Thank you. Good evening, everyone, and thank you for being in this call. Well, let's present this Q3 2026 activity. I would say that overall it has been a good quarter for Covivio, with an acceleration of our organic revenue growth when we compare to the first half, supported by strong operational activity. Let's start directly, page four of the presentation with the revenues. I'd say the main message is this acceleration of the revenue trend, both at current scope and on a like-for-like basis. At current scope first, as you can see, the revenue was almost stable, - 0.4%, compared to - 2% at the end of June.
This improvement reflects the fading of the negative base effect of CB21 indemnity that we received in the first half of 2025, but also the effect of the hotel acquisitions that we have made over the start of this year, 2026. In parallel, like-for-like revenue growth accelerates to 2.7% compared to 2.2% at the end of June, mainly driven by offices. We will see that later on. Occupancy rate remains high, 96.4%, and very good visibility on future revenues, thanks to 7.6 years average lease term as of today. If we look at the different business line and starting with Offices, page five. As I said, increase in the like-for-like rental growth for offices over this quarter. We end up at 2.5% growth compared to 1.6% at the end of June. There is two main elements to explain this performance.
The first one is occupancy gain in France with the start of new leases, especially in CB21. The second one is in Italy, with the start of the new leases that has been renegotiated on Torre Garibaldi and on the Symbiosis District in the south part of Milan. You see the + 0.5 point of reversion in this like-for-like rent growth. When you look at the right part of the slide, moving to occupancy, we have a 94.2% occupancy rate at the end of September. The evolution versus June is directly linked to the delivery of Beige building in Paris CBD that has been made in September this year. If we exclude Beige, we would have the same occupancy rate as at the end of June.
We have, let's say, a good pipeline of discussion on this Beige building that make us optimistic for the months to come in terms of occupancy rate for this asset. The leasing activity has been strong. Let's move to page six. I would say despite a muted letting market, this is, for me, the illustration of the polarization of the market and the fact that our portfolio is on the right part of this polarization. Second, the quality of our assets, the quality also of the way we manage those assets. We end up with 149,000 sq m of letting and renewal at the end of September, which represent EUR 44 million of annual rents.
As you can see on the left part of the slide, long-term visibility with eight years average lease term on average for the lettings and 16 years for the renewals. We put some example of the main letting successes of this quarter with the pictures. First, CB21. You see that we have increased again the pre-letting of the development part of the tower from 32% to 41% at the end of September. Beige, as I said, is let at 42%. We also made significant progresses at Grands Boulevard in Paris. This asset will be delivered at the end of 2027, but it is already pre-let at 30% considering the agreement we signed last week on 2,000 sq m at an attractive rent of above EUR 1,000 per sq m.
We have made also further leasing successes in other locations in Paris that are not in the CBD, demonstrating here again the quality of those assets. Ménilmontant has been vacated by Orange this year and is already fully re-let for 4,000 sq m. Art&Co on the right part of the slide. One tenant will vacate a part of this building at the end of 2027, but we already secured one-third of this future vacancy during this quarter. Finally, and interestingly, you see So Pop in Saint-Ouen. We are in the frontier with Paris. But in a district which is difficult in terms of letting activity, and despite that, we are able to further increase the occupancy rate, and we are close to 100% occupied for this building in Saint-Ouen. Let's move now to the releases, page seven.
Over the first nine months of the year, we record 51,000 sq m of releases, which represent around EUR 13 million of annual rents on a group share basis. Around 60% of those releases are already relet as of today, and 10% concerned assets that will be redeveloped. You see that on the right part because it is assets that have been vacated actually during the Q3. It is first of all Louvre building. It is located in the CBD of Paris. It will be fully redeveloped into a prime office building, which will enable us to significantly increase the level of the rent from EUR 470 to EUR 1,200 per square meter. We already have a building permit on this asset. The second asset that has been vacated in Q3 and is on the right part of the slide.
It is an office building in Massy-Palaiseau in Greater Paris, and it will be transformed into residential. For this one, we also got the building permit during the quarter. Finally, in term of releases of the Q3, you see San Fedele 4. It is an asset which is in the CBD of Milan. It has been vacated by a bank, and it is already 76% relet, and we have discussion ongoing, so we should be able to fully relet it by the end of this year. These example show again the opportunities for us to increase the rents or to optimize the value creation through transformations. Moving now to Hotel, page eight. With 2% growth on a like-for-like basis for this activity.
