• Appraisal Values: Down by 1.3% overall, with a 2.3% decrease in offices.
• Portfolio Valuation: EUR15.4 billion, with 42% in Germany and 34% in France.
• Disposal Agreements: EUR311 million signed, totaling close to EUR500 million.
• Hotel Exposure: Increased to 52.5% ownership in Jericho hotels, equivalent to a EUR500 million acquisition.
• Occupancy Rate: Increased to above 95%.
• Like-for-Like Revenue Growth: 6.5%, driven by indexation, occupancy increase, and uplift on re-lettings.
• Recurring Earnings: EUR231 million, a 3.3% increase year-over-year.
• Net Debt to EBITDA: Reduced from 15 times in 2020 to 12 times.
• Cost of Debt: 1.7%, expected to stay below 2.5% by the end of 2028.
• Guidance for 2024: Net results targeted at EUR460 million, EUR4.02 per share.

• Warning! GuruFocus has detected 7 Warning Signs with GSEFF.

Release Date: July 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Covivio SA (GSEFF) reported a strong performance in the first half of 2024, with recurring earnings growing by 3.3% year-over-year.
• The company successfully reinforced its balance sheet by reducing its Loan-to-Value (LTV) ratio and maintaining a healthy debt profile.
• Covivio SA (GSEFF) achieved significant progress in its disposal program, signing new agreements worth EUR 311 million, which were 3% above 2023 appraisal values.
• The company increased its exposure to the hotel sector, now owning 52.5% of Covivio Hotels, which is expected to drive future earnings growth.
• Covivio SA (GSEFF) reported a high occupancy rate of 97.1%, reflecting strong asset management and demand for its properties.

Negative Points

• The German office market remains a weak spot for Covivio SA (GSEFF), with continued challenges in occupancy and demand.
• The company's office portfolio in Germany, accounting for 15% of the total, continues to suffer, impacting overall performance.
• Despite positive signals, the investment market remains cautious, particularly in the office sector, affecting transaction volumes.
• The departure of a major tenant in the French office market poses a challenge, requiring significant CapEx for re-letting the space.
• Covivio SA (GSEFF) faces challenges in disposing of non-core assets, particularly in the German office market, due to limited investor interest.

Q & A Highlights

Q: What is the current appetite for office investments in France, and what factors are influencing this? A: Christophe Kullmann, CEO, explained that the investment market is showing signs of change, with prime office assets in Paris seeing yields back to 4% or below, compared to expectations of 4.5% to 4.75% six months ago. The market is stabilizing, and Covivio's exposure in France is 34%, which is favorable compared to other countries. The recent events in France have not significantly impacted their outlook.

Q: Can you provide more details on the raised guidance for 2024? A: Paul Arkwright, CFO, stated that the increase in guidance is primarily due to the reinforcement in the hotel sector and strong letting activity in offices. The revised guidance is now EUR460 million, or EUR4.02 per share, up from the initial EUR442 million.

Q: What is the strategy for the German office portfolio, and how do you plan to address occupancy and disposals? A: Christophe Kullmann, CEO, mentioned that the German office portfolio remains a weaker part of their assets. They plan to improve occupancy through CapEx programs and strategic projects, despite the challenges posed by the German economy and work-from-home trends. Disposals of non-core assets are considered, but the market currently lacks investors.

Q: Could you update us on the Berlin transaction with CDC and the Covivio Hotel share offer? A: Christophe Kullmann, CEO, clarified that Covivio will maintain a 51% stake in the Berlin transaction to keep the debt in place, and there is no immediate plan for CDC to take over. Regarding Covivio Hotels, they acquired 35% of the shares, increasing their exposure in the hotel sector, which aligns with their strategic goals.

Q: How do you plan to increase exposure in the hotel sector, and what are the expectations for like-for-like rent growth? A: Christophe Kullmann, CEO, indicated that acquisitions in the hotel industry are a potential avenue for increasing exposure. Paul Arkwright, CFO, added that while indexation may decrease, they expect to maintain high single-digit growth in like-for-like rents due to increased occupancy and reversionary potential.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.