (ILC and ICC in France and the consumer price index for anniversary of the signing of the agreement.  foreign assets) :

•       Rents are indexed on the German consumer

•       For current leases in France, 93% of rental price index for 42% of leases, 10% have a fixed income is indexed to ILAT, 5% to ICC and 2% to uplift and 32% have an indexation clause (if CPI

                 ILC.                                                                                                                              goes above an annual increase between 5%

and 10%). The remainder (16%) is not indexed

•       In Italy, the indexation of rental income is and mainly let to public administration. usually calculated by applying the increase in

       1.2.1.5.                 Busy rental activity: 74,079 m² renewed or let during

2024 was a dynamic semester for letting activity, with 74,079 m² let or renewed, with the main lettings shown below:

•       27,225 m² have been let or pre-let in 2024, of which:          •              1,270 m² on Chatillon, IRO, now 69% let.

•       3,661 m² on Paris, The Line,   •              46,854 m² have been renewed, of which:

•       3,085 m² on Sun in Munich,   •              30,234 m² on Milan, Lorenteggio,

•       3,009 m² of pre-lettings on the development • 7,870 m² on Orly, CDO Askia, part of Dusseldorf, Icon,

•       4,320 m² on Dusseldorf, Icon, 

•       2,664 m² on Levallois, Maslo, now 100% let,

•       1,270 m² on Hamburg, Zeughaus.

•       2,817 m² of pre-lettings on the development • 29,297 m₂ were vacated, mostly in France (21,705 portfolio (Rozzano), m²) and Germany (6,361 m²)

•       2,184 m² on Orly, CDO Belaïa,

•       13,612 m² for redevelopment (€1.5 million of top

•       1,766 m² on Issy les Moulineaux, Urban Garden up rents, Group share), mostly for new offices in now 84% let,              Chalon-sur-Saone and Melun.

•       1,502 m² on Frankfurt, FAC,   •              15,685 m² on assets to be relet, of which 4,554

m² have already been relet.

•       1,438 m² on Fischerinsel in Berlin, 

       1.2.1.6.                 Lease expiries and occupancy rate

       1.2.1.6.1.               Lease expiries: firm residual lease term of 5.0 years

In 2024, €21.5 million of leases will expire, of which €14.4 million already managed (€11.7 million for which tenant has no intention to vacate the property and €2.7m on assets going to be transformed into hotels). €7.0 million are still to be managed (1.0% of Covivio annualized revenues), mostly on core assets for which tenant decision is not known yet. 

        1.2.1.6.2.                 Occupancy rate: 95.1% at end June-2024, +60 bps vs end-2023

•       In France, the occupancy rate increased by +90bps (Telecom portfolio), almost fully offset by letting to 95.0%, compared to 94.1% at end-2023, mostly activity. due to the dynamic letting activity in H1 2024.

•       In Germany, the occupancy rate increased by +130

•       In Italy, the occupancy rate level decreased by - bps to 87.7% vs. end-2023. This is mainly linked to 10bps to 98.6%, compared to 98.7% at end-2023, lettings, especially on Sun in Munich.

mainly due to disposals of fully occupied assets

       1.2.1.7.              Portfolio values

       1.2.1.7.1.              Change in portfolio values: -1.3% on offices

The portfolio value decreased by - €98 million since year-end-2023 (-1.3%), mainly driven by:

•       €207 million from changes in values,

•       + €138 million invested in development projects and upgrading works on assets in operation,

•       €64 million from disposals.

       1.2.1.7.2.              Change on a like-for-like basis: -2.6%

¹ LfL : Like-for-Like || ²  Yield excluding assets under development

The -2.6% change in Like-for-Like value is driven by were needed outside city centers, several effects: 

• -10% value decline in Germany, in line with a more • Strong resilience of France (-1.4%) and Italy (-1.0%) muted investment market in H1. assets, especially in city centers with values back to

The average yield increased by +20bps to 5.7%. stability, while some further limited adjustments

       1.2.1.8.               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).

        1.2.2.        German residential: 30% 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 (€4.5 billion Group share) of assets. 

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 57% at end-June 2024. 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.

