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A successful hotel repositioning operation
Covivio has announced the launch of the Anantara Plaza Nice Hotel. This is a flagship hotel for Minor Hotels, Covivio’s operating partner, which is opening its first Anantara in France. This operation demonstrates Covivio’s ability to implement an active asset and brand management policy for its hotel portfolio, located in the heart of the most attractive European cities.
In 2020, the group acquired the Plaza in Nice, along with several other hotels located in major European tourist cities such as Venice, Prague and Budapest. Covivio had committed to an ambitious works programme and a change of operator in order to reposition the hotel. The successful opening of the hotel now represents the completion of this major project.
Debut of the Anantara brand in France by Minor Hotels
Minor Hotels chose Nice as the location for the opening of its first hotel in France under the Anantara brand, a 5* hotel originating in Asia and now with a global footprint. Located in the heart of the city, 15 minutes from Nice International Airport, overlooking the Promenade des Anglais and the seafront, this historic establishment dating from 1848 has undergone major restructuring work.
The Anantara Plaza Nice Hotel offers 151 rooms, including 38 suites, most with terraces or balconies with sea view, as well as numerous services: Anantara spa, fitness room, seminar area with 6 meeting rooms, several dining areas including a rooftop restaurant-bar offering a 360-degree panoramic view of the Baie des Anges and the old town of Nice.
This opening is a great source of pride for Covivio. Transforming the hotel offer, reinventing historic buildings and supporting leading operators in their development in Europe to meet the needs of travelers are all strategic objectives for Covivio. The Anantara Plaza Nice Hotel is a perfect synthesis of this,Tugdual Millet
Covivio CEO Hotels
The Radisson RED brand is exported to Spain
At the same time, in Madrid, another Covivio hotel is reopening under a new brand name: Radisson RED, a new lifestyle brand with a bold and avant-garde design from the Radisson Hotel Group. The hotel is located on one of the city’s busiest thoroughfares, in the Art Triangle, just a few meters from Madrid’s main cultural sites.
Housed in a former sawmill dating from the 1800s, the Radisson RED has 260 rooms, including 10 suites, a rooftop, a gym, a bar, a pool of meeting rooms, etc. A strong mark of the new brand, the restaurant offer is original and attractive, with 3 restaurants run by Eneko Atxa, a three-starred chef.
For these two projects, Covivio implemented an active brand and asset management policy by changing operators and repositioning the establishments, thereby renewing the hotel offer and experience. On this occasion, new long-term leases were signed with Radisson Hotel Group (20 years) and Minor Hotels (15 years), thereby strengthening existing partnerships with leading brands.
These transactions, which have a target yield of 6%, illustrate Covivio’s strategy of creating value and moving upmarket with highly serviced lifetsyle hotels located in the heart of the most attractive and dynamic European cities.
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:
Active disposal policy: target of €1.5 billion by end-2024
Covivio aims to sell €1.5 billion of assets by the end of 2024. The portfolio’s diversity, both geographically and in terms of asset class and building size, opens up a broad spectrum of potential investors. In offices, recent sales demonstrate the appeal of Covivio’s assets for equity investors. In Germany Residential, Covivio can count on the granularity of its assets (unit size of €7 million) and €1 billion in housing units already divided into condominium and free of any sales regulations. In hotels, new joint disposals alongside Accorinvest are planned, mainly to franchisees. The Group also plans to sell mature hotels post-asset management work, both in France and abroad.
As part of the disposal plan, Covivio has signed new binding disposal agreements totalling €154 million in recent weeks, in line with appraisal values at end-2021. Since the beginning of the year, Covivio thus signed €441 million new disposal agreements. In addition, disposals totalling €300 million are under discussions.
Reduction of the investment plan
In offices, Covivio has opted to suspend two development projects for which construction works had not started yet, one in France and the other in Milan, with a total cost of €114 million. Adding in the €394 million projects delivered since June, the committed pipeline now stands at €2 billion total cost, with on average €200 million in Capex/year to be spent until 2026. With 80% of projects located in the city centers of Paris, Berlin or Milan and 65% pre-let, these projects offer an average yield of 5.2%.
