2018 FIRST-HALF FINANCIAL REPORT Contents

1 4 2018 FIRST-HALF CERTIFICATION MANAGEMENT REPORT OF THE PREPARER P 01 P 125

2 DEFINITIONS, ACRONYMS CONDENSED CONSOLIDATED AND ABBREVIATIONS USED FINANCIAL STATEMENTS P 127 OF COVIVIO AS AT 30 JUNE 2018 P 63

3 STATUTORY AUDITORS’ REPORT P 123 1

2018 FIRST-HALF MANAGEMENT REPORT

1.1. BUSINESS ANALYSIS 02 1.4. FINANCIAL RESOURCES 50 1.1.1. Recognised rental income: +3.0% 1.4.1. Main debt characteristics 50 on a like-for-like scope 02 1.4.2. Debt by type 50 1.1.2. Lease expirations and occupancy 1.4.3. Debt maturity 51 rates 03 1.4.4. Main changes during the period 51 1.1.3. Breakdown of rental income – 1.4.5. Hedging profile 52 Group share 05 1.4.6. Average interest rate 1.1.4. Cost to revenue, by business 06 on the debt and sensitivity 52 1.1.5. Realised disposals: €492 million 1.4.7. Reconciliation with consolidated in Group share 06 accounts 53 1.1.6. Acquisitions: €682 million realised in Group share 07 1.5. EPRA REPORTING 55 1.1.7. Development projects: €5.1 billion (€3.7 billion Group share) 07 1.5.1. Change in net rental income 1.1.8. Portfolio 11 (Group share) 55 1.1.9. List of major assets 12 1.5.2. Investment assets – Lease data 55 1.5.3. Investment assets – Asset values 56 1.2. BUSINESS ANALYSIS BY 1.5.4. Information on leases 57 SEGMENT 13 1.5.5. EPRA topped-up yield rate 57 1.2.1. Offices 13 1.5.6. EPRA cost ratio 58 1.2.2. Offices 21 1.5.7. EPRA Earnings 58 1.2.3. German residential 27 1.5.8. EPRA NAV and EPRA NNNAV 59 1.2.4. Europe 33 1.5.9. EPRA performance indicator reference table 61 1.3. FINANCIAL INFORMATION AND 1.6. FINANCIAL INDICATORS COMMENTS 41 OF THE MAIN ACTIVITIES 62 1.3.1. Scope of consolidation 41 1.3.2. Accounting principles 41 1.3.3. Simplified income statements - Group share 42 1.3.4. Simplified consolidated income statement (at 100%) 46 1.3.5. Simplified consolidated balance sheet (Group share) 47 1.3.6. Simplified consolidated balance sheet (at 100%) 48

2018 First-half financial report — 01 2018 First-half management report 1 Business analysis

1.1. BUSINESS ANALYSIS

Changes in scope Two major transactions were completed this half year, with an impact on Covivio’s percentage ownership of its subsidiaries: • as part of the potential business combination with Beni Stabili, Covivio increased its investment in its subsidiary by 7.5%, owning 59.9% at end June 2018 compared with 52.4% at the end of 2017 • the merger of Covivio Hotels and FDMM reduced Covivio’s investment in Covivio Hotels from 50% at 31 December 2017 to 42% at 30 June 2018.

1.1.1. Recognised rental income: +3.0% on a like-for-like scope

100% Group share Change Change Change (%) (€M) H1 2017 H1 2018 (%) H1 2017 H1 2018 (%) LfL(1) % of rent France Offices 135.7 137.6 1.4% 123.0 123.3 0.2% 2.4% 41% 41.0 45.4 11% 38.7 43.6 13% 1.9% 14% Greater Paris 67. 3 67. 2 0% 5 7.0 55.6 -2% 2.5% 18% Other French regions 2 7. 4 24.9 -9% 2 7. 4 24.2 -12% 3.0% 8% Italy Offices 92.3 96.5 4.6% 4 7. 7 41.9 -12.2% 1.5% 14% Offices – excl. Telecom Italia 43.2 4 7. 3 10% 22.6 26.6 18% 1.7% 9% Offices – Telecom Italia 49. 1 49. 2 0% 25.1 15.3 -39% 1.1% 5% Residential 112.9 118.7 5.2% 69.9 75.3 7.7% 4.6% 25% 48.8 56.6 16% 30.5 36.3 19% 5.7% 12% Dresden & Leipzig 10.2 11.1 9% 6.3 7.0 10% 2.8% 2% Hamburg 7. 2 7. 8 8% 4.6 5.2 11% 3.4% 2% North Rhine-Westphalia 46.6 43.2 -7% 28.5 26.9 -6% 4.2% 9% Hotels Europe 116.2 128.3 10.4% 42.8 48.0 12.2% 3.6% 16% Hotels – Lease properties 84.5 94.6 12% 36.5 34.4 -5.8% 3.3% 11% France 44.8 49. 5 11% 17.5 15.5 -11% 3.4% 5% Germany 10.6 13.5 28% 5.1 5.5 9% 1.6% 2% 10.6 10.6 0% 5.3 4.5 -16% 5.6% 1% 14.9 17.4 N/A 6.8 7. 3 7% 3.3% 2% Others 3.7 3.7 N/A 1.8 1.6 -15% 1.6% 1% Hotels – Operating properties 31.7 33.7 6% 6.3 13.6 117.7% 4.2% 4% TOTAL STRATEGIC ACTIVITIES 4 5 7.0 481.1 5.3% 283.5 288.5 1.8% 3.0% 95% Non-strategic 34.0 25.4 -25% 1 7.9 14.2 -20.6% N/A 5% Retail Italy 9. 5 8.0 -16% 5.0 4.5 -10% -7. 8 % 1% Retail France 18.4 13.2 -28% 9. 2 5.5 -40% 1.2% 2% Other (France Residential) 6.1 4.2 -31% 3.7 4.2 12% N/A 1% Total 491.0 506.5 3.2% 301.4 302.8 0.4% 2.8% 100% (1) LfL: Like-for-Like.

02 — 2018 First-half financial report 2018 First-half management report Business analysis 1

Group share revenues increased by 0.4% year-on-year. • acquisitions (€13.9 million) in particular in German This €1.4 million increase is due primarily to the following Residential (+€7.4 million), with the acquisition of over effects: 2,000 apartments, primarily in Berlin • acceleration of like for like growth of 3.0% (+€6.0 million) • deliveries of new assets (+€7.7 million), mainly in France with: Offices, particularly Edo in Issy-les-Moulineaux, Art&Co in Paris and O’Rigin in Nancy • +2.4% in France Offices, thanks to the indexation (0.8 pt) and good rental performance (1.7 pt including • asset disposals (-€30.0 million), especially: 1.1 pt related to successful renewals) • in France Offices (-€10.8 million), including two • +1.5% in Italy Offices (excluding Retail) mainly due to mature assets (Winchester in St Germain and Victor indexation Hugo in Issy-les-Moulineaux) • +4.6% in Germany Residential, including 2.4 pts due • in Italy Offices, the syndication of 49% of the Telecom to indexation and 2.2 pts due to renewals Italy portfolio, of which 40% at end-June 2017 and 9% early 2018 • +3.3% in Hotels, of which a 5.0% growth in AccorHotels variable rents thanks to the recovery of the • in German Residential (-€5.2 million) with the sale market of over 5,000 apartments, including over 60% of non-core assets in North Rhine-Westphalia • +4.2% change in EBITDA for Hotel Operating properties as a result of sound performances at the • in Hotels (-€2.9 million) with the impact of the start of the year, particularly due to a post-terrorist non-strategic asset disposals of Quick restaurants attack recovery and Jardiland stores • increase in Covivio’s interest in Beni Stabili to 59.9% (+€2.3 million).

1.1.2. Lease expirations and occupancy rates 1.1.2.1. Annualised lease expirations: 6.0 years of average lease term

By lease end date (1st break) By lease end date (Years) – Group share 2017 H1 2018 2017 H1 2018 France Offices 5.0 4.5 6.0 5.4 Italy Offices 7. 6 6.8 8.1 7. 3 Hotels Europe 11.2 11.2 13.3 13.3 TOTAL STRATEGIC ACTIVITIES 6.6 6.0 7. 7 7.0 Non-strategic 6.4 5.4 7.0 6.3 Total 6.6 6.0 7. 7 7.0

The average firm residual duration of leases remained high at 6.0 years at end June, having fallen as a result of the syndication in Italy Offices of an additional 9% of the Telecom Italia portfolio. In France, the firm lease duration fell 0.5 point due to approaching maturities on assets earmarked for redevelopment in 2018.

2018 First-half financial report — 03 2018 First-half management report 1 Business analysis

By lease end date By lease (€M) – Group share (1st break) % of total end date % of total 2018 33.3 6% 14.3 2% 2019 53.8 9% 30.5 5% 2020 32.5 6% 2 7. 5 5% 2021 37.4 6% 40.9 7% 2022 41.8 7% 37.8 6% 2023 41.7 7% 45.5 8% 2024 13.4 2% 22.4 4% 2025 40.6 7% 43.0 7% 2026 36.6 6% 36.7 6% 2027 19.4 3% 31.3 5% Beyond 81.0 14% 101.8 17% Germany Residential 152.7 26% 152.7 26% TOTAL 584.2 100% 584.2 100% Hotel operating properties 2 9. 1 - 2 9. 1 - Non-strategic 22.7 - 22.7 -

The percentage of lease terms under three years remained stable at 7% of average annualised rental income, giving the Group excellent visibility over its cash flows, which are thus secured on the medium term. Of the €87 million in leases due to end in 2018, more than 50% are related to French Offices assets included in the managed pipeline. Some of them will occur in 2018 or early 2019 (Omega in Levallois, Paris-St-Ouen, the Orange building Gobelins in Paris 5th).

1.1.2.2. Occupancy rate: a high level of 9 7. 6%

Occupancy rate (%) – Group share 2017 H1 2018 France Offices 9 7. 4% 96.9% Italy Offices 9 7.0 % 9 7.0 % Germany Residential 98.4% 98.1% Hotels Europe 100% 100% TOTAL STRATEGIC ACTIVITIES 9 7.9 % 9 7. 6% Non-strategic 9 7.9 % 94.6% Total 9 7.9 % 9 7. 4%

The occupancy rate remained high at 97.6% for strategic activities. France Offices was impacted by the delivery of Riverside in (recently delivered and 41% let) whilst Italy Offices was penalised by the syndication of the Telecom Italia portfolio (which is 100% occupied).

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1.1.3. Breakdown of rental income – Group share 1.1.3.1. Breakdown by major tenants: a strong rental income base

Annualised revenues (€ million) – Group share 2018 % Orange 68.8 11% Telecom Italia 30.0 5% AccorHotels 26.9 4% B&B 17.3 3% Suez Environnement 21.8 3% EDF/Enedis 17.1 3% Vinci 15.0 2% Dassault 12.5 2% Thalès 10.9 2% 10.7 2% Mariott 9. 7 2% Intesa San paolo 9. 4 1% Radisson Hotel Group 9. 2 1% Tecnimont 7. 8 1% Eiffage 6.8 1% Aon 5.4 1% Lagardère 5.4 1% NH 5.2 1% Other Tenants < €5 M 1 8 7.0 29% German Residential 152.7 24% France Residential 6.3 1% TOTAL 636.0 100%

In the first half of 2018, Covivio continued its strategy of diversifying its tenant base. As a result, exposure to the three largest tenants continues to fall (20% compared to 21% at the end of 2017 and 41% at the end of 2014), notably as a result of the syndication of an additional 9% of the Telecom Italia portfolio in the 1st half of 2018.

1.1.3.2. Geographic breakdown of revenues: 60% generated in Paris, Berlin,

3% Non-strategic

France 39% 15% 43% Greater Paris 80% Germany 34% Hotels France Oces Spain 15% Europe

24% Berlin 48% Germany Residential 15% Milan 59% Italian Oces

The Group continued to focus on European capitals and major cities in early 2018, with the aim of continuously improving the quality of its portfolio. Nearly 60% of the Group’s rental income thus comes from Greater Paris, Berlin and Milan.

2018 First-half financial report — 05 2018 First-half management report 1 Business analysis

1.1.4. Cost to revenue, by business

Hotels Other France Italy Offices Germany Europe (France Offices (incl. retail) Residential (incl. retail) Residential) Total (€M) – Group share H1 2018 H1 2018 H1 2018 H1 2018 H1 2018 H1 2017 H1 2018 Rental Income 123.3 46.3 75.3 40.0 4.2 295.1 289.2 Unrecovered property operating costs -5.9 -3.3 -0.7 -0.8 -1.5 -17.6 -12.3 Expenses on properties -1.7 -3.9 -5.2 -0.1 -0.4 -7. 8 -11.2 Net losses on unrecoverable receivable 0.1 -0.5 -0.5 0.0 0.0 -1.2 -0.9 NET RENTAL INCOME 115.9 38.6 68.9 39. 1 2.3 268.4 264.7 Cost to revenue ratio(1) 4.5% 16.7% 8.5% 1.3% 33.8% 7.9 % 7. 5 % (1) Ratio restated of IFRIC 21 impact.

The cost to revenue ratio (7.5%) was down year-on-year: • in Germany Residential, the cost to revenue ratio has • in France Offices, the cost to revenue ratio was down been dropping for several years, and now stands at (-1.4 pt on 2017) following the disposal of the residual 8.7% (versus 10.7% in 2017) thanks to a stronger position business of the Logistics division in Berlin and cost optimisation • in Italy, the cost to revenue ratio was stable and under • in Hotels Europe, the rate remains low (at 1.3%), as the control at 16.7% (vs. 16.5% in 2017) after a meaningful Group is mostly signing triple net leases. improvement last year due to the recent improvement in the vacancy rate and the internalisation of property management

1.1.5. Realised disposals: €492 million in Group share

Disposals (agreements Agreements New New Total as of end of as of end disposals agreements Total Margin vs realised 2017 closed) of 2017 H1 2018 H1 2018 H1 2018 H1 2018 disposals (€M) (I) to close (II) (III) = (II)+ (III) value Yield = (I)+ (II) 100% 76 34 147 7 154 1.2% 4.1% 224 France Offices Group share 76 34 147 7 154 1.2% 4.1% 224 100% 20 7 - 159 159 -2.9% 7.0 % 20 Italy Offices Group share 8 4 73 49 121 -2.9% 7.0 % 81

Germany 100% 111 27 9 122 131 12.4% 4.6% 120 Residential Group share 65 16 5 69 74 12.4% 4.6% 70

Hotels 100% 3 18 - 115 115 -5.8% 6.9% 3 (1) Europe Group share 1 8 - 48 48 -5.8% 6.9% 1 Non-strategic 100% 208 18 17 117 133 3.4% 4.1% 225 (France Resi., Logistics, Retail in France) Group share 100 18 17 71 87 4.8% 2.9% 116 100% 418 105 173 520 692 1.6% 5.3% 591 TOTAL GROUP SHARE 250 80 242 243 485 1.8% 5.0% 492 (1) Including disposals on hotel operating properties.

Disposals amounted to €492 million in Group share • non-core assets: €124 million Group share of disposals (€591 million at 100%) in the first half of 2018, after €1.2 billion of which two thirds in Offices and one third in North in 2017. Covivio maintained a sustained asset rotation in its Rhine-Westphalia residential assets. portfolio, enabling it to reduce its exposure to secondary locations, consolidate value-creation on mature core assets and withdraw from non-strategic activities with:

06 — 2018 First-half financial report 2018 First-half management report Business analysis 1

In six months, the Group has sold a third of its non-core • non-strategic assets: €116 million Group share of assets worth €100 million. These assets account for only disposals 3% of the France Offices portfolio, taking into account €79 million Group share of Retail assets in France the preliminary sale agreements signed comprising the balance of the Quick portfolio and • mature core assets: €178 million of disposals Group €38 million under preliminary sale agreements primarily share consisting of Jardiland assets. At June 30, Retail Disposals mostly in France (€139 million Group share) accounted for only 5.5% of the Covivio Hotels portfolio including 10 and 30 Kléber in Paris and the Pégase compared with 11.1% at 31 December 2017 building in Clichy (4.5% margin) • the disposal of an additional 9% of the Telecom Italia portfolio realised early 2018 for €73 million.

1.1.6. Acquisitions: €682 million realised in Group share

Acquisitions 2018 realised Acquisitions 2018 secured Acquisitions Acquisitions Yield Acquisitions Acquisitions Yield (€M) – Including Duties 100% Group share Group share 100% Group share Group share France Offices 148 148 3.1% - - - Italy Offices 106 63 6.2%(1) - - - Reinforcement Beni Stabili - 263 5.4% - - - Germany Residential 218 157 4.3%(2) 217 137 5.0%(2) Reinforcement Germany - 51 4.9% - - - Hotels Europe - - - 1,087 457 5.1% TOTAL 472 682 4.7% 1,304 594 5.0% (1) Potential yield on acquisitions. (2) Yield in 2 years after reletting of vacant spaces. Immediate yield is 3.6% on acquisitions realised and 4.4% on acquisitions secured.

With €682 billion Group share realised in the first half of • the acquisition of an asset in the Biccoca business 2018, Covivio continued to strengthen its position in its district in Milan for €79 million at a potential yield of strategic markets, in particular in France and Italy Offices 6.3%, and the increase in Covivio’s interest in Beni Stabili and in German Residential with: to 59.9% • the acquisition of an asset with a large redevelopment • the acquisition of residential assets worth €218 million in potential in Paris CBD, Rue Jean Goujon, for €134 million. Germany, including €100 million in Berlin and €65 million This acquisition was realised in the context of an asset in Hamburg. swap: Covivio sold two core mature assets, occupied In total, close to 90% of the acquisitions were located in by Covivio, located on Avenue Kleber in Paris CBD major European cities: Paris, Berlin, Milan and Hamburg.

1.1.7. Development projects: €5.1 billion (€3.7 billion Group share)

The first half of 2018 was marked by the acceleration of development pipeline commitments. Of projects worth a total of €5.1 billion, €1.2 billion has now been committed (compared with €934 million at the end of 2017). Since the launch of the German Residential pipeline in 2017, the Group has the capacity to develop assets in all of its markets.

1.1.7.1. Deliveries: 20,500 m2 of office space and 522 hotel rooms delivered in the first half of 2018 The start of 2018 was marked by the delivery of around Colonna (3,500 m2) in Milan, 100% let 2 • 20,500 m of office space in France and Italy, as well as • two B&B hotels in Berlin and Chatenay-Malabry, 522 hotel rooms, with an average occupancy rate of 85%. accounting for 267 rooms These were: one hotel in Paris 12th, accounting for 255 2 • • Riverside (11,000 m ) in Toulouse, 41% let. Negotiations rooms. are under way for the leasing of the remaining surface Covivio’s value creation has amounted to a strong 23% Titano (6,000 m2) in Milan, which involves redeveloping • on assets delivered in the first half of 2018. In addition, the the Piazza Monte Titano asset into a hotel, 100% let yield recognised upon delivery of these assets proved to to Meininger be very high at around 6.1%.

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1.1.7.2. Committed projects: €1.2 billion (€721 million Group share) Currently, 23 projects are under way in three European • Cœur d’Orly Belaïa (22,600 m2), consisting of a countries and will be completed between 2018 and 2021. construction project, in partnership with ADP (50%), for In 2018, Covivio continued its development strategy by an office building in the business district of Paris-Orly launching five major projects: airport. Delivery of this asset is scheduled for 2020 • Flow project in Montrouge (23,600 m2), consisting of a • The Sign project (26,500 m2) located on the South West building project for a new, multipurpose office building fringes of the centre of Milan, on Metro line 2. The first located in the attractive, up-and-coming area of building (9,600 m2) is already pre-let to AON. Delivery Montrouge. Delivery of this asset, launched on spec, is scheduled for 2020 is scheduled for 2020 • the Symbiosis School project in Milan (9,400 m2) in an • N2 in Paris 17th arrondissement, (15,900 m2), which emerging business district at the South East limit of consists of a construction project, in partnership with Milan. This asset is 97% pre-let to Ludum and delivery ACM (50%), for a mixed-use property: office, coworking is scheduled for 2020. & hotel. Delivery of this asset is scheduled for early 2021

08 — 2018 First-half financial report 2018 First-half management report Business analysis 1

Total Capex Target budget(2) to be rent Pre- Total (€M, invested Surface(1) (€/m2/ leased budget(2) Group Target (€M, Group Committed projects Location Project (m2) Delivery year) (%) (€M, 100%) share) yield(3) Progress share) France Offices Îlot Armagnac Bordeaux Construction 31,700 2018 190 42% 102 35 6.5% 83% 6 (35% share) Total deliveries 2018 31,700 190 42% 102 35 6.5% 83% 6 Hélios Lille Construction 9,000 2019 160 100% 23 23 >7% 70% 7 Total deliveries 2019 9,000 160 100% 23 23 >7% 70% 7 Belaïa Orly – Construction 22,600 2020 198 50% 65 32 >7% 1% 32 (50% share) Greater Paris Meudon Ducasse Grand Paris Construction 5,100 2020 260 100% 22 22 6.4% 7% 18 Silex II Construction 30,900 2020 312 17% 166 83 6.0% 22% 68 (50% share) Montrouge – Flow Construction 23,600 2020 327 0% 115 115 6.6% 33% 71 Greater Paris Orange Montpellier Construction 16,500 2020 165 100% 45 45 >7% 2% 44 N2 (50% share) Paris Construction 15,900 2021 575 0% 158 79 5.0% 0% 0 Total deliveries 114,600 341 26% 571 377 6.3% 16% 232 2020 and beyond Total France Offices 155,300 319 31% 695 435 6.4% 24% 245 Italy Offices Symbiosis Milan Construction 20,500 2018 310 86% 94 56 >7% 90% 5 (buildings A & B) Total deliveries 2018 20,500 310 86% 94 56 >7% 90% 5 Principe Amedeo Milan Regeneration 7,000 2019 490 57% 59 35 5.3% 53% 5 Corso Ferrucci Turin Regeneration 45,600 2017-19 130 44% 89 54 5.6% 83% 4 Total deliveries 2019 52,600 272 49% 148 89 5.5% 71% 9 The Sign Milan Construction 26,500 2020 285 35% 105 63 >7% 5% 42 Symbiosis School Milan Construction 9,400 2020 225 97% 21 12 >7% 0% 12 Total deliveries 35,900 275 45% 126 75 >7% 4% 53 2020 and beyond Total Italy Offices 109,000 283 57% 368 220 6.5% 53% 67 Germany Residential Birkbuschstraße Berlin Extension 4,200 2019 N/A N/A 14 8 5.1% N/A N/A Genter Strasse 63 Berlin Construction 1,500 2019 N/A N/A 4 3 5.3% N/A N/A Pannierstrasse 20 Berlin Construction 890 2019 N/A N/A 3 2 5.2% N/A N/A Breisgauer Strasse Berlin Extension 1,420 2019 N/A N/A 5 3 4.7% N/A N/A Magaretenhöhe Essen Extension 5,100 2019 N/A N/A 9 6 6.8% N/A N/A Total deliveries 2019 13,110 N/A N/A 34 22 5.5% N/A N/A and beyond Total German 13,110 N/A N/A 34 22 5.5% N/A N/A Residential – 173 Meininger Munich Construction 2018 N/A 100% 33 14 6.4% 92% 1 Germany rooms 173 Total deliveries 2018 N/A 100% 33 14 6.4% 92% 1 rooms Hotels Europe Meininger Porte 249 Paris Construction 2019 N/A 100% 47 20 6.2% 63% 7 de Vincennes rooms B&B Bagnolet Paris Construction 108 rooms 2019 N/A 100% 8 2 6.3% 26% 1 (50% share) Meininger Lyon 176 Lyon – France Construction 2019 N/A 100% 19 8 6.1% 56% 4 Zimmermann rooms B&B Cergy 84 Greater Paris Construction 2019 N/A 100% 5 1 5.9% 51% 1 (50% share) rooms Total deliveries 2019 617 N/A 100% 79 30 6.2% 59% 13 and beyond rooms Total Hotels 790 N/A 100% 112 44 6.2% 69% 14 Europe rooms TOTAL N/A 44% 1,209 721 6.4% 35% 326 (1) Surface at 100%. (2) Including land and financial costs. (3) Yield on total rents including car parks, restaurants, etc.

2018 First-half financial report — 09 2018 First-half management report 1 Business analysis

Target Total Capex to rent Pre- Total budget(2) be invested Surface(1) (€/m2/ leased budget(2) (€M, Group Target (€M, Group Committed projects (m2) year) (%) (€M, 100%) share) yield(3) Progress share) Total France Offices 155,300 319 31% 695 435 6.4% 24% 245 Total Italy Offices 109,000 283 57% 368 220 6.5% 53% 67 Total German Residential 13,110 N/A N/A 34 22 5.5% N/A N/A Total Hotels Europe 790 rooms N/A 100% 112 44 6.2% 69% 14 TOTAL N/A 44% 1,209 721 6.4% 35% 326

1.1.7.3. Managed projects: €3.9 billion (€3.0 billion in Group share)

Projects sorted by estimated Surface(1) Delivery total cost at 100% Location Project (m2) timeframe Cap 18 Paris Construction 50,000 >2020 Rueil-Malmaison – Rueil Lesseps Regeneration – Extension 43,000 >2020 Greater Paris Paris St-Ouen Paris Regeneration 29,700 >2020 Omega Levallois – Greater Paris Regeneration – Extension 19,300 >2020 Canopée Meudon – Greater Paris Construction 49,300 2020 Jean Goujon Paris Restructuration 8,500 2020 Anjou Paris Regeneration 11,000 >2020 Opale Meudon – Greater Paris Construction 29,000 2020 Montpellier Majoria (other buildings) Montpellier Construction 35,700 2019-2020 Philippe Auguste Paris Regeneration 13,200 >2020 Campus New Vélizy Extension Vélizy – Greater Paris Construction 14,000 2020 (50% share) DS Campus Extension 2 (50% share) Vélizy – Greater Paris Construction 11,000 >2020 Gobelins Paris Regeneration 4,900 2020 Cité Numérique Bordeaux Regeneration – Extension 19,200 2019 Total France Offices 337,800 Symbiosis (other buildings) Milan Construction 95,000 2020-2022 Via Dante Milan Regeneration 4,800 2019 Total Italy Offices 99,800 German Residential Berlin Extensions & Constructions c.150,000 Hotels Europe – Alexanderplatz Berlin Construction c.140,000 TOTAL 727,600 (1) Surfaces at 100%.