•       In Germany, the demand for housing continued to rise since the start of the year, in a context of increasing number of inhabitants (population in Germany reached a record high level of 84.7 million inhabitants according to Destatis), while building completions, at 294 000 units in 2023, remained far from the Government target (> 400 000 units / year). 

•       This shortage continues to support rents in Germany and especially in Berlin. According to Immoscout24, in H1 2024, average asking rents for existing buildings were by +4.2% to €8.56/m²/month in Germany and by +7.2% to €13.8/m²/month in Berlin. For new buildings, rents were up up by +8.7% year-on-year in Germany to €12.2/m²/month and by +8.6% in Berlin to €19.5/m².

•       After several low quarters for the German residential investment market (for multi-family buildings above 30 units), volumes rebounded in H1 2024, by +25% to €3.3 billion according to BNP Real Estate. The private market also shows signs of stronger appetite since the beginning of 2024, as shown by private real estate loans recorded by the Bundesbank, up +15% year-on-year to €76.5 billion over the first 5 months of 2024.

•       Average asking prices were also trending upwards in Q1 2024. According to Immoscout24, prices for existing buildings increased by +2% over H1 in Berlin to €4,641/m² (-0.1% over one year), still well above the current valuation of Covivio’s residential portfolio (€3,081/m² in Berlin). The average square meter price for new buildings also increased to €6,471/m² in H1 2024 (+3.1% over H1 and +5.1% over one year). 

In H1 2024, Covivio's activities were marked by:

•       Continued high rental growth: +3.9% on a like-forlife basis, now well above inflation; 

•       Creation of a joint-venture on a €274 million Berlin portfolio, through a partnership with CDC Investissement Immobilier; 

•       Stability in values: -0.1% on a 6-months like-for-like basis, of which +2.3% in Berlin.

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

of which Residential  121.4 78.4 125.5 81.0 +  3.4% +4.0%  85% of which Other commercial²  20.5 13.4 21.1 13.8 +  3.0% +3.8%  15%

•       Outside Berlin, like-for-like rental growth was

        1.2.2.5.                Occupancy rate: a high level of 99.0%

The occupancy rate stands at 99.0% It has remained above 98% since the end of 2015 and reflects the Group's very highquality portfolio and low rental risk.

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        1.2.2.6.                Portfolio values: €7.2 billion (€4.5 billion Group share)

        1.2.2.6.1.            Change in portfolio value: -2.8%

In the first half of 2024, the portfolio decreased by -2.8% at current scope, to €4.5 billion Group share, mostly driven by the creation of a joint venture, contributing to €93 million of disposals Group share.

        1.2.2.6.2.              Stable values on a like-for-like basis: -0.1%

1 LfL: Like-for-Like 6 months || 2 Other commercial: Ground-floor retail, car parks, etc || 3 NRW: North Rhine-Westphalia

The average value of residential assets is €2,551/m², with €3,208/m² in Berlin (€3,081 on pure residential) and €1,776/m² in North Rhine-Westphalia. The average yield increased by +10 bps vs. end of 2023 to 4.2%. Assets are valued at their block value. 49% of the portfolio is already divided into condominiums, particularly in Berlin (68%), where the unit sale value is 50% above the block value.

In H1 2024, values decreased –0.1% on a like-for-like basis versus end-2023, reflecting a renewed appetite for large portfolios in German residential.

        1.2.2.7.                 Maintenance and modernization CAPEX

In H1 2024, CAPEX totalled €54.7 million (€19.4 /m²; €34.7 million in Group share) and OPEX came to €9.8 million (€3.5 /m²; €6.2 million in Group share).

On average, modernization projects, which totalled €29.4 million in H1 2024 (€18.8 million in Group share), have an immediate yield around 5%, going up to 10% post relettings.

                                   North Rhine   -Westphalia                                                                                                                         

                                                                                                                                                        Berlin - €23.3m (€ 17.8 / m  ²)

 €19.2m (€ 17.4 / m  ²)  € 9.6 / m ² modernization  € 9.3 / m ² modernization   € 8.2 / m ² maintenance  

Hamburg - €7.5 m (€ 50.0 / m²)

        1.2.3.       Hotels: 20% of Covivio’s portfolio

Covivio Hotels, a 52.5%-owned subsidiary of Covivio as of 30 June 2024 (vs. 43.9% at end-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 in hotel operating companies.

