Good day, and welcome to the Covivio First Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to the CFO, Tugdual Millet. Please go ahead.
Yes. Good evening, everyone. I'm pleased to present to you the Q1 results and review on activity. Then we will be available with Paul to answer to your questions. First, page four, I wanted to start this presentation with sharing some encouraging signs of resiliency of the office market in Europe with the updated figures that we collected for this first quarter. I have to say that both on letting side and investment side, we see comforting dynamic with overall comparable level of take-up between Q1 2020 and Q1 2021, showing a catch-up effect with rent stable. Transaction evidences demonstrating that on good assets, price continue to be well-oriented. Page five.
This is also what we feel on the ground with an important increase in the amount of discussion on vacant spaces. In the transaction that we have been able to sign during this first quarter. First, on the main letting challenge that we shared during this full year presentation. On four out of the six most important buildings where we have letting challenge, we have been able to increase occupancy in France and Germany mainly. Second, in Milan, the dynamic is very strong again, as we've been able to sign deals with 22% positive reversion effect. Finally, more than before, the capacity for our clients to team up with flexible real estate operator has proved to be rewarding for us. Two interesting transaction demonstrating also the need for offices.
The first one is Onepoint, a very successful digital company, has decided to sign a new 9,100 sq m lease on a future development in Bordeaux. We own their headquarter in Paris that we delivered to them a few years ago. A very good example of partnership. Another interesting example is Eiffage, another long-term partner with which we signed a lease extension on their whole headquarter for a new 10-year lease at the same rent. Page six. One of the good news of this Q1 is on German resi. This important news, that is the entire cancellation of the controversial Mietendeckel law, which enable us to deliver positive figures in Berlin consequently. We have decided to come back to the contractual rent and ask for the previous rent to our tenants.
Obviously, being very careful with our clients that could have some difficulties, we will end them finding constructive solution. On the other part of the portfolio, we continue to have strong growth, thanks to reversionary and also CapEx program. On hotels, page seven, Q1 has been again very difficult due to the current situation. The Q1 has shown a clear difference between performance in France, where we have one-third of our portfolio versus the rest of Europe. We expect that following the acceleration of the vaccine in Europe, the constraints will be progressively eased and then removed. The example that we see of the U.K. is in this respect interesting to follow, we also see that clients are in the starting block for booking hotels in the near future, as shown in the graphs on the right-hand side of this slide seven.
Page eight, what does it mean precisely for our revenue? Let's first focus on office and resi, where overall revenues are almost stable at EUR 130 million and slightly positive on a like-for-like basis, plus 4.3%. The negative impact on the offices is mainly explained by negative indexation and slight decrease in occupancy rate in 2020, having a full year effect now. Finally, on our hotel portfolio, we show a decrease of -46.2% on a like-for-like basis, considering the fact that the COVID effect has impacted hotels starting only mid-March 2020 after two and a half months of good performance. This -46% is a bit better than what we experienced during the full year of 2020. Page 10, on the portfolio side. This slide is a reminder of what we presented during full year results.
The Covivio office portfolio is mostly exposed to the most important European cities, among which Paris, Milan, and the top five German cities, the portfolio rotation that we regularly achieved as developers to refocus it on the inner cities and most connected assets. Our roadmap, page 11, in this context is at the end fairly simple. More CBD and particularly strong location and connection, thanks to the pipeline and the disposal plan. Increasing opportunity to transform office into resi if needed. Last, more services and flexibility to address the additional requirement of our clients. For the first objective, page 12, the beginning of the year has been fairly successful, with EUR 500 million of transaction, of which EUR 278 million cashed in that were under preliminary in 2020 with 8% premium on last book value.
Second, EUR 221 million of new commitment, mostly offices in France, Italy, and Germany, with 6% premium on end of 2020 appraisal value. We are consequently on track on our disposal plan objective of more than EUR 600 million. On the pipeline then, page 13, we will have a significant activity in terms of investment delivered this year, with close to EUR 500 million. What I want to stress is the strong success of those new products. We have an average of 82% of pre-letting level on this pipeline. I would say the pipeline of the letting discussion for Silex in Lyon or Symbiosis in Milan is really encouraging, and we should benefit from the value creation of this pipeline also this year. Another good news, page 14, for future value creation is the obtainment of the building permit in Alexanderplatz in Berlin.
We are now launching this iconic mixed-use project in the city center of Berlin together with our partners, Generali and Coveris. Finally, page 15 on transformation of offices into resi. We have currently in France, three projects ongoing, 100% pre-sold, and we are now working on five new projects that will be launched this year for more than EUR 200 million budget in former Orange or EDF office assets. Moving then to slide 17. During the first quarter, we received our definitive figures of carbon intensity on our portfolio that we share now. As a reminder, we set ourself a challenging target of carbon reduction of 34% by the end of 2030. The target that has been validated by SBTi, and ambitious because it does include all emission scopes, including construction activity.