It's not in the slide, but on the current scope, we have +5%, as I said before, linked to the acquisition made earlier this year in Spain and in Milan. If we go back to the like-for-like basis evolution, split it in two parts. First of all, the variable revenues, which account for 45% of the Hotel revenue. Those revenue increased by 2.6% thanks to good performance overall. I would say apart Belgium, which is linked to the VAT increase, it was already the case during the first half. On the other part, especially in Spain and the U.K., the performance has been very strong. On fixed leases, we have 1.6% growth, which is a little bit better than at the end of June and linked to the first positive effect of indexation here in Germany.
We expect indexation to improve also in France and the U.K. starting in 2027. On the hotel, in term of activity, if we move to the next slide, page nine, three main elements. The first one is the fact that we change the hotel operator in our German residential portfolio under our management contract. It's six hotels that are now managed by Radisson for the Park Inn in Berlin and Odyssey for the other hotels. Thanks to that, we can count on an uplift of our EBITDA for this portfolio of 8% on a run rate basis. The second main news is the signing of two management contracts on our office to hotel transformation. One with IHG on Voltaire and the second one with Generator in Bobillot, in Paris for an urban hotel that will be delivered in 2029.
Those two hotel will enable us to reach out the 7% yield on total cost for those projects. Finally, we continue to deploy our refurbishment program on our value added hotels with one new project in Toulouse launched in Q3, which lead us to 12 projects ongoing as of today for 13% yield on the CapEx. Last but not least, German residential, moving to page 10. 3.4% like-for-like rental growth for this activity. Same trend as at the end of June, thanks to a strong performance across the board, especially in North Rhine-Westphalia, and a sustainable high occupancy rate. You see 98.4%, showing the structural imbalance between supply and demand in this market. Overall, the pursuit of a good operating performance that we already commented it, in July this year. In parallel, during the Q3, we also reinforce our balance sheet, as you can see, page 12.
At the end of July, we successfully issue a EUR 500 million green bond with a seven-year maturity at attractive conditions that you can see on this slide. We also signed EUR 100 million new revolving credit facility during the quarter, which enabled our liquidity to stand at EUR 1.9 billion at the end of September, and which fully covered the debt maturities until June 2029. In addition, and in the context of increase of short-term and also medium-term interest rates in the market, of course, we are not immune to that increase, but I would say that we are protected. You can see on this slide that 80% of our debt is hedged on average by 2030, and we expect our cost of debt to progressively increase up to 2.5% through 2029. Overall, and to summarize this presentation, page 14.
First, we benefit from the quality of our portfolio and for our diversified business model in terms of asset class, in terms of geography, which is today in this current environment, a strong advantage. Second, our operating performance remains solid across the board, as we just saw. Third, in parallel, we further reinforce our strong balance sheet during this quarter. Thanks to those different elements, we confirmed our guidance for the year 2026. As you can see, page 15, with a +4% growth per share of our recurring net results expected. Thank you. I am now fully available to answer your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. If you wish to remove yourself from the question queue, you may press star and two. The first question comes from Ibrahim Houmani from CIC. Please go ahead.
Hello, Paul. Thank you for taking my questions. I have three, if I may. The first one is about CB21. The redevelopment is at 41% pre-let. Where are the incentives, versus 30%-35% seen on the 2025 relettings? I would ask my three questions in a row. The second one is about hotels in France. Have you already noticed any impact the current situation in Paris, or do you expect any impact? My last question is about valuations. Have discussions with appraiser started for the H2 campaign? Given the rise in rates, do you expect a yield expansion in Paris and Milan? Thank you very much.
Hello, Ibrahim. Thank you for your question. If I remember well, the first one is on CB21. The level of incentives is comparable to what we have seen last year in terms of letting. That means indeed 30%-35% gap, versus the level of the rent. What is interesting in those last lettings that we achieve for the upper floor, EUR 570 on a top-up basis, which I would say demonstrate the good quality of the project that is ongoing and the attractiveness for the tenants. On the Hotel, following the unrest in France, any impact on our Hotel performance? I would say that at this stage, we have not seen a material impact. None of our hotel has been materially affected by what happened during last weekend. We do not see a meaningful change in the booking patterns that we have currently.