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

Covivio owns a high-quality hotel portfolio (311 hotels, 43,402 rooms) worth €6.4 billion (€3.1 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) as well as several asset management opportunities via different ownership methods (hotel lease and hotel operating properties).

       1.2.3.1.                  Hotels market: continued increasing performances

European hotels performance in the first half of the year is increasing compared to 2023. The average RevPAR (revenue Per Available Room) in Europe shows an average increase of +4% year-on-year at end-May 2024, as the market continues its positive momentum, supported by the rise in occupancy rates and average prices. 

•       Southern European countries, particularly Spain impacted by travel delays during the pre-Olympic and Italy, are showing very strong performances, period.  increasing respectively by +15% and +8%.

•       On the investment side, volumes remained strong, • Germany is continuing to catch up with a RevPAR reaching €4.5 billion in Q1 2024, +45% vs. Q1 2023. growth of +4%.  France, Spain, and the United Kingdom account for

the majority of transactions (60%). 

•       In France, RevPAR growth is more modest at +1%,

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.

        1.2.3.2.                 Accounted revenues: +5.2% on a like-for-like basis

¹ LfL: Like-for-Like                                                                                                                                                                                                                                                                                                        

Hotel revenues increased by +5.2% like-for-like (+€10.0million Group share) compared to H1 2023, due to:

        •           Fixed leases (57% of hotels revenue), up +4.4%

        1.2.3.3.              Annualized revenue

Breakdown by operators and by country (based on 2024 revenues), totalling €178.8 million in Group share:

Revenues are split using the following breakdown: fixed (55%), variable (22%) and EBITDA on management contracts (23%).

        1.2.3.4.             Indexation

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

        1.2.3.5.                Lease expiries: 11.8 years hotels residual lease term

        1.2.3.6.                Portfolio values: +21% at current scope

        1.2.3.6.1.            Change in portfolio values 

At the end of June 2024, the portfolio reached €3.1 billion (Group share), reflecting a €527 million increase (+21%) compared to year-end 2023. This growth can be attributed primarily to the increased stake in Covivio Hotels (from 43.9% to 52.5%), a significant step for Covivio in enhancing its presence in the hotel industry, along with a positive change in value amounting to €13 million.

        1.2.3.6.2.              Change on a like-for-like basis: +0.5% growth

¹ LfL : Like-for-Like on a 6-months basis 

At the end of June 2024, Covivio held a unique hotel portfolio (311 hotels / 43,402 rooms) of €3.1 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 90% in major European city destinations.

•       Diversified portfolio: in terms of countries (12 countries, none representing more than 33% of the total portfolio), and segment (68% economic/midscale and 32% upscale).

•       Major hotel operators with long-term leases: 16 hotel operators with an average lease duration of

11.8 years.

The portfolio value increase by +0.5% like-for-like:

•       On a like-for-like basis, the hotel portfolio increased by +0.5% over 6 months. This variation is mainly explained by the stabilization of capitalization rates and continued revenue growth, driven by the strong performance of variable revenue hotels and the indexation of fixed rents. 

•       The hotel portfolio has an average yield excluding duties of 6.0%.

                           Portfolio breakdown by value and                                                      90% in major European destinations

                                              geography

                               Others

        1.3.          Financial information and comments

Covivio’s activity involves the acquisition or development, ownership, management, 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

       1.3.1.        Scope of consolidation

On 30 June 2024, 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:

        1.3.2.       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 19 July 2024. 

        1.3.3.         Simplified income statement – Group share

       1.3.3.1.             €314.1 million net revenue (+1%)

Net revenue in Group share increased especially thanks to both dynamic rental activity and strong operating activity in hotels, the reinforcement in Covivio Hotels, despite the impact of disposals in offices. Also refer to 1. Business Analysis

        1.3.3.2.          Amortizations & net change in provisions

Note that this item includes the amortisation linked to the right of use according to IFRS 16. This amortization of right of use is mainly related to owner-occupied buildings and headquarters.

