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As with all its peers, indexation accounts for most of the growth in revenues. Inflation will continue to support 2024. The occupancy ratio did not deteriorate in Q3 23. Disposals are continuing, with greater concessions on the sale price of offices in Q3 23, in a transaction market that has contracted sharply in recent months.
Companies: Covivio SA
AlphaValue
In spite of a top line up 8% lfl, negative revaluations captured the attention in H1 23. Both Offices and German Residential registered -9% yoy, two thirds of this in H1 23.
The Q1 23 is almost the last quarter of accelerated consolidated catch-up attributable to a strong positive base effect from the Hotels division. Inflation is supporting rents in German residential and Offices but the vacancy rate for the latter surpassed the unprecedented 10% mark in France in Q1 23.
Beyond a “record performance” (management quote), Covivio guided for a lower FFO in FY 23, even if almost stable at constant perimeter. A great portion of the 2023 dividend will be paid in scrip and Covivio will accelerate its disposals in 2023-24. Not a sign of great confidence.
Hotels drove the bulk of the 9M 22 recovery. Offices now account for the rising contribution from inflation. This could help limit further downside in the share price.
French offices were resilient in Q2 22 due mainly to indexation’s contribution but German residential demonstrated a further good performance, at first glance. As expected, hotels’ powerful recovery explained the bulk of consolidated top-line growth.
The incremental contribution from Hotels will offset stable Offices for a while and lead to a positive lfl consolidated performance in FY 22. So far so good.
If the absence of strong negative news is a positive, then Q4 21 was also positive. Offices eroded only slightly and German Residential performed more than enough to offset Offices’ flattish behaviour.
Take-up was up in European Offices in Q3 21, however vacancy was stable sequentially and lfl growth was negative, especially in France (-4%). Residential Germany was the key driver of the consolidated 0% lfl
It looks like the crisis hasn’t impacted Covivio that much. However, both rising vacancy and incentives in the region of Paris in Q2 21 (offices) are a persisting concern. Short-term catch-up continues.
Aside both the unsurprising performances of Hotels (-46%, but RevPar down 84%) and German Residential (+3.4%), European Offices were down 1.1% lfl in Q1 21. Our estimate was a positive 0.5% in Q4 20. Revenue now embarks the rising vacancy of Q2-Q3 20 in full.
The first cracks were confirmed in peripheral locations as far French offices were concerned. Hotels were experiencing the all but surprising collapse without accounting for a strong cut in book values. German residential was supporting the big picture.
The increasing vacancy was the premise of negative organic performance as from Q4 20 in the Office segment. Some recent deliveries could mask an organic decline for a while (Offices), as far as consolidated figures are concerned.
Values were almost stable in H1 20. Neither valuers nor the transaction market itself acted in the new reality. We observed a yield compression of 10-20bp on the full portfolio despite negative macros.
Forget the insignificant (good) Q1 20 figures. The current discount of c. 40% vs. the latest NAV (December 2019) will be consumed by progressive dilution (dividend in scrip), write-off of GAV (10-15% as a minimum), and a remaining ex-post discount of 20-25% only. The safety harness looks therefore insufficient, should values be down by more than the above-mentioned 10-15% mark.
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