The acceleration of the pipeline will continue in 2018 and In the city heart of Berlin, Covivio has identified close to 2019 with the launch of the following projects: 140,000 m2 to be developed on land reserves adjacent to • Omega in Levallois (19,300 m2) will be launched in 2018 the Park Inn. The architect will be selected in September (redevelopment/extension project) in partnership with the city of Berlin and construction of the first 70,000 m2 building will be launched in 2019 Paris-St-Ouen (29,700 m2), for a demolition/ • with delivery scheduled for 2022. This mixed use project reconstruction project with extension of the surface (Offices/Hotels/Residential) is a perfect illustration of the • Gobelins (4,900 m2) in the 5th arrondissement of Paris, synergies between Covivio’s different activities. an Orange building which will be redeveloped upon departure of the tenant end-2018.

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1.1.8. Portfolio 1.1.8.1. Portfolio value: +2.8% on a like-for-like basis

Value Value LfL(1) Value 2017 H1 2018 H1 2018 change Yield(2) Yield(2) % of (€M) – Excluding Duties 100% 100% Group share 6 months 2017 H1 2018 portfolio France Offices 6,351 6,498 5,500 1.7% 5.3% 5.2% 41% Italy Offices 3,937 4,092 1,997 0.7% 5.5% 5.3% 15% Residential Germany 4,957 5,386 3,451 6.7% 4.7% 4.4% 26% Hotels Europe 4,807 4,930 1,859 1.8% 5.5% 5.5% 14% TOTAL STRATEGIC ACTIVITIES 20,052 20,906 12,806 2.8% 5.2% 5.0% 95% Non-strategic 1,102 882 612 0.8% 5.0% 6.5% 4% Retail Italy 297 298 179 0.9% 6.7% 6.3% 1% Retail France 447 259 109 -0.5% 6.9% 6.9% 1% Others (France Resi., Car parks, Logistics) 358 325 325 N/A 3.1% N/A 2% Total Portfolio 21,154 21,787 13,418 2.7% 5.2% 5.1% 100% (1) LfL: Like-for-Like. (2) Yield excluding development projects.

Group share portfolio amounted to €13.4 billion • +0.7% in Italy Offices, due to the performance of offices (€21.8 billion in 100%) compared with €12.8 billion at the in Milan excluding Telecom Italia (+1.4%) end of 2017, representing growth of €0.6 billion: • +6.7% on Germany Residential (including +7.1% in Berlin Like-for-like change in value reflects the pertinence of and +7.7% in Hamburg) due to rises in rents and values) the Group’s strategic allocation choices: • +1.8% in Hotels, driven by value creation in the Spanish • +1.7% in France Offices driven by the rise in value of portfolio acquired at the end of 2016 (+7.2%). property assets located in Paris and in major regional cities

1.1.8.2. Geographic breakdown of the portfolio at the end of June-2018

2% 2% Spain Other

30% Germany Portfolio 50% €13.4 Bn France

16% Italy

77% in large European cities

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1.1.9. List of major assets

The value of the ten main assets represents almost 14% of the portfolio Group share.

Surface Covivio Top 10 Assets Location Tenants (m2) share La Défense Suez Environnement, AIG Europe, Tour CB 21 (Greater Paris) Nokia, Groupon 68,077 75% Carré Suffren Paris 15th AON, Institut Français, Ministère Éducation 24,864 60% Art&Co Paris 12th Wellio, Adova, Bentley, AFD 13,595 100% Tours Garibaldi Milan Maire Tecnimont, Linkedin, etc. 44,650 52.4% Vélizy-Villacoublay Dassault Campus (Greater Paris) Dassault Systèmes 56,554 50.1% Green Corner St-Denis HAS et Systra 20,817 100% Anjou Paris 8th Orange 10,067 100% Paris Carnot Paris 17th Orange 11,182 100% Vélizy-Villacoublay New Vélizy (Greater Paris) Thales 46,163 50.1% Percier Paris 8th Chloe 8,781 100%

12 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l France Offices 1

1.2. BUSINESS ANALYSIS BY SEGMENT

The France Offices indicators are presented at 100% and as Group share (GS).

1.2.1. France Offices 1.2.1.1. The rental market continues its momentum during a growth cycle(1) Covivio’s €6.5 billion (€5.5 billion Group share) France Offices portfolio is situated in strategic locations in Paris, the major business districts of the Greater Paris area and the major regional cities. The first half of 2018 showed a dynamic performance by the French offices market in a favourable economic context: • Growth in take-up continued (1.3 million m2, a 15% • Average headline rents on new or restructured spaces increase compared with the first half of 2017). This rose by 3% on average across the Greater Paris area: growth was driven by strong demand for large premises +3% in Paris CBD, +4% in Paris South, +3% in the first (over 5,000 m2), a 36% rise compared with H1 2017, three ring and +2% in the Western Crescent. At the same quarters of this demand was for new premises. time, incentives decreased by 1.1 pt on average in the • The Western Crescent and inner suburbs markets clearly Greater Paris area, standing at 20.7%. benefited from this dynamic, with take-up growing by • In Lyon, Covivio is exposed to the La Part-Dieu 29% and 5% respectively. Established business districts business district, where the rental market continues its are the main locations of such premises, Neuilly- strong momentum: the vacancy rate in La Part-Dieu Levallois and the Paris 17th arrondissement/St-Ouen continues at its historically low levels (less than 3%) and segments, where new Covivio development projects it has only a small proportion of new available space (Omega, N2, Paris St-Ouen) are located. (less than 30%). Future supply is also limited: apart from 2 • The immediate supply of office space in the Greater Silex 2, only 8,000 m are still available on completions Paris area has continued to fall since 2014, standing at up to 2020 in La Part-Dieu. Therefore, prime rents rose 2 3.1 million m2, with a vacancy rate of 5.6% compared to €315/m in Q1 2018 (5% rise over 6 months). with 6.2% at the end of 2017. The proportion of new • Investments in France Offices remained constant at premises remained low, accounting for 15% of the total, €9.2 billion in the first semester of 2018 (a 59% rise). There i.e. 460,000 m2. Future supply is also limited, with an is still a significant gap between prime yields, which average of 280,000 m2 per year of space still available remain stable (3-3.25% in the CBD of Paris; 3.9% in Lyon), on deliveries up to 2021. Take-up of new supply and the OAT 10 years (close to 0.7% in June 2018). accounted for 940,000 m2 in 2017.

In the first half of 2018, Offices France was marked by: • 2.4% growth in rental income on a like for like basis, • a 1.7% increase in values on a like for like basis over mostly driven by renewals (up 1.1 pt) and indexation a six-month period, reflecting the success of the (up 0.8 pt) development projects, rental agreements with key • continued portfolio rotation with €154 million Group accounts and the continuing strong performance by share of new disposal commitments for non-core and the Group’s core markets (Paris and the major regional mature core assets, including an asset swap in the cities) Paris CBD: Covivio has sold its two mature assets on • the continued development of our coworking brand avenue Kléber, which were occupied by the Group, Wellio with the opening of a new 5,130 m2 site in in exchange for a 8,500 m2 property with strong Paris, ideally located opposite the Gare de Lyon. This redevelopment potential in Paris 8th arrondissement completes the “The Line” site in Paris 8th arrondissement, while three other sites are at the planning stage.

Assets held partially are the following: • CB 21 Tower (75% owned) • the New Vélizy property for Thales (50.1% owned and • Carré Suffren (60% owned) accounted for under the equity method) • the Eiffage properties located in Vélizy (head office of • Euromed Center (50% owned and accounted for under Eiffage Construction and Eiffage Campus, head office the equity method) of Eiffage Groupe) and the DS Campus (50.1% owned • Bordeaux Armagnac (34.7% owned and accounted for and fully consolidated) under the equity method) • the Silex 1 and 2 assets, which are 50.1% owned (fully • Cœur d’Orly (50% owned and accounted for under the consolidated) equity method).

(1) Sources: Immostat, C&W, CBRE, Crane Survey.

2018 First-half financial report — 13 2018 First-half management report 1 Business analysis by segment l France Offices

1.2.1.2. Accounted rental income: +2.4% at a like-for-like scope 1.2.1.2.1. Geographic breakdown: performance driven by the Group’s target areas (Paris, major business districts in the Greater Paris area and major regional cities)

Rental Rental Rental income Rental income Change Change income H1 2017 income H1 2018 (%) Group % of Surface Number H1 2017 Group H1 2018 Group Group share rental (€M) (m2) of assets 100% share 100% share share (%) LfL(1) income Paris Centre West 109,730 12 18.7 18.7 21.6 22.2 18.8% 1.0% 18% Paris South 72,209 8 12.6 10.3 14.1 11.6 13.5% 5.6% 9% Paris North-East 110,323 6 9. 7 9. 7 9. 7 9. 7 0.1% 0.0% 8% Wester Crescent and La Défense 220,140 20 35.3 31.7 36.2 32.4 2.4% 3.7% 26% Inner rim 414,732 21 26.5 19.8 2 7. 7 1 9.9 0.5% 0.8% 16% Outer rim 56,457 25 5.6 5.6 3.3 3.3 -41.0% 4.6% 3% Total Paris Region 983,591 92 108.3 95.6 112.7 99.1 3.7% 2.3% 80% Major regional cities 373,086 51 15.3 15.3 15.2 14.4 -6.0% 6.6% 12% Other French Regions 252,933 93 12.1 12.1 9. 8 9. 8 -19.0% -3.9% 8% TOTAL 1,609,610 236 135.7 123.0 137.6 123.3 0.2% 2.4% 100% (1) LfL: Like-for-Like.

Rental income rose 0.2%, to €123 million Group share The main growth areas are Southern Paris (asset (€0.2 million). This change is the combined result of: management work performed on an Orange asset in • improved performance by rental property, which grew 2017 and lease renewals), the Western Crescent and the 2.4% on a like for like basis (€3.8 million) including: major regional cities (mainly Euromed in and Majoria in Montpellier). • +0.8 pt from indexation (+€0.9 million) asset acquisitions and deliveries (+€8.0 million): • +1.1 pt from renewals mostly on leases located in • Southern Paris and Western Crescent • +€2.1 million due to the acquisition of the Jean Goujon asset • +0.6 pt due to occupation • +€5.9 million from assets delivered in 2017 and 2018, which have been fully let: ––Thaïs in Levallois in the second quarter of 2017 ––Edo in Issy-les-Moulineaux in the third quarter of 2017 ––Art&Co and The Line in Paris in the first half of 2018 • disposals (-€10.8 million), mostly of non-core assets in the outer suburbs and the regions.

14 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l France Offices 1

1.2.1.3. Annualised rents: €274 million Group share at the end of June 2018 1.2.1.3.1. Breakdown by major tenants

Annualised Annualised rents Annualised Annualised rents H1 2018 % of Surface Number rents 2017 rents 2017 H1 2018 Group Change rental (€M) (m2) of assets 100% Group share 100% share (%) income Orange 300,447 97 74.2 74.2 68.8 68.8 -7. 3% 25% Suez Environnement 60,350 3 2 7. 8 21.8 2 7.9 21.8 0.3% 8% EDF/Enedis 144,671 23 16.7 16.7 17.1 17.1 2.5% 6% Vinci 55,352 5 14.8 14.8 15.0 15.0 1.4% 5% Dassault 69, 3 95 2 24.9 12.5 24.9 12.5 0.0% 5% Eiffage 75,241 28 14.5 9. 3 12.0 6.8 -26.9% 2% Thalès 88,274 2 17.6 10.8 17.8 10.9 1.4% 4% Natixis 37,887 3 10.7 10.7 10.7 10.7 0.0% 4% Aon 15,592 1 9.0 5.4 9.0 5.4 0.0% 2% Lagardère 12,953 3 5.3 5.3 5.4 5.4 1.2% 2% Cisco 11,461 1 4.9 4.9 4.9 4.9 0.0% 2% Other tenants 737,988 68 101.9 92.1 106.1 94.6 2.8% 35% TOTAL 1,609,610 236 322.3 278.4 319.5 274.0 -1.6% 100%

The 11 largest tenants accounted for 65% of annualised rental income, versus 69% at the end of 2017 and over 80% at the end of 2010. The main changes affecting Key Accounts were as follows: • Orange: decreased exposure related to disposals of non-core assets in the regions. Almost 80% of the Orange portfolio is now made up of assets with strong value-creation potential in Paris • Eiffage: disposal of 17 assets in other French regions in 2018. 1.2.1.3.2. Geographic breakdown: 92% of rental income generated in strategic locations

Annualised Annualised rents Annualised Annualised rents H1 2018 % of Surface Number rents 2017 rents 2017 H1 2018 Group Change rental (€M) (m2) of assets 100% Group share 100% share (%) income Paris Centre West 109,730 12 43.3 43.3 44.0 44.0 1.7% 16% Paris South 72,209 8 34.0 28.1 34.2 28.2 0.6% 10% Paris North-East 110,323 6 20.0 20.0 19.6 19.6 -2.1% 7% Wester Crescent and La Défense 220,140 20 84.2 75.7 84.2 75.5 -0.2% 28% Inner rim 414,732 21 74.5 50.1 77.2 51.5 2.8% 19% Outer rim 56,457 25 7. 6 7. 6 5.4 5.4 -29.5% 2% Total Paris Region 983,591 92 263.6 224.7 264.6 224.2 -0.2% 82% Major regional cities 373,086 51 37.8 32.8 38.2 33.0 0.7% 12% Other French Regions 252,933 93 20.9 20.9 16.8 16.8 -20.0% 6% TOTAL 1,609,610 236 322.3 278.4 319.5 274.0 -1.6% 100%

The weighting of strategic locations grew (2 pts) thanks Work continued in this half to streamline the portfolio: to the acquisition of the Jean Goujon property in the disposals of non-core assets and property with a low Paris CBD and the delivery of Art&Co in Paris Gare de unit value have brought about a 2 pt reduction in the Lyon. At the same time, disposals of non-core assets number of assets in the portfolio (46 fewer assets, after decreased exposure in the outer suburbs (-1 pt) and 77 fewer assets in 2017). other French regions (-2 pts).

2018 First-half financial report — 15 2018 First-half management report 1 Business analysis by segment l France Offices

1.2.1.4. Indexation The indexation effect is +€0.9 million over twelve months. For current leases: • 85% of rental income is indexed to the ILAT • 14% to the ICC (French construction cost index) • the balance is indexed to the ILC (construction cost index) or the RRI (rental reference index). Rents benefiting from an indexation floor (1%) represent 25% of the annualised rental income and are indexed to the ILAT (Service Sector rental index). 1.2.1.5. Rental activity: almost 60,000 m2 renewed or let in H1 2018

Annualised rents H1 2018 Annualised Surface (€M, Group rental income (m2) share) (€/m2, 100%) Vacating 20,117 2.2 115 Letting 4,295 1.2 295 Pre-letting 6,347 0.9 192 Renewal 47,866 7. 1 148

The re-negotiations and renewals took place essentially • the letting of 100% of the Thaïs asset in Levallois in Paris and the Western Crescent. On average, the (€0.4 million in rental income), delivered in 2017 leases have been renewed with an increase of 7.6% on • the implementation of an additional 367 m2 for Wellio, IFRS rents. the new flex-office and coworking brand, at The Line 10,642 m2 were leased or pre-leased over the year, in the Paris CBD (€0.2 million in rental income). bringing in €2.1 million in rental income (Group share), 20,117 m2 have been vacated, worth €2.2 million in rental including: income, including 6,619 m2 in the Cap18 asset (€0.9 million), • the letting of 41% of the Toulouse Riverside asset which is ultimately earmarked for redevelopment, and delivered in the second quarter of 2017 the Orange assets, which have been earmarked for disposal (8,272 m2 and €0.8 million).

1.2.1.6. Lease expirations and occupancy rate 1.2.1.6.1. Lease expirations: firm residual lease term of 4.5 years

By lease end date By lease (€M) (1st break) % of total end date % of total 2018 23.9 9% 11.1 4% 2019 37.5 14% 21.3 8% 2020 28.0 10% 22.4 8% 2021 31.0 11% 34.6 13% 2022 26.5 10% 23.5 9% 2023 32.6 12% 34.4 13% 2024 9. 7 4% 16.2 6% 2025 3 7.9 14% 3 9. 2 14% 2026 29.1 11% 28.5 10% 2027 13.2 5% 25.1 9% Beyond 4.4 2% 17.6 6% TOTAL 274.0 100% 274.0 100%

The firm residual lease term fell by 0.5 point, to 4.5 years, in 2018 (Omega in Levallois, the Citroën headquarters due to the approaching maturity of assets earmarked for in Paris-St-Ouen, the Orange Gobelins building in Paris redevelopment. Of the €24 million in rental income due 5th arrondissement). The remaining lease terminations to mature in 2018, more than 70% are related to assets in relates in majority to Orange and EDF assets. the managed pipeline, some of which are due to begin

16 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l France Offices 1

1.2.1.6.2. Occupancy rate: a high level of 96.9%

(%) 2017 H1 2018 Paris Centre West 99.6% 99.6% Southern Paris 100.0% 100.0% North Eastern Paris 9 7. 3% 94.4% Wester Crescent and La Défense 9 7.9 % 98.5% Inner rim 97.7% 97.7% Outer rim 94.5% 92.3% Total Paris Region 98.3% 98.2% Major regional cities 94.5% 92.9% Other French Regions 92.8% 89.1% TOTAL 9 7. 4% 96.9%

The occupancy rate remains high, at 96.9%. The slight The occupancy rate has remained above 95% since 2010, drop observed this half is due to assets in other French reflecting the Group’s very good rental risk profile over regions and the outer suburbs being vacated pursuant the long term. to disposal agreements.

1.2.1.7. Reserves for unpaid rent The level of unpaid rent remains very low, given the quality of the client base.

1.2.1.8. Disposals and disposal agreements: €154 million Group share in new commitments

Disposals Agreements New New Total (agreements as of as of end disposals agreements Total realised end of 2017 closed) of 2017 H1 2018 H1 2018 H1 2018 Margin vs disposals (€M) (I) to close (II) (III) = (II) + (III) 2017 value Yield = (I) + (II) Paris Centre West - 13 104 - 104 0.2% 3.3% 104 Southern Paris - 6 - - - - North Eastern Paris - 2 - - - - Wester Crescent and La Défense - - 36 - 36 4.5% 4.4% 36 Inner rim 1 6 - - - 1 Outer rim 29 2 1 1 2 0.6% 13.0% 30 Total Paris Region 30 28 140 1 141 1.3% 3.7% 170 Major regional cities 8 1 - - - 8 Other French Regions 38 5 8 5 13 0.9% 8.0% 46 TOTAL 100% 76 34 147 7 154 1.2% 4.1% 224 TOTAL GROUP SHARE 76 34 147 7 154 1.2% 4.1% 224

Covivio has signed new commitments worth €154 million • the Clichy Pégase asset for €36 million, developed by (new disposals and new agreements), mostly on mature Covivio for a total cost of €23 million and delivered in core assets, enabling it to finance development and 2013, fully let to Eiffage. acquisition projects with strong value-creation potential. Also, €15 million in non-core asset disposals have been Mature core assets worth €139 million Group share signed, mainly in other French regions and the outer were sold: suburbs. • the two renovated assets occupied by Covivio on As a result of the disposals completed and the Avenue Kléber in the Paris CBD for €104 million, preliminary sale agreements signed, the proportion of acquired in 2005 and 2007 for €44 million and non-core assets in the portfolio has dropped by 2 pts, renovated. This disposal took place as part of an asset now standing at 3% of the portfolio. swap in exchange for a property located on Rue Jean Goujon in the Paris CBD

2018 First-half financial report — 17 2018 First-half management report 1 Business analysis by segment l France Offices

1.2.1.9. Acquisitions: €148 million at the first half of 2018

(€M) – Including Duties Surface (m2) Location Tenants Acquisition Price Yield Jean Goujon 8,500 Paris Gide 134.0 3.1% Cœur d’Orly - Orly Askia 14.3 N/A TOTAL 8,500 148.2 3.1%

Acquisition of an 8,500 m2 office building for €134 million The Group is considering regrouping all its Paris teams (€15,800/m2) located on Rue Jean Goujon in the Paris there after completion of the refurbishment. CBD. At the end of 2018, upon expiry of the lease with the Also, Covivio bought an additional 25% stake in the current tenant, Covivio will fully redevelop the building, project Cœur d’Orly and now owns 50% of the project. showcasing all of the Company’s real estate expertise.

1.2.1.10. Development pipeline: €2.7 billion of projects (€2.4 billion Group share) Development projects are one of the growth drivers for transport links. In the major regional cities (with annual profitability and the improvement in the quality of the take-up of more than 50,000 m2), the Group is targeting portfolio, both in terms of location and thanks to the high prime locations such as the La Part-Dieu district in Lyon. standards of delivered assets. The Group aims to create value of more than 20% on the committed pipeline. In Greater Paris, the strategy has translated on strategic locations in established business districts with solid public

1.2.1.10.1. Projects delivered A single project was delivered during the first half of 2018: Significant value (>40%) was created on this project, the Riverside asset, 11,000 m2 of office space in the centre building on Covivio’s excellent track record in terms of of Toulouse. 41% of the premises have already been developments. pre-let, and negotiations are at an advanced stage to let the remaining surface area.

1.2.1.10.2. Committed projects: €695 million (€435 million Group share), a 76% rise vs. the end of 2017 For a breakdown of committed projects, see the table Furthermore, work continued on several projects, on page 9 of this document. including: 2 Several projects were committed over the first half of • Silex 2 in Lyon – 30,900 m : this prime office project 2018, including: opposite the railway station is a key part of the La Part-Dieu CBD urban regeneration programme. N2 in Paris 17th arrondissement – 15,900 m2: • The project is shared at 49.9% with ACM. Delivery construction project, in partnership with ACM, is expected at the end of 2020 for a mixed-use property (offices/coworking/ 2 hotels): 9,400 m2 will be office space, including • Montpellier Orange – 16,500 m : construction 4,600 m2 for coworking; 4,600 m2 will be taken project for a turnkey building for Orange in the up by hotel activity; 1,900 m2 will be taken up Parc de la Pompignane in Montpellier (Majoria). by ground floor retail. Delivery of this asset is Delivery expected in 2020 scheduled for early 2021. This project illustrates • Hélios in Lille-Villeneuve-d’Ascq – 9,000 m2: the synergies between the Group’s different construction project for two new buildings in asset classes one of the main office areas in Lille. The asset • Flow in Montrouge − 23,600 m2: building project is already entirely pre-leased to the Caisse for a new, multi-purpose office building located d’Épargne Group in the attractive, up-and-coming area of • Îlot Armagnac in Bordeaux – 31,700 m2: Montrouge. This project was launched on spec. construction project for three new office buildings in Q1 2018, with delivery scheduled during 2020 near the future high speed (LGV) railway station, • Cœur d’Orly Bâtiment Belaïa – 22,600 m2: purchased off-plan under a partnership with project to build, in partnership with the ADP . Covivio has a 35% stake in the project, and Group, an office building in Cœur d’Orly, the will retain 100% ownership of one of the buildings. business district of Paris-Orly airport. 50% of the 42% of the asset has already been pre-let and asset has already been pre-let, and delivery is delivery is scheduled for the second half of 2018 scheduled for 2020. • École Ducasse in Meudon – 5,100 m2: construction project for a cooking school for Alain Ducasse Entreprise. The project will be delivered in early 2020.

18 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l France Offices 1

1.2.1.10.3. Managed projects: €2.0 billion of fully managed pipeline (€2.0 billion in Group share) For a breakdown of managed projects, see the table on • Jean Goujon in Paris 8th – 8,500 m2: programme to page 10 of this document. restructure a property purchased this half into office space to bring all Covivio Paris teams together under Covivio will launch a certain number of projects by one roof end-2018 and early 2019: Cité Numérique in Bordeaux – 19,200 m2: extension- Omega in Levallois – 19,300 m2: the tenant (Lagardère) • • regeneration programme. Delivery of the first phase must vacate the premises at the end of 2018 so that scheduled for July 2018 (around 4,000 m2) and the major restructuring and extension work can take place remainder for the second quarter of 2019. Gobelins in Paris 5th arrondissement – 4,900 m2: • 2 Orange building, which will be vacated in 2018 for In total, around 338,000 m of new developments and redevelopment and extension work redevelopments will drive the Group’s future growth, such as Vinci’s headquarters in Rueil-Malmaison (43,000 m2 Paris-St-Ouen – 29,700 m2: departure of the tenant • extended and redeveloped) and the Cap 18 project in in 2018, then launch of a demolition-reconstruction Paris 18th arrondissement (50,000 m2 of construction). project in the heart of this fast-developing business district (location of the future Paris Courthouse, new headquarters of the Greater Paris Region)

1.2.1.11. Portfolio values 1.2.1.11.1. Change in portfolio values: €88 million rise in Group share in the first half of 2018

(€M) – Excluding Duties Value Value creation on Change Value Group share 2017 Acquisitions Invest. Disposals Acquis./Disposals in value Transfer H1 2018 Assets in operation 5,233 134 22 -224 33 95 24 5,316 Assets under development 179 0 24 0 1 2 -24 184 TOTAL 5,412 134 46 -224 34 97 0 5,500

The value of the portfolio has grown by €88 million since investments in the development pipeline. Furthermore, the end of 2017 due to like for like growth in values, upgrading work worth €22 million has been completed and investments made. Disposals have improved the on assets in operation. quality of the portfolio and made it possible to finance

1.2.1.11.2. Like-for-like portfolio evolution: +1.7% of growth

Value Value 2017 Value H1 2018 Group H1 2018 Group LfL(1) change Yield(2) Yield(2) (€M) – Excluding Duties share 100% share 6 months 2017 H1 2018 % of total Paris Centre West 1,021 1,082 1,080 2.6% 4.2% 4.1% 20% Paris South 632 784 647 1.5% 4.4% 4.4% 12% Paris North-East 374 380 380 1.3% 5.3% 5.1% 7% Wester Crescent and La Défense 1,410 1,557 1,396 1.0% 5.4% 5.4% 25% Inner rim 1,000 1,512 1,044 0.9% 5.4% 5.3% 19% Outer rim 94 66 66 0.6% 8.4% 8.7% 1% Total Paris Region 4,532 5,381 4,612 1.4% 5.0% 5.0% 84% Major regional cities 644 925 695 4.5% 6.0% 5.5% 13% Other French Regions 236 192 192 -0.5% 8.9% 8.8% 3% TOTAL 5,412 6,498 5,500 1.7% 5.3% 5.2% 100% (1) LfL: Like-for-Like. (2) Yield excluding assets under development.

