Covivio Hotels ScaEURONEXT: COVH

COVH – Financial information half-year 2024

Sep 8, 2024 at 9:22 AM UTC · Issued by Covivio Hotels Sca

FINANCIAL INFORMATION

HALF-YEAR 2024

		Half-yearly financial information for 2024
Contents

FINANCIAL INFORMATION	1
HALF-YEARLY 2024	1
1. ACTIVITY REPORT AT 30 JUNE 2024	5
1.1.	Net financial income	10
1.2.	Portfolio at 30 June 2024	13
1.3.	EPRA indicators	17
1.4.	Related companies	17
1.5.	Risks and uncertainties	18
1.6.	2024 outlook	21
1.7.	Transition tables	22
2. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024	25
2.1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT 30 JUNE 2024	26
2.1.1	STATEMENT OF FINANCIAL POSITION	26
2.1.2	STATEMENT OF NET INCOME	27
2.1.3	STATEMENT OF COMPREHENSIVE INCOME	28
2.1.4	STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY	29
2.1.5	STATEMENT OF CASH FLOWS	30
	GENERAL PRINCIPLES	31
2.2.1.1.	Accounting standards	31
2.2.1.2.	Estimates and judgments	31
2.2.1.3.	Taking into account the effects of climate change	32
2.2.1.4.	Operating segments (IFRS 8)	32
2.2.1.5.	IFRS 7 - Reference table	32
	FINANCIAL RISK MANAGEMENT	33
2.2.2.1.	Marketing risk for properties under development	33
2.2.2.2.	Liquidity risk	33
2.2.2.3.	Interest rate risk	34
2.2.2.4.	Financial counterparty risk	34
2.2.2.5.	Lease counterparty risk	34
2.2.2.6.	Risk related to changes in the value of the portfolio	34
2.2.2.7.	Foreign exchange risk	35
2.2.2.8.	Risk related to changes in the value of shares and bonds	35
2.2.2.9.	Tax environment	35
	SCOPE OF CONSOLIDATION	37

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		Half-yearly financial information for 2024

2.2.3.1.	Accounting principles relating to the scope of consolidation	37
2.2.3.2.	Change in holding rate and change in consolidation method	38
2.2.3.3.	List of consolidated companies	39
2.2.3.4.	Control assessment	41
	SIGNIFICANT EVENTS OF THE PERIOD	42
2.2.4.1.	Business update	42
2.2.4.2.	Vauban protocol	42
2.2.4.3.	Asset disposals	42
2.2.4.4	Sale of shares	42
2.2.4.5.	Financing and reimbursement	42
	NOTES TO THE STATEMENT OF FINANCIAL POSITION	43
2.2.5.1.	Portfolio	43
2.2.5.2.	Financial assets	48
2.2.5.3.	Investments in equity affiliates and joint ventures	49
2.2.5.4.	Deferred taxes at closing	50
2.2.5.5.	Short-term loans	50
2.2.5.6.	Inventories and work in progress	51
2.2.5.7.	Trade receivables	51
2.2.5.8.	Tax and other receivables	52
2.2.5.9.	Prepaid expenses	53
2.2.5.10.	Cash and cash equivalents	53
2.2.5.11.	Shareholders' equity	53
2.2.5.12.	Statement of liabilities	54
2.2.5.13.	Provisions for risks and charges	59
2.2.5.14.	Other liabilities	60
2.2.5.15.	Recognition of financial assets and liabilities	60
2.2.5.16.	Accruals	61
	NOTES TO THE STATEMENT OF NET INCOME	62
2.2.6.1.	Accounting principles	62
2.2.6.2.	Operating income	62
2.2.6.3.	Net income from disposals	64
2.2.6.4.	Change in the fair value of properties	64
2.2.6.5.	Cost of net financial debt	64
2.2.6.6.	Net financial income	65
2.2.6.7.	Current and deferred taxes	65
	OTHER INFORMATION	68
2.2.7.1.	Personnel expenses	68
2.2.7.2.	Earnings per share and diluted earnings per share	68
2.2.7.3.	Related-party transactions	69
2.2.7.4.	Executive remuneration	69
	SEGMENT REPORTING	70
2.2.8.1.	Accounting principles relating to operating segments - IFRS 8	70
2.2.8.2.	Tangible and intangible fixed assets	70
2.2.8.3.	Investment properties / properties held for sale	70
2.2.8.4.	Financial liabilities	71
2.2.8.5.	Income statement by operating segment	72
	POST-CLOSING EVENTS	74
3. STATUTORY AUDITORS' REPORT ON THE INTERIM FINANCIAL INFORMATION	75
COVIVIO HOTELS	75