Of course, it is as of today, so if it continues over following weekend, it would be probably different. Keep in mind that November and December are, let's say, low, in term of impact on our results. The level of activity, it was low during those months. More broadly, I would say that this hotel activity continue to be very supportive in France for the moment as of today, but also in the other countries. We actually see in September, better figures than what we have seen before summer. In term of value, well, we didn't really started fully, I would say, the present campaign. We had first talks with the appraisers, of course, but we didn't really received feedback yet on the valuation trend.
I would say that of course, due to higher interest rates, if it continues like this, it will have an impact on the cap rates for the assets. At the same time, as you have seen, we continue to benefit from strong operating performance. We don't expect the same impact depending on the location. You mentioned Milan, which is doing well on the Office. Hotel is doing well also. If I sum up, I would say that at this stage, we should expect a slight decline in the portfolio value on average for the second part of the year. But again, we didn't receive the feedback of the results as of today.
Thank you very much. Very clear.
The next question comes from Ana Escalante from Morgan Stanley. Please go ahead.
Hello. Good afternoon or good evening. My first question is on Berlin expropriation risk. If you could share some of your thoughts at the moment, how you are addressing that potential risk and anything that you could share on that behalf would be much appreciated.
Hello, Ana. Well, of course, we follow the evolution of this longstanding story. What we can say in term of news is that the most probable new coalition in Berlin has given some indication on how they want to move forward on their socialisation project and, with the aim to make it effective by 2029. In parallel, the federal government, again yesterday, confirmed their willingness to avoid this expropriation. I think that by 2029, we can be comfortable on the fact that they will be able to put a law to prohibit expropriation to this extent. We rather expect this law to come, I would say, beginning of 2027. We continue to believe that it's a remote risk for us.
Okay. Apparently, there's some legal advice that's suggesting that this law would be a little bit difficult to pass because, it's difficult from the federal perspective to issue a law that's a prohibition on something. Is that something that you are particularly concerned about? Are you thinking that the uncertainty until 2029 or earlier, if that law comes through, will impact your privatization program? Anything on that?
Yeah. Well, there is also lawyers that consider that the expropriation project is unconstitutional. We see a lot of things on different fronts. What I think we need to keep in mind is, again, which has been confirmed by the federal government yesterday, is at the end of the day, it's about the attractiveness of Germany for investors, not only for residential, but for any investment project. Their willingness to avoid this expropriation is very strong. Again, the arguments on the anti-constitutional of the project of the Linke is also very strong. It brings uncertainty for sure, as it's part of your question. That makes the investment market more difficult in the German residential area, and more specifically in Berlin. I would say on privatization, maybe less because privatization is for the own usage at the end of the day.
We continue to push on this front. The difficulty is more the rotation of the tenant to be able to sell vacate assets. We are monitoring the possibilities also to put more assets into the market in order to increase privatization next year.
Okay. Thank you very much. My second question is on your Office like-for-like rental growth, which I believe you say that part of that, around 1.3 percentage points, come from occupancy gains are mainly driven by the leasings in France over the third quarter. Could you please help us understanding what exactly the criteria you use to include and exclude assets in the like-for-like? How many of these specific examples of leasings in Paris that you have provided are already included in this like-for-like occupancy contribution?
Yeah. The assets that are excluded are in the development pipeline. In the report that we give for the half-year results, you have the list of the assets. There is a development part of CB21, which will be delivered at the end of 2027. There is Grands Boulevard, for example. I think that the main asset that remains in France, there is Via Parini in Milan, which is under development. That is the list, and we can provide it again to you if you need. The occupancy rates that we provide are secured occupancy rates. The effective occupancy rates, you have it in the EPRA occupancy rate that we publish, also in the half-year and full-year report.
This positive effect on the like-for-like is linked to the fact that the secured leases that we have signed over the past quarters started this during the Q3, especially in France, and enable us to have an increase of the revenues during the Q3.
Okay. Thank you very much.
