Tugdual Millet, CEO of Covivio Hotels, looks back on the year 2022 and shares his 2023 ambitions for the hotel branch of the real estate company.

How do you see the results for the year 2022?

2022 has been an exceptional year and no one could have imagined it. It was a year that went beyond our expectations in many ways. Whether that be in terms of recovery or performance levels. This level of activity has removed a lot of uncertainty about the pace of recovery and the ability of hotel assets to weather this unprecedented crisis.

With these excellent results, we can look forward to 2023 with much more confidence. Not all the uncertainties have been removed, but we can work within a more stable framework. We can therefore look further ahead and relaunch certain projects for which there is value to be created.

Beyond the financial results, we had a very active year-end with the delivery of two new exceptional hotels, both in terms of location and concept. We brought the Anantara brand to France in Nice, and we are also set up the Radisson RED brand in Madrid in an exceptional location. With these two openings, we remained faithful to the strategy we have deployed over the last few years. That is to say, supporting operators in the renewal of the hotel offer.

2022 also marked a return to valuation levels in line with those prior to the crisis. This is also very reassuring for this asset class on the real estate side. We sold €100 million in assets with 10% margins on the value, and our values rose over the year almost to reach 2019 levels.

These are very reassuring and encouraging elements for continuing the development of the company in ways that will adapt to the climate, but still with that same desire to keep on supporting our partners and customers.

What are your development prospects?

Our objective is to continue to invest, with priority given to investment in our assets. For 2023, we have about €100 million of investments to make in our various hotels. We have just signed a work financing programme with Meliá for around €15 million for three hotels in Spain. The objective is to support the repositioning of these hotels, including their rebranding, but also to improve their carbon footprint. Changing equipment or improving insulation, for example, will help improve performance.

We stand by the operators and are always happy to support the portfolio’s evolution when the locations, as well as the operator's project, are relevant.

What is the potential to capitalise on the varied nature of Covivio’s portfolio?

Turning some of our assets into hotels could be a matter for discussion. These are questions that many operators are asking themselves today. Some office locations are no longer suitable. There may be opportunities to transform these offices into hotels. Thus, two trends are coming together. On the one hand, there are office destinations that are no longer suitable for the future demand, which is increasingly concentrated within, or close to, metropolises with excellent transport links. On the other hand, there is a need to follow the evolution of demand by building new hotels. Without losing sight of the fact that building in greenfield sites is increasingly complicated and, in some cases, considered less virtuous than rehabilitation, especially if such opportunities already exist.

All these factors are coming together, and we have one or two projects at Covivio where the opportunity to make a hotel is a realistic scenario, once the office tenant has left. Until now, office valuations have been much higher than those of hotels. However, when the value adjusts because the destination is no longer relevant, this creates the room for manoeuvre necessary to consider hotel projects.

Two or three years ago, we anticipated these changes in office use. At the time, one of the responses to this was residential. Today we have a whole pipeline of office to residential conversions. The spectrum is widening a little more because demand is still as strong for hotels. This transformation will certainly not be uniform. It will be a mix of residential properties, offices, managed residences, aparthotels, and hotels.

Are operations a lever for additional value creation?

This is a direction in which we will continue to move. We believe that in certain hotels, in order to unlock the real estate potential, we must take control of the operations. It is indeed through major renovation and repositioning projects that a lot of value is created. We want to keep this potential for value creation in-house. As regards real estate, we have already gone a long way. For example, in 2022 we took over the operations of two hotels in Bruges and implemented a major investment programme of around €20 million to reposition them and give them a new lease of life.

Covivio Hotels results in 2022

+64% growth in activity on a like-for-like basis, with in particular a doubling of variable rents, which concern 20% of Covivio's portfolio. For assets under fixed leases, which represent 46% of the hotel portfolio, rents increased by 9%.

The average margin on asset disposals (€81m of assets sold in 2022) was +9% on the appraised value at the end of 2021, compared with 2.3% for all asset types combined.