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Half-yearly financial information for 2024

Period from 1 January 2024 to 30 June 2024	75
Statutory Auditors' report on the interim financial information 2024	75
4. STATEMENT BY THE PERSON RESPONSIBLE	77

Half-yearly financial information for 2024

1. ACTIVITY REPORT AT 30 JUNE 2024

Half-yearly financial information for 2024

Hotel market: good first-half performance

H1 2024 performance in Europe improved on 2023. At the end of May 2024, RevPAR (revenue per available room) was up 4% on average, as the European market kept up its momentum, bolstered by the increase in occupancy rates and average prices. The best performances were recorded in Southern Europe, notably Spain and Italy, which were up 15% and 8%, respectively. Germany continued to catch up, posting a 4% increase in RevPAR. Meanwhile, France posted more moderate RevPAR growth at 1%, impacted by the postponement of travel plans in the run-up to the Paris Olympics.

These trends are set to continue through June, with performance boosted by Euro 2024 in Germany but declining in Paris in pre-Olympics period.

Memorandum of understanding signed by Covivio Hotels and AccorInvest

In June 2024, Covivio Hotels and AccorInvest signed a memorandum of understanding to consolidate the ownership of jointly owned hotel operating and property companies, in accordance with the terms defined at the start of exclusive negotiations in November 2023. The transaction is expected to be closed in the final quarter of 2024.

The memorandum concerns the acquisition by Covivio Hotels of 24 hotel operating companies1 - allowing the consolidation of these hotels, which will be owned and operated by Covivio Hotels - in exchange for the transfer to AccorInvest of title to 10 other hotels, which will then be owned and operated by AccorInvest. The agreed value of the property companies transferred to AccorInvest is €208 million2, while the value of the operating companies acquired by Covivio Hotels is €266 million3. Based on 2023 figures, the assets transferred to AccorInvest represent annual rental income of €11 million, while the operating companies acquired by Covivio Hotels generate EBITDA of around €31 million.

The deal enables Covivio Hotels to acquire operating companies in major tourist areas with considerable potential for value creation through repositioning and management optimisation. Some of these hotels will continue to operate under Accor brands (under management or franchise agreements), while others will be rebranded.

Through the acquisition of shares in hotel operating companies.
Excluding transfer taxes.
Including transfer taxes.

Half-yearly financial information for 2024

The agreement also concerns the hotels held under joint ventures by Covivio Hotels, which is also the indirect owner and asset manager of another 60 hotels leased to AccorInvest and held through two joint ventures created in 2010 and 2019, respectively. One of these is 80% owned by Crédit Agricole Assurances and 20% by Covivio Hotels, and the other is owned by Caisse des Dépôts et Consignations, Société Générale Assurances, and Covivio Hotels. The memorandum provides for the acquisition by Covivio Hotels and its partners of 19 operating companies held by these two joint ventures (thereby enabling them to be consolidated as properties owned and operated by Covivio Hotels and its partners) in exchange for the transfer to AccorInvest of six other hotels, which will then be owned by AccorInvest.

These consolidation transactions for Covivio Hotels and the joint ventures represent a total of €393 million1 for the hotel property companies sold by Covivio Hotels and its partners, equivalent to that of the operating companies owned and operated by the companies whose shares will be acquired. Upon completion, Covivio Hotels and its partners will have consolidated ownership of 43 hotels and AccorInvest 16.

This hotel exchange transaction will allow Covivio Hotels to reposition a large part of its portfolio and increase its ability to directly influence performance, thereby exploiting a major source of potential growth.

€77 million in new disposal commitments signed

Covivio Hotels signed new disposal commitments totalling €77 million Group Share (€83 million at 100%) during the first half, including four hotels in Germany (€31 million), one hotel in Spain (€17 million) and 13 assets in France (€30 million), including three Accor-branded hotels.

The commitments were signed at a margin of around 11% over end-2023 appraisal values, reflecting strong investor appetite for the hotel industry.

