Good day. Welcome to the Covivio 2021 Q3 activity conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Paul Arkwright. Please go ahead, sir.
Thank you. Good evening, everyone. Thanks for being here with us on this call. Let's say this last quarter has been very active for us on all fronts, and it shows the positive dynamics that we see across all of our activities. Let's start by offices. I'm on page four of the slideshow. The last quarter has shown a catch-up in the letting activity in all of our markets, as you can see in this slide. Obviously, we are not at the level of 2019, but we clearly see an improvement since summer. We benefit from this improvement at Covivio level, as you can see on page five of the slideshow. So far, in 2021, we have signed 134,000 sq m of new lettings. This is more than what we have signed for the whole year of 2019 or 2018.
More than half of this number has been signed in the last quarter only. Our development has been a strong driver for those lettings, and more importantly for us is our capacity to continue to attract large and successful companies, as you see on this slide, like Moncler, Samsung, LVMH, Snam, et cetera. All this demonstrates the quality of our locations and of our buildings. Moving to slide six, we stress the example of Moncler. Moncler is one of the biggest successes of the Q3. We have signed with them a pre-letting in our Symbiosis area in Milan for 38,000 sq m with a 15-year lease. This project, which will create close to 30% value creation, is another success of this area. As a reminder, since the delivery in 2018 for phase 12, so the first delivery of this area, average rent has increased by 30%.
In 2021, we have signed two new headquarters in Symbiosis with Moncler and with Snam for a total amount of 57,000 sq m. For the future, we still have one building left to be developed that you see, the red one on this slide. Then we will continue with the development of Scalo Porta Romana, a land bank in the north of Symbiosis, which will become the future Olympic village, and on which we can build 70,000 sq m of offices. Our development pipeline is a success, as I said, and it's a key growth driver for us. On page seven. We delivered this quarter, two new offices in Lyon CBD and in Milan Symbiosis. Two buildings fully fitted to the way tenants are using offices today and close to be fully let. That means that the 30% expected value creation is almost secured today.
At the same time, in addition to Moncler headquarters, we committed two new projects in the CBD of Paris and Berlin. The first one, Madrid Saint-Lazare, will host our future headquarters. It illustrates all the value creation potential of our Parisian portfolio. The second project is in Moabit, in the center of Berlin. It's a redevelopment of an asset which is nearby other residential buildings that we own in our portfolio. And we expect for those two buildings, 30% value creation. Let's say finally, on office activity and moving to page eight, we also accelerated our transformation of obsolete offices into residential in France. We have committed three new projects in the last quarter. The main one is in Bordeaux, and will enable us to develop 45,000 sq m of new residential units.
At the end of September, we now have EUR 312 million committed development pipeline of build-to-sell projects with a target of more than 10% margin. I take to sum up on offices. As a reminder of our strategy, it is made on four pillars. Focus on central locations, adapt and pursue our development pipeline policy, push on services, and transform our obsolete offices into residential with additional value creation. Performance of this quarter fully illustrates the success of this strategy. Let's move now to German residential. First on the market, page 10. This market is brilliant, as you all know. Lack of offer is pushing prices and rents up.
And we believe the outcome of the general election is positive, as it insists on, first, the need to build more residential, and to improve the quality of the housing stock and to reduce the delay on building permit process. Moving to our portfolio, page 11. Our performance in this context is strong. We benefit from a 4% like-for-like growth, with especially very good performance in Berlin and North Rhine-Westphalia. The consolidation of the Mietendeckel has a positive effect, rather limited at 50 basis points. But more importantly for me is our CapEx program. That is a strong driver of the performance of this like-for-like growth, and it represents 45% of the like-for-like growth in German residential. Low CapEx numbers that you see in Berlin is explained by the Mietendeckel effect of last year.