The next question comes from Aakanksha Anand from Citigroup. Please go ahead.
Hi. Good evening. Can you hear me all right?
Yes. Hello.
Hi. Two questions from my side. The first one just on the Office like-for-like. There's definitely been improvement there if you compare it to H1. I'm just wondering if you could just put some more color around the drivers for that, if that is a pace that you expected to continue in the final quarter of the year. Probably where do you see medium-term like-for-like rent growth for offices from the visibility that you have at the moment? I'll go with the questions one by one.
Okay. On the like-for-like, we expect this trend to continue during Q4. We should be at least at the same level of like-for-like, for the Office, by the end of this year. We have, I would say, a good level of pipeline in term of letting for the development part of CB21 and for Beige. We also expect to continue to have progresses on the occupancy rate on those assets in the following months. You had-
Just on the medium-term office like-for-like where do you expect to see it kind of settling down?
Yeah. On the medium-term, it will depend on the letting activity for the months to come. As I said, the pipeline is pretty good, but we need to sign those discussions. The other thing is indexation, and indexation should be better in 2027, mechanically linked to increase of inflation, when we compare to 2026. It will be also a positive driver for the performance of offices, I would say more in the second part of 2027 due to the lag effect that we have in the indexation structure in France. This will be positive.
Okay. Sorry, I am just going to press on it a little bit more. Is it reasonable to expect it reaching the 3% mark on the office's like-for-like, or do you think a 2%-2.5% is a more realistic?
Yeah. You know that we do not give guidance for this kind of thing. I gave you the main hypothesis to make us, I would say, optimist. Then, we do not give guidance on like-for-like revenue growth for the different business units that we have.
Okay. That is understood. My second question is just on the capital allocation priorities, just noting the high liquidity levels, right? As far as I understand, the debt is hedged up to 2029. That cost of debt is managed. How much firepower do you have beyond the committed CapEx at the moment? What are the respective priorities for that capital allocation if we think about it in terms of standing acquisitions, developments, or just potential share buybacks given where the stock is trading?
Yeah. Thank you for this question. Capital allocation, we see that based on the environment and also the level of the quality of the balance sheet that we have and the committed CapEx that we need to deploy. The environment is, I would say, more difficult, as you all know, with the increase of interest rates, especially since summer. That make us more cautious on capital allocation and that means that we want to limit and for the moment, we decided to stop any acquisition, to limit CapEx and to push forward on further disposals in order to keep a strong balance sheet in this environment. Following the first question that has been raised in this call, we see that cap rates in the market will probably increase following the increase of interest rates.
We are cautious and to this extent, we want to have a balance sheet which stays at the right level and stays very qualitative as of today. We do not plan any share buyback that would increase leverage as of today.
Perfect. That is very clear. Thank you, Paul.
Thank you.
The next question comes from Véronique Meertens from Kempen. Please go ahead.
Hey. Good evening, Paul. Thank you for taking my questions. Maybe first to follow up on those disposals. I believe in the press release it does mention EUR 300 million disposals still to be closed. I believe at half year it was around EUR 200 million. Did you actually sign EUR 100 million of new disposals? In what areas or assets were those disposals at? What kind of yields should we think about?
Hello, Véronique. We signed rather EUR 40 million of new disposal agreement during Q3. We were, I think, at EUR 250 million of disposal agreements yet to be cashed in. Today we are at EUR 300 million, which make us, let's say, fully cover the CapEx program. Those disposal agreement have been made in offices in the regions in France, if that was your question.
Yeah. Okay, perfect. Thank you. One follow-up on Berlin and Ana's question. I was just curious, and I appreciate that you say that the chances of it actually happening are small in your opinion, but are you actually preparing for the worst-case scenario in the sense that obviously you don't have as such a big of a portfolio as one of your peers. Can you actually create structures that make you exempt from this ruling, given that there's a hurdle of 10,000 units, or is this not something that you're working on at all?
Of course, we have multiple options and we are working on different scenarios. Again, we strongly believe that it won't happen, but we also have the different scenarios that you can imagine. I won't develop it because there is a lot of things, but it's on the workshops.