Slight increase in like-for-like values

At the end of June 2024, Covivio Hotels held a portfolio worth €5,821 million (€6,432 million at 100%), characterised

by:

high-qualitylocations: the average grade given for "location" by customers on Booking.com is 8.9/10;
a diversified portfolio in terms of country (12 countries, none representing more than 33% of the total portfolio) and segment (68% economy/midscale and 32% upscale);
long-termleases with the major hotel operators: 16 operators with an average firm residual lease term of 11.8 years.

Group Share (€ millions, excluding duties)	Value 2023	Value H1
2024

Hotel lease properties	4 434	4 464
Hotel Operating properties	1 337	1 357
Total Hotels	5 771	5 821
Non-Stratégic (Retail)	51	45
Total Covivio Hotels	5 822	5 866
1 LfL : Like-for-like
2 Yield excluding duties

H1 LfL	Yield	Yield H1
change1	20232	20242
0.6%	5.8%	5.9%
0.0%	6.2%	6.3%

0.5%	5.9%	6.0%

10.7%	N/A	N/A

0.4%	5.8%	6.0%

At like-for-like scope, the hotel portfolio was up 0.5% over six months. This change is primarily attributable to the stabilisation of capitalisation rates and continued revenue growth driven by the good performance of variable- revenue hotels and fixed-rent indexation.

The hotel portfolio has a 6.0% average yield excluding transfer duties.

1 Including transfer taxes.

Half-yearly financial information for 2024

Hotel portfolio breakdown at 30/06/2024

Revenue growth: +5% like-for-like

The good first-half performance by the hotel market resulted in hotel portfolio revenue growth of 5.2% like-for-like, with revenues totalling €153.7 million compared to €150.1 million at 30 June 2023.

	Incom e	Incom e	Incom e	Incom e	Change	Change
€ million	H1 2023	H1 2023	H1 2024	H1 2024	Group	Group
Share	Share LFL

	100%	Group Share	100%	Group Share	(%)	(%) (*)
Lease properties - Variable	32.3	32.3	35.6	35.6	10.0%	9.3%
Lease properties - Fixed	93.5	87.1	96.2	89.5	2.7%	4.4%

Operating properties - EBITDA	31.6	30.7	29.6	28.7	-6.6%	2.9%
Total revenues Hotels	157.4	150.1	161.4	153.7	2.4%	5.2%
Non-strategic (Retail)	1.9	1.9	1.7	1.7	-9.5%	-9.3%
Total revenues Covivio Hotels	159.3	152.0	163.1	155.4	2.2%	5.0%
(*) On a like for like basis

Hotel lease properties (81% of hotels revenue)

Variable-renthotels (23% of the hotels revenue): the portfolio is mainly let to AccorInvest, in France and Belgium, and also includes the variable-rent portion of the minimum guaranteed rent leased assets located in Spain, Italy, and the UK. The 9.3% like-for-likeyear-on-year increase was driven by the excellent performance from hotels in Southern Europe.
Fixed-renthotels (58% of the hotel revenue): rents up 4.4% like-for-like, mainly due to rental indexation (up 5.6% in France, 3.8% in Germany, and 3.6% in Spain).

The occupancy rate remained at 100% across the hotel portfolio.

Hotel operating properties (19% of hotel revenue)

Most of these hotels are located in Germany (mainly Berlin) and France. Like-for-like EBITDA for operating properties rose 2.9% year-on-year, mainly driven by good hotel performances in Germany. In addition, the hotels located in Bruges are subject to a work programme.

Half-yearly financial information for 2024

Successful refinancing, competitive debt cost, and strengthened liquidity

Two new financing arrangements totalling €729 million were secured during the first half of the year, enabling the company to refinance upcoming debt payments. In particular, in May 2024 Covivio Hotels carried out a €500 million

Green Bond issue with nine-year maturity and a 4.125% coupon (148 bp spread over mid-swap rate). The fixed rate

of the issue was largely swapped for a floating rate in order to leverage the Group's hedging position.

Covivio Hotels net debt rose from €2,260 million Group Share at 31 December 2023 to €2,373 million. Over the same

period, the average interest rate improved by 11 bps, falling from 2.43% to 2.32% at the end of June 2024, while the average maturity increased from 3.6 to 5.1 years. Covivio Hotels had a strengthened debt coverage ratio of 96% at the end of June 2024 (compared with 89% at the end of 2023), with a high hedging maturity of 6.0 years.