With the consolidation of this law, we can relaunch our CapEx program, and this will drive future rental growth in Berlin, as well as it improves the quality of our portfolio. Gross potential is also valued on German residential, and moving to page 12. You all have seen, I'm sure, the Akelius transaction. This is another illustration of how low is our portfolio current valuation and how high is the potential for growth. As a reminder, our portfolio in Berlin is valued EUR 3,200 per sq m, and in Hamburg, EUR 3,800 per sq m. This is without mentioning the spread between block and unit value of 60%, as you see on this slide. Then hotel activity. This activity is also benefiting from a better environment, as you can see on the market figures that we put on slide 14. Remember what we told last July.
As soon as restrictions are lifted, hotel occupancy is recovering rapidly. This is what we see since summer. The chart on the top of the slide shows the average occupancy rate of the hotels in Europe. It's significantly improving since May, and more interestingly, September occupancy is even better than what we have seen in July or in August. This for sure drives RevPAR up, and we are still far from 2019, but we see a real catch-up since July. Interestingly is the example of Paris. You see on the bottom right side of this slide, RevPAR has increased by 63% between early September and the first week of October. This is, for us, very encouraging. What does that mean for our portfolio? I'm on page 15. Let's say our variable leases and management contracts fully benefited from this recovery.
There are many in France and Germany, they are up now year-to-date by 16% for the leases and by 10% for the operating properties. As a reminder, they were strongly decreasing in H1, in Q3 only, we see a +100% in leases and + close to 400% year-on-year growth in operating properties on the EBITDA. On fixed leases, the like-for-like evolution of the rent is impacted by the rent-free period that we gave to the tenants last year, but the collection rate is very good at 93%. Good activity in our revenues in Q3. It is also the case for our disposal plan. I'm moving to page 17. We are well on track to reach our target of more than EUR 600 million of disposals for the year, as you can see on this slide, with +EUR 110 million of new agreements.
We are now at EUR 514 million of disposals with an average margin of +3% versus the last appraisal values. Offices represent the main part of the disposal plan with a total of EUR 376 million. That means also that since the beginning of 2020, we have sold EUR 1.1 billion of offices with an average margin of +5%. All that is going to be reinvested in our development pipeline with a lot of value creation. Our positive performance of the quarter is also related to ESG strategy. You can see on page 19 that we have been awarded a high score of 90 out of 100 by GRESB, increasing by five points in one year. This level makes us one of the leaders in our category, it also illustrates the quality of our ESG policy and our ambition on this front.
As a reminder, we announced last July a new carbon trajectory with a reduction by 40% of our carbon emission by 2040 and a target of being net zero the same year. On the nine months revenues, page 21, what does all this mean for our revenues? Let's say that thanks to the very good performance of the quarter, we have improved significantly the like-for-like performance of our revenues, and we start the recovery. Office revenues are still impacted by the releases of last year and does not take into account the strong letting activity year-to-date, which is also mainly in the development pipeline. We expect, nevertheless, an improvement in the French office portfolio, like-for-like growth to start next quarter. This delayed effect on offices is more than balanced by the strong performance in German residential and the start of the recovery in the hotels.
Moving also to page 23, following the better performance of our hotel activity than what we expected, we now target more than EUR 400 million of EBITDA for 2021. Before going through your questions, just one word on the agenda to see on page 24. We will host our Capital Markets Day in Paris on December 13. It will be in person, and we really hope that we will see you all there in Paris on December 13th. Thanks very much, and I'm now ready to answer your questions.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to ask a question. We'll now take our first question from Céline Soo-Huynh with Barclays.
Hi, Paul. I've got two questions for you. The first one is on the leasing activity. Can you comment on the terms of the lease you signed on So Pop recently? Did you get the EUR 400 per sq m rent you initially targeted, and what kind of incentive level it was? The second question would be on the office pipeline. I see that you committed to new developments in the CBD for which you see 30% value creation. Does this number take into account the 10%-15% increase in construction cost the sector has recently seen? Thank you.