2018 First-half financial report — 19 2018 First-half management report 1 Business analysis by segment l France Offices

Values rose 1.7% on a like for like basis, driven by the core • strong performance by business centres in major portfolio (+1.9%) notably thanks to: regional cities, with 4.5% growth on a like for like basis, • the increased value of Toulouse Riverside, delivered in particularly in Bordeaux. May 2018, 41% of which has been let. Negotiations are The target yield of the portfolio under operation has at an advanced stage to let the remaining surface remained stable since the end of 2017, standing at area in the second half of 2018 5.2%, despite disposals of secondary assets with a high • rising market values in Paris with 2.0% growth, yield and the rise in values. This illustrates the robust particularly on assets which have undergone performance of rental incomes on Covivio’s target upgrading work (notably The Line, Art&Co, Steel) markets and the ability to retain profitability while improving the quality of the portfolio and growth outlook.

1.2.1.12. Strategic segmentation of the portfolio • The core portfolio is the strategic grouping of key • Such assets will become “core assets” once delivered. assets, consisting of resilient properties providing long- They concern: term income. Mature assets may be disposed of on an • “committed” projects (appraised) opportunistic basis in managed proportions. This frees the land reserve that may be undergoing appraisal up resources that can be reinvested in value-creating • transactions, such as in developing our portfolio or • “managed” projects freed for short/medium term making new investments. development (undergoing internal valuation). • The portfolio of “Assets under Development” consists • Non-core assets form a portfolio compartment with a of assets subject to a development project. higher average yield than that of the office portfolio, with smaller, liquid assets in local markets, allowing their possible progressive sale.

Core Development portfolio portfolio Non-core portfolio Total Number of assets 87 9 140 236 Value Excluding Duties Group share (€M) 5,038 184 278 5,500 Annualised rental income 248 0 26 274 Yield(1) 4.9% N/A 8.5% 5.2% Residual firm duration of leases (years) 4.7 N/A 2.4 4.5 Occupancy rate 9 7. 5 % N/A 91.5% 96.9% (1) Yield excluding development.

Core assets represented 92% of the portfolio (Group The proportion of non-core assets decreased by 23%, share) at the end of the first half, notably following the making up 3% of the portfolio (Group share) at the delivery of Toulouse Riverside and the acquisition of Paris end of June 2018 (including signed preliminary sale Jean Goujon. agreements), i.e. 2 pts lower than at the end of 2017, notably as a result of disposals in other French regions The “pipeline” portfolio remained stable compared to and the outer suburbs. the end of 2017, accounting for 3% of the portfolio, i.e. nine assets. The delivery of Toulouse Riverside, which has become a core asset, was replaced by the launch of two new projects (Meudon Ducasse and N2 Batignolles).

20 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Italy Offices 1

1.2.2. Italy Offices

Listed on the Milan stock exchange since 1999, Beni Stabili is the largest listed Italian property firm and is a 59.9% subsidiary of Covivio (vs 52.4% at end-2017). During the first semester 2018, Beni Stabili and Covivio agreed to merge. The transaction will be submitted for approval to the EGM of both companies in September and the completion of the merger is expected by end-2018. The figures are disclosed at 100% and in Covivio Group share (GS). 1.2.2.1. Confirmed supportive environment in Milan Office Market(1) The strategy of Covivio in Italy is focused on Milan, • on the future offer, the trend remain unchanged as the where the Group’s acquisitions and developments are expected deliveries until 2020 will not suffice to absorb concentrated. At end-June 2018, the Group had a the appetite of users for Grade A surfaces: 165,000 m2 portfolio worth €4.4 billion (€2.2 billion Group share). After of new spaces per year are set to be delivered by 2020 an acceleration in 2017, the Milan office market is pursuing against an estimated demand for 240,000 m2 per year in its cycle of growth: • prime rents kept on increasing and are reaching • the market still showed good levels of take-up in the €570/m2 in the CBD and Porta Nuova business district first semester 2018 (203,000 m2, in line with the record (+6% vs end-2017) level of the first semester 2017). The demand is still • good investment trend continues in the first quarter driven by Grade A offices which represent more than 2018 in Italy with €1.6 billion invested, of which around 70% of the total volume 60% coming from International investors. Milan remains • the immediate offer of new space is still dwindling (-4% the most attractive city with 35% of the total investment vs end-2017), with a vacancy rate on Grade A offer volume and particularly with regard to the office sector. especially low around 2% in the central areas: 2.3% in the CBD and Porta Nuova, 1.7% in the Center and 1.8% in the semi-centre

The activities of Covivio in H1 2018 were marked by: • the reinforcement in Milan through €106 million of Symbiosis project and 9,500 m2 in the Sign project. The acquisitions with a potential yield >6%. Milan now committed pipeline is now pre-let at 62% represents 68% of the office portfolio in Group share • the diversification of the tenant base, with the at end-June 2018 syndication of an additional 9% of the Telecom Italia • the success of the development pipeline, with portfolio representing the equivalent of €139 million 22,000 m2 leased in H1 2018, including 9,200 m2 on the Group share disposal.

1.2.2.2. Accounted rental income: +1.5% on a like-for-like basis

Rental Rental Rental income Rental income income H1 2017 income H1 2018 Surface Number H1 2017 Group H1 2018 Group Change Change % of (€M) (m2) of assets 100% share 100% share (%) (%) LfL(1) total Offices – excl. Telecom Italia 557,482 76 43.2 22.6 4 7.0 26.4 16.8% 1.7% 49% Offices – Telecom Italia 1,056,310 141 49. 1 25.1 49. 2 15.3 -39.2% 1.1% 51% Development portfolio 216,449 4 0.0 0.0 0.3 0.2 N/A 0.0% 0% TOTAL STRATEGIC ACTIVITIES 1,830,241 221 92.3 4 7. 7 96.5 41.9 -12.2% 1.5% 100% Non-strategic (retail) 96,889 31 9. 5 5.0 8.0 4.5 -10.2% -7. 8 % Total 1,927,130 252 101.8 52.7 104.5 46.3 -12.1% 0.4% (1) LfL: Like-for-Like.

Between the first half 2017 and the first half 2018, rental • acquisitions (+€2.1 million), mainly the Creval portfolio income decreased by 12% (-€6.4 million) primarily due to: in Milan acquired in H1 2017 (+€1.8 million) • the syndication of 49% of the Telecom Italia portfolio • asset disposals for -€2.3 million (-11.3 million), of which 40% realised at end-June 2017 • the decrease in non-strategic retail assets that the and 9% early 2018 Group aims to dispose • acceleration of the rental growth at like-for-like scope • the increase of the ownership stake in Beni Stabili from of +1.5% on strategic activities, driven by Milan (+1.9%): an average rate of 52.2% in H1 2017 to 59.9% in H1 2018 • +0.9 pt (+€0.3 million) of indexation (+€3,1 million) • +0.6 pt (+€0.2 million) due to the rental activity of • the delivery of development assets for +€1 million. the semester

(1) Source: CBRE, JLL, C&W. 2018 First-half financial report — 21 2018 First-half management report 1 Business analysis by segment l Italy Offices

1.2.2.3. Annualised rental income: €94 million Group share from offices 1.2.2.3.1. Breakdown by portfolio

Annualised Annualised Annualised Annualised rents rents Surface Number rents 2017 rents 2017 H1 2018 H1 2018 Change % of (€M) – Group share (m2) of assets 100% Group share 100% Group share (%) total Offices – excl. Telecom Italia 557,482 76 98.0 51.4 105.0 62.9 22.4% 67% Offices – Telecom Italia 1,056,310 141 98.9 31.1 98.3 30.0 -3.5% 32% Development portfolio 216,449 4 1.4 0.7 1.4 0.8 N/A 1% TOTAL STRATEGIC ACTIVITIES 1,830,241 221 198.3 83.2 204.7 93.8 12.7% 100% Non-strategic (retail) 96,889 31 18.0 9. 5 17.4 10.5 10.4% Total 1,927,130 252 216.3 92.7 222.2 104.2 12.5%

Annualised income dropped by 13% following the syndication of an additional 9% of the Telecom Italia, allowing the Group to decrease its exposure to its largest tenant.

1.2.2.3.2. Geographic breakdown

Annualised Annualised Annualised Annualised rents rents Surface Number rents 2017 rents 2017 H1 2018 H1 2018 Change % of (€M) (m2) of assets 100% Group share 100% Group share (%) total Milan 644,514 53 92.4 45.4 98.6 54.9 21.0% 59% Rome 83,611 15 11.5 5.3 11.7 4.7 -12.2% 5% Turin 156,393 12 11.7 4.4 11.9 6.1 37.4% 7% North of Italy (other cities) 553,774 81 48.8 17.2 48.8 17.5 1.9% 19% Others 391,949 60 33.9 10.9 33.7 10.6 -2.9% 11% TOTAL STRATEGIC ACTIVITIES 1,830,241 221 198.3 83.2 204.7 93.8 12.7% 100% Non-strategic (retail) 96,889 31 18.0 9. 5 17.4 10.5 10.4% Total 1,927,130 252 216.3 92.7 222.4 104.2 12.5

58% of rental income is now generated by offices in Milan (+3 pts vs end 2017), thanks to acquisitions realised and the syndication of the Telecom Italia portfolio.

1.2.2.4. Indexation The annual indexation in rental income is usually calculated by applying the increase in the Consumer Price Index (CPI) on each anniversary of the signing date of the agreement (for around 20% of the portfolio 75% of the CPI increase is applied). In the first semester 2018, the average change in the IPC index has been +0.6% over 6 months.

1.2.2.5. Rental activity

Annualised Annualised rents rents Surface H1 2018 H1 2018 (€M) (m2) Group share (100%, €/m2) Vacating 5,948 0.5 143 Lettings on operating portfolio 11,372 4.5 655 Lettings on development portfolio 21,914 2.8 230 Renewals 12,227 1.4 189

22 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Italy Offices 1

The sustained rental activity in first half 2018 shows the • 21,900 m2 have been leased on the development improvement of the letting market in the areas where pipeline, mainly in Milan. The committed projects are Covivio is exposed and the strong asset management now 57% pre-let: work. In particular, the relettings have been realised with • the full pre-letting of a school to Ludum in the a 10% increase on Annualised rents. Symbiosis project for 9,200 m2 (€1.6 million) 2 • 12,200 m renewed or renegotiated with an increase • 9,500 m2 on the The Sign project (building A) for of 10% on Annualised rents essentially related to a few €2.6 million rent, pre-let to AON, a long-term partner assets in the Milan area (La Voglia in the Duomo area, of Covivio in France. After choosing Covivio for their Piazza S.Fedele in the CBD and Rozzano, near Milan) French headquarters, AON will set up its Italian • 11,400 m2 of new leases mainly in Milan, with 4,800 m2 headquarters in the Sign in Galleria del Corso with Percassi for €5.9 million and three new leases in Turin Corso Ferrucci on 3,300 m2 2 • 2,100 m in Via Rombon with Total for €0.5 million for €0.5 million. • 5,900 m2 have been vacated, mostly related to the release of Motorspecyalist in Rome, Via Baldovinetti for 3,800 m2

1.2.2.6. Lease expirations and occupancy rates 1.2.2.6.1. Lease expirations: 6.8 years of average firm lease term

By lease end date By lease (€M) – Group share (1st break) % of total end date % of total 2018 6.0 6% 3.1 3% 2019 14.4 16% 9. 2 10% 2020 4.2 5% 4.7 5% 2021 6.3 7% 6.3 7% 2022 12.1 13% 13.3 14% 2023 5.8 6% 8.8 9% 2024 3.6 4% 4.5 5% 2025 0.5 1% 1.4 1% 2026 6.9 7% 7. 2 8% 2027 5.2 6% 5.2 6% Beyond 2 7. 8 30% 29.1 31% TOTAL 92.9 100% 92.9 100% Retail 10.5 - 10.5 - Total 104.2 - 104.2 -

The firm residual lease term remains high following the syndication of 9% additional of the Telecom Italia portfolio at 6.8 years.

1.2.2.6.2. Occupancy rate: a high-level of 9 7.0 %

(%) 2017 H1 2018 Offices – excl. Telecom Italia 95.1% 95.5% Offices – Telecom Italia 100.0% 100.0% TOTAL STRATEGIC ACTIVITIES 9 7.0 % 9 7.0 % Non-strategic (retail) 93.6% 92.0% Total 96.6% 96.5%

The occupancy rate of offices excluding Telecom Italia assets has improved continuously since 2014 and stands at 95.5% (+0.4 pt vs end-2017) thanks to letting success in Milan. Overall, the occupancy rate on strategic activities is stable despite impact of the diminishing weight of the Telecom Italia portfolio.

2018 First-half financial report — 23 2018 First-half management report 1 Business analysis by segment l Italy Offices

1.2.2.7. Reserves for unpaid rent

(€M) H1 2017 H1 2018 As % of rental income 1.0% 1.0% In value(1) 0.5 0.6 (1) Net provision/reversals of provision.

Reserves for unpaid rents are stable over one year, at a low level of 1.0%.

1.2.2.8. Disposals: €159 million signed in the first semester 2018

Disposals (agreements as Agreements New New Total of end of 2017 as of end disposals agreements Total Margin realised closed) of 2017 H1 2018 H1 2018 H1 2018 vs 2017 disposals (€M) – 100% (I) to close (II) (III) = (II) + (III) value Yield = (I) + (II) Milan 11 ------11 Rome ------Other 9 7 - 159 159 -2.9% 7.0 % 9 TOTAL 100% 20 7 - 159 159 -2.9% 7.0 % 20 Telecom Italia portfolio syndication (Group share) - - 73 - - - - 73 TOTAL GROUP SHARE 8 4 73 49 49 -2.9% 7.0 % 81

In H1 2018, Covivio has signed €159 million of new Early 2018, an additional 9% of the Telecom Italia disposals agreements for Telecom Italia assets in portfolio has been sold to EDF Invest and Credit Agricole secondary locations (Pisa, Brescia, Como, Palermo). Assurances, further advancing the strategic objectives of the Group and decreasing the exposure of the Group to its main tenant in Italy.

1.2.2.9. Acquisitions: €106 million realised in the first semester 2018

Acquisitions 2018 realised Acquisitions 2018 secured Acq. price Acq. price Potential Acq. price Acq. price Potential (€M) – Including Duties Location 100% Group share gross yield 100% Group share gross yield Piazza Duca d’Aosta Milan 11 7 6.1% - - - Piazza San Pietro in Gessate Milan 16 9 6.0% - - - Viale Dell’ Innovazione Milan 79 47 6.3% - - - TOTAL 106 63 6.2% - - -

In 2018 the Company continued its acquisition strategy • an asset located in the increasingly attractive Bicocca in Milan, signing agreements for €106 million in the first Business District in Norther Milan, on the metro line half, which include: 5. The building, representing 19,800 m2 of Grade A • a portfolio of two assets for total 6,000 m2 located in office space, offers an attractive yield of 6.2% through Milan. One asset located in Piazza Duca D’Aosta, right reletting of the vacant space (~9%). in front of the Central Railway Station and next to Porta With this acquisition, Covivio strengthens its position in Nuova business district, the other one located in Piazza Milan, improves the quality of the portfolio and fuels the San Pietro in Gessate, in front of the Milan Courthouse. growth potential in the near-term. Both assets offer a significant value creation with a potential yield of 6%

24 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Italy Offices 1

1.2.2.10. Development pipeline: €831 million of projects Covivio has a €831 million pipeline in offices in Italy (€498 million Group share). Faced with high demand for new or restructured space, the Group has boosted its development capacity since 2015 year-end, with five committed projects at end-June 2018 that will drive the Group’s growth in the coming years.

1.2.2.10.1. Projects delivered 9,500 m2 of projects were delivered during the first half • the Colonna project (3,500 m2), which involved of 2018, exclusively in Milan. The 100% occupancy rate redeveloping an asset, was also delivered during the proves the success of the two following projects: second quarter of 2018. This asset has been fully let. • the Titano project (6,000 m2), which involved redeveloping the Piazza Monte Titano asset into a hotel let to Meininger, was delivered during the second quarter of 2018

1.2.2.10.2. Committed projects: €368 million (€220 million Group share), primarily in Milan For details on the committed projects, see page 9 of this document. • The Sign – 26,500 m2: redevelopment project • Principe Amedeo – 7, 000 m2: redevelopment on Via Schievano, on the South West fringes of the Principe Amedeo building, acquired in of the centre of Milan in the Navigli business 2017 and located in the Porta Nuova business district. The first building has already been district. Delivery is scheduled for early 2019, pre-let to AON, which had already selected and Covivio will host its Wellio coworking Covivio for its French headquarters. The brand there for the opening of its first site in project will be delivered in 2020. Milan. • Symbiosis – 29,900 m2: the first phase of the • Corso Ferrucci – 45,600 m2: redevelopment project (buildings A & B) has been pre-let to of the existing Ferrucci asset in Turin. New Fastweb, and 1,200 m2 of additional space negotiations with Regus and ADP resulted in is intended for catering space for Cir Food. leases being signed in the first half of 2018. 44% 86% of the building has now been pre-let, of the asset had been pre-let at end June and delivery is scheduled for the final quarter 2018. The remaining surface area is expected of 2018. Another building was begun in the to be delivered by the end of 2019. first half: Symbiosis School, 97% pre-let with delivery scheduled for 2020.

1.2.2.10.3. Managed projects: €463 million (€277 million Group share) of projects in Milan Two projects are in the managed pipeline. They are: • Via Dante in Milan, for 4,800 m2, involving the • other buildings in the Symbiosis project, representing regeneration of a building near the Piazza Duomo. The a potential 95,000 m2 of office space in a pipeline launch of this asset is scheduled for the end of 2018, business district on the South East limit of Milan city- once the current tenant has vacated the premises. centre, opposite the Prada Foundation

2018 First-half financial report — 25 2018 First-half management report 1 Business analysis by segment l Italy Offices

1.2.2.11. Portfolio values 1.2.2.11.1. Change in portfolio values

Change (€M) – Group share Value Change in % Value Excluding Duties 2017 Acquisitions Invest. Disposals in value Transfer ownership H1 2018 Offices – excl. Telecom Italia 1,024 63 4 -4 11 21 150 1,268 Offices – Telecom Italia 489 - 1 -77 0 - 59 473 Development portfolio 225 - 19 - 0 -20 32 256 TOTAL STRATEGIC ACTIVITIES 1,738 63 23 -81 11 1 241 1,997 Non-strategic (retail) 155 - 0 - 1 -1 22 179 Total 1,893 63 23 -81 13 0 263 2,175

The portfolio increased by 15% to €2.2 billion in Group share at end-June 2018, as a result of the increase in the ownership rate in Beni Stabili to 59.9% (vs 52.4% at end-2017). Investments realised in Milan in H1 2018 (€79 million of acquisitions and capex) were financed through disposals of non-core assets in secondary locations (€81 million).

1.2.2.11.2. Like-for-like growth: +0.7% on strategic activities

Value Value Value LfL(1) 2017 H1 2018 H1 2018 change Yield Yield (€M) – Excluding Duties Group share 100% Group share 6 months 2017 H1 2018 % of total Offices – excl. Telecom Italia 1,024 2,117 1,268 1.0% 5,0% 5.0% 64% Offices – Telecom Italia 489 1,547 473 0.1% 6,4% 6.4% 24% Development portfolio 225 427 256 0.2% N/A N/A 13% TOTAL STRATEGIC ACTIVITIES 1,738 4,092 1,997 0.7% 5.5% 5.3% 100% Non-strategic (retail) 155 298 179 0.9% 6.1% 5.9% Total 1,893 4,390 2,175 0.7% 5.7% 5.4% (1) LfL: Like-for-Like.

Following the additional 9% syndication of the Telecom Italia portfolio, the weight of the Telecom Italia portfolio has been reduced to 24% (vs 28% at end-2017 and 38% at end-2016).

Value Value Value LfL(1) 2017 H1 2018 H1 2018 change Yield(2) Yield(2) (€M) – Excluding Duties Group share 100% Group share 6 months 2017 H1 2018 % of total Milan 1,117 2,423 1,367 1.7% 4.6% 4.7% 68% Turin 116 247 132 -0.2% 7. 2 % 6.4% 7% Rome 85 217 84 -4.3% 4.9% 5.5% 4% North of Italy 261 721 261 -1.6% 5.1% 6.7% 13% Others 159 484 151 -0.2% 6.3% 7.0 % 8% TOTAL STRATEGIC ACTIVITIES 1,738 4,092 1,997 0.7% 5.5% 5.3% 100% Non-strategic (retail) 155 298 179 0.8% 6.1% 5.9% (1) LfL: Like-for-Like. (2) Yield excluding development projects.

The weight of Milan has increased in H1 2018 and now which benefited particularly from the property value represents 68% of the office portfolio (+4 pts since increase. end-2017), and is driving the like-for-like value increase This strong performance validates the strategy on the portfolio: +1.4% excluding Telecom Italia assets. implemented by the Group with an objective of 90% of This reflects the quality of the portfolio in Milan, located the portfolio in Milan by 2022. at 60% in the CBD and the Porta Nuova business district,

26 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l German residential 1

1.2.3. German residential

Covivio operates in the German Residential segment through its 61.7% held subsidiary Covivio Immobilien. The figures presented are expressed as 100% and as Covivio Group share. 1.2.3.1. Solid economic growth outlook based on positive demographic and macro-economic trends (1) Covivio owns over 41,087 apartments located in Berlin, • The housing supply and demand imbalance persists Hamburg, Dresden, Leipzig and North Rhine-Westphalia. in the Berlin market, where the population grew by The asset portfolio represents €5.4 billion (€3.5 billion 40,000 residents in 2017, while 15,700 new housing units Group share). The German residential market has been were delivered. booming for several years, particularly in Berlin where the • This trend has had a significant impact on market Group initiated investments in 2011 and where it currently rents, up 9% in Berlin in 2017 at €9.80 per m2, and holds nearly 56% of its residential portfolio. on apartment purchase prices, which stand at an 2 • Germany’s macro-economic indicators are robust, with average of €3,710 per m in Berlin (up 13% since 2016). a GDP growth forecast of over 2% in 2018 and 2019, and These strong increases contribute to the Group’s good a drop in the unemployment rate to 3.4% at the end performance and significant potential value creation of May 2018. In Berlin, the current demographic trend on the development pipeline. is continuing, with a forecast of 3.8 million people by • The Residential market continues to attract investors, 2020 (versus 3.7 million at end-2018). with transactions totalling €8 billion in Q1 2018 (twice higher than Q1 2017) under the impact of external growth and the price increase (+23% to €2,400 per m2 on average). In H1 2018, Covivio’s activities were marked by: • a 4.6% increase in rental income on a like-for-like • the portfolio continued to increase in value, with a like- scope, after +4.2% in 2017. The portfolio’s rent increase for-like jump of +6.7%, of which +7.1% in Berlin, validating potential remains high, particularly in Berlin where it the pertinence of the Group’s strategic allocation exceeds 35% choices • ongoing acquisitions in Berlin, Dresden & Leipzig, at • the development of the new co-living solution, which attractive prices. Acquisitions totalling €435 million relies on the quality of the Group’s portfolio in Berlin were secured during this first half-year, of which 65% and will improve profitability and value creation. in Berlin, at an average price of €2,100 per m2 and a rent increase potential exceeding 40%

1.2.3.2. Accounted rental income: +4.6% at a like-for-like scope 1.2.3.2.1. Geographic breakdown

Rental Rental Rental income Rental income Change Change income H1 2017 income H1 2018 Group Group % of Surface Number H1 2017 Group H1 2018 Group share share rental (€M) (m2) of units 100% share 100% share (%) (%) LfL(1) income Berlin 1,217,285 15,970 48.8 30.5 56.6 36.3 19.2% 5.7% 48% Dresden & Leipzig 302,874 5,091 10.2 6.3 11.1 7.0 9.9 % 2.8% 9% Hamburg 146,208 2,404 7. 2 4.6 7. 8 5.2 11.1% 3.4% 7% North Rhine-Westphalia 1,191,398 17,622 46.6 28.5 43.2 26.9 -5.7% 4.2% 36% Essen 378,417 5,503 14.4 8.8 14.2 8.8 -0.2% - 12% Duisburg 236,559 3,589 10.3 6.3 8.3 5.0 -20.0% - 7% Mulheim 134,017 2,235 5.5 3.4 5.1 3.1 -7.0 % - 4% Oberhausen 155,058 2,103 5.2 3.2 5.1 3.3 4.6% - 4% Other 287,348 4,192 11.3 6.8 10.5 6.6 -3.6% - 9% TOTAL 2,857,765 41,087 112.9 69.9 118.7 75.3 7.7% 4,6% 100% (1) LfL: Like-for-Like.

(1) Sources: Eurosta, Destatis, Berlin Brandeburg Statistiks office, JLL, CBRE.