At 30 June 2024, the loan-to-value ratio (LTV) stood at 36.1%. The interest coverage ratio (ICR) was 5.94x, a further improvement compared to the end of 2023 (5.38x).

Covivio Hotels held cash (including undrawn credit lines) of €616 million at 30 June 2024.

As part of its annual review, S&P Global Ratings confirmed Covivio Hotels' BBB+ stable outlook rating, in line with the overall Covivio rating. This confirmation recognises the solidity of the company's operational and financial profile. S&P also upgraded Covivio Hotels' stand-alone rating from BB+ to BBB-.

Recurring net income growth of 7% in H1 2024

H1 2024 recurring net income (EPRA Earnings) came to €119.5 million, up 6.6% from €112.1 million a year earlier, boosted by revenue growth. EPRA Earnings per share amounted to €0.81, up 6.6% from €0.76 the previous year. EPRA NTA (net tangible assets) stood at €3,505 million, compared with €3,550 million at the end of 2023. This amounted to €23.7 per share, down 1.3% compared to the end of 2023, despite the impact of the dividend payment. Taking into account the fair value adjustment of interest rate hedges and fixed-rate debt, the EPRA NDV (net disposal value) was €3,472 million, from €3,512 million at end-December 2023, down 1.1%. It stands at €23.4/share.

Half-yearly financial information for 2024

1.1. Net financial income

1.1.1. General principles

The interim condensed consolidated financial statements were prepared in compliance with international accounting standard IAS 34 Interim Financial Reporting, as adopted by the European Union. The rules and methods applied are identical at 31 December 2023.

1.1.2. Statement of interim net income

Group Share revenues

On a Group Share basis, Covivio Hotels Group Share revenue totalled €155.4 million for the first half-year of 2024, up by 2.2% compared to June 2023. On a like-for-like basis, hotel fixed rents were up by 4.4%, hotel variable rents by 9.3% and EBITDA from hotel operating properties increased by 2.9% compared to June 2023. This increase is linked to the momentum in Southern Europe of the activity observed during the half-year and the end of the lockdown measures in Europe.

	Revenues	Revenues	Revenues	Revenues	Revenues	Revenues	Change	Change	% of
(In € million)	H1 2023	H1 2023	H1 2024	H1 2024	T1 2024	T2 2024	(%)	COVH QP
revenues
	100%	COVH QP	100%	COVH QP	COVH QP	COVH QP	COVH QP	(%) LfL 1

Lease properties - Variable	32,3	32,3	35,6	35,6	14,3	21,3	10,0%	9,3%	23,1%
Lease properties - Fixed	93,5	87,1	96,2	89,5	44,9	44,6	2,7%	4,4%	58,2%
Operating properties - EBITDA	31,6	30,7	29,6	28,7	5,2	23,5	-6,6%	2,9%	18,6%
Total revenues Hotels	157,4	150,1	161,4	153,7	64,4	89,3	2,4%	5,2%	100,0%
Non-strategic (Retail)	1,9	1,9	1,7	1,7	0,9	0,9	-9,5%	-9,3%	n.a.
Total	159,3	152,0	163,1	155,4	65,3	90,2	2,2%	5,0%	n.a.

1: Like for Like = like-for-like scope

Operating income, Group Share

Operating income, Group Share amounted to €153.1 million at 30 June 2024, compared with €90.1 million at 30 June 2023. This change is mainly due to the change in the fair value of investment properties (+€57 million).

Net financial income, Group Share

Financial income mainly consists of:

The cost of net financial debt for -€27.6 million, down €1.8 million compared to June 2023, in line with the decrease in the cost of debt;
The financial expense on lease liabilities (-€7.8 million), generated by the application of IFRS 16, which consists of restating leases in the same way as finance leases;
The positive change in the fair value of financial assets and liabilities for €19 million, taking into account changes in interest rates;
Foreign exchange income related to our British, Polish, Hungarian and Czech portfolios for €0.4 million compared to €0.4 million at 30 June 2023.

1.1.3. EPRA Earnings

EPRA Earnings amounted to €119.5 million at 30 June 2024. It is up by 6.6% compared to 2023. Per share, the EPRA Earnings amounted to €0.81 at 30 June 2024, compared with €0.76 on the same date in 2023, i.e. an increase of 6.6%.