Yes. Hello, Celine, thank you for those questions. On So Pop, we are very close to the EUR 400, slightly below, and with around 20% rent-free period. Most importantly for me is that we have done the first step. We start to grow some pre-letting on this with a very good signature, which launch the letting process on this project. Regarding your question on the two new developments, yes, we launched two developments in the CBDs. On those, we see inflation in the construction costs. Part of this inflation is considered to be, let's say, temporary. Our development costs include a buffer on construction costs around 10%. We are comfortable on the fact that we will be able to reach those 30% value creation even with an increasing construction cost.
Thank you, Paul.
Again, that's star one, if you would like to ask a question. We'll take our next question from Florent Laroche-Joubert with ODDO BHF.
Hi. Thank you very much for the presentation. I would have maybe three questions. The first one, would it be possible to have an update on your letting activities for offices in Germany? My second question would be on the recovery of the activity in the hotels. Would it be possible to have maybe more colors on what are your expectations in terms of recovery of the activity for the next quarter and maybe the next year? My third question would be on the disposals. What could we expect for next year? Do you ambition to have also a very ambitious disposal program? Thank you very much.
Thank you, Florent. On German office, I would say this is where we have seen level of letting activity lower than in Italy and in France. The occupancy has increased slightly versus H1 2021, but not enough. As a reminder, we have three main vacancy challenge on this portfolio. One asset in Hamburg, for which we signed 5,000 sq m of new lettings. It's let at 81%. Let's say we are in the good direction. The other one is one asset in Munich, which has been fully impacted by the bankruptcy of Wirecard. It's a rather small asset, and it represents 15% of the vacancy. All the area has been impacted by this bankruptcy, so it will take time to recover. The last one, which is the most important one, is Erzbergerplatz. It's right in the center of Düsseldorf. It's where also we see the most potential.
It represents half of the vacancy of this portfolio. The asset is, as you all know, is well located, has a lot of potential with 7,000 square meters of capacity that are today unused. At the beginning, WeWork has signed a lease agreement, so WeWork was going to put CapEx on this asset. Finally, we canceled the lease agreement with WeWork, and we received an indemnity last year. We launched a CapEx program on the part that WeWork was going to take, which will also fully improve the use of this asset, open the terraces, and make really a flagship in the center of Düsseldorf. That means that it will take time to do the CapEx, and it's why also you don't see this improvement in the occupancy for this quarter, whereas we have very good figures in France and in Italy.
Okay.
Going-
Yeah.
Yeah, go on.
For the asset in Düsseldorf, so does that mean that we have maybe to wait some more quarters before having this asset totally let or?
Yes, probably.
Okay.
Moving to your question on the disposals. We will talk about disposals 2022 with the full-year results of 2021, next February. Let's say that we always have a high level of asset rotation to reinvest into the development pipeline. It's part of the strategy in offices to regularly dispose more mature assets and to reinvest into the development pipeline with high value creation and improvement of our portfolio quality.
Thank you very much, Paul. Thank you.
You had also, sorry. You had a question on hotel also, Florent.
Yes, please.
Tell recovery. Let's say summer has been very good, September also. We still have, of course, some uncertainty, but figures are very encouraging, so we expect it to continue. This is what we have in our guidance. Let's say, when we look at the forecast of specialists like STR and MKG or Oxford Economics, they are expecting a faster recovery than what they expected before summer, especially for leisure and domestic clientele. We should benefit from it within the end of the year, but mainly in 2022.
Okay. Thank you.
We'll now take our next question from Jonathan Kownator with Goldman Sachs.
Hi, Paul. Good evening. One quick question to follow up on vacancy factor in offices. Beyond Germany, can you please outline if you have big areas of vacancy in France and Italy, and what's the plan there, and how you think it's going to evolve over the next quarters? Thanks.
Yeah. Hello, Jonathan. Let's say first our occupancy on Italy offices and French offices are much higher. We are at 97% in Italy and 92% in France. We obviously have some occupancy challenges. In France, it's mostly two subjects, two topics. First one is CB21 in La Défense. We have 10,000 sq m to be let. We signed leases. We see small and medium-sized companies coming back to this market, considering the price, the level of the rents that are becoming very interesting. We signed, and we are signed since the beginning of the year, close to 3,000 sq m. One asset in Châtillon, IRO, which has been delivered in 18 months. It's partly let, notably to CMS, we still have part of the assets to let, and in this area, it's taking more time.
