Covivio still believes in the solid fundamentals of the European hotel market


French REIT Covivio announced its 2020 results last week, and while the diversity of its portfolio led to a strong performance, its hotel properties suffered a 55% drop in revenue. Hotels form 15% of the company’s portfolio, with properties located in major European tourist cities (Paris, Berlin, Rome, Madrid, Barcelona, London, etc.), leased or managed directly by 16 major operators such as AccorInvest, IHG, B&B and NH Hotels. 

Impact of Covid-19 on hotel performance

Revenues from hotel properties were affected by the closures in the sector. Variable revenue from management contracts decreased by 81% on a like-for-like basis. The imposed closure of hotels in the United Kingdom (representing 2% of the portfolio) caused the major underperformance clause included in leases to be triggered and no rent was recognised for 2020. For the other leased hotels (6% of the portfolio), the agreements obtained with tenants limited the drop in revenue to 3%.

Covivio supported its major hotel operator partners by putting in place solutions to help them get through the crisis: “the agreements signed with almost all fixed-lease hotel operators have made it possible to preserve their cash flow through rent-free periods or deferred payments, while extending the firm term of their commitments by an average of three years” said the statement.

Outlook on recovery

Covivio’s hotel portfolio is focused on domestic and leisure customers, with properties in major tourist destinations such as Paris, Berlin, Rome, Madrid, Barcelona, London, etc., which are not likely to lose their attractiveness.

The company believes in the solid fundamentals of the European hotel market and expects the recovery will be driven by markets which are predominantly focused on domestic and/or regional customers, leisure, and individual customers, who will be the first to benefit from the lifting of government restrictions. These three factors put Covivio in a strong position thanks to its presence in France (with 70% of domestic customers, 80% leisure), Germany (85%, domestic customers, 80% leisure), the United Kingdom (85% domestic customers, 70% leisure) and Italy (80% leisure). France and Germany are seen by the company as markets with a strong potential for recovery, as they both outperformed the rest of Europe in summer 2020 after the lifting of government restrictions.

Christophe Kullmann, Covivio’s Chief Executive Officer said: “2020 was marked by our significant expansion in Germany, the success of our disposal plan and the achievements on our ESG strategy. Our portfolio has shown its resilience thanks to its diversification and quality, despite an unprecedented crisis. The centrality of our assets, the potential of our developments, the flexibility of our offer and the recognised expertise of our teams, working closely with our clients, are the foundations of sustainable performance."

The company forecasts a return to normal by 2023/2024 for the hotel sector.