2018 First-half financial report — 27 2018 First-half management report 1 Business analysis by segment l German residential

Recognised rental income (Group share) amounted to • 2017 and 2018 acquisitions (+€7.4 million) mainly in €75.3 million in the first half of 2018, up 7.7% under the Berlin, with high rent increase potential combined effects of: • disposals (-€5.2 million) mainly involving non-core • acceleration of like-for-like rental growth of 4.6% assets in North Rhine-Westphalia and mature assets (+€2.4 million) with: in Berlin • 53% due to indexation (+2.4 pts) • the increase in Covivio’s stake in Covivio Immobilien • 43% due to reletting (+2.0 pts) from 61.0% to 61.7% at end-2017 (+€0.8 million). • 4% due to modernisation CAPEX (+0.2 pt) In Berlin, re-lettings took place at an average rent of over 2 Berlin continues to generate very good performance €11 per m , a sharp rise. Covivio is thus gradually realising (+5.7%), while growth has significantly accelerated in the rent increase potential of the numerous acquisitions North Rhine-Westphalia (+4.2%), given the improved made over recent years. quality of the portfolio

1.2.3.3. Annualised rental income: €153 million in Group share 1.2.3.3.1. Geographic breakdown

Annualised Annualised Annualised Annualised rents rents Average % of Surface Number rents 2017 rents 2017 H1 2018 H1 2018 Change rent (€/m 2/ rental (M€) (m2) of units 100% Group share 100% Group share (%) month) income Berlin 1,217,285 15,970 111.7 70.0 114.4 73.7 5.3% 7. 8 48% Dresden & Leipzig 302,874 5,091 22.2 14.1 22.1 14.1 0.2% 6.1 9% Hamburg 146,208 2,404 13.5 8.8 16.1 10.5 18.6% 9. 2 7% North Rhine-Westphalia 1,191,398 17,622 85.6 53.0 86.0 54.4 2.6% 6.0 36% Essen 378,417 5,503 28.0 17.3 28.7 17.8 2.8% 6.3 12% Duisburg 236,559 3,589 17.2 10.6 16.3 10.2 -4.0% 5.8 7% Mulheim 134,017 2,235 10.3 6.4 10.1 6.4 -0.6% 6.3 4% Oberhausen 155,058 2,103 10.6 6.5 10.2 6.8 3.2% 5.5 4% Others 287,348 4,192 19.5 12.2 20.7 13.3 9. 2 % 6.0 9% TOTAL 2,857,765 41,087 232.9 146.0 238.6 152.7 4.6% 7.0 100%

The trend in annualised rental income, up +4.6%, reflects • The strategic markets generate nearly 64% of rental the strategic repositioning done by the Group. The policy income (+4 pts compared to 0H1 2017). of rotating assets in the portfolio reduced the weight The relatively low level of rental income per m2 of non-core assets in North-Rhine-Westphalia and (€7.0/m2/month on average on the portfolio) offers solid increased exposure to high growth potential markets growth potential, thanks to the rent increase potential such as Berlin, Hamburg, Dresden & Leipzig. of around 35% in Berlin, 20-25% in Hamburg and, and • The weight of North Rhine-Westphalia has fallen by around 15-20% in Dresden & Leipzig and in North 4 pts since the first half of 2017. The stronger growth in Rhine-Westphalia. rental income in this area reflects the better quality of the portfolio (+4.2% like-for-like).

28 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l German residential 1

1.2.3.4. Indexation The rental income from residential property in Germany • for current leases: changes according to three mechanisms: The current rent may be increased by 15% to 20% • rents for re-leased properties: depending on the region, although without exceeding In principle, rents may be increased freely. the Mietspiegel or another rent benchmark. This increase may only be applied every three years As an exception to that unrestricted rent setting principle, certain cities like Berlin and Hamburg have • for current leases with work done: introduced rent caps for re-leased properties. In these In the event that work has been carried out, rent may cities, rents for re-leased properties cannot exceed by also be increased by up to 11% of the amount of said more than 10% a rent reference. work, and by the difference with the Mietspiegel rent If construction works result in an increase in the value index. This increase is subject to two conditions: of the property (work amounting to less than 30% of • the work must increase the value of the property the residence), the rent for re-let property may be • the tenant must be notified of this rent increase increased by a maximum of 11% of the cost of the within three months. work. In the event of complete modernisation (work amounting to more than 30% of the residence), the rent may be increased freely

1.2.3.5. Occupancy rate: a high level of 98.1%

(%) 2017 H1 2018 Berlin 9 7. 8 % 97.2% Dresden & Leipzig 98.9% 99.3% Hamburg 99.9% 99.7% North Rhine-Westphalia 98.8% 98.7% TOTAL 98.4% 98.1%

The occupancy rate of assets under operation remains high, at 98.1%. The occupancy rate has remained above 98% since the end of 2015 and reflects the Group’s very high portfolio quality and low rental risk.

1.2.3.6. Reserves for unpaid rent

(€M) – Group share H1 2017 H1 2018 As % of rental income 0.7% 0.6% In value(1) 0.5 0.5 (1) Net provision/reversals of provison.

The unpaid rent amount to 0.6% of rents, decreasing slightly compared to 2017, thanks to a pro-active property management policy.

2018 First-half financial report — 29 2018 First-half management report 1 Business analysis by segment l German residential

1.2.3.7. Disposals and disposals agreements: €131 million of new committments

Disposals (agreements Agreements New New Margin Total as of end of as of end disposals agreements Total vs realised 2017 closed) of 2017 H1 2018 H1 2018 H1 2018 2017 disposals (€M) – 100% (I) to close (II) (III) = (II) + (III) value Yield = (I) + (II) Berlin 40 9 4 13 18 40% 2.7% 44 Dresden & Leipzig 20 0 0 12 12 2% 5.3% 20 Hamburg 0 0 0 5 5 -12% 5.5% - North Rhine-Westphalia 51 19 4 92 96 11% 4.9% 55 TOTAL 111 27 9 122 131 12.4% 4.6% 120 TOTAL GROUP SHARE 65 16 5 69 74 12.4% 4.6% 70

The new commitments (new disposals and new • 217 units disposed of in other vibrant cities (Dresden, agreements) signed in 2018 totalled €131 million Leipzig and Hamburg) for €17 million, in line with the (€74 million Group share), with a high gross margin of latest appraisal values. The Hamburg asset is part of 12%. The commitments are mostly on non-core assets a portfolio sold with a margin of 8% over the latest (73% of commitments) and fit squarely within the Group’s appraisal value. policy of rotating assets in the portfolio. The disposals made in H1 2018 amounted to €120 million • 978 units on non-strategic assets in North Rhine- (€70 million Group share) and involved 53% of Westphalia for €96 million with a 11% margin mature assets and 46% of non-core assets in North • 88 units disposed of in Berlin, at prices clearly higher Rhine-Westphalia. than the latest appraisal values (>40% margin, around €2,800/m2), crystallising the value creation achieved

1.2.3.8. Acquisitions: €435 million secured in the first semester 2018

Surface Number (m2) of units Acquisitions H1 2018 realised Acquisitions H1 2018 secured Acq. price Acq. price Gross Acqu. price Acqu. price Gross (€M) – Including Duties (realised & secured) 100% Group share yield(1) 100% Group share yield(1) Berlin 116,509 1,826 100 80 4.1% 182 114 4.6% Dresden & Leipzig 44,228 434 9 6 4.2% 35 23 5.5% Hamburg 23,420 380 65 42 4.0% - - 0.0% North Rhine-Westphalia 22,752 302 44 29 4.5% 0 0 0.0% TOTAL 206,909 2,942 218 157 4.3% 217 137 5.0% Reinforcement Group share 51 4.9% (1) Yield in 2 years after reletting of vacant spaces. Immediate yield of 3.6% on acquisitions realised and 4.4% on acquisitions secured.

Covivio maintained a steady pace of investments at • a return on acquisition of 4.0%, due to the high average attractive prices in a highly competitive context, with vacancy rate (6%). The 2-year potential yield stands secured acquisitions totalling €435 million (€294 million at 4.6% and will continue to rise due to the high rent Group share) in H1 2018: increase potential (over 40% on average). • 65% of the assets acquired are in Berlin, 15% in Hamburg, Moreover, Covivio increased its stake in companies 10% in Dresden and the rest in North Rhine-Westphalia holding asset portfolios, mainly in Berlin. All in all, these • average price of €2,100/m2 of which €2,400/m2 acquisitions involved €51 million in assets (Group share). in Berlin

30 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l German residential 1

1.2.3.9. Development projects: €500 million in identified projects In response to the supply/demand imbalance in This pipeline will enable Covivio to maximise value new housing in Berlin, Covivio launched a residential creation on its portfolio. Almost half of the development development pipeline in 2017. A total of €500 million projects will remain in the portfolio and are released has been earmarked for new housing extension, with a 5.3% return on the total cost. The other half will be redevelopment and new construction projects. sold in order to unlock the value creation with a margin expected over 40%.

1.2.3.9.1. Committed projects: €34 million (€22 million in Group share) For details on the committed projects, see page 9 of • Breisgauer Strasse, an extension project involving 16 this document. new housing units in the Zhelendorf district in Berlin Five residential development projects were launched • Birkbuschstrasse, an extension project involving 67 new in 2017, of which four are in Berlin. These totalled 168 housing units in the Steglitz district in Berlin apartments over 13,110 m2: • Margaretenhöhe, an extension project involving 54 new • Genter Strasse 63, a project for the construction of 19 housing units in Essen. residential units in the Mitte district in Berlin • Pannierstrasse 20, a project for the construction of 12 residential units in the Friedrichshain-Kreuzberg district of Berlin

1.2.3.9.2. Managed projects In all, 48 additional development projects have already In H1 2018, €20 million in land reserves were acquired and been identified, representing about €460 million in will enable the development of 18,000 m2 of housing. developments. They mainly consist of construction projects in the centre of Berlin and in Potsdam for, eventually, more than 2,200 new housing units spread across 150,000 m2.

1.2.3.10. Portfolio values 1.2.3.10.1. Change in portfolio value: +11% growth

Value creation Value on Acquis./ Change Value (€M) – Group share, Excluding Duties 2017 Acquisitions Invest. Disposals Disposals in value Others H1 2018 Berlin 1,728 109 8 -26 2 110 -6 1,927 Dresden & Leipzig 282 6 2 -12 0 15 -1 292 Hamburg 198 42 1 -0 -0 14 -3 252 North Rhine-Westphalia 906 50 6 -32 5 42 3 981 Essen 309 10 2 -0 0 18 - 339 Duisburg 174 5 1 -14 1 9 - 176 Mulheim 106 3 1 -6 1 5 - 109 Oberhausen 99 3 1 -4 2 2 - 103 Other 219 27 2 -8 1 10 2 253 TOTAL 3,114 208 18 -70 8 181 -7 3,451

In H1 2018, the portfolio’s value increased by 11% to stand at €3.5 billion Group share. The driver of this rapid growth was, above all, the like-for-like increase in value (€181 million or 54% of the growth), and second, the contribution of acquisitions net of disposals and the associated value creation (45% of the growth).

2018 First-half financial report — 31 2018 First-half management report 1 Business analysis by segment l German residential

1.2.3.10.2. Change on like-for-like basis: +6.7% of growth

Value Value 2017 Value Value H1 2018 LfL(1) % of Group H1 2018 H1 2018 Group change Yield Yield total (€M) – Excluding Duties share 100% (€/m2) share 6 months 2017 H1 2018 value Berlin 1,728 3,007 2,471 1,927 7.1% 4.1% 3.8% 56% Dresden & Leipzig 282 456 1,504 292 6.4% 5.0% 4.9% 8% Hamburg 198 392 2,681 252 7.7% 4.5% 4.1% 7% North Rhine-Westphalia 906 1,532 1,286 981 5.7% 5.9% 5.6% 28% Essen 309 528 1,396 339 - 5.6% 5.4% 10% Duisburg 174 274 1,160 176 - 6.1% 6.0% 5% Mulheim 106 170 1,269 109 - 6.0% 5.9% 3% Oberhausen 99 161 1,040 103 - 6.6% 6.3% 3% Other 219 397 1,383 253 - 5.6% 5.3% 7% TOTAL 3,114 5,386 1,885 3,451 6.7% 4.7% 4.4% 100% (1) LfL: Like-for-Like.

At like-for-like scope, the values increased by +6.7% year- • Hamburg (+7.7%) and Dresden & Leipzig (+6.4%) also on-year, reflecting the success of the Group’s investment generated strong performance under the same effects policy: • the increase in values was just as significant in North • +7.1% in Berlin after excellent performance in 2017 Rhine-Westphalia (+5.7%), demonstrating the improved (+17.3%), mainly due to the substantial increase in rental quality of the portfolio, following the modernisation income and values in highly sought-after locations and non-core asset disposal programmes. • the Berlin portfolio retained significant growth potential with metric values around €2,470/m2

1.2.3.11. Maintenance and modernisation CAPEX In H1 2018, €29 million in CAPEX (€18 million Group share), expansion in Berlin, where investment is more intense. i.e. €10.1 per m2 and €7.6 million in Opex (€2.6 per m2) were Modernisation CAPEX, which are used to improve asset completed. CAPEX spending increased by 15% compare quality and increase rental income, account for 60% of to 2017, in line with the growth of the portfolio. In € per the total. m2, spending increased by 17% under the impact of the

€8.9/m2 modernisation €2.1 M €6.0/m2 maintenance Hamburg

2 €5.9/m modernisation €3.0 M 2 2 Dresden €10.5 M €5.2/m modernisation €4.0/m maintenance North Rhine - 2 & Leipzig €3.5/m maintenance €29 M Westphalia CAPEX €10.1/m2 €6.7/m2 modernisation €13.6 M €4.5/m2 maintenance Berlin

32 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Hotels Europe 1

1.2.4. Hotels Europe

Covivio Hotels, a 42% owned subsidiary of Covivio at 30 June 2018 (versus 50% at end 2017), is a listed property investment company (SIIC) specialising in the ownership of hotel lease and hotel operating properties. Through its subsidiary, Covivio is now Europe’s leading hotel real estate player. The figures presented are expressed as 100% and as Covivio Group share (GS).

1.2.4.1. A European hotel market experiencing a long term growth cycle(1) Covivio holds a hotel portfolio worth €4.9 billion management possibilities via different ownership (€1.9 billion Group share) focused on major European methods (hotel lease and hotel operating properties), cities. Benefiting from its geographic diversification Covivio has major growth and value creation drivers. The (across seven Western European countries), its broad Group is very well positioned to benefit from growth in rental base (18 partner hotel operators) and asset the European hotel market.

The upturn in the European hotel market witnessed in 2017 continued into the early part of 2018: • the major trends underpinning the hotel industry were particularly in Central Paris (+8.9%) and Brussels (+9.7%). highly favourable: Spain continued to grow, especially Madrid (+7.5%), • 5% average rise in the number of tourist arrivals per and the performance in the was equally year for 5 years, with growth likely to continue at a robust, driven by Amsterdam (+4.8%). In Germany, Berlin rate of 3.7% a year for 10 years (+1.0%) and Dresden (+8.6%) proved their resilience with positive growth despite an unfavourable calendar annual hotel industry GDP growth averaging 3% for • effect in May (school holidays and public holidays) 5 years, with growth likely to continue at a rate of 2.7% for 10 years • investor appetite for hotels held steady with €21 billion in volume in 2018, or +16% YTD. The drew revenue per available room (RevPar) continued to rise, • 34% of the transaction volume due to a favourable up 3.6% at end May 2018, due to the combined effect currency effect. Spain and Germany also stayed of an increase in the occupancy rate (+0.9 pt) and in quite attractive, with 20% and 16% of transactions. The average room prices (+2.2%) difference between hotel lease properties and hotel • the upturn in the market continued in France and in operating properties remained around 100 bps. Belgium with sharp growth in the early part of the year,

In 2018, Covivio’s hotel activity was characterised by: • two transactions that transformed the portfolio: The Group’s operational profile improved significantly • the acquisition of a portfolio of fourteen 4* and 5* as a result of these two transactions: hotels in the United Kingdom, in prime, city-centre • entry into the UK hotel market, the 4th biggest locations. Covivio signed firm 25-year leases with destination in Europe an attractive potential target yield of 6% with • greater focus on major European cities: 80% of the Intercontinental Hotel Group, a UK market leader. portfolio The acquisition will be completed early in the second improved asset quality: 73% top and mid-range half of 2018 • assets the Covivio Hotels merger with FDMM, a vehicle • acceleration of like for like rental growth (+3.3%) driven specialising in the ownership of hotel operating • by the hike in AccorHotels variable rents (+5.0% at properties, with mainly 4* and 5* hotels in Germany end-May) and Belgium • a solid increase in hotel portfolio values (+1.8% on a like for like basis over 6 months), in particular due to the upturn in business in Belgium (+2.8%) and the Spanish portfolio (+2.4%) acquired in 2017.

Assets not wholly owned by Covivio Hotels refer to: • 181 B&B hotels in France acquired since 2012 (50.2% • eight Première Class hotels in operating properties, five owned), as well as 22 B&B assets in Germany (93.0%) of them held at 84.6% and the other three held at 90% • two Motel One assets (94.0%) acquired in 2015 • the portfolio of nine operating properties in Germany • the Club Med Samoëns, delivered in 2017 and owned acquired in 2016, held at 94.9%. in partnership with CDC and ACM (25%)

(1) Sources: World Toursim Council, STR, MKG, CBRE.

2018 First-half financial report — 33 2018 First-half management report 1 Business analysis by segment l Hotels Europe

1.2.4.2. Recognised income +3.6% on a like-for-like basis

Revenues Revenues Change Change Revenues H1 2017 Revenues H1 2018 (%) Group Number Number H1 2017 Group H1 2018 Group Group share % of (€M) of rooms of assets 100% share 100% share share (%) LfL(1) revenues Paris 4,082 17 11.8 5.5 13.0 5.1 -7. 2 % 7. 3% 11% Inner suburbs 678 5 1.4 0.7 1.8 0.7 -3.3% 3.6% 1% Outer suburbs 3,535 35 6.2 2.4 6.6 2.1 -11.1% 5.4% 4% Total Paris Regions 8,295 57 19.4 8.6 21.3 7.9 -8.0% 6.5% 16% Major regional cities 6,443 68 12.5 5.1 12.7 4.2 -17.1% 0.0% 9% Other French Regions 9,172 126 12.9 3.8 15.5 3.4 -9.8% 1.6% 7% Total France 23,910 251 44.8 17.5 49. 5 15.5 -11.0% 3.4% 32% Germany 6,410 56 10.6 5.1 13.5 5.5 8.7% 1.6% 12% Belgium 3,124 13 10.6 5.3 10.6 4.5 -15.8% 5.6% 9% Spain 3,797 21 14.9 6.8 17.4 7. 3 6.9% 3.3% 15% Other 604 2 3.7 1.8 3.7 1.6 -15.0% 1.6% 3% Total Hotels – Lease properties 37,845 343 84.5 36.5 94.6 34.4 -5.8% 3.3% 72% Total Hotels Operating properties (EBITDA) 6,294 31 31.7 6.3 33.7 13.6 117.7% 4.2% 28% TOTAL REVENUES HOTELS 44,139 374 116.2 42.8 128.3 48.0 12.2% 3.6% 100% Non-strategic (retail) - 94 18.4 9. 2 13.2 5.5 -39.7% 1.2% Total 44,139 468 134.6 52.0 141.5 53.6 3.0% (1) LfL: Like-for-Like.

At end June 2018, hotel revenue stood at €48 million • EBITDA growth of 4.2% on a like for like basis, mainly Group share, up 12% on the first half of 2017. This increase due to the business upturn in Belgium was due to the following: • acquisitions and deliveries of assets under • 3.3% (+€1.0 million) increase in hotel rental income on a development (+€7.4 million): like for like basis with: • two B&B hotels and the Motel One Porte Dorée • +5.0% generated by variable AccorHotels rents in Paris, delivered in the first half of 2018 • Spanish portfolio up 3.3%, partly due to rises in • the acquisition of a portfolio of five NH hotels variable rental income as a result of strongly in Germany performing hotels • non-strategic asset disposals (-€2.9 million): 62 Quick restaurants, five Jardiland assets and a Courtepaille restaurant.

34 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Hotels Europe 1

1.2.4.3. Annualised revenue: €94 million Group share 1.2.4.3.1. Geographic breakdown

Annualised Annualised Annualised revenues Annualised revenues revenues 2017 revenues H1 2018 % of Number Number 2017 Group H1 2018 Group Change rental (€M) of rooms of assets 100% share 100% share (%) income Paris 4,082 17 23.8 11.1 25.2 9.9 -10.7% 11% Inner suburbs 678 5 3.4 1.6 3.5 1.3 -14.7% 1% Outer suburbs 3,535 35 12.4 4.8 13.0 4.1 -13.3% 4% Total Paris Regions 8,295 57 39. 6 17.4 41.8 15.4 -11.8% 16% Major regional cities 6,443 68 25.3 10.1 26.4 8.6 -15.2% 9% Other French Regions 9,172 126 30.8 8.1 31.4 6.9 -14.2% 7% Total France 23,910 251 95.7 35.6 99.6 30.9 -13.3% 33% Germany 6,410 56 26.0 12.6 26.9 10.9 -13.8% 12% Belgium 3,124 13 20.8 10.4 13.3 5.6 -46.0% 6% Spain 3,797 21 32.9 16.4 35.7 13.8 -15.8% 15% Other 604 2 7. 5 3.8 8.1 3.4 -9.5% 4% Total Hotels – Lease properties 37,845 343 182.8 78.8 183.7 64.6 -18.0% 69% France 1,198 9 13.0 2.6 14.6 6.1 132.2% 7% Germany 4,575 18 4 7. 2 9. 6 51.4 20.6 114.2% 22% Belgium 521 4 5.0 1.0 5.7 2.4 135.0% 3% Total Hotels – Operating properties 6,294 31 67. 5 13.3 71.7 2 9. 1 119.4% 31% TOTAL HOTELS 44,139 374 250.3 92.1 255.3 93.7 1.8% 100% Non-strategic (retail) - 94 30.0 15.0 12.1 5.1 -66.1% Total 44,139 468 280.3 107.1 2 67. 5 98.8 -7. 8 %

Covivio Hotels’ annualised revenue profile has improved Variable rents represent around 34% of annualised rental significantly since the end of 2017, primarily due to the income and concern: effect of the merger between Covivio Hotels and FDMM • AccorHotels rental income, 100% indexed to Hotel in early 2018: Revenues • better exposure to hotel operating properties, offering • the variable portion of leases, with an indexation an attractive yield with limited risk, given the key clause on performance (guaranteed minimum rent locations of our city-centre hotels + variable rent). This concerns a portion of the hotel • more weight for Germany in the portfolio and, in portfolio in Spain and the recently-acquired NH hotels particular, for Berlin which is booming in Germany and the Netherlands. • reduction in the weight of non-strategic assets, highlighted by ongoing sales of Quick and Jardiland assets.

2018 First-half financial report — 35 2018 First-half management report 1 Business analysis by segment l Hotels Europe

1.2.4.3.2. Breakdown by tenant

Annualised Annualised Annualised Annualised revenues revenues revenues revenues (€M) – Rents for lease properties Number Number 2017 2017 H1 2018 H1 2018 % of rental and EBITDA for operating properties) of rooms of assets 100% Group share 100% Group share income AccorHotels 11,369 78 64.5 29.1 65.4 26.9 29% B&B 19,593 236 60.2 19.7 62.4 17.3 18% Radison Hotel Group 1,641 4 22.9 4.4 22.9 9. 2 10% Mariott 1,661 6 21.3 4.2 24.1 9. 7 10% NH 1,279 7 12.7 6.4 12.9 5.2 6% Hotusa 671 3 8.3 4.1 8.3 3.5 4% IHG 524 3 5.7 1.2 6.1 2.6 3% Sunparks 1,759 3 13.4 6.7 6.5 2.7 3% Barcelo 641 3 7. 4 3.7 8.4 3.0 3% Club Med 792 2 9.9 2.8 10.6 2.6 3% AC Hotels 368 1 5.0 2.5 7. 3 2.6 3% Melia 632 4 5.1 2.5 4.2 1.8 2% Motel One 712 3 2.2 1.0 4.4 1.8 2% Louvre Hotels 750 9 3.9 0.8 4.0 1.7 2% Meininger 598 2 0.0 0.0 0.0 0.0 0% Independants 1,149 10 7. 8 2.9 7.9 3.2 3% TOTAL HOTELS 44,139 374 250.3 92.1 255.3 93.7 100% Non-strategic (retail) - 94 30.0 15.0 12.1 5.1 - Total 44,139 468 280.3 107.1 2 67. 5 98.8 -

The diversification of the income base continued through new partnerships with leading Spanish operators (Barcelo, Hotusa, Melia) and the strengthening of the partnership with NH Hotels. Exposure to AccorHotels fell below the 30% mark and will be as low as 24% once the acquisition of the UK portfolio, to be operated by Intercontinental Hotel Group, is complete.

1.2.4.4. Indexation 67% of rents are indexed to benchmark indices (ICC, ILC, and consumer price index for foreign assets).

36 — 2018 First-half financial report 2018 First-half management report Business analysis by segment l Hotels Europe 1

1.2.4.5. Lease expiring: 11.2 years of firm residual lease terme

By lease end date By lease (€M) – Group share (1st break) % of total end date % of total 2018 3.3 5% 0.0 0% 2019 1.8 3% 0.0 0% 2020 0.3 0% 0.3 0% 2021 0.0 0% 0.0 0% 2022 3.2 5% 1.0 1% 2023 3.3 5% 2.3 4% 2024 0.1 0% 1.6 3% 2025 2.1 3% 2.4 4% 2026 0.7 1% 1.0 1% 2027 1.0 1% 1.0 1% Beyond 48.9 76% 55.1 85% TOTAL HOTELS IN LEASE 64.6 100% 64.6 100% Non-strategic (retail) 5.1 5.1

The firm residual duration of leases was stable and remained high for hotels at 11.2 years at end June 2018, due to the delivery of three assets with 14-year leases. The next expiries in 2018 and 2019 relate to Spanish portfolio assets acquired in 2016 which have high rent increase potential. The occupancy rate remained at 100%.

1.2.4.6. Reserves for unpaid rent As in 2017, no additional amounts were set aside for unpaid rents in the portfolio in H1 2018.

1.2.4.7. Disposals and disposal agreements: €194 million in new commitments

Disposals (agreements as Agreements New New Total of end of 2017 as of end disposals agreements Total Margin realised closed) of 2017 H1 2018 H1 2018 H1 2018 vs 2017 disposals (€M) (I) to close (II) (III) = (II) + (III) value Yield = (I) + (II) Hotel – Lease properties 3 18 0 115 115 -5.8% 6.9% 3 Hotel – Operating properties 0 0 0 0 0 N/A N/A 0 Total Hotels – 100% 3 18 0 115 115 -5.8% 6.9% 3 Total Hotels – Group share 1 8 0 48 48 -5.8% 6.9% 1 Non-strategic (retail) – 100% 187 0 0 79 79 0.7% 6.5% 187 Non-strategic (retail) – Group share 78 0 0 33 33 0.7% 6.5% 78 TOTAL – 100% 189 18 0 194 194 -3.3% 6.7% 189 TOTAL – GROUP SHARE 80 8 0 82 82 -3.3% 6.7% 80

2018 First-half financial report — 37 2018 First-half management report 1 Business analysis by segment l Hotels Europe

Covivio continued its policy of rotating assets with: by the rise in the value of other Sunparks villages • €115 million (€48 million Group share) of non-core due to extended leases, also improving the liquidity assets: of these assets • a Tryp hotel in Andalusia worth €13 million, acquired • €79 million (€33 million Group share) of non-strategic for the Spanish portfolio in 2016 and sold with a 23% assets relating to 17 Jardiland assets. margin on the appraisal value At the same time, several agreements signed in 2017 • a Sunparks holiday village in Belgium under a were implemented in 2018, including the remainder of preliminary sale agreement for €102 million. The the Quick portfolio (€163 million) and five Jardiland assets negative sale margin on this asset was offset, in full, (€22 million).