        1.3.3.3.          Change in the fair value of assets

The income statement recognises changes in the fair value (-€246.7 million) of assets based on appraisals carried out on the portfolio. This line item does not include the change in fair value of assets recognised at amortised cost under IFRS but is taken into account in the EPRA NAV calculation (hotel operating properties, flex-office assets and other own occupied buildings). For more details on changes in the portfolio by activity, see sections 1.2.1.6.1, 1.2.2.6.1. and 1.2.3.6.1 of this document.

1.3.3.4. Income from asset disposals & disposals of securities

Income from asset disposals contributed +€1.8 million

        1.3.3.8.                Share of income of equity affiliates 

during the period.

        1.3.3.5.         Cost of net financial debt

Restated of the other financial products and the capitalization of interests on projects under development, the cost of net financial debt increases due to the rise in interest rates partially offset by a decrease of the average net debt.

        1.3.3.6.                   Interest charges linked to finance lease

liability

The Group rents some land under long term leasehold. According to IFRS 16, such rental costs are stated as interest charges. The slight increase refers to the hotel activity linked to the reinforcement in Covivio Hotels and the evolution of the exchange rate GBP.

        1.3.3.7.         Value adjustment on derivatives

The fair value of financial instruments (hedging instruments) is impacted by changes in interest rates. The P&L impact is a revenue of +€15.5 million.

The equity affiliates include Hotels in Europe and the France / Italy Offices sectors:

        1.3.3.9.             Taxes

The corporate income tax amounted to -€6.1 million driven by:

Foreign companies that are not or are only partially subject to a tax transparency regime (Italy, Germany, Belgium, the Netherlands, and Portugal).

French subsidiaries with a taxable activity.                                                                           

29

        1.3.3.10.              Adjusted EPRA Earnings at €230.8 million

The restatement of the amortisation of operating assets (+€17.1 million) offsets the real estate amortisation of the flex-office and hotel operating activities.

The restatement of the net change in provisions (-€1.7 million) consists of the ground lease expenses linked to the UK leasehold.

Concerning the interest charges linked to finance lease liabilities relating to the UK leasehold, as per IAS 40 §25, €2.6 million was cancelled and replaced by the lease expenses paid (see the amount of -€1.7 million under the line item “Net change in provisions and other”).

The restatement of the share in earnings of affiliates allows for the EPRA earnings contribution to be displayed.

The restatement of the corporate income tax (-€0.2 million) is linked to the tax on disposals.

       1.3.3.11.                   Adjusted EPRA Earnings by activity

       1.3.3.12.             EPRA Earnings of affiliates

1.3.4.             Simplified consolidated income statement (at 100%)

The +€681.3 million increase in net income for the period compared with H1 2023 is related to the change in fair value of properties reflecting the beginning of a stabilisation of the real estate market (-€302.5 million compared with a -€1,277.7 million in H1 2023), the impact by changes in interest rates on the fair value of financial instruments (+€36.5 million compared with a -€29.2 in H1

2023), partly offset by the change in deferred taxes

mainly related to the effects described above (-€120 million) and strong operating performances. 

As a result, these effects are also presents in noncontrolling interests and in net income Group share. The decrease in non-controlling interests is also linked to the reinforcement in Covivio Hotels.

The decrease in Offices (-€168 million) was mainly due to the disposals (-€116 million), the change in fair value (€211 million) partly offset by (+€128 million) of CAPEX.

The decrease in German Residential (-€137 million) was mainly due to CAPEX (+€43 million), partly offset by disposals for the half year (-€11 million), the change in fair value (-€45 million), the reclassification in inventories 

(-26 M€) and the impact of the rate following the partnership with CDC of a 49% stake in a Berlin portfolio of Covivio Berlin Prime (-€98 million).

The increase in the Hotels portfolio (+€505 million) was mainly driven by the reinforcement in Covivio Hotels (+505 M€), the increase in fair value (+€10 million), foreign currency exchange gain (+€10 million). Acquisition and Capex (+€12 million), offset by disposals (-€9 million), amortization of operating properties and other tangible assets (-€15 million).