Okay. Thank you. Lastly, on Berlin, some of your peers have been more cautious in pushing rents in that area because of the political sensitivities. Is that something that you are doing as well, as in not pushing rents to the maximum that you're allowed to?
Yeah, we are a bit cautious on rents, but we plan to imply the full Mietspiegel figure under, of course, the bound of the RC rules that is 30% of the revenue of the tenant. Two-third of our tenants already accepted the new Mietspiegel figure, and discussion are ongoing with the remaining parts. That means that this effect of the Mietspiegel figure is rather for 2027.
Okay. That's clear. Thank you.
Thank you.
The next question comes from Jonathan Kownator from Goldman Sachs. Please go ahead.
Good evening. Thank you for taking my questions. Just to follow up on that Berlin Mietspiegel figure, can you just clarify a bit if you are planning to apply it into Q1 or if you would apply it progressively, when are we going to see the impact on the rental growth, please? The second question, just to come back on the point on capital allocation, lower CapEx, lower acquisition, does it have an impact already on your 2026 guidance and why you are reiterating perhaps as opposed to anything else, and how you envisage the impact into later on? Thanks.
Yes. Hello, Jonathan. First of all, on the Mietspiegel figure, the impact will be progressive, following the acceptation of the tenant. It should start at the end of this year and progressively over 2027.
But there is no impact at Q3, right?
No. Not at all. That explains also why the like-for-like in Berlin is lower in Q3 than in H1.
Yeah.
I don't expect many impacts for the year 2026. On capital allocation, it has no impact on 2026. It's a long-term process on this kind of thing. The will for us to do more disposals is rather for 2027. So no impact for 2026.
Okay. That's clear. Do you feel essentially content there's no more variable in your guidance for 2026, essentially? Or are there still some variables?
Yeah, there's still a bit, but I would say it's mostly secure.
Okay. Thank you.
The next question comes from Florent Laroche-Joubert from Oddo BHF. Please go ahead.
Hi, Paul. Thank you for this presentation. I would have only maybe one question, on your leasing activity in Offices in Paris and notably on the CB21 tower. We have been able to see some progress this quarter in July. We understood that you were very positive maybe to be able to let all the development part of the tower by the end of the year. Are you still so optimistic to let the last part of the tower by the end of the year or in the coming months?
Hello, Florent. I mean, we have a pipeline, which is basically we have 10,000 sq m of advanced discussion for this tower. If we succeed, that would enable us to fully let the development part of the tower. We continue to target this full pre-letting by the end of the year.
Yeah. That is really interesting. Maybe a follow-up question on the guidance. I know that the guidance maybe will include some variable revenues from your different business lines. Based on the activity that we have already seen at the end of September and what you can budget for the end of the year, how do you feel you are in line or above the budget for this variable income compared to the guidance?
Well, I would say overall, we are comfortable on the guidance. We are at the end of October, so as I said, the main variable income is on the Hotel in November and December are, let us say, lower months in term of activity for the Hotel business. So we are comfortable on our guidance that we gave to the market for the year 2026.
Okay. Thank you very much.
As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Stéphanie Dossmann from Jefferies. Please go ahead.
Yes. Hello, Paul. Most of my questions have been answered, but maybe some details, figures, going forward, I would say. What is your expectation on the indexation in France for next year, please?
Hello, Stéphanie. A progressive increase of indexation, I would say, in France. We will give you more details with the full year results in February. But as I said, we should have an increase which will be progressive, mostly in the second part of the year.
Okay. But below 1%?
I would say we should be above that.
Okay. Thank you. Regarding the expropriation debate in Germany, I appreciate you have many scenarios currently, but did you make any calculation of the estimated losses or the average compensation per apartment, those kinds of metrics?
No, because this expropriation project has changed also during the last months. The project of last week is different from the one before summer, the conditions, et cetera. A lot of things that are not clear. It is not possible to have, say, something which is credible in term of impact. Again, we do not believe that this expropriation could happen in any case. We did not make this kind of calculation.
Okay. Thank you. That is all for me. Thank you.
Thank you very much.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Arkwright for any closing remarks.
Well, thank you again for listening to the call. Do not hesitate if you have any follow-up question to reach myself or Anne-Sophie during the following days. Have a nice evening. Bye-bye.