Most of our letting challenges today are on the development pipeline in France and in Italy, this is where we see most of the, let's say, interest coming from the tenants.
Okay, your expectation effectively is that you're seeing progress on these vacancies, you think that should decrease a bit over time. Is that fair?
Yeah, it's slower than the very good dynamic on new offices in the development pipeline, still, we see some progress and should continue over time.
Do you have big upcoming contracts expiring that you're already aware of in the office buildings?
By 2021, we don't see, let's say, major issues. Most of the lease expiries concern assets that will be redeveloped, especially in Paris. In addition to Madrid Saint-La zare, we have two more offices in the CBD of Paris that are going to be vacated by Orange and will be redeveloped. I hope we will give more detail on the next communication. For 2022, let's say we have one-third of the lease expiries will be redeveloped. One-third are already secured, so will be prolonged, and one-third needs to be managed. We will have discussion with the tenants, but we have all the year 2022 for that.
Okay. You're not counting options there. These are leases just freely expiring as opposed to break options. Sorry.
It's the next break options.
Okay.
We have discussions ongoing. I hope that some will stay, but we will see.
How big, sorry, how big are your expiry in 2022 then, the total square meters?
Total in terms of revenues, it's EUR 59 million. If I take one third of it's EUR 19 million of revenues, which basically makes 2.6% of our total revenues at Covivio level.
Okay. All right. Very helpful. Thanks.
Thank you.
As a final reminder, that is star one, if you would like to ask a question. We will now take a question from Alvaro Soriano with BNP Paribas.
Hello, Paul. Thank you for the presentation. On slide 14 on your hotels, can we discuss a little bit the stats on the U.K., how the hotel portfolio looks like in London? Just to get a sense of which city is recovering faster, Paris, London. Perhaps if you can also elaborate a little bit on Germany. Second question, you raised a little bit your EPS guidance. How should we approach your dividend for the year? That would be basically the two questions I have.
Okay. Thank you, Alvaro. I will start with the last question on dividend. We will talk about it with the full year results, next February. Regarding the activity in the U.K., let's say, on occupancy level, the U.K. in September, the occupancy levels that are quite close to what we see in Europe. With the differences between London, big cities and others, we are closer to 60%, 65% in the other cities and London is below. As a reminder, we have a MAC clause on our U.K. portfolio, which means that considering the fact that the hotels has been closed for more than three months in a row in 2021, we expect some rents, but not a lot for the year 2021.
The most part of the recovery in 2021 is coming from France and Germany, which are, let's say, the major part of the variable revenues in our portfolio.
We'll now take our next question from Oliver Rees with Surveyor Capital.
Hi. Perhaps I could just clarify the comments on the expiry. If you could just talk about the 2021, the expiries and the rental impact, and then for 2022, if you could just go through the third one more time. Sorry, I missed that. Thank you.
Sure, Oliver. As I said, 2021, most of the lease expiries concern assets that will be redeveloped. You have all the metrics in the press release that we can send you again, the numbers, with Quentin later on tonight. On 2022, office expiries represent EUR 59 million of revenues. It's 8% of Covivio total revenues. It can be split into three parts. One-third that will be, let's say, redeveloped into offices or transformed into residential, will come to the development pipeline. One-third that are already secured, let's say, no big deal on this, and one-third that are still to be discussed with the tenants. At the end, letting challenges for us in 2022 represent 2.6% of total Covivio revenues. Is that clearer for you?
Yes. Perfect. Thank you so much.
Thank you.
It appears there are no further telephone questions. I'd like to turn the conference back over to our moderator for any additional or closing remarks.
Okay. Well, thank you very much. Have a good evening, and don't hesitate to come back to me or to Quentin if you have any further question. Bye-bye.
Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.