In Germany Residential, Covivio has a pipeline of 225,000 m², of which more than 80% is located in Berlin, the city with the largest housing shortage in Germany. The Group is adapting its strategy by switching projects from a build-to-rent to built-to-sell strategy, thereby limiting financing requirements while creating value through the development margin. The build-to-sell projects now account for 65% of the pipeline, vs. 35% previously, reducing financing requirements by €30 million in 2023 and €100 million by 2025.
…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.
What is an operated office?
Covivio operated office is an approach to real estate that blends the flexibility of coworking with the professionalism of a property expert and the service quality of a hotel brand, all wrapped up in a one-stop shop.
The operated office is a response to the convergence between the new role of the office, driven by nomadism and employee expectations, AND companies’ growing need for flexibility in space, term and contracting, ALL delivered with a focus on experience typical of the hotel sector.
Commercial lease or service agreement, headquarters or satellite site, all-inclusive or à la carte services, long or short term… Covivio deploys all its expertise to design the best real estate solution for each client’s needs.
More central, more sophisticated, more flexible, offering added value in use and new services, today’s office needs better design and more intensive management. Clients are looking for fewer square metres but better square metres, and are willing to pay for it, because the office is taking on a new strategic role: it embodies the corporate culture, reinforces group dynamics and creativity and plays a key role in attracting talent. This has created a new kind of business, the office operator!Olivier Estève
Covivio Deputy CEO
Who is an operated office for?
This solution is aimed at small, medium or large companies, for temporary or long-term use, in order to provide their teams a memorable office experience. The operated office also concerns any organisation seeking a partner to design and manage offices in tune with the issues of our times: sustainable development, health and well-being, etc.
How does an operated office actually work?
Covivio is the only operator who can support its clients from upstream development to the roll-out of personalised services for their spaces, thanks to its high-quality assets, dedicated teams and service excellence inspired by the hotel industry.
The Covivio operated office is committed to providing à la carte support, which can be activated at any stage of your real estate project: space planning, layout, services, IT, furnishings, etc.
21 Goujon, an enhanced and reinvented architectural jewel dating from the 1930s
Located in Rue Jean Goujon near the Golden Triangle and Avenue Montaigne, the building purchased by Covivio in 2018 has many attributes, including prime location, architectural quality and a range of different spaces on offer. These features have convinced a major user, whose staff will occupy the entire premises of the building. The two partners have signed a 12-year lease.
BNP Paribas Real Estate acted as adviser to Covivio.
Following a major restructuring programme designed by Covivio and architecture firm Wilmotte & Associés, the characterful eight-storey 1930s building will offer office floors measuring around 1,000 m². In addition to the workspaces, 21 Goujon has 600 m² of outdoor areas including a greenhouse, patio and rooftop with a view of the Eiffel Tower.
To offer users top-level comfort, connectivity and environmental performance and in line with Covivio’s CSR objectives, 21 Goujon is targeting HQE “Excellent” and BREEAM “Excellent” certification, as well as the OsmoZ, Biodivercity and R2S labels.
outdoor areas including a greenhouse, patio and rooftop with a view of the Eiffel Tower.
Further letting success confirming the effectiveness of Covivio’s office strategy
The new agreement not only confirms the quality of the building, but also illustrates Covivio’s know-how and advisory approach with clients.
As a reminder, Covivio is pursuing an office strategy in Europe based on three pillars: centrality, with buildings located in the centre of Europe’s most vibrant cities; development and redevelopment of buildings to the highest market standards; and client culture, which is fostered through a customised advisory approach that aims to offer buildings tailored to their occupants’ image and corporate culture. The strategy is fully in line with market expectations and has enabled the group to let 119,000 m² of office space in Europe since the start of the year in addition to the 126,000 m² of lease renewals.
This agreement, through its duration and level of rent, confirms companies’ growing interest in buildings in prime locations and tailored to new ways of working. After the recently announced successes of our Stream Building-Paris 17th and Anjou-Paris 8th buildings, not to mention Corte Italia in Milan, this latest commercial success vindicates our strategy of offering ever more attractive destinations and more resilient cities.Olivier Estève
Covivio Deputy CEO