1.3.5.2.Assets held for sale (included in the total fixed assets above), €318.4 million at the end of June 2024

Assets held for sale consist of assets for which a preliminary sales agreement has been signed.

        1.3.5.3.         Total Group shareholders’ equity

Shareholders’ equity increased from €7,957 million at the end of 2023 to €8,143 million at the end of June 2024, i.e. +€186 million, mainly due to:

Income for the period: -€8 million.

The dividend distribution: -€330.8 million, partially offset by option for payment in shares (+€255 million) and the the strengthening of Covivio Hotels (+€280 million).

The change in fair value of derivative instruments in OCI (Italy) -€3 million.

        1.3.5.4.        Net deferred tax liabilities

Deferred tax liabilities represent €648 million in liabilities at the end of June versus €650 million in 2023, Deferred tax assets represent €58 million in assets at the end of June versus €57 million in 2023. This €3 million variation is mainly due to the drop in appraisal values in Office

Germany (+€14.8 million), in Residential Germany (+€1.4 million), the changes in fair values and the sales in Italy Offices (-€2.6 million) and the increase in fair values of derivatives (-€1.4 million) and the rate variation following the increase in stake of Covivio Hotels (€-6.6 million). 

        1.4.        Financial resources

Summary of the financial activity

Covivio is rated BBB+ with a stable outlook by S&P, confirmed on May 7th, 2024.

Covivio’s Loan-to-Value (LTV) ratio was reduced to 40.3% (LTV policy < 40%), thanks to active portfolio rotation and despite value adjustments. Average rate of debt is at to 1.68%, thanks to a highly hedged debt. Maturity of debt remained stable to 4.9 years.

       1.4.1.        Main debt characteristics

The net available liquidity position increased to €2.5 billion on a Group share basis at end-June 2024, including €1.7 billion of undrawn credit lines and €1.0 billion of cash minor by €0.2 billion of Commercial Paper. This strong liquidity position enables to cover debt expiries until end of 2026.

        1.4.2.      Debt by type

Covivio's net debt stands at €7.0 billion in Group share at end-June 2024 (€9.8 billion on a consolidated basis), up by +€0.1 billion compared to end-2023. This is entirely due to the increased exposure to Covivio Hotels and the consolidation, on a Group share basis, of a higher part of Covivio Hotels’ debt.  

As regards commitments attributable to the Group, the share of corporate debt (bonds and loans) grows up to 62% on a Group share basis, at end-June 2024. Additionally, Covivio had €0.2 billion in commercial paper outstanding at 30 June 2024.

Debt by type

                  Consolidated commitments                                                                          Group share commitments

Debt by company

                   Consolidated commitments                                                                          Group share commitments

        1.4.3.      Debt maturity

The average maturity of Covivio's debt stands at 4.9 years at end-June 2024. Until end of 2024, all major maturity has already been covered.

Debt maturity by type (in € million, Group share)

€2.5 bn net liquidity covers debt

1,720        expiries until end of 2026 

        1.4.4.      Hedging profile  

In H1 2024, debt was hedged at 97% on average (95% end of June), and 82% on average over the next three years, all of which with maturities equivalent to or exceeding the debt maturity.

The average term of the hedges is 6.1 years Group share.

Hedging maturities (in € billion, Group share)

¹ Excluding duties and sales agreements

All covenants were fully complied with at end-June 2024. No loan has an accelerated payment clause contingent on Covivio’s rating.

        1.4.5.2.                 Detail of Loan-to-Value (LTV) calculation

        1.4.6.         Reconciliation with consolidated accounts

       1.4.6.1.              Net debt

        1.4.6.2.             Portfolio

        1.4.6.3.                Interest Coverage Ratio (ICR)

        1.4.6.4.              Net debt / EBITDA

¹  Borrowings from associates are shareholder loans for which the Covivio Group could not be asked to repay. 

²  It includes dividends received from Equity method companies

³  Mainly IFRIC 21 adjustment related to Property Tax (in half year accounts only) 

        1.5.        EPRA Reporting

The following reporting was prepared in accordance with EPRA (European Public Real Estate Association) Best Practices Recommendations, available on EPRA website (www.epra.com). 

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

       1.5.1.         Change in net rental income (Group share)