1.2.4.8. Acquisitions: €1.1 billion secured at the end of June 2018

Acquisitions H1 2018 realised Acquisitions H1 2018 secured Acq. price Acq. price Number Acq. price Group Gross Acq. price Group Gross (€M) – Including Duties of rooms Location Tenants 100% share yield 100% share yield

UK portfolio (14 assets) 2,638 United Kingdom IHG - - - 976 410 5.0%

Germany & NH Hotels (4 assets) 637 NH - - - 111 47 5.7% Netherlands

TOTAL 3,043 - - - 1,087 457 5.1% LEASE PROPERTIES TOTAL ------OPERATING PROPERTIES

With regard to hotel investment properties, Covivio Furthermore, four call options on NH hotels that were continued its diversification strategy with the signing bought in 2017 will be exercised between late 2018 and of a preliminary purchase agreement for a portfolio of early 2019. fourteen 4* and 5* hotels in the UK, totalling 2,638 rooms for £858 million (€976 million). This transaction is described in greater detail at the beginning of this section.

1.2.4.9. Development pipeline: €1.1 billion in identified projects In 2018, Covivio maintained its strategy to support the expansion of its new and long term partners in their development in the major European cities.

1.2.4.9.1. Committed projects: €112 million (€44 million Group share), 100% pre-let For a breakdown of committed projects, see the table • Covivio is supporting the development of on page 9 of this document. Meininger in France, with two hotels under construction in total in Paris and Lyon which In the early part of the year, Covivio delivered 522 hotel will be the operator’s first to open in these rooms via three projects: cities. These two hotels represent 425 rooms • two B&B hotels in Berlin and Châtenay-Malabry and €66 million. (Greater Paris), accounting for €20 million and 267 rooms In addition, a Meininger hotel was delivered in Milan last May (Italy Hotels) and another one is being built the Motel One Porte Dorée in Paris 12th arrondissement, • in Munich. This last hotel represents 173 rooms and totalling works of €37 million and 255 rooms, opened €33 million. It is due to be delivered in the second half in April 2018. of 2018. These two projects involve the conversion of an The Group also continued to work on its other committed office building into a hotel, demonstrating the Group’s projects: capacity to make the best use of its asset management • two hotels are being built in the Greater Paris options and the expertise of its local platforms. area with our long-time B&B partner. They represent a total of 192 rooms and €13 million

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1.2.4.9.2. Managed projects: €1 billion development project in the centre of Berlin Covivio has identified close to 140,000 2m to be developed in the very heart of Berlin, on Alexanderplatz, on land reserves adjacent to the Park Inn. The architect will be selected in September in partnership with the city of Berlin and construction of the first 70,000 2m building will be launched in 2019 with delivery scheduled for 2022. This mixed use project (Offices/Hotels/Residential) is a perfect illustration of the synergies between Covivio’s different activities.

1.2.4.10. Portfolio values 1.2.4.10.1. Change in portfolio values

Value Merger (€M) – Excluding creation Change FDMM & Duties, Group Value on Acquis./ Change in % change of % Value H1 share 2017 Acquis. Invest. Disposals Disposals in value Reclustering ownership ownership 2018 Hotels – Lease properties 1,480 - 7 -1 - 27 20 -247 12 1,298 Hotels – Operating properties 250 - 1 - - 10 - -100 364 524 Assets under development 54 - 8 - - 3 -20 -7 - 37 TOTAL HOTELS 1,784 - 16 -1 - 39 - -354 376 1,859 Non-strategic (retail) 224 - - -78 - -1 - -36 - 109 Total 2,008 - 16 -80 - 39 - -390 376 1,968

At end June 2018, the portfolio amounted to nearly €2.0 billion Group share, unchanged from the end of 2017. The impact of non-core and non-strategic disposals (-€95 million) was offset by capex and a rise in values (+€55 million).

2018 First-half financial report — 39 2018 First-half management report 1 Business analysis by segment l Hotels Europe

1.2.4.10.2. Change on like-for-like basis: +1.8% of growth

Value Value 2017 Value H1 2018 LfL(1) Group H1 2018 Group change Yield(2) Yield(2) % of total (€M) – Excluding Duties share 100% share 6 months 2016 2017 value France 736 1,988 648 1.7% 5.0% 4.9% 35% Paris 295 673 267 2.3% 4.1% 4.0% 14% Greater Paris (excl. Paris) 124 322 107 1.3% 5.2% 5.1% 6% Major regional cities 182 466 157 0.9% 5.6% 5.6% 8% Other cities 135 527 117 1.7% 6.0% 5.9% 6% Germany 254 534 219 1.5% 5.5% 5.4% 12% Franckfurt 28 59 24 3.4% 5.4% 5.1% 1% Munich 18 39 16 2.3% N/A N/A 1% Berlin 20 46 19 3.0% 5.1% 4.9% 1% Other cities 188 391 160 0.9% 5.5% 5.5% 9% Belgium 169 346 145 3.0% 6.1% 5.9% 8% Brussels 32 68 28 5.3% 5.6% 5.3% 2% Other cities 137 279 117 1.6% 6.3% 6.2% 6% Spain 306 626 263 2.4% 5.4% 5.4% 14% Madrid 124 252 106 2.2% 4.8% 4.7% 6% Barcelona 117 238 100 1.6% 5.4% 5.9% 5% Other cities 65 136 57 4.3% 6.6% 6.4% 3% Other countries 69 143 60 1.1% 5.5% 5.7% 3% Total Hotels lease properties 1,534 3,637 1,335 1.9% 5.3% 5.2% 72% France 46 224 94 -0.2% 6.1% 6.2% 5% Lille 24 119 50 1.7% 5.5% 5.8% 3% Other cities 22 105 44 -2.3% 7.0 % 6.6% 2% Germany 188 988 396 2.0% 6.6% 6.5% 21% Berlin 120 634 253 2.4% 5.7% 5.5% 14% Dresden & Leipzig 48 250 100 2.1% 7.1% 7.7% 5% Other cities 21 105 43 -5.7% 7.9 % 7. 8 % 2% Belgium 16 80 34 2.3% 6.3% 6.4% 2% Total Hotels Operating properties 250 1,293 524 1.6% 6.4% 6.5% 28% TOTAL HOTELS 1,784 4,930 1,859 1.8% 5.4% 5.5% 100% Non-strategic (Retail) 224 259 109 -0.5% 6.7% 6.9% 0% TOTAL 2,008 5,189 1,968 1.7% 5.5% 5.6% (1) LfL: Like-for-Like. (2) Yield excluding assets under development ; EBIDTA yield for hotel operating properties.

The robust performance of the portfolio, both for • the robust performance of operating properties (+1.6%): hotel lease properties and hotel operating properties, • the portfolio of nine hotels in Berlin, Dresden, and validates the Group’s strategy of strengthening its Leipzig under management contracts held its position in major European cities with: momentum with a 2.1% rise in values up to 16.0% since • 1.9% growth in the value of hotel lease properties, with: the acquisition in August 2016 • +2.4% on the Spanish portfolio acquired at end 2016 • +7.1% value created with the Méridien hotel in Nice • +3.0% in Belgium with the return to growth in rental acquired in December 2017. income in the hotel sector Furthermore, the size of the non-strategic portfolio was • +6.5% generated by developments reduced by 5% in 2018 thanks to disposals of Retail assets Quick and Jardiland and the increase in operating properties.

40 — 2018 First-half financial report 2018 First-half management report Financial information and comments 1

1.3. FINANCIAL INFORMATION AND COMMENTS

The activity of Covivio involves the acquisition, ownership, administration and leasing of properties, developed or otherwise, particularly Offices in France and Italy, Residential in Germany and Hotels Europe. Registered in France, Covivio is a limited company with a Board of Directors.

1.3.1. Scope of consolidation

On 30 June 2018, the Covivio scope of consolidation included companies located in France and several European countries (Offices in France and Italy; Residential in Germany and France, Austria, Denmark and Luxembourg; Hotels in Germany, Portugal, Belgium, The Netherlands and Spain). The main ownership interests in the fully consolidated but not wholly-owned companies are the following:

Subsidiaries 2017 H1 2018 Covivio Hotels 50.0% 42.0% Covivio Immobilien 61.7% 61.7% Beni Stabili 52.4% 59.9 % Sicaf (portfolio Telecom italia) 31.5% 30.5% OPCI CB 21 (Tour CB 21) 75.0% 75.0% Fédérimmo (Carré Suffren) 60.0% 60.0% SCI Latécoëre (DS Campus) 50.1% 50.1% SCI Latécoëre 2 (extension DS Campus) 50.1% 50.1% SCI 15 rue des Cuirassiers (Silex) 50.1% 50.1% SCI 9 rue des Cuirassiers 50.1% 50.1% SCI 11, Place de l’Europe (Campus Eiffage) 50.1% 50.1%

Following the merger-absorption of the operating Following Covivio’s acquisition on the market of Beni properties activity (in January 2018) and the creation of Stabili shares, the stake in Beni Stabili is now 59.9% 18,436,011 new Covivio Hotels shares, Covivio’s stake in compared with 52.4% on 31 December 2017. Covivio Hotels now stands at 42%, compared to 50% on 31 December 2017.

1.3.2. Accounting principles

The consolidated financial statements have been standards include the IFRS (International Financial prepared in accordance with the international Reporting Standards), as well as their interpretations. accounting standards issued by the IASB (International The financial statements were approved by the Board Accounting Standards Board) and adopted by the of Directors on 19 July 2018. European Union on the date of preparation. These

2018 First-half financial report — 41 2018 First-half management report 1 Financial information and comments

1.3.3. Simplified income statements - Group share

(€M) – Group share H1 2017 H1 2018 Var. % Net rental income 268.4 264.7 -3.7 -1.4% Income from other activities 3.3 15.2 11.9 - NET INCOME 271.7 27 9.9 8.2 3.0% Net operating costs -31.1 -32.1 -1.0 3.1% Depreciation of operating assets -3.1 -16.1 -13.0 - Net change in provisions and other -0.6 -0.8 -0.2 - CURRENT OPERATING INCOME 2 3 7.0 230.8 -6.2 -2.6% in % of net rental income 88.3% 87.2% - - Net income from inventory properties -0.2 -0.3 -0.1 67. 5 % Income from asset disposals -0.7 55.6 56.3 - Income from value adjustments 350.3 295.1 -55.2 -15.8% Income from disposal of securities -3.3 43.3 46.6 - Income from changes in scope -1.6 -58.7 -57.1 - OPERATING INCOME 581.5 565.8 -15.7 -2.7% Cost of net financial debt -91.3 -52.5 38.8 -42.5% Value adjustment on derivatives 30.4 -5.4 -35.8 - Discounting of liabilities and receivables -3.1 -4.6 -1.5 49.7% Net change in financial and other provisions -7. 5 -6.1 1.4 -18.9% Share in earnings of affiliates 18.7 10.8 -7.9 -42.4% INCOME FROM CONTINUING OPERATIONS 528.6 5 0 7.9 -20.7 -3.9% Deferred tax -34.8 -37.0 -2.2 6.3% Corporate income tax -4.8 -5.6 -0.8 16.5% NET INCOME FOR THE PERIOD 4 8 9.0 465.3 -23.7 -4.8%

Since the merger-absorption of the operating on 31 December 2017). The EBITDA from this activity properties activity, the companies covered by this is presented in the “Income from other activities” scope have been fully consolidated (vs. equity affiliates aggregate, and contributes €14 million to this income.

1.3.3.1. 3% rise in net income – Group share Net rental income varies under the combined effect of acquisitions, disposals, the impact of indexation in the Germany Residential segment and the reduced stake in Covivio Hotels. The net rental income by operating segment is the following:

(€M) – Group share H1 2017 H1 2018 Var. % France Offices 114.0 115.9 1.9 1.7% Italy Offices (incl. retail) 44.4 38.6 -5.8 -13.1% Germany Residential 63.4 68.9 5.5 8.7% Hotels Europe (incl. retail) 44.8 3 9. 1 -5.7 -12.7% France Residential 1.9 2.2 0.3 15.8% TOTAL NET RENTAL INCOME 268.4 264.7 -3.7 -1.4%

France Offices: stability of rents due to the combined Italy Offices: €6.3 million drop in net rental income Group effect of disposals (-€11 million), deliveries of assets share, due to the splitting of the Telecom Italia portfolio under development (+€6 million – Edo, Art&Co & Co, The (-€11 million) and disposals (-€1 million), offset by asset Line, Silex1, etc.), new leases signed and lease renewals acquisitions and deliveries (+€3 million) and the increased (+€3 million) and the acquisition of the property on Rue stake in Beni Stabili (+€3 million). Jean Goujon in Paris (+€2 million).

42 — 2018 First-half financial report 2018 First-half management report Financial information and comments 1

Germany Residential: net rental income Group share up 1.3.3.4. Income from asset disposals €5.4 million, driven by acquisitions and indexation effects (+€10 million), and decreased by disposals (-€5 million). Income from asset disposals saw capital gains of €55 million from the disposal of the Paris head office Hotels Europe: -€5.8 million decrease in net rental income Group share. This net decrease is due to the reduced located at 10 & 30, avenue Kléber. This property, as it stake in Covivio Hotels following the merger-absorption was occupied by the Group, was not recorded at fair of the operating properties activity (-€7.5 million), value in the consolidated accounts. the impact of retail disposals (-€2.5 million), offset by acquisitions in Spain and Germany (+€3 million) and 1.3.3.5. Change in the fair value the rise in rental income (€1 million). To offset its decreased stake in Covivio Hotels, the Group increased of assets its stake in the operating property activity. This activity is The income statement recognises changes in the fair now consolidated and its result is included in the Income value of assets based on appraisals conducted on the from other activities, which increases by €12 million. portfolio. For the first half of 2018, the change in the fair value of investment assets was positive, at €295 million 1.3.3.2. Net operating costs (Group share). Change in the fair value of investment assets by operating segment can be broken down as Net operating costs was €32 million, compared with follows: €31 million on 30 June 2017. It rose slightly due to structural Residential Germany: +€185 million costs as a result of the operating properties activity, • France Offices: +€76 million but remained stable as a percentage of net income at • around 11.5%. • Hotels Europe: +€25 million • Italy Offices: +€9 million 1.3.3.3. Depreciation of operating assets 1.3.3.6. Income from disposal of shares and changes to scope Depreciation of operating assets (-€3.1 million on 30 June 2017 compared with -€16.1 million on 30 June 2018) rose These have a negative €15.4 million impact on the as a result of the full consolidation of the operating income statement. They include the share acquisition properties activity. Depreciation of operating assets costs in accordance with IFRS 3 and the impacts of the includes the real estate depreciation of the head offices, merger-absorption of the operating properties activity. coworking buildings and depreciation of tangible and Operating income excluding income from share intangible fixed assets. It now also includes depreciation disposals and income from changes to scope remained of assets and fixtures and fittings relating to hotels under stable at €581 million (€566 million after inclusion of share management. In accordance with IAS 40, the properties transactions). used for coworking and hotels under management do not meet the definition of investment properties and are recognised at amortised cost. The depreciation relating 1.3.3.7. Financial aggregates to these two activities is €10 million. Depreciation has also increased in response to the higher rate of ownership of The changes in the fair value of financial instruments the Car Parks activity, which was fully consolidated in were -€5 million, due to the negative change in the value the first half of 2018, compared to 59.5% in the first half of hedging instruments (-€13 million) and the positive of 2017 (+€3 million). change in the value of ORNANE bonds (+€7 million).

1.3.3.8. Share in income of equity affiliates

Value Contribution Value Change Group share % interest 2017 to earnings H1 2018 (%) OPCI Foncière des Murs 9.95% 3 9. 6 1.5 33.1 -16.4% Lénovilla (New Vélizy) 50.10% 71.2 2.6 68.9 -3.2% Euromed 50.00% 3 9. 3 1.0 40.3 2.5% FDM Management 50.10% 71.6 0.0 0.0 -100.0% Other equity interests 20.35% 22.6 5.7 30.5 35.1% TOTAL 244.2 10.8 172.8 -41.3%

2018 First-half financial report — 43 2018 First-half management report 1 Financial information and comments

The equity affiliates involve the France Offices and Hotels • FDM Management is a subsidiary of Covivio Hotels, Europe sectors: dedicated to the ownership of hotel operating • OPCI Foncière des Murs involves two hotel portfolios, properties. In early 2018, this company merged with Campanile (32 hotels) and AccorHotels (39 hotels) Covivio Hotels and is thereby fully consolidated. owned at 80% by Crédit Agricole Assurances The change over the period (-€71 million) is due to the • Lénovilla involves the New Vélizy campus (47,000 m2), let full consolidation of the operating properties activity, to Thalès and shared with Crédit Agricole Assurances the income earned over the period (+€11 million) and the • Euromed in Marseille relates to two office buildings in allocation of losses and dividend payouts to partners Marseille (Astrolabe and Calypso; 1/3 of their surface (-€6.6 million). area is used for coworking) and there is a 210 room hotel in partnership with Crédit Agricole Assurances

1.3.3.9. EPRA Earnings of affiliates

Hotels (€M) – Group share France offices (in lease) 2018 Net rental income 4.3 1.9 6.2 Net operating costs -0.2 -0.2 -0.3 Depreciation of operating properties 1.4 - 1.4 OPERATING RESULT 5.5 1.7 7. 3 Cost of net financial debt -0.8 -0.3 -1.2 Other financial depreciation -0.1 - -0.2 Corporate income tax - - - SHARE IN EPRA EARNINGS OF AFFILIATES 4.5 1.3 5.8

1.3.3.10. Taxes The corporate income tax corresponds to the tax on: • foreign companies that are not or are only partially subject to a tax transparency regime (Germany, Belgium, the Netherlands, and Portugal) • french SIIC or Italian subsidiaries with taxable activity. Corporate income tax of -€5.6 million includes taxes on sales (-€1.3 million).

44 — 2018 First-half financial report 2018 First-half management report Financial information and comments 1

1.3.3.11. EPRA Earnings rose 5% to €191.6 million (+€9 million vs June 2017)

Net income EPRA E. EPRA E. Group share Restatements H1 2018 H1 2017 NET RENTAL INCOME 264.7 2.8 2 67. 5 271.8 Income from other activities 15.2 0.9 16.1 3.3 NET INCOME 27 9.9 3.7 283.6 275.1 Operating costs -32.1 - -32.1 -30.3 Depreciation of operating assets -16.1 10.5 -5.6 -3.1 Net change in provisions and other -0.8 - -0.8 -0.6 OPERATING INCOME 230.8 14.2 245.0 241.1 Net income from inventory properties -0.3 0.3 0.0 0.0 Income from asset disposals 55.6 -55.6 0.0 0.0 Income from value adjustments 295.1 -295.1 0.0 0.0 Income from disposal of securities 43.3 -43.3 0.0 0.0 Income from changes in scope -58.7 58.7 0.0 0.0 OPERATING RESULT 565.8 -320.7 245.0 241.1 COST OF NET FINANCIAL DEBT -52.5 6.5 -46.0 -56.0 Value adjustment on derivatives -5.4 5.4 0.0 0.0 Discounting of liabilities and receivables -4.6 - -4.6 -3.1 Net change in financial provisions -6.1 1.8 -4.3 -4.5 Share in earnings of affiliates 10.8 -4.9 5.8 9. 7 PRE-TAX NET INCOME 5 0 7.9 -311.9 195.9 187.3 Deferred tax -37.0 3 7.0 0.0 0.0 Corporate income tax -5.6 1.3 -4.3 -4.6 NET INCOME FOR THE PERIOD 465.3 -273.6 191.6 182.7

• Net income: the IFRIC 21 interpretation requires 12 • Profit and losses from disposal of shares and changes months of property taxes to be recorded where the to scope (-43.3 + 58.7 = -€15.4 million) are mainly due to taxpayer is guarantor for the payment of this tax. The the effects of the merger-absorption of the operating restatement of net rental income and income from properties activity. other activities resulted in the property tax charge • There was a €6.5 million impact on cost of debt due to not re-invoiced to tenants changing to a frequency early debt restructuring costs. Excluding these costs, of 6 months. The net income restated in this way the cost of debt was €46 million lower than in 30 June contributed to EPRA Earnings of €283.6 million, up 3% 2 0 1 7. compared to 30 June 2017. • The restatement of depreciation and provisions neutralised the real estate depreciation of coworking activities and hotel operating properties.

2018 First-half financial report — 45 2018 First-half management report 1 Financial information and comments

1.3.3.12. EPRA Earnings by activity

Hotels Hotel Corporate or France Italy Offices Germany Europe operating France non-attributable (€M) – Group share Offices (incl. Retail) Residential (incl. retail) properties Residential sector 2018 Net rental income (before adj. IFRIC 21) 115.9 38.6 68.9 3 9. 1 - 2.3 - 264.7 Net rental income (after adj. IFRIC 21) 117.8 38.6 68.9 3 9. 4 - 2.8 - 2 67. 5 Income from other activities -0.9 - 0.5 - 14.8 - 1.7 16.1 Net operating costs -9.7 -4.9 -12.5 -1.4 -0.6 -0.4 -2.7 -32.1 Depreciation of operating assets -1.1 -0.3 -0.5 - -1.5 - -2.2 -5.6 Net change in provisions and other - -0.6 0.1 -1.5 -0.1 -0.3 1.7 -0.8 OPERATING RESULT 106.1 32.8 56.5 36.5 12.6 2.1 -1.5 245.0 Cost of net financial debt -10.2 -5.9 -10.8 -5.7 -2.8 0.4 -11.1 -46.0 Discounting of liabilities & receivables and financial provision -6.2 -1.1 -0.5 -0.4 -0.5 - -0.1 -8.9 Share in earnings of affiliates 4.5 - - 1.3 - - - 5.8 Corporate income tax -0.5 - -1.9 -0.6 -1.2 - 0.1 -4.3 EPRA EARNINGS 93.6 25.7 43.3 67. 2 20.2 2.4 -12.6 191.6

1.3.4. Simplified consolidated income statement (at 100%)

(€M) – 100% H1 2017 H1 2018 Var. % Net rental income 41 9.0 434.9 15.9 3.8% Income from other activities 3.8 36.1 32.3 - NET INCOME 422.8 471.1 48.3 11.4% Net operating costs -50.7 -51.1 -0.4 0.8% Depreciation of operating assets -4.4 -28.8 -24.4 - Net change in provisions and other -0.8 -0.2 0.6 -80.1% CURRENT OPERATING INCOME 367.0 391.0 24.0 6.5% Net income from inventory properties -0.5 -0.5 0.0 8.0% Income from asset disposals -0.6 55.3 55.9 - Income from value adjustments 539.2 456.8 -82.4 -15.3% Income from disposal of securities -6.3 103.0 109.3 - Income from changes in scope -2.5 -136.0 -133.5 - OPERATING INCOME 896.3 8 69. 6 -26.7 -3.0% Income from non-consolidated companies 0.0 0.0 0.0 - Cost of net financial debt -137.3 -96.1 41.2 -30.0% Value adjustment on derivatives 33.7 -10.8 -44.5 - Discounting of liabilities and receivables -2.8 -4.8 -2.0 72.4% Net change in financial and other provisions -12.1 -10.8 1.3 -10.9% Share in earnings of affiliates 22.3 12.6 -9.7 - INCOME BEFORE TAX 800.1 759.6 -40.5 - Deferred tax -57.6 -60.3 -2.7 4.7% Corporate income tax -6.3 -10.2 -3.9 61.2% NET INCOME FOR THE PERIOD 736.3 689.2 -47.1 -6.4% Non-controlling interests -247.2 -223.9 23.3 -9.4% NET INCOME FOR THE PERIOD – GROUP SHARE 4 8 9.0 465.3 -23.7 -4.8%

46 — 2018 First-half financial report 2018 First-half management report Financial information and comments 1

Since the merger-absorption of the operating properties activity, the companies covered by this scope have been fully consolidated (vs. equity affiliates on 31 December 2017). The EBITDA from this activity is presented in the “Income from other activities” aggregate, and contributes €35 million to this income.

1.3.4.1. €48.3 million (11.4%) rise in consolidated net rental income Net rental income increased by €16 million, mainly due to acquisitions, delivery of assets under development and the effect of indexation on the Germany Residential sector. This increase was offset by disposals. The net rental income by operating segment is the following:

(€M) – 100% H1 2017 H1 2018 Var. % France Offices 126.6 129.9 3.3 2.6% Italy Offices (incl. Retail) 85.9 88.4 2.5 2.9% Germany Residential 102.4 108.8 6.4 6.2% Hotels Europe (incl. Retail) 101.0 105.7 4.7 4.6% France Residential 3.0 2.2 -0.8 -26.7% TOTAL NET RENTAL INCOME 41 9.0 434.9 15.9 3.8%

1.3.5. Simplified consolidated balance sheet (Group share)

(€M) – Group share Assets 2017 H1 2018 Liabilities 2017 H1 2018 Investment properties 11,171 11,551 Investment properties under development 409 430 Other fixed assets 211 729 Equity affiliates 244 173 Financial assets 298 185 Deferred tax assets 4 9 Shareholders’ equity 6,363 6,561 Financial instruments 37 39 Borrowings 6,780 7,122 Assets held for sale 352 332 Financial instruments 285 200 Cash 1,089 926 Deferred tax liabilities 331 409 Other 365 438 Other liabilities 442 518 TOTAL 14,181 14,810 TOTAL 14,201 14,810

1.3.5.1. Fixed assets The portfolio (excluding assets held for sale) at the end of December by operating segment is as follows:

incl. Like-for- (€M) – Group share 2017 H1 2018 Var. like change France Offices 4,989 5,127 137 75 Italy Offices (incl. Retail) 1,873 2,112 239 9 Germany Residential 3,024 3,362 338 185 Hotels Europe (incl. Retail) 1,651 1,882 231 25 France Residential 240 214 -26 1 Car parks 14 12 -2 0 TOTAL FIXED ASSETS 11,791 12,710 918 295

The change in fixed assets in France Offices is mainly due to the disposal of the properties located at 10 & 30, avenue Kléber in Paris (-€103 million), the acquisition of the asset on Rue Jean Goujon (+€134 million), the increased fair value of investment properties (+€75 million), and the work completed on investment properties under development (+€26 million).