At the end of last year, we were able to reach minus 20% ahead of scale. Last but not least, to finalize this presentation, some changes in the Covivio senior management. Following the announcement of Dominique Ozanne to leave the company for an entrepreneurial project, the management of Covivio Hotels will evolve with myself, that will take the new role of CEO of Covivio Hotels, teaming up with Elsa Tobelem, who will be the Deputy CEO. Elsa has worked for more than 15 years in Covivio Hotels, and specifically involved on the asset management side and investment side. Paul will then become the new CFO of Covivio, and all this will be implemented starting 1st of July.
We have to say that first, I'm enthusiastic about this new role within Covivio, and that also I'm very happy of this evolution of Paul that you all know, together with the finance team. I'm convinced that he will succeed in this nice evolution. This is then my last presentation to you as a CFO, obviously. Now, I'm happy with Paul to answer to your question. Thank you very much.
If you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. The first question today comes from Pierre Galichon of Kepler Cheuvreux.
Yes. Good evening. First of all, congrats on your new position. Actually, I have only one question. It's on the guidance. I do not see any mention on the guidance. Does it mean that it's canceled or not at all?
No, that means it has been confirmed again. It's obviously too early to review this guidance. We will give more update probably for half year results. This would be also mid-year that we will give more color on the different activities and would be the occasion to be probably more precise on this guidance.
Okay. There is no reason to be worried on this guidance then. Just to follow up on that, what are your expectations on the potential recovery of the hotel business? Maybe just to come back on the U.K., given the nice vaccination progress that has been achieved in the U.K., are you expecting a nice recovery in the U.K.? In the end, do you think that you will receive at least one EUR of tranche in U.K. in 2021?
Yeah, a lot of not so easy question. I would say first, obviously, the more we move forward with the vaccine and also the arrival of the summer period, the more we are, I would say, optimistic on the recovery. Nevertheless, as we said during full-year results, we remain cautious and we expect mostly an acceleration, probably starting during second half and more specifically on the U.K. I have to say that, as I said during the presentation, this is a really encouraging news. This is also a market that is mostly, and specifically on our portfolio, mostly domestic. All this is positive. Would it be positive enough to trigger a significant amount of rent for 2021? I think we need to remain cautious. I hope that it will be the case, but the next few months will be really key to have more precise impact on that.
Obviously, we will have, I'm sure, clearer view on all that for our half-year results.
Okay. Thank you.
The next question comes from Florent Laroche-Joubert of Oddo BHF.
Hi. Thank you for the presentation and congratulations for your new positions, for you Tagdual and Paul. I would have two questions, if I may. First question, is it possible to have an update on your discussions, in offices in Düsseldorf and in Hamburg? The second question will be on German residential. Can we say that the court ruling will change something in your strategy in German residential?
Okay. On the first question, when we mentioned the fact that there is increasing discussion on leasing opportunities, that was specifically on our two assets in Hamburg and Düsseldorf that are among the top six assets that we want to optimize in terms of occupancy. As you probably saw, we've been able, in Hamburg, to increase the space of an existing tenant, adding 3,000 sq m on top of what he had previously. We have other interesting discussion to follow. Really, the level of activity has picked up recently. In Düsseldorf, we have also interesting discussion on, let's say, between 4,000 to 10,000 sq m. As you probably could expect, it's long discussion. It's live discussion, and I hope that, again, on this aspect, we could have good news for half-year results. Things are progressing. This is the case in Germany and also in France.
As we said, there seems to have a more positive news flow that enable companies to be a bit more optimistic in the future. On German resi, we are, and we share with a lot of other people, the fact that we hope that law to be unconstitutional. We have been, I would say, positively surprised by the, at the end, it's a bit earlier than what we expected, and it's much clearer also than what we expected. All this is positive and support the fact that we strongly, and we will continue to strongly believe in the Berlin market. No, I would say, change on this part. What we change, and we went to that during full year results, is that probably on the development pipeline in Berlin, we are more moving on the development to rent strategy than previously a development to sell strategy.
That's the main impact, but was anticipated.
Okay. Thank you very much.
Again, please press star one to ask a question. The next question comes from Jonathan Kownator of Goldman Sachs.
Good evening, everyone. I hope you can hear me.
Yes.
Congrats on the promotion as well. A few questions for me. In your guidance, if I remember correctly, you had the negative impact of Berlin within the guidance for EUR 5 million-EUR 6 million. Should we expect a reversal of that impact? Would be the first question. On the second question, office to resi conversions, can you perhaps help us understand better the economics? Obviously, you've announced new projects. What is the type of economics that you're getting on these conversions? Whether it's sort of profitable or whether it's a mitigation for an office that is getting obsolete, is rather the question. On German resi as well, I think you've said that you wanted to claw back previous rents unpaid. If you can confirm the amount of that, and the decision to do that versus Vonovia, who said they wouldn't claw back previously unpaid rents. Thanks.
Okay. On the first question, you got it right. It's what we said. What we took into account in the guidance is the negative impact of this regulation of around EUR 5 million-EUR 6 million. This could have a positive effect, obviously, on 2021. We have given, I would say, a guidance that is with EUR 380 million-EUR 395 million. This is large enough to have plus and minus, and that's why I insist again, it's a bit too early to give more precise guidance. Obviously, with this news, we are a bit more comfortable and optimistic, but to be more precise, we will have to wait until end of June. On the second question on office to resi, it's really a strategy that is with the objective to preserve the capital.
Preserve the value as soon as the office tenant is leaving, and preserve, or I would say maximize versus an alternative use. What we have, I would say, to give more precise figure in terms of expected return on this redevelopment, obviously it is profitable. What we expect when we launch this program is to have around 10% return on this development to sell strategy. 10% on the basis of the last preserved value of the program, and that is why we are doing this activity. That's something that we will achieve also in the new development that are coming at the end from former asset that were, as I said, occupied by clients like Orange or EDF, that were previously big size asset in not so tertiary or purely office environment. The best alternative use is obviously resi.
Having the capacity to do that on our own is really positive to preserve the capital and the value on our balance sheet and the profitability. On your last question, yes, that means that we will claw back the previous rent. In 2020, as it will be the case for most of the landlords in public or private in Berlin, except, as you said, Vonovia. For us, it's a few million EUR. Obviously, we will be very careful if we feel that for some clients it's difficult, and we will find, obviously, and I'm sure, easily, some solution for those who have those kind of problems.
Does that mean, sorry, on German resi, that you are going to slow down on privatizations? Or are you intending to continue your program?
Privatization has not been, so far, a big program for us. It was increasing, but still small in the, I would say, profitable profile of what we have in Germany. We will continue to do so, as that's always been an interesting booster to the performance. At the end, limited in terms of volume when we compare also with the asset rotation that we could have done in the past.
Okay. Thank you.
The next question comes from Marie Dormeuil of Green Street.
Hi, good evening. Just a question on my side with regard to the office market, maybe the French office market. For the new leases that you've signed, can you give us a sense of how the rental level compares to what you expected? I'm thinking about the new projects you're launching. For the leases that you're signing on your existing assets, again, can you give us a sense of how the rental level compares to previous rents, but also to market levels? If anything, just give us color on tenant incentives. That would be helpful.
I will let Paul answer to this question.
Yes, Marie. Hello. Basically, you've got some details on page five, actually. We were able to sign new leases in Paris and in Milan, in our city, above the previous rent. Whereas in La Défense, on our CB21 asset, we are minus 12% versus the previous rent. On the development pipeline, I would say interestingly, we have been able to reach record levels in Silex 2 in Lyon, which is right in front of La Part Dieu station, right in the CBD of Lyon.
Can you hear me?
Yes.
Hi. Sorry. My line was not good. Okay, understood. Just on Gare de Lyon, you mentioned a record 22% uplift on rents. I guess the reason, and I'm just guessing, is it was just an old lease that expired and it's just the uplift to market level. Is that fair to say?
That's correct. It's a lease that was rather old, we were able, with those new signings, to crystallize the reversionary of this asset.
Got it. Do you see any changes in terms of I guess here we're talking headline rents. Have you had to grow incentives or maybe bigger contributions to potentially installation costs or some tenant CapEx, just to get a sense of where do we land on a net basis?
What you have on page five is headline rents. Actually, IFRS rents are pretty much on the same direction. Not that much of differences. We were, let's say in La Défense, we gave more incentives, and that explains the -12%. Whereas in Gare de Lyon, for example, the level of incentive was not increasing versus last year. In Germany, in the new signings that we have made, for example, if I take the major one, the 3,000 sq m in Itzehoe in Hamburg, we were able to sign with a +20% versus the same rent on the existing surfaces for this tenant, because it's a tenant that has increased his surfaces in this building. To answer to your question, basically, we see increasing incentives, especially in some areas in the Greater Paris, like La Défense.
Not that much at this time for a good asset, well-located as Silex 2 in Lyon or Torre Garibaldi in Milan.
Thank you very much.
Once again, please press star one if you'd like to ask a question. As there are no further questions, I'd like to hand the call back to your speakers for any additional or closing remarks.
Yeah. Thank you for your attention and hope to speak to you soon. Have a good evening. Bye-bye.
Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.