2018 First-half financial report — 47 2018 First-half management report 1 Financial information and comments

The change in fixed assets in Italy Offices (+€239 million) 1.3.5.3. Total Group is mainly due to changes in the stake in Beni Stabili and in Sicaf (Telecom Italia), a net increase of €182 million, shareholders equity and the acquisition of three assets in Milan (+€64 million). Shareholders’ equity increased from €6,363 million at The change in fixed assets in Hotels Europe is mainly the end of 2017 to €6,561 million at 30 June 2018, i.e. an due to the full consolidation of the operating properties increase of €198 million, due mainly to: activity (+€512 million), increased appraisal values income for the period: +€465 million (+€25 million), acquisitions and works over the half-year • the capital increase net of costs following the (+€15 million), less retail disposals (-€85 million) and the • conversion of ORNANE-type bonds France +€30 million impact of the reduced stake as a result of the merger- absorption of FDM M (-€242 million). • the impact of the cash dividend distribution: -€337 million The change in fixed assets for Germany Residential is changes to scope: +€36 million. mainly due to acquisitions over the period (+€202 million), • the +€19 million in works completed over the period, the +€185 million change in fair value, and the -€68 million in 1.3.5.4. Other assets buildings reclassified as assets held for sale during the period. This item rose by €73 million; €24 million of this increase was due to the full consolidation of the operating properties activity. 1.3.5.2. Assets held for sale This line item includes settlement of €118 million in Assets held for sale consists of assets for which a expenses (property expenses to be re-invoiced to preliminary sales agreement has been signed. The tenants). Note that other liabilities include calls for €20 million decrease between 2017 and June 2018 comes funds (provisions for losses) received from tenants for from completed sales and newly signed preliminary €118 million. sale agreements. In 2017, the Hotels Europe sector had disposable assets worth €93 million relating to five 1.3.5.5. Other liabilities Jardiland and 48 Quick restaurants, which were sold in the first half of 2018. This item increased by €76 million; €43 million of this rise was due to the full consolidation of the operating properties activity.

1.3.6. Simplified consolidated balance sheet (at 100%)

(€M) – 100% Assets 2017 H1 2018 Liabilities 2017 H1 2018 Investment properties 17,733 18,251 Investment properties under development 685 689 Other fixed assets 230 1,509 Equity affiliates 369 225 Shareholders’ equity 6,363 6,561 Financial assets 355 194 Non-controlling interests 3,804 4,424 Deferred tax assets 6 16 Shareholders’ equity 10,168 10,985 Financial instruments 48 52 Borrowings 10,121 10,788 Assets held for sale 520 623 Financial instruments 323 237 Cash 1,297 1,324 Deferred tax liabilities 551 713 Other 491 586 Other liabilities 571 746 TOTAL 21,733 23,469 21,733 23,469

48 — 2018 First-half financial report 2018 First-half management report Financial information and comments 1

1.3.6.1. Investment properties activity) and SCI Porte Dorée (Motel One) i.e. -€153 million, the income from the period (€13 million), less dividend and properties under distributions, allocations of shares of losses and change development in scope (-€3 million). These two fixed asset items increased by €522 million, mainly as a result of value adjustments for €448 million, 1.3.6.3. Financial assets asset acquisitions and work for €676 million (including Financial assets decreased by €161 million, mainly due to on developments) in the amount of €86 million, and the use of downpayments made (Germany Residential reclassification as Assets held for sale for -€603 million. sector: -€115 million), the repayment of the bond loan €676 million in asset acquisitions and works break down granted by Covivio Hotels in the operating properties into operating segments as follows: activity in 2016 (-€59 million), changes in loans to equity affiliates (-€11 million) and a downpayment of +€30 million France Offices:€190 million including the acquisition of • for acquisitions in the United Kingdom. the asset on Rue Jean Goujon (€134 million), €26 million of works on buildings and €28 million of works on buildings under development 1.3.6.4. Deferred tax liabilities • Hotels Europe: €64 million including a €16 million option to purchase a NH Hotel in Germany, €17 million of Net deferred taxes represent €697 million in liabilities scheduled works and €21 million of works on buildings versus €545 million on 31 December 2017. This €152 million under development rise is mainly due to the full consolidation of the operating properties activity (+€84 million) and the growth of • Germany Residential: €261 million including acquisitions appraisal values in Germany. worth €231 million and €30 million worth of work on buildings 1.3.6.5. Other liabilities • Italy Offices:€161 million including the acquisition of three assets in Milan (€106 million), €18 million of works The €175 million rise in this item is mainly due to the on properties and +€37 million of works on buildings full consolidation of the operating properties activity under development. (+€114 million). 1.3.6.2. Investments in equity affiliates Investments in equity affiliates decreased by €143 million. This change is due to the full consolidation of the companies FDM Management (operating properties

2018 First-half financial report — 49 2018 First-half management report 1 Financial resources

1.4. FINANCIAL RESOURCES

Recognising Covivio’s sound financial profile (42% LTV, ICR of 5.4x) and the ongoing enhancement of the quality of its portfolio, S&P raised Covivio’s rating outlook to BBB, positive outlook.

1.4.1. Main debt characteristics

Group share 2017 H1 2018 Net debt, Group share (€M) 5,691 6,196 Average annual rate of debt 1.87% 1.55% Average maturity of debt (years) 6.2 6.0 Debt active hedging spot rate 75% 79% Average maturity of hedging 6.3 7. 3 LTV Including Duties 40.4% 42.4% ICR 4.36 5.41

1.4.2. Debt by type

Covivio’s net debt (Group share) was €6.2 billion (€9.5 billion on a consolidated basis) at 30 June 2018, up by almost €500 million compared with the end of 2017, due to the acceleration of investments made this half year, (acquisitions of €660 million Group share, including the increase in ownership in Beni Stabili, and €51 million of development capex), partially offset by disposals (€491 million, Group share). As regards commitments attributable to the Group, the share of corporate debts (bonds and loans) was almost unchanged at 49%. In addition, at end June 2018, Covivio’s cash and cash equivalents totalled nearly €2.0 billion Group share (€2.5 billion on a consolidated basis). In particular, Covivio had €1.2 billion in commercial paper outstanding at 30 June 2018.

CONSOLIDATED COMMITMENTS BY TYPE GROUP SHARE COMMITMENTS BY TYPE

13% 17% Corporate Corporate credit facilities credit facilities 57% 47% Bank mortage Bank mortage 27% loans Bonds loans 32% Bonds

3% Investor mortages 4% facilities Investor mortages facilities

CONSOLIDATED COMMITMENTS BY COMPANY GROUP SHARE COMMITMENTS BY COMPANY

19% 19% 18% 22% Covivio Covivio Beni Stabili Beni Stabili Immobilien debt Immobilien debt debt debt

14% Covivio 23% Hotel debt Covivio 36% Hotel debt 49% Covivio debt Covivio debt

50 — 2018 First-half financial report 2018 First-half management report Financial resources 1

1.4.3. Debt maturity

The average maturity of Covivio’s debt remained stable at 6.0 years at end June 2018.

DEBT AMORTISATION SCHEDULE FOR EACH COMPANY DEBT AMORTISATION SCHEDULE BY COMPANY (Group share) (on a consolidated basis) (in M€) (in M€) (in M€) (in M€) 3,500 3,500 5,000 3,157 3,500 3,157 4,573 3,000 3,157 3,000 3,000 2,500 4,000 2,500 2,500 2,000 3,000 2,000 2,000 1,500 1,500 1,861 1,500 2,000 915 877 1,000 789 705 1,427 1,357 1,000 789 915 877 915 6151,304 1,000 789705 877 414 615 615 705 500 1,000258 884 500 414 618 258500 414 32 323 32 258 0 58 0 32 0 0 2018 2019 2020 2021 2022 2023 2024 2025 >2025 2018 2019 2020 2021 2022 2023 2024 2025 >2025 2018 2019 2020 2021 2022 2023 2024 2025 >2025 2018 2019 2020 2021 2022 2023 2024 2025 >2025 Covivio Covivio Immobilien Covivio Covivio Immobilien Covivio Covivio Immobilien Covivio Covivio Immobilien Beni Stabili Covivio Hotels Beni Stabili Covivio Hotels Beni Stabili Covivio Hotels Beni Stabili Covivio Hotels

1.4.4. Main changes during the period 1.4.4.1. Sustained financing and refinancing activity: €1.9 billion in 100% (€1.3 billion Group share) • Over the first half of 2018, Covivio raised or renegotiated • repayment of €600 million on two bond issue: €628 million (€612 million, Group share) of financing €350 million at maturity (2018 issue at 4.125%) and with an objective to lengthen its debt maturities in a €250 million early repayment (issue 2019 at 3.50), supportive environment: partially reimbursed thanks to a first 10-year bond • €333 million in 10-year mortgage debt, including on issue for Beni Stabili (€300 million at 2.375% coupon) partnership projects realised at the end of the first quarter 2018. • €200 million, between 6 and 7 years, as part of • Covivio Hotels (Foncière des Murs) raised or secured renegotiations engaged in 2017 of all corporate debt €575 million (€242 million Group share) of new fundin, which will be completed in the second half of the essentially: year. After the closing, early July, some additional • €100 million of new coporate credits with long €200 million have been completed maturities (7 years) • €95 million increase in the bond issue maturing in • £400 million (around €455 million) of bank mortgage 2027, thus reaching €595 million (coupon 1.50%). loan backed by the hotel portfolio being acquired in • In Italy (Beni Stabili) Covivio continued the work aiming the United Kingdom. to raise the debt maturity and lower the cost arranging • In Germany (Covivio Immobilien) Covivio raised €456 million (€273 million Group share) in financing €198 million (€122 million Group share) including: at medium/long term whilst repaying short term • €111 million with an average maturity of 9 years to expensive debt: finance acquisitions mostly in Berlin, Dresden, Leipzig • €157 million of new corporate credits (after a similar and Hamburg amount during the previous semester) • €87 million of new money through existing liabilities to optimise their maturity and conditions, and even raise their amount.

2018 First-half financial report — 51 2018 First-half management report 1 Financial resources

1.4.5. Hedging profile

In the first half of 2018, the hedge management policy Based on net debt at 30 June 2018, Covivio is hedged remained unchanged, with debt hedged at 90% to 100% (Group share) at 79% over 5 years (identical to end 2017). on average over the year, at least 75% of which through The average term of the hedges is 7.3 years (in Group short term hedges, and all of which with maturities share). equivalent to or exceeding the debt maturity.

HEDGING MATURITIES (€K, Group Share)

(in €K) 6

5

4

3

2

1

0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

1.4.6. Average interest rate on the debt and sensitivity

The average interest rate on Covivio’s debt continued a €350 million, 4.125% bond with a new €300 million, to improve, standing at 1.55% in Group share, compared 1.625% bond, and by the impact of hedge restructuring. to 1.87% in 2017. This reduction was mainly due to the For information purposes, an increase of 25 basis points “full year” effect of the issue, by Covivio, in May 2017, of in the three-month Euribor rate would have a negative a 1.50%, 10-year bond, the refinancing (Beni Stabili) of impact of 0.6% on the EPRA Earnings.

1.4.6.1. Financial structure Excluding debts raised without recourse to the Group’s The most restrictive ICR consolidated covenants property companies, the debts of Covivio and its applicable to the REITs are as follows: subsidiaries generally include bank covenants (ICR and for Covivio: 200% LTV) applying to the borrower’s consolidated financial • for Covivio Hotels: 200% statements. If these covenants are breached, early • debt repayment may be triggered. These covenants • for Beni Stabili: 150%. are established in Group share for Covivio and on With respect to Covivio Immobilien (German Residential), a consolidated or Group share basis depending on for which almost all of the debt raised is “non-recourse” the debt anteriority for Covivio Hotels and the other debt, portfolio financings do not contain any subsidiaries of Covivio (if their debt includes them). consolidated covenants. • The most restrictive consolidated LTV covenants amounted, at 30 June 2018, to 60% for Covivio, Covivio Hotels and Beni Stabili. • The threshold for the consolidated ICR covenants differs from one REIT to another, depending on the type of assets, and may be different from one debt to another even for the same REIT, depending on debt seniority.

52 — 2018 First-half financial report 2018 First-half management report Financial resources 1

Lastly, with respect to Covivio, some corporate credit facilities are subject to the following ratios:

Ratio Covenant June 2018 LTV 60.0% 46.1% ICR 200% 541% Secured debt ratio 25.0% 6.7%

All covenants were fully complied with at the end June 2018. No loan has an accelerated payment clause contingent on Covivio’s rating, which is currently BBB, positive outlook (S&P rating).

DETAIL OF LOAN-TO-VALUE CALCULATION (LTV)

(€M) – Group share 2017 H1 2018 Net book debt 5,691 6,196 Receivables linked to associates (full consolidated) -61 -52 Receivables on disposals -352 -332 Security deposits received -5 -16 Purchase Debt 59 68 NET DEBT 5,333 5,863 Appraised value of real estate assets (Including Duties) 12,958 13,855 Preliminary sale agreements -352 -332 Financial assets 104 36 Receivables linked to associates (equity method) 137 87 Share of equity affiliates 270 173 Value of assets 13,118 13,819 LTV EXCLUDING DUTIES 42.9% 44.8% LTV INCLUDING DUTIES 40.7% 42.4%

1.4.7. Reconciliation with consolidated accounts 1.4.7.1. Net debt

Consolidated Minority (€M) accounts interests Group share Bank debt 10,788 -3,666 7,122 Cash and cash-equivalents 1,324 -399 926 NET DEBT 9, 4 6 4 -3,268 6,196

2018 First-half financial report — 53 2018 First-half management report 1 Financial resources

1.4.7.2. Portfolio

Portfolio of companies Fair value of Fair value Consolidated under equity investment Discontinued of trading Minority (€M) accounts method properties activities activities interests Group share Investment & development properties 18,940 623 1,561 - 41 -8,079 13,086 Assets held for sale 623 - - - - -291 332 TOTAL PORTFOLIO 19,563 623 1,561 - 41 -8,369 13,418 Duties 717 Portfolio Group share including duties 14,135 (-) share of companies consolidated under equity method -297 (+) Advances and deposits on fixed assets 17 PORTFOLIO FOR LTV CALCULATION 13,855

1.4.7.3. Interest Coverage Ratio

Consolidated Minority accounts interests Group share EBE (Net rents (-) operating expenses (+) results of other activities) 460.9 -211.7 249.2 Cost of debt -84.0 3 7.9 -46.1 ICR 5.49 5.41

54 — 2018 First-half financial report 2018 First-half management report EPRA reporting 1

1.5. EPRA REPORTING

1.5.1. Change in net rental income (Group share)

Change in percentage Indexation, held/ asset Develop- consolidation management (€M) H1 2017 Acquisitions Disposals ments method and others H1 2018 France Offices 114 2 -10 6 0 4 116 Italy Offices (incl. retail) 44 2 -2 1 -9 3 39 Germany Residential 64 7 -5 0 1 3 69 Hotels Europe (incl. retail) 45 2 -3 1 1 -7 39 France Residential 2 0 -1 0 2 0 2 TOTAL 269 13 -21 7 -6 3 265

1.5.1.1. Reconciliation with financial data

(€M) H1 2018 Total from the table of changes in Net rental Income (GS) 265 Adjustments 0 TOTAL NET RENTAL INCOME (FINANCIAL DATA 1.3.3) 265 Minority interests 170 TOTAL NET RENTAL INCOME (FINANCIAL DATA 1.3.4) 435

1.5.2. Investment assets – Lease data

Annualised rental income corresponds to the gross amount of guaranteed rent for the full year based on existing assets at the period end, excluding any relief. • Vacancy rate at end of period = Market rental value on vacant assets Contractual Annualised rents on occupied assets (+) Market rental value on vacant assets • EPRA vacancy rate at end of period = Market rental value on vacant assets Market rental value on occupied and vacant assets

Gross Net rental rental Annualised Average EPRA income income rents rent Vacancy rate vacancy rate (€M) – Group share (€M) (€M) (€M) Surface (m2) (€/m2) at year end at year end France Offices 123 116 274 1,609,610 199 3.1% 3.2% Italy Offices (incl. retail) 46 39 104 1,927,130 115 3.5% 3.6% Germany Residential 75 69 153 2,857,765 84 1.9% 1.9% Hotels Europe (incl. retail) 40 39 70 N/A N/A 0.0% 0.0% France Residential 4 2 6 65,489 96 N/A N/A TOTAL 289 265 607 6,459,994 94 2.6% 2.6%

2018 First-half financial report — 55 2018 First-half management report 1 EPRA reporting

1.5.3. Investment assets – Asset values

The EPRA net initial yield is the ratio of: • EPRA NIY = Annualised rental income after deduction of outstanding benefits granted to tenants (rent free periods, rent cellings) (-) unrecovered property charges for year Value the portfolio including duties

Change in fair value (€M) – Group share Market value over the year Duties EPRA NIY France Offices 5,500 91 311 4.3% Italy Offices (incl. Retail) 2,175 13 76 4.2% Germany Residential 3,451 199 235 3.8% Hotels Europe (incl. Retail) 1,968 32 80 4.9% France Residential and car parks 325 3 15 1.6%(1) TOTAL 2016 EXCL. DISCONTINUED ACTIVITIES 13,418 339 717 4.2% (1) The yield is presented on France residential only. 1.5.3.1. Reconciliation with financial data

(€M) H1 2018 Total portfolio value (Group share, market value) 13,418 Fair value of the operating properties -725 Fair value of companies under equity method -297 Inventories of real estate companies and others -31 Fair value of car parks facilities -54 INVESTMENT ASSETS GROUP SHARE(1) (FINANCIAL DATA 1.3.5) 12,312 Minority interests 7, 2 5 1 INVESTMENT ASSETS 100%(1) (FINANCIAL DATA 1.3.5) 19,563 (1) Fixed assets + Developments assets + asset held for sale.

(€M) H1 2018 Change in fair value over the year (Group share) 339 Others - INCOME FROM FAIR VALUE ADJUSTMENTS GROUP SHARE (FINANCIAL DATA 1.3.3) 339 Minority interests 118 INCOME FROM FAIR VALUE ADJUSTMENTS 100% (FINANCIAL DATA 1.3.3) 457

56 — 2018 First-half financial report 2018 First-half management report EPRA reporting 1

1.5.4. Information on leases

Firm Lease expiration by date of 1st exit option residual Residual Annualised rental income of leases expiring lease term lease term Total (€M) (years) (years) N+1 N+2 N+3 to 5 Beyond Total % (€M) Section France Offices 4.5 5.4 9% 14% 31% 46% 100% 274 2.A.6 Italy Offices (incl. retail) 6.6 7. 1 7% 15% 24% 54% 100% 103 2.B.6 Hotels Europe (incl. retail) 10.8 12.5 5% 3% 8% 84% 100% 70 2.D.5 TOTAL 6.0 6.9 7% 12% 25% 52% 100% 447 1.B.1

1.5.5. EPRA topped-up yield rate

The data below shows detailed yield rates for the Group and the transition from the EPRA topped-up yield rate to Covivios yield rate. EPRA topped-up net initial yield is the ratio of: • EPRA Topped-up NIY = Annualised rental income after expiration of outstanding benefits granted to tenants (rent free periods, rent cellings) (-) unrecovered property charges for year Value the portfolio including duties

EPRA net initial yield is the ratio of: • EPRA NIY = Annualised rental income after deduction of outstanding benefits granted to tenants (rent free periods, rent cellings) (-) unrecovered property charges for year Value the portfolio including duties

Total France Italy Germany Hotels France Total (€M) – Group share 2017 Offices Offices Residential Europe Residential H1 2018 Investment, saleable and operating properties 12,707 5,500 2,175 3,451 1,968 246 13,339 Restatement of assets under development -331 -147 -175 - -37 - -359 Restatement of undeveloped land and other assets under development -127 -37 -81 - 0 - -118 Restatement of Trading assets -30 -13 - -5 - - -18 Restatement of operating hotel properties -250 ------Duties 690 311 76 235 80 15 717 Value of assets including duties (1) 12,659 5,614 1,996 3,681 2,010 261 13,561 Gross annualised rental income 593 255 100 153 99 6 613 Irrecoverable property charge -49 -12 -17 -13 -1 -2 -44 Annualised net rental income (2) 543 244 83 140 98 4 569 Rent charges upon expiration of rent 27 19 4 - 0 - 23 Free periods or other reductions in rental rates (3) 570 262 88 140 98 4 592 EPRA NET INITIAL YIELD (2)/(1) 4.3% 4.3% 4.2% 3.8% 4.9% 1.6% 4.2% EPRA «TOPPED-UP» NET INITIAL YIELD (3)/(1) 4.5% 4.7% 4.4% 3.8% 4.9% 1.6% 4.4% Transition from EPRA topped-up NIY to Covivio’s yields Impact of adjustments of EPRA rents 0.4% 0.2% 0.9% 0.4% 0.0% 0.9% 0.3% Impact of restatement of duties 0.3% 0.3% 0.2% 0.3% 0.2% 0.1% 0.3% IMPACT OF RESTATEMENT OF DUTIES 5.2% 5.2% 5.4% 4.4% 5.1% 2.6% 5.0%

2018 First-half financial report — 57 2018 First-half management report 1 EPRA reporting

1.5.6. EPRA cost ratio

(€M) – Group share H1 2017 H1 2018 Unrecovered rental costs -14.5 -9.5 Expenses on properties -7. 8 -11.3 Net losses on unrecoverable receivables -1.2 -0.9 Other expenses -2.2 -2.2 Overhead - 3 9.0 -40.1 Amortisation, impairment and net provisions -0.6 -0.8 Income covering overheads 10.4 10.3 Cost of other activities and fair value -3.4 -3.9 Property expenses -0.2 -0.2 EPRA costs (including vacancy costs) (A) -58.5 -58.6 Vacancy cost 7. 5 5.0 EPRA costs (excluding vacancy costs) (B) -51.0 -53.6 Gross rental income less property expenses 295.3 289.2 Income from other activities and fair value 12.7 22.5 Gross rental income (C) 3 0 7.9 311.6 EPRA COSTS RATIO (INCLUDING VACANCY COSTS) (A/C) 1 9.0% 18.8% EPRA COSTS RATIO (EXCLUDING VACANCY COSTS) (B/C) 16.6% 17.2%

The calculation of the EPRA cost ratio excludes car parks activities. Following the restructuration of the hotel activity realised early 2018, it includes operating hotel properties only in 2018. EBITDA from operating hotel properties and coworking activity are included in the income from other activities. The EPRA cost ratio excluding vacancy is increasing with the integration of the operating hotel properties activities, which has a higher cost ratio compared to hotels in lease, and the launching of our coworking activity Wellio which is still in a ramp-up period. In German residential, the cost ratio keeps on improving.

1.5.7. EPRA Earnings

(€M) H1 2017 H1 2018 Net income Group share (Financial data 1.3.3) 4 8 9.0 465.3 Change in asset values -350.3 -295.1 Income from disposal 5.0 -98.5 Acquisition costs for shares of consolidated companies 1.6 58.7 Changes in the values of financial instruments -30.4 5.4 Deferred tax liabilities 34.8 3 7.0 Taxes on disposals 0.2 1.3 Adjustment to amortisation 0.0 10.5 Adjustments from early repayments of financial instruments 38.4 8.3 EPRA Earnings adjustments for associates - 9.0 -4.9 EPRA EARNINGS 182.7 191.6 EPRA EARNINGS/€-SHARES 2.49 2.56

58 — 2018 First-half financial report 2018 First-half management report EPRA reporting 1

1.5.8. EPRA NAV and EPRA NNNAV

2017 H1 2018 Var. Var. (%) EPRA NAV (€M) 7,112 7,223 111 1.6% EPRA NAV/share (€) 94.5 95.4 0.9 0.9% EPRA NNNAV (€M) 6,492 6,624 132 2.0% EPRA NNNAV/share (€) 86.3 8 7. 5 1.2 1.4% Number of shares 75,247,258 75,717,504 470,246 0.6%

EVOLUTION OF EPRA NAV

€7,223 M €7,112 M €95.4/share €94.5/share -€50 M +€11 M +€192 M Hedge Others restructuring EPRA -€337 M +€295 M and bonds Earnings Dividend Property buy back values increase

EPRA NAV EPRA NAV End-2017 H1 2018

RECONCILATION BETWEEN SHAREHOLDER’S EQUITY AND EPRA NAV

€M €/share Shareholders’ equity 6,560.9 86.7 Fair value assessment of operating properties 32.1 Fair value assessment of car parks facilities 26.7 Fair value assessment of hotel operating properties 10.4 Fair value assessment of fixed-rate debts -31.8 Restatement of value Excluding Duties on some assets 25.7 EPRA NNNAV 6,624.1 8 7. 5 Financial instruments and fixed-rate debt 153.5 Deferred tax liabilities 404.6 ORNANE 41.1 EPRA NAV 7,223.3 95.4 IFRS NAV 6,560.9 86.7

2018 First-half financial report — 59 2018 First-half management report 1 EPRA reporting

Valuations are carried out in accordance with the Code 1.5.8.2. Fair value adjustment of conduct applicable to SIICs and the Charter of property valuation expertise, the recommendations of for the car parks the COB/CNCC working group chaired by Mr Barthès Car parks are valued at historical cost in the consolidated de Ruyter and the international plan in accordance with financial statements. NAV is restated to take into account European TEGoVA standards and those of the Red Book the appraisal value of these assets net of tax. The impact of the Royal Institution of Chartered Surveyors (RICS). on EPRA NNNAV was €26.7 million at 30 June 2018. The real estate portfolio held directly by the Group was valued on 30 June 2018 by independent real estate experts such as REAG, DTZ, CBRE, JLL, BNP Real Estate, 1.5.8.3. Fair value adjustment for Yard Valtech, VIF, MKG and CFE. This did not include: own occupied buildings and • buildings that do not meet the criteria of the revised operating hotel properties IAS 40 (certain buildings in development), which are valued at cost The merger-absorption of the operating hotel properties • assets on which the sale has been agreed, which are activity realised in January 2018 implied the integration valued at their agreed sale price in fait value of operating hotel properties. As a consequence, the adjustment applied in 2017 is captures • assets owned for less than 75 days, for which the in the shareholder’s equity. However, in accordance with acquisition value is deemed to be the market value. IAS 40, these assets are not recognised at fair value in Assets were estimated at values excluding and/or the consolidated financial statements. In line with EPRA including duties, and rents at market value. Estimates principles, EPRA NNNAV is adjusted for the difference were made using the comparative method, the rent resulting from the fair value appraisal of the assets capitalisation method and the discounted future cash for €10.4 million. The market value of these assets is flows method. determined by independent experts. Car parks were valued by capitalising the gross operating surplus generated by the business. 1.5.8.4. Fair value adjustment Other assets and liabilities were valued using the for fixed- rate debts principles of the IFRS standards on consolidated financial The Group has taken out fixed-rate loans (secured statements. The application of the fair value essentially bond and private placement). In accordance with EPRA concerns the valuation of the debt coverages and the principles, EPRA NNNAV is adjusted for the fair value ORNANES. of fixed-rate debt. The impact was €31.8 million at For companies shared with other investors, only the 30 June 2018. Group share was taken into account. 1.5.8.5. Recalculation of the base 1.5.8.1. Fair value assessment cost excluding duties of of operating properties certain assets In accordance with IFRS, operating properties are valued When a company, rather than the asset that it holds, at historical cost. To take into account the appraisal can be sold off, transfer duties are recalculated based value, a value adjustment is recognised in EPRA NNNAV on the company’s NAV. The difference between these for a total of €32.1 million. recalculated duties and the transfer duties already deducted from the value has an impact of €25,7 million at 30 June 2018.

60 — 2018 First-half financial report 2018 First-half management report EPRA reporting 1

1.5.9. EPRA performance indicator reference table

Amount Amount EPRA information Section in % in €M in €/share EPRA Earnings 1.5.7 192 2.56 EPRA NAV 1.5.8 7,223 95.4 EPRA NNNAV 1.5.8 6,624 8 7. 5 EPRA NAV/IFRS NAV reconciliation 1.5.8 EPRA net initial yield 1.5.5 4.2% EPRA topped-up net initial yield 1.5.5 4.4% EPRA vacancy rate at year-end 1.5.2 2.6% EPRA costs ratio (including vacancy costs) 1.5.6 18.8% EPRA costs ratio (excluding vacancy costs) 1.5.6 17.2% EPRA indicators of main subsidiaries 1.5.2 & 1.5.5

2018 First-half financial report — 61 2018 First-half management report 1 Financial indicators of the main activities

1.6. FINANCIAL INDICATORS OF THE MAIN ACTIVITIES

Covivio Hotels Beni Stabili 2017 H1 2018 Var. (%) 2017 H1 2018 Var. (%) EPRA Earnings (€M, end-June) 76.9 94.0 22.2% 50.0 46.1 -7. 8 % EPRA NAV (€M) 2,422 3,205 32.3% 1,897 1,865 -1.7% EPRA NNNAV (€M) 2,226 2,954 32.7% 1,871 1,835 -1.9% % of capital held by Covivio 50.0% 42.0% -8.0 pts 52.4% 59.9 % +7.5 pts LTV Including Duties 31.2% 28.9% -2.3 pts 46.1% 46.4% +0.3 pt ICR 5.46 6.02 +0.56 4.11 5.36 +1.25

Covivio Immobilien 2017 H1 2018 Var. (%) EPRA Earnings (€M) 59. 5 63.7 +0.1 pt EPRA NAV (€M) 2,751 2,989 8.7% EPRA NNNAV (€M) 2,306 2,504 8.6% % of capital held by Covivio 61.7% 61.7% +0.0 pt LTV Including Duties 36.9% 34.8% -2.1 pts ICR 4.5 5.3 +0.80

62 — 2018 First-half financial report 2

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF COVIVIO AS AT 30 JUNE 2018

2.1. CONDENSED CONSOLIDATED 2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS 72 AS AT 30 JUNE 2018 64 2.2.1. General principles 72 2.1.1. Statement of financial position 64 2.2.2. Financial risk management 74 2.1.2. Statement of net income 66 2.2.3. Scope of consolidation 78 2.1.3. Statement of comprehensive 2.2.4. Significant events of the period 81 income 67 2.2.5. Notes to the statement 2.1.4. Statement of changes of financial position 82 in shareholders’ equity 68 2.2.6. Notes to the statement 2.1.5. Statement of cash flows 70 of net income 108 2.2.7. Other information 113 2.2.8. Segment reporting 116 2.2.9. Subsequent events 122

2018 First-half financial report — 63 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Condensed consolidated financial statements as at 30 June 2018

2.1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE 2018

Preamble

Covivio becomes the new name for Foncière des Régions. This change of identity covers all of the company’s European businesses. Foncière des Régions becomes Covivio, a single brand combining Foncière des Murs (Covivio Hotels), Immeo in Germany (Covivio Immobilien) and Beni Stabili in Italy. From a legal standpoint, the new corporate name of Foncière des Régions, approved by the Board of Directors, will come into effect at the General Meeting of Shareholders on 6 September 2018.

2.1.1. Statement of financial position

ASSETS

(€K) Note 2.2.5. 30/06/2018 31/12/2017 Intangible fixed assets 1.2 Goodwill 113,883 1,572 Other intangible fixed assets 65,676 24,592 Tangible fixed assets 1.2 Operating properties 1,247,747 176,262 Other tangible fixed assets 32,842 8,399 Fixed assets in progress 48,532 19,120 Investment properties 1.3 18,939,905 18,417,648 Non-current financial assets 2.2 194,203 355,064 Investments in equity affiliates 3.2 225,321 368,901 Deferred tax assets 4 15,991 5,939 Long-term derivatives 11.5 32,851 30,763 Total non-current assets 20,916,951 19,408,261 Assets held for sale 1.3 622,825 519,891 Loans & receivables 5 3,194 34,441 Inventories and work-in-progress 6.2 42,600 43,237 Short-term derivatives 11.5 19,029 17,415 Trade receivables 7 390,959 279,298 Tax receivables 22,255 13,280 Other receivables 8 111,214 108,024 Prepaid expenses 15,860 12,505 Cash and cash equivalents 9 1,324,010 1,296,636 Total current assets 2,551,946 2,324,727 TOTAL ASSETS 23,468,897 21,732,988

64 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Condensed consolidated financial statements as at 30 June 2018 2

LIABILITIES

(€K) Note 2.2.5. 30/06/2018 31/12/2017 Share capital 225,836 224,490 Share premium account 2,882,370 2,853,696 Treasury shares -4,307 -4,743 Consolidated reserves 2,991,749 2,375,752 Net income 465,294 914,112 Total shareholders’ equity, Group share 10 6,560,942 6,363,307 Non-controlling interests 4,424,377 3,804,352 Total shareholders’ equity 10,985,319 10,167,659 Long-term borrowings 11.2 9,126,774 8,596,316 Long-term derivatives 11.5 169,685 261,432 Deferred tax liabilities 4 712,780 551,030 Pension plan and other employee benefit 12.2 49,182 47,508 Other long-term liabilities 18,632 14,062 Total non-current liabilities 10,077,053 9,470,348 Liabilities held for sale 0 0 Trade payables(1) 130,106 116,186 Trade payables on fixed assets(1) 129,277 51,438 Short-term borrowings 11.2 1,661,250 1,524,243 Short-term derivatives 11.5 67,112 61,424 Security deposits 5,105 5,161 Advances and pre-payments received 186,916 166,062 Short-term provisions 12.2 19,690 10,909 Current tax 30,257 22,982 Other short-term liabilities 13 133,521 117,759 Pre-booked income 43,291 18,817 Total current liabilities 2,406,525 2,094,981 TOTAL LIABILITIES 23,468,897 21,732,988 (1) At 31 December 2017, accounts payable to suppliers of fixed assets were included in trade payables.

2018 First-half financial report — 65 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Condensed consolidated financial statements as at 30 June 2018

2.1.2. Statement of net income

(€K) Note 30/06/2018 30/06/2017 Rental income 2.6.2.1 472,744 459,380 Unrecovered rental costs 2.6.2.2 -18,321 -26,126 Expenses on properties 2.6.2.2 -17,907 -12,323 Net losses on unrecoverable receivables 2.6.2.2 -1,582 -1,932 Net rental income 434,934 418,999 Income from other activities 2.6.2.3 36,137 3,845 Management and administration income 8,151 9,567 Business expenses -3,066 -3,120 Overhead -56,047 -56,849 Development costs (not capitalised) -148 -249 Net cost of operations 2.6.2.4 -51,110 -50,651 Depreciation of operating assets 2.6.2.5 -28,784 -4,408 Net change in provisions and other -159 -789 OPERATING INCOME 391,018 366,996 Proceeds from disposals of trading properties 7, 5 7 8 3,582 Exit value and/or amortisations of trading properties -8,118 -4,116 Net income from inventory properties -540 -534 Income from asset disposals 577,483 235,544 Carrying value of assets sold -522,210 -236,159 Income from asset disposals 2.6.3 55,273 -615 Gains in value of investment properties 546,959 614,517 Losses in value of investment properties -90,185 -75,287 Income from value adjustments 2.6.4 456,774 539,230 Income from disposal of securities 2.6.5 103,022 -6,315 Income from changes in scope 2.6.5 -135,989 -2,477 OPERATING INCOME 869,558 896,285 Cost of net financial debt 2.6.6 -96,115 -137,304 Value adjustment on derivatives 2.6.7 -10,817 33,740 Discounting of liabilities and receivables 2.6.7 -4,827 -2,774 Net change in financial and other provisions 2.6.7 -10,778 -12,080 Share in income of equity affiliates 2.5.3.2 12,593 22,279 PRE-TAX NET INCOME 759,614 800,146 Deferred tax liabilities 2.6.8.2 -60,287 -57,638 Corporate income tax 2.6.8.2 -10,156 -6,254 NET INCOME FOR THE PERIOD 689,171 736,254 Net income from non-controlling interests -223,877 -247,227 NET INCOME FOR THE PERIOD – GROUP SHARE 465,294 4 8 9,026 Group net income per share (€) 2.7.2 6.22 6.67 Group diluted net income per share (€) 2.7.2 5.92 6.63

66 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Condensed consolidated financial statements as at 30 June 2018 2

2.1.3. Statement of comprehensive income

(€K) 30/06/2018 30/06/2017 NET INCOME FOR THE PERIOD 689,171 736,254 Other items in the comprehensive income statement recognised directly in shareholders’ equity and: Destined for subsequent reclassification in the “Net income” section of the income statement Actuarial losses on employee benefits 0 0 Effective portion of gains or losses on hedging instruments -1,946 13,750 Tax on other items of comprehensive income 0 0 Not destined for subsequent reclassification in the “Net income” section 0 0 Other items of comprehensive income -1,946 13,750 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 687,225 750,004 Total comprehensive income attributable To the owners of the parent company 465,042 494,379 To non-controlling interests 222,183 255,624 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 687,225 750,004 Group net comprehensive income per share 6.21 6.75 Group diluted net comprehensive income per share 5.92 6.71

2018 First-half financial report — 67 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Condensed consolidated financial statements as at 30 June 2018

2.1.4. Statement of changes in shareholders’ equity

Gains and losses Reserves recognised Total Share and directly in shareholders’ Non- Total Share premium Treasury retained shareholders’ equity, controlling shareholders’ (€K) capital account shares earnings equity Group share interests equity Position at 31 December 2016 206,274 2,480,609 -7,496 2,647,455 -24,470 5,302,372 3,165,604 8,467,976 Distribution of dividends -76,061 -248,670 -324,731 -207,172 -531,903 Capital increase 15,337 380,278 -11 395,604 465,445 861,049 Allocation to the legal reserve -1,523 1,523 0 0 Others 2,169 -1,527 642 470 1,112 Total comprehensive income for the period 489,026 5,353 494,379 255,624 750,003 Of which actuarial gains and losses on post-employment benefits (IAS 19 revised) 0 0 Of which effective portion of gains or losses on hedging instruments 5,353 5,353 8,397 13,750 Of which net income (loss) 489,026 489,026 247,227 736,253 Impact of change in shareholding/Capital increase -722 -722 38,607 37,885 Shared-based payments 3,029 3,029 3,029 Position at 30 June 2017 221,611 2,783,303 -5,327 2,890,103 -19,117 5,870,573 3,718,578 9,589,151 Distribution of dividends 0 -15,986 -15,986 Capital increase 2,879 70,393 73,272 -399,119 -325,847 Allocation to the legal reserve 0 0 Others 584 202 786 -13 773 Total comprehensive income for the period -63,940 -2,536 -66,476 188,356 121,880 Of which actuarial gains and losses on post-employment benefits (IAS 19 revised) 741 741 462 1,203 Of which effective portion of gains or losses on hedging instruments -3,277 -3,277 -3,348 -6,625 Of which net income (loss) 425,086 425,086 191,242 616,328 Impact of change in shareholding/Capital increase -6,318 -6,318 312,536 306,218 Shared-based payments 2,444 2,444 2,444 Position at 31 December 2017 224,490 2,853,696 -4,743 3,311,517 -21,653 6,363,307 3,804,352 10,167,659

68 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Condensed consolidated financial statements as at 30 June 2018 2

Gains and losses Reserves recognised Total Share and directly in shareholders’ Non- Total Share premium Treasury retained shareholders’ equity, controlling shareholders’ (€K) capital account shares earnings equity Group share interests equity Position at 31 December 2017 224,490 2,853,696 -4,743 3,311,517 -21,653 6,363,307 3,804,352 10,167,659 Distribution of dividends -337,030 -337,030 -179,105 -516,135 Capital increase 1,346 28,771 30,117 30,117 Allocation to the legal reserve -97 97 0 0 Others 436 -1,504 -1,068 30 -1,038 Total comprehensive income for the period 465,294 -252 465,042 222,183 687,225 Of which actuarial gains and losses on post-employment benefits (IAS 19 revised) 0 0 Of which effective portion of gains or losses on hedging instruments -252 -252 -1,694 -1,946 Of which net income (loss) 465,294 465,294 223,877 689,171 Impact of change in shareholding/Capital increase 36,737 36,737 576,917 613,654 Shared-based payments 3,837 3,837 3,837 POSITION AT 30 JUNE 2018 225,836 2,882,370 -4,307 3,478,948 -21,905 6,560,942 4,424,377 10,985,319

Dividends paid in cash during the period amounted The change of nearly €620 million in non-controlling to €337 million, charged to net income and retained interests is mainly due to: the net income attributable to earnings. minority interests for the period (+€222 million), the merger of FDM Management (operating properties business) During the first half of 2018, Covivio increased its share with Foncière des Murs to finance the acquisition of 14 capital by €30.1 million through the issue of 323,044 new hotels in the UK (+€678 million), the acquisition of Beni shares following the conversion of 1,873,334 bonds and Stabili shares on the market, increasing its shareholding the allocation of 125,571 vested free shares. by 7 points and the 9-point drop in its subsidiary Central Sicaf (-€67 million), and distributions over the period (-€179 million).

2018 First-half financial report — 69 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Condensed consolidated financial statements as at 30 June 2018

2.1.5. Statement of cash flows

(€K) Note 30/06/2018 31/12/2017 Net consolidated income (including minority interests) 689,171 1,352,581 Net amortisation, depreciation and provisions(1) (excluding provisions relating to current assets) 2.2.6.5 162,278 17,785 Unrealised gains and losses relating to changes in fair value 2.2.5.11.5 & 2.2.6.4 -445,962 -915,978 Income and expenses calculated on stock options and related share‑based payments 4,666 6,672 Other calculated income and expenses 8,676 26,184 Gains or losses on disposals(2) 2.2.6.3 & 2.2.6.5 -158,420 -46,533 Gains or losses from dilution – accretion 0 -18 Share of income from companies accounted for under the equity method -12,593 -43,238 Dividends (non-consolidated securities) 0 0 Cash flow after tax and cost of net financial debt 247,816 397,455 Cost of net financial debt 2.2.6.6 96,115 236,915 Income tax expense (including deferred taxes) 2.2.6.8.2 70,443 110,452 Cash flow before tax and cost of net financial debt 414,374 744,822 Taxes paid -17,336 -7,280 Change in working capital requirements on continuing operations (including employee benefits liabilities) 2.2.5.7.2 21,739 719 Net cash flow generated by operations 418,777 738,261 Impact of changes in the scope of consolidation(3) 25,094 -667,541 Disbursements related to acquisition of tangible and intangible fixed assets 2.2.5.1.2 -497,586 -1,114,261 Proceeds relating to the disposal of tangible and intangible fixed assets 2.2.5.1.2 570,318 1,066,653 Disbursements relating to acquisition of financial assets (non-consolidated securities) 45 -200 Proceeds relating to the disposal of financial assets (non-consolidated securities) 647 828 Dividends received (companies accounted for under the equity method, non-consolidated securities) 9,959 21,465 Change in loans and advances granted 41,707 -3,305 Investment grants received 0 0 Other cash flow from investment activities 3,275 -6,365 Net cash flow from investment activities 153,459 -702,726

70 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Condensed consolidated financial statements as at 30 June 2018 2

(€K) Note 30/06/2018 31/12/2017 Impact of changes in the scope of consolidation(4) - 80,275 272,147 Amounts received from shareholders in connection with capital increases: Paid by parent company shareholders 2.1.4 156,173 468,876 Paid by minority shareholders of consolidated companies 0 66,326 Purchases and sales of treasury shares -1,113 2,066 Dividends paid during the reporting period: Dividends paid to parent company shareholders 2.1.4 -337,030 -324,733 Dividends paid to non-controlling interests of consolidated companies 2.1.4 -179,047 -169,385 Proceeds related to new borrowings 2.2.5.11.2 1,393,331 2,432,607 Repayments of borrowings (including finance lease agreements) 2.2.5.11.2 -1,422,209 -2,226,821 Net interest paid (including finance lease agreements) -132,243 -235,974 Other cash flow from financing activities -66,928 -124,043 Net cash flow from financing activities - 669,341 161,066 Impact of changes in accounting policies 0 0 CHANGE IN NET CASH -97,105 196,601 Opening cash position 1,256,739 1,060,137 Closing cash position 1,159,634 1,256,738 CHANGE IN CASH AND CASH EQUIVALENTS -97,105 196,601

(€K) Note 30/06/2018 31/12/2017 Gross cash (A) 2.2.5.9.2 1,324,010 1,296,636 Debit balances and bank overdrafts from continuing operations (B) 2.2.5.11.2 -153,851 -26,673 Net cash and cash equivalents (C) = (A) - (B) 1,170,159 1,269,963 Of which available net cash and cash equivalents 1,159,634 1,256,738 Of which unavailable net cash and cash equivalents 10,525 13,225 Gross debt (D) 2.2.5.11.2 10,719,161 10,169,440 Amortisation of financing costs (E) 2.2.5.11.2 -84,988 -75,554 NET DEBT (D) – (C) + (E) 9,464,014 8,823,923 (1) Net amortisation, depreciation and provisions totalling €162.3 million include a goodwill impairment of €131.1 million recognised upon the merger of FDM Management (Operating Properties business line) with Foncière des Murs. (2) Gains or losses on disposals consist of income/(losses) from the sale of assets (-€55.3 million) and income/(losses) from the sale of securities (-€103 million). (3) The impact of changes in investing activities (§39 of IAS 7) amounting to +€25.1 million mainly stem from Hotels Europe (+€28.6 million). They consist of the proceeds from the change in consolidation method for Operating Properties companies (+€78.7 million) and disbursements related to deposits (-€30 million) and earn-out payments (-€20 million) for the acquisition of securities. (4) The -€80.3 million impact of changes in the scope of consolidation related to financing activities (§ 42A of IAS7) primarily concerns: - proceeds related to the sale of the investment in Central Sicaf in Italy Offices (+€69.8 million net of costs) - disbursements related to the acquisition of additional stakes in Beni Stabili (-€130.2 million) - disbursements related to the acquisition of additional stakes in companies in Germany Residential (-€19.8 million).

2018 First-half financial report — 71 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.2.1. General principles 2.2.2.1. Accounting standards However, the calculation of the percentage of completion will incorporate land costs, resulting in higher recognition The condensed consolidated financial statements of of revenue and margin at the beginning of the contract the Covivio group as at 30 June 2018 were prepared than is the current practice. in accordance with IAS 34 “Interim Financial Reporting”. Amendments to IFRS 15, adopted by the European Since they are condensed statements, they do Union on 31 October 2017. Clarifications have been not include all of the information required under made to IFRS 15 concerning the following: identification IFRS guidelines and must be read in conjunction with of performance obligations, principal versus agent the annual financial statements of the Covivio group for application, licenses, and transitory provisions. The the year ended 31 December 2017. Group did not recognise any impact on its earnings or The financial statements were approved by the Board of shareholders’ equity: Directors on 19 July 2018. • amendments to IFRS 4 ”Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”, adopted Accounting principles and methods used by the European Union on 3 November 2017. They are intended to remedy the temporary accounting The accounting principles applied for the condensed consequences of the time-lag between the effective consolidated financial statements as at 30 June 2018 date of IFRS 9 and that of the new standard on are identical to those used for the consolidated financial insurance contracts replacing IFRS 4 (IFRS 17) statements as at 31 December 2017, except for new • amendments to IFRS 2 “Classification and standards and amendments whose application was Measurement of Share-based Payment Transactions”, mandatory on or after 1 January 2018 and which were adopted by the European Union on 26 February 2018. not applied early by the Group. This amendment covers three aspects that concern The new standards subject to mandatory application on the following: the effects of vesting conditions on the or after 1 January 2018 include: measurement of cash-settled share-based payments • IFRS 9 “Financial instruments: Hedge Accounting”, and, share-based payment transactions subject to adopted by the European Union on 22 November 2016. tax withholding obligations, and a modification to This standard will replace IAS 39 concerning financial the terms and conditions of a share-based payment instruments. The Group will apply the provisions relating that changes the classification of the transaction from to the recognition and measurement of financial cash-settled to equity-settled instruments, and to the impairment of financial assets • annual improvements to IFRS (2014-2016 cycle), retrospectively from 1 January 2018, without restating adopted by the European Union on 7 February 2018. comparative figures upon first application. The impacts These improvements consist of minor amendments to of the implementation of this standard, in particular IFRS 1 ”First-time adoption of IFRS”, IFRS 12 ”Disclosure concerning the treatment of debt renegotiations, are of Interests in Other Entities” and IAS 28 ”Investments immaterial in Associates and Joint Ventures” • IFRS 15 “Revenue from Contracts with Customers”, • amendments to IAS 40 “Transfers of Investment adopted by the European Union on 22 September Property” adopted by the European Union on 14 March 2016. In May 2014, the IASB and the FASB published 2018. Further details on paragraphs 57 and 58 of IAS 40 IFRS 15, which changes how revenue is recognised and have been provided by the IASB. An entity is required supersedes IAS 18 “Revenue” and IAS 11 “Construction to transfer a property from investment property to Contracts”. IFRS 15 establishes a fundamental principle inventories when, and only when, there is a change that requires revenues from contracts with customers in use. There is a change in use when the property to be recognised in a way that reflects the amount to becomes or ceases to be an investment property, which a seller expects to be entitled when transferring under the definition of that term, and there is evidence control of a good or service to a customer. of such a change For the Group, this standard may have an impact • IFRIC 22 ”Foreign Currency Transactions and Advance on real estate development. On off-plan contracts, Consideration”, adopted by the European Union the principle of recognising revenue and margin as a on 28 March 2018. This interpretation deals with the percentage of completion is unaffected. issue of the exchange rate to be used for advance payments.

72 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

New standards awaiting adoption by the European • amendments to the Conceptual Framework for Union, whose application is possible as of 1 January 2018: Financial Reporting, published on 29 March 2018; their • amendments to IAS 28 “Investments in Associates adoption by the European Union is expected in 2019. and Joint Ventures”, published 12 October 2017. Their According to the IASB, the amendments should come adoption by the European Union is expected in 2018. into force on 1 January 2020. According to the IASB, the effective date should be 1 January 2019 2.2.1.2. Estimates and judgements annual improvements to IFRS (2015-2017 cycle), • The financial statements have been prepared in published on 12 December 2017. Their adoption by the accordance with the historic cost convention, with the European Union is expected in 2018. According to the exception of investment properties and certain financial IASB, the effective date should be 1 January 2019. These instruments, which were recognised in accordance improvements amend IFRS 3 “Business Combinations”, with the fair value convention. In accordance with the IFRS 11 “Partnerships”, IAS 23 “Borrowing Costs” and conceptual framework for IFRS, preparation of the IAS 12 “Income Taxes” financial statements requires making estimates and using • amendments to IAS 19 ”Plan Amendment, Curtailment assumptions that affect the amounts shown in these or Settlement”, published on 7 February 2018. Their financial statements. adoption by the European Union is expected in 2018. According to the IASB, the effective date should be The significant estimates made by the Covivio in 1 January 2019 preparing the financial statements mainly relate to: • IFRIC 23 “Uncertainty Over Income Tax Treatments,” • the valuations used for testing impairment, in particular published on 7 June 2017. Its adoption by the European assessing the recoverable value of goodwill and Union is expected in Q3 2018. According to the IASB, intangible fixed assets the effective date should be 1 January 2019. • measurement of the fair value of investment properties The new amendments and standards adopted by the • assessment of the fair value of derivative financial European Union whose application was not mandatory instruments on 1 January 2018 and which are not being applied early measurement of provisions. by the Covivio group are the following: • Due to the uncertainties inherent in any valuation • IFRS 16 “Leases”, adopted by the European Union on process, the Covivio group reviews its estimates based 31 October 2017. According to the IASB, the effective on regularly updated information. The future results of the date should be 1 January 2019. On 13 January 2016, transactions in question may differ from these estimates. the IASB published IFRS 16, which will supersede IAS 17 “Leases”, as well as the corresponding interpretations In addition to the use of estimates, Group management (IFRIC 4, SIC 15 and SIC 27). The most significant change makes use of judgements to define the appropriate is that all the leases concerned will be recognised on accounting treatment of certain business activities and the lessee’s balance sheet, providing better visibility on transactions when the IFRS standards and interpretations their assets and liabilities. The Group has carried out in effect do not precisely address the accounting issues an initial survey of its leases. At this stage, this primarily involved. involves operating leases for company vehicles, car parks and construction leases. The implications for the 2.2.1.3. Operating segments Group should be limited • amendment to IFRS 9 ”Prepayment Features with The operating segments of the Covivio group are Negative Compensation”, published on 12 October 2017 detailed in paragraph 2.2.8.1. and adopted by the European Union on 22 March 2018. According to the IASB, the effective date should be 2.2.1.4. IFRS 7 – Reference table 1 January 2019.

IFRS standards and amendments published by the Liquidity risk § 2 .2.2.2 IASB but not adopted by the European Union, not yet • mandatory for financial years beginning on or after • Financial expense sensitivity § 2.2.2.3 1 January 2018: • Credit risk § 2.2.2.4 • IFRS 17 ”Insurance Contracts”, published on 18 May 2017. Market risk § 2.2.2.6 According to the IASB, it should come into force on • 1 January 2021. IFRS 17 lays out the principles as to the • Sensitivity of the fair value recognition, valuation, presentation and disclosures of investment properties § 2.2.5.1.3 concerning insurance contracts within the scope of Covenants § 2.2.5.11.6 application of the standard. This standard has no • impact on the financial statements

2018 First-half financial report — 73 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.2. Financial risk management

The operating and financial activities of the Company are exposed to the following risks:

2.2.2.1. Marketing risk for properties 2.2.2.2. Liquidity risk under development Liquidity risk is managed in the medium and long term The Group is involved in property development. As such, with multi-year cash management plans and, in the it is exposed to a number of different risks, particularly short term, by using confirmed and undrawn lines of risks associated with construction costs, completion credit. At 30 June 2018, Covivio group’s available cash delays and the marketing of properties. These risks can and cash equivalents amounted to €2,665 million, be assessed in light of the schedule of properties under including €1,314 million in usable unconditional credit development (see § 2.2.5.1.4). lines, €1,170 million in investments and €181 million in unused overdraft facilities.

The graph below summarises the maturities of borrowings (in €M), including treasury bills existing as at 30 June 2018:

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0 2S 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Maturity Interests

30 June 2018 maturities include €1,174.4 million in treasury • Italy Offices bills. Beni Stabili pushed ahead with its strategy of extending The amount of interest payable up to the maturity of the the maturity of its debt and reducing its cost by raising debt, estimated on the basis of the outstanding amount or renegotiating medium- and long-term financing of at 30 June 2018 and the average interest rate on the €456 million, while repaying costly short-term loans. debt, totalled €876 million. In January 2018, Beni Stabili raised €157 million in corporate credit facilities and redeemed €350 million Details concerning the debt maturities are provided worth of bonds at maturity. in Note 2.2.5.11.3, and a description of the banking covenants and accelerated payment clauses included In February 2018, it raised €300 million through a new in the loan agreements is presented in Note 2.2.5.11.6. 10-year bond issue with a coupon of 2.375%. In March 2018, it redeemed €250 million worth of bonds During the first half of 2018, the Group continued to with a coupon of 3.50% ahead of the scheduled diversify its sources of financing and reduce the cost of maturity date in 2019 its debt while extending its maturity. Hotels Europe France Offices • • In the first half of 2018, Covivio Hôtels (Foncière des In June 2018, Covivio raised or renegotiated €628 million Murs) raised or secured new financing of around in funding for the purpose of extending the maturity of €575 million, including €100 million in new corporate its debt under favourable conditions. It renegotiated credit facilities with maturities of 7 years and 10-year mortgage loans totalling €300 million and £400 million (around €455 million) in mortgage loans raised €33 million, including for joint projects, as well as on hotel assets currently being purchased in the UK. loans for €200 million with a maturity of 6 to 7 years as part of the renegotiation of all of its corporate credit facilities at the end of 2017, due to expire in the second half. At the same time, the bond issue launched in 2017 was increased by €95 million.

74 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

• Germany Residential 2.2.2.5. Leasing counterparty risk In the first half of 2018, Covivio Immobilien (ex Immeo) raised €198 million in financing, including a 9-year loan Covivio group’s rental income is subject to a certain of €111 million for the acquisition of portfolios in Berlin, degree of concentration, to the extent that the principal Dresden, Leipzig and Hamburg and €87 million in new tenants (Orange, Telecom Italia, AccorHotels, Suez, B&B money to support existing financing and optimise its and Enedis/EDF) generate the primary annual rental amounts, maturities and conditions. income. It should be noted that in 2017, and in the first half of 2.2.2.3. Interest rate risk 2018, the Group split up the Telecom Italia portfolio and now holds no more than 51%. The Group made significant The Group’s exposure to the risk of changes in market investments in Spain and thereby diversified its Hotels interest rates is linked to its floating rate and long-term lessees. financial debt. Covivio group does not believe it is significantly exposed To the extent possible, bank debt is primarily hedged to the risk of insolvency, since its tenants are selected via financial instruments (see § 2.2.5.11.5). At 30 June based on their creditworthiness and the economic 2018, after taking interest rate swaps into account, prospects of their market segments. The operating and approximately 80% of the Group’s debt was hedged, financial performance of the main tenants is regularly and the bulk of the remainder was covered by interest reviewed. In addition, tenants grant the Group financial rate caps, which resulted in the following sensitivity to guarantees when leases are signed. changes in interest rates: • the impact of an increase of 100 bps on rates as at The Group has not recorded any significant overdue 30 June 2018 was -€10,105 thousand on recurring net payments. income, Group share, in 2018 • the impact of an increase of 50 bps on rates as at 2.2.2.6. Risks related to changes 30 June 2018 was -€4,729 thousand on recurring net in the value of the portfolio income, Group share, in 2018 • the impact of a decrease of 50 bps on rates as at Changes in the fair value of investment properties 30 June 2018 was +€3,987 thousand on net recurring are recognised in the income statement. Changes in income, Group share, in 2018. property values can thus have a material impact on the operating performance of the Group. 2.2.2.4. Financial counterparty risk In addition, part of the Company’s operating income is generated by the sales plan, the income of which Given Covivio group’s contractual relationships with is equally dependent on property values and on the its financial partners, the Company is exposed to volume of possible transactions. counterparty risk. If one of its partners is not in a position to honour its undertakings, the Group’s net income could Rentals and property values are cyclical in nature, the suffer an adverse effect. duration of the cycles being variable but generally long- term. Different domestic markets have differing cycles This risk primarily involves the hedging instruments that vary from each other in relation to specific economic entered into by the Group and which would have to be and market conditions. Within each national market, replaced by a hedging transaction at the current market prices also follow the cycle in different ways and with rate in the event of a default by the counterparty. varying degrees of intensity, depending on the location The counterparty risk is limited by the fact that Covivio and category of the assets. group is a borrower, from a structural standpoint. The risk The macroeconomic factors that have the greatest is therefore mainly restricted to the investments made by influence on property values and determine the various the Group and to its counterparties in derivative product cyclical trends include the following: transactions. The Company continually monitors its interest rates exposure to financial counterparty risk. The Company’s • policy is to deal only with top-tier counterparties, while • the liquidity on the market and the availability of other diversifying its financial partners and its sources of profitable alternative investments funding. • economic growth. Counterparty risk is included in the measurement of Low interest rates, abundant liquidity on the market and cash instruments. For the first half, this amounted to a lack of profitable alternative investments generally €569 thousand. lead to an increase in property asset values.

2018 First-half financial report — 75 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

Economic growth generally increases demand for to the bond’s monthly closing price, exposing the Group leased space and paves the way for rent levels to to changes in the bond value. The specific features of rise, particularly in Offices. These two consequences the ORNANE are described in Note 2.2.5.11.4. lead to an increase in the price of real estate assets. Nevertheless, in the medium term, economic growth generally leads to an increase in inflation and then an 2.2.2.9. Tax environment increase in interest rates, expanding the availability of profitable alternative investments. Such factors exert 2.2.2.9.1. Changes in the French tax downward pressure on property values. environment The investment policy of Covivio group is to minimise the The French tax environment has not seen any changes impact of the various stages of the cycle by choosing affecting the Group’s fiscal situation since 1 January 2018. investments that: • have long-term leases and high quality tenants, which 2.2.2.9.2. Changes in the Italian tax soften the blow of a reduction in market rental income environment and the resulting decline in real estate prices are located in major city centres The changes in the Italian tax environment concern the • corporation tax rate (IRES by the Italian acronym), which have low vacancy rates, in order to avoid the risk of • is lowered from 27.5% to 24% as of financial years ending having to re-let vacant space in an environment where in 2017. demand may be limited. The holding of real estate assets intended for leasing exposes Covivio group to the risk of fluctuation in the 2.2.2.9.3. Changes in the German tax value of real estate assets and lease payments. environment Despite the uncertainty created by the economic The Group has not observed any significant change in downturn, this exposure is limited to the extent that the the German tax environment. rentals invoiced are derived from rental agreements, the term and diversification of which mitigate the effects of fluctuations in the rental market. 2.2.2.9.4. Tax risks The sensitivity of the fair value of investment properties Given the ongoing changes to tax legislation, the Group to changes in capitalisation rates is analysed in 2.2.5.1.3. is likely to be subject to reassessment proposals from the Tax Administration. If our counsel believes that an adjustment presents a risk of reassessment, a provision is 2.2.2.7. Exchange rate risk made. The list of the main ongoing proceedings includes the following: So far, the Company only operates in the Euro zone. It is therefore not exposed to exchange rate risk. However, in Foncière des Régions tax inspection view of the acquisitions under way (acquisition of hotel properties in the UK), the Group is planning to hedge Foncière des Régions’ accounts were audited for the 2012 against currency fluctuations by financing part of the and 2013 financial years, which resulted in a reassessment acquisitions via a foreign currency loan and a currency proposal in December 2015 for corporate value added swap. tax (CVAE) and corporate tax generating: • a €9.7 million tax impact on the principal, relating to 2.2.2.8. Risks related to changes (i) corporation tax, with a correlative increase in deficits on the taxable segment in the amount of €36.6 million in the value of shares and (ii) to the CVAE. This reassessment was contested and bonds and, based on the analysis by the Company’s legal counsels, no provision was recorded to that effect. The Group is exposed to risks for two classes of shares The reassessment proposal concerning a reduction in (see § 2.2.5.2.2). deficits in the taxable segment of €1 million on a total of €240 million was accepted This risk primarily involves listed securities in companies consolidated according to the equity method, which are • a new reassessment proposal concerning the 2014 valued according to their value in use. Value in use is corporation tax was received as a follow-up to the determined based on independent assessments of the reassessment made for 2012 and 2013, generating real estate assets and financial instruments. a financial impact of €3.9 million in principal. On the same basis as for the 2012 and 2013 financial years, this In addition, Foncière des Régions and Beni Stabili issued reassessment proposal is being contested and, based bonds (ORNANE) valued at their fair value in the income on the analysis by the Company’s legal counsels, no statement at each reporting date for Foncière des provision was recorded to that effect. Régions and for Beni Stabili by distinguishing a financial Following the ruling of the French Council of State on the debt at amortised cost and a derivative valued at fair same type of corporate tax issue as that encountered value in the income statement. The fair value corresponds in the disputes involving Foncière Europe Logistique

76 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

(see hereunder), the Tax Administration granted an around €1.1 million is expected. The remaining balance abatement to Foncière des Régions. A refund of around of €1.1 million is still being contested and, based on the €13.4 million in principal is thus expected. analysis by the Company’s legal counsels, no provision had been recorded to that effect as at 30 June 2018. The tax dispute concerning €0.2 million in corporate value-added tax (CVAE) is still being contested before the Administrative Court. Based on the legal counsels’ SNC Otello (Foncière des Murs subsidiary) analysis, no provision had been recorded to that effect tax audit at 30 June 2018. • SNC Otello’s accounts were audited for the 2011, 2012 and 2013 financial years, which resulted in a Foncière Europe Logistique tax audit reassessment proposal for the CVAE in the amount of (merged with and into Foncière des Régions €0.5 million. This proposal is being contested before on 31 December 2016) the Administrative Court and, based on the analysis by the Company’s legal counsels, no provision had been • A corporate income tax reassessment proposal was recorded to that effect as at 30 June 2018. received by Foncière Europe Logistique in the amount of €3.2 million, brought down to €0.8 million for financial • The accounts of SNC Otello were also audited for the years 2007 and 2008, followed by a tax collection 2014, 2015 and 2016 financial years, which resulted in a procedure and a payment during the first half of 2012. reassessment proposal in November 2017 for corporate value added tax (CVAE) in the amount of €0.2 million, Following the various appeals, the Council of State on the same grounds as the previous reassessment ruled in favour of the Company, which was refunded for proposal for 2011, 2012 and 2013. This proposal is being the amounts paid. The dispute had been fully settled contested in its entirety, and, based on analysis by the at 30 June 2018. Company’s legal counsel, no provision was recorded • An accounting audit pertaining to the 2010 and 2011 to that effect as at 30 June 2018. financial years took place during the 2013 financial year, which ended in a reassessment proposal on the Tax audits of Operating properties corporate tax for €3.5 million on the same grounds as The German companies (Rock portfolio) are subject to a the previous reassessment proposal for 2007 and 2008. tax audit for the 2012 and 2015 financial years. Following the various appeals, the Council of State ruled in favour of the Company, which was refunded for the amounts paid. The dispute had been fully settled Tax audits of Germany Residential at 30 June 2018. Covivio Immobilien and all its subsidiaries have been • An audit of Foncière Europe Logistique’s accounts subjected to a tax audit for the 2011, 2012 and 2013 was conducted covering the 2012 and 2013 financial financial years. These audits are ongoing. years, and culminated in a proposed corporate tax reassessment amounting to €1.3 million, on the same Tax audits of Italy Offices merits as the previous reassessment proposal for 2007 to 2011. Following the ruling of the Council of • Comit Fund tax dispute – Beni Stabili: State concerning the previous financial years, the Tax On 17 April 2012, following a court decision, the Administration withdrew its reassessment proposal. At Italian tax administration refunded the debt borne 30 June 2018, the Company was still waiting for the by Beni Stabili for the Comit Fund dispute (principal: refund of the amounts paid in this context. €58.2 million and interest: €2.3 million). In April 2012, the Tax Administration appealed this decision. The Court Foncière des Murs tax audit of Appeal ruled in favour of the Tax Administration on Foncière des Murs was subject to an accounting audit 18 December 2015. for the 2010 and 2011 financial years, which resulted in a The dispute with the Tax Administration was settled reassessment proposal for the CVAE in the amount of with the payment of €55 million. The €56.2 million €2.4 million. This reassessment, which is being contested provision recorded in 2015 was reversed as at before the Administrative Court, was partially withdrawn 31 December 2016. by the tax administration in the first half of 2018 and However, Comit Fund and Beni Stabili have not a refund of €1.2 million was obtained. The remaining entered a joint agreement to definitively agree that balance of €1.2 million is still being contested and, they each will pay an equal share of this adjustment. based on the analysis by the Company’s legal counsels, Civil arbitration proceedings were undertaken by no provision had been recorded to that effect as at Comit Fund and were still ongoing at 30 June 2018. 30 June 2018. No accounting provision has been recorded for them. Moreover, Foncière des Murs was subject to an • Tax audits: accounting audit for the 2012, 2013 and 2014 financial Beni Stabili was subject to a tax audit for the 2008, 2009, years, which resulted in a CVAE reassessment proposal 2010 and 2011 financial years. The tax administration in the amount of €2.2 million in December 2015. This issued reassessments totalling €9.8 million of principal, reassessment, which is being contested before the which is disputed by the Company in its entirety. An Administrative Court, was partially waived by the Tax agreement was signed in December 2017 covering the Administration in the first half of 2018 and a refund of

2018 First-half financial report — 77 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2008, 2009 and 2010 financial years, with an expected which the SIIC regime is not applicable (Germany, Spain, reimbursement of €1.8 million. Belgium, Netherlands and Portugal). In the case of Spain, Beni Stabili underwent a tax audit for 2011, which was all Spanish companies have opted for the SOCIMI regime still being contested at 30 June 2018. A payment of exemption. However, there are deferred tax liabilities €1.3 million had to be made pending a decision. No related to assets held by the companies prior to opting accounting provision has been recorded for this claim. for SOCIMI treatment. Because the companies in the Operating Properties 2.2.2.9.5. Deferred tax liabilities business are fully consolidated, a deferred tax liability has been recognised in the financial statements. The Most of the Group’s property companies have opted for deferred tax is mainly due to the recognition of the the SIIC regime in France, the SIIQ regime in Italy and portfolio’s fair value (German rate: 15.825%, French rate: the SOCIMI regime in Spain. The impact of deferred 34%). Please note that the hotel businesses are taxed at tax liabilities is therefore essentially present in Germany a rate of more than 30% in Germany and that deferred Residential and linked to investments in Hotels Europe for tax liabilities have also been recognised at this rate.

2.2.3. Scope of consolidation

2.2.3.1. Accounting principles • the potential voting rights held by the Group, other holders of voting rights or other parties; applicable to the scope • the rights under other contractual agreements of consolidation • the other facts and circumstances, where applicable, which indicate that the Group has or does not have the 2.2.3.1.1. Consolidated subsidiaries and actual ability to manage relevant business activities at structured entities – IFRS 10 the moment when decisions must be made, including voting patterns during previous shareholders’ meetings. These financial statements include the financial statements of Foncière des Régions and the financial Subsidiaries and structured entities are fully consolidated. statements of the entities (including structured entities) that it controls and its subsidiaries. 2.2.3.1.2. Equity affiliates – IAS 28 Covivio group has control when it: An equity affiliate is an entity in which the Group has • has power over the issuing entity significant control. Significant control is the power to • is exposed or is entitled to variable returns due to its participate in decisions relating to the financial and ties with the issuing entity operational policy of an issuing entity without, however, • has the ability to exercise its power in such as manner exercising control or joint control on these policies. as to affect the amount of returns that it receives. The results and the assets and liabilities of equity Covivio group must reassess whether it controls the affiliates are recognised in these consolidated financial issuing entity when facts and circumstances indicate statements according to the equity method. that one or more of the three factors of control listed above have changed. 2.2.3.1.3. Partnerships (joint control) A structured entity is an entity structured in such a way – IFRS 11 that the voting rights or similar rights do not represent the determining factor in establishing control of the entity; Joint control means the contractual agreement to share this is particularly the case when the voting rights only the control exercised over a company, which only exists involve administrative tasks and the relevant business in the event where the decisions concerning relevant activities are governed by contractual agreements. business activities require the unanimous consent of the parties sharing the control. If the Group does not hold a majority of the voting rights in an issuing entity in order to determine the Joint ventures power exercised over an entity, it analyses whether it has sufficient rights to unilaterally manage the issuing A joint venture is a partnership in which the parties which entity’s relevant business activities. The Group takes exercise joint control over the entity have rights to its into consideration any facts and circumstances when it net assets. evaluates whether the voting rights that it holds in the The results and the assets and liabilities of joint issuing entity are sufficient to confer power to the Group, ventures are recognised in these consolidated financial including the following: statements according to the equity method. • the number of voting rights that the Group holds compared to the number of rights held respectively by the other holders of voting rights and their distribution

78 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

Joint operations 2.2.3.2.3. Germany Residential A joint operation is a partnership in which the parties During the first half of 2018, Covivio kept up a steady exercising joint control over the operation have rights to pace of acquisitions by acquiring five companies with the assets, and obligations for the liabilities relating to 1,053 assets located principally in Berlin and Hamburg. it. Those parties are called joint operators. As of 1 January 2018, four companies holding 969 assets A joint operator must recognise the following items were acquired and fully consolidated, with two of the relating to its interest in the joint operation: companies being 60.43% owned while the other two are • its assets, including its proportionate share of assets 65.53% owned. held jointly, where applicable As of 5 March 2018, one company holding 84 assets was • its liabilities, including its proportionate share of acquired and fully consolidated (65.53% owned). liabilities undertaken jointly, where applicable As of 3 April 2018, one company dedicated to the the income that it derived from the sale of its • marketing of assets was acquired. proportionate share in the yield generated by the joint operation • its proportionate share of income from the sale of the 2.2.3.3. Internal restructuring yield generated by the joint operation; 2.2.3.3.1. France Offices • the expenses that it has committed, including its proportionate share of expenses committed jointly, Universal transfer of the assets of SCI Raphaël and GFR where applicable. Kléber to Foncière des Régions. The joint operator accounts for the assets, liabilities, income and expenses pertaining to its interests in a 2.2.3.3.2. Hotels Europe joint operation in accordance with the IFRS that apply to these assets, liabilities, income and expenses. Following the Extraordinary General Meeting that took place on 24 January 2018: No Group company is considered to constitute a joint operation. • merger of Financière Hope into FDM Management, • merger of FDM Management into Foncière des Murs. 2.2.3.2. Additions to the scope 2.2.3.3.3. Germany Residential of consolidation Merger of RRW FDL Wohnen GmbH into Immeo Rewo 2.2.3.2.1. France Offices Holding GmbH. • Creation of SCI Cité Numérique dedicated to a project under development in Bordeaux. This company is fully 2.2.3.4. Change in holding and/or consolidated and 100% owned. in consolidation method • Creation of SCI Danton Malakoff. This company is fully consolidated and 100% owned. 2.2.3.4.1. Restructuring of the Operating • Creation of FDR PropTech for the acquisition of stakes Properties business line – Issue in start-ups. This company is fully consolidated and of Foncière des Murs shares – 100% owned. Impact on shareholding ratio • Creation of SCI Meudon Bellevue, dedicated to the promotion of housing units, with no operations to date. On 24 January 2018, Financière Hope was merged with This company is fully consolidated and 100% owned. FDM Management, which in turn merged with Foncière des Murs. • Acquisition of a stake in N2 Batignolles for the joint development of the N2 – Stream Building project in Following the merger of this business line, 17,460,738 ZAC Clichy-Batignolles, a dynamic and attractive Foncière des Murs shares were issued. The companies in new district north of Paris. The project involves offices, the Operating Properties business line, most of which are aparthotels and retail premises covering a total of now wholly owned, are fully consolidated. 16,200 m2. This company is fully consolidated and 50% owned. Alongside the merger, Caisse de Dépôt et Consignation contributed 50% of its stake in SCI Porte Dorée. As compensation for this contribution, 975,237 new Foncière 2.2.3.2.2. Hotels Europe des Murs shares were issued. Porte Dorée SCI is thus Creation of Rock Lux OPCO as part of the restructuring wholly-owned and fully consolidated. of the Operating Properties business line. This company is fully consolidated and 42.01% owned.

2018 First-half financial report — 79 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

Following these two capital increases, 18,436,011 shares 2.2.3.5.3. SCI Lenovilla (joint venture) were issued. As a result, Covivio now owns 42% of Foncière des Murs, compared to 50% at 31 December 2017. Lenovilla is 50.09% owned by Foncière des Régions at 30 June 2018 and is consolidated using the equity method. The partnership with the Crédit Agricole 2.2.3.4.2. Italy Offices – Impact on Assurances Group (49.91%) was established in January shareholding ratio 2013 as part of the New Vélizy (Campus Thalès) project. The shareholder agreement stipulates that decisions In February 2018, Beni Stabili sold 9% of its stake in Sicaf- be made unanimously. The parties exercising joint Central (Italia Telecom portfolio). Beni Stabili has kept control have rights to the net assets of the partnership control of the company, which is now 51% owned and arrangement. The partnership meets the criteria for joint fully consolidated. ventures and is consolidated according to the equity In the first half of 2018, Covivio acquired 169,547,878 Beni method. Stabili shares. Covivio’s stake in Beni Stabili increased by 7 percentage points, from 52.4% at 31 December 2017 2.2.3.5.4. SAS Samoëns (consolidated to 59.9%. structured entity) and Foncière Développement Tourisme 2.2.3.4.3. Acquisition of 25% of Cœur d’Orly – Impact on shareholding ratio SAS Samoëns was 25.10% held by Foncière des Murs at 30 June 2018 and is fully consolidated. The partnership In May 2018, Covivio acquired Altarea’s stake in the Cœur with OPCI Lagune (49.9%) and Foncière Développement d’Orly holding companies. At 30 June 2018, its holding Tourisme (50.1%) was established as of October 2016 as amounted to 50%, versus 25% at 31 December 2017. part of the project to develop a Club Med holiday village The subsidiaries of these companies (SCI Cœur d’Orly in Samoëns. Bureaux and SNC Cœur d’Orly Commerces) remain consolidated by the equity method (see 2.2.3.5). As manager of Samoëns, Foncière des Murs has the widest powers to act in the name and on behalf of the company in all circumstances, in keeping with its 2.2.3.5. Evaluation of control corporate purpose. Considering the rules of governance that confer on Foncière des Murs powers that give it 2.2.3.5.1. SCI 11 place de l’Europe the ability to affect asset yields, the company is fully (consolidated structured entity) consolidated. SCI 11 place de l’Europe is 50.1% owned by Foncière des Régions at 30 June 2018 and is fully consolidated. The 2.2.3.5.5. SCI Bureaux Cœur d’Orly partnership with the Crédit Agricole Assurances group and SNC Cœur d’Orly Commerces (49.9%) was established as of 18 December 2013 as part (joint ventures) of the Campus Eiffage project. Considering the rules of governance that confer on Foncière des Régions powers At 30 June 2018, SCI Bureaux Cœur d’Orly and SNC that give it the ability to affect asset yields, the company Cœur d’Orly Commerces were 50% held by Foncière is fully consolidated. des Régions and 50% held by Aéroports de Paris, and consolidated using the equity method. On 10 March 2008, the shareholders signed a memorandum of 2.2.3.5.2. SCIs of 9 and 15 rue des understanding, subsequently amended by a succession Cuirassiers (consolidated of deeds and by partnership agreements which set out structured entities) the partners’ rights and obligations with respect to SCI Cœur d’Orly Bureaux and SNC Cœur d’Orly Commerces. At 30 June 2018, the SCIs of 9 and 15 rue des Cuirassiers were 50.09% held by Foncière des Régions and fully The ADP Group (as land developer and joint investor) and consolidated. The partnership with Assurances du Crédit Foncière des Régions (as property developer and joint Mutuel (49.91%) was created in early December 2017 as investor) signed the required deeds for the construction part of the Silex 1 and Silex 2 office projects in Lyon, Part- of the Belaïa office building at Cœur d’Orly, the business Dieu. Considering the rules of governance that confer district of the Paris-Orly airport. The completion of this on Foncière des Régions powers that give it the ability building is scheduled for the second half of 2020. The to affect asset yields, the company is fully consolidated. parties exercising joint control have rights to the net assets of the partnership arrangement. The partnership meets the criteria for joint ventures and is consolidated according to the equity method.

80 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.4. Significant events of the period In addition to the securities transaxctions in Italy Offices 2.2.4.2. Italy Offices and the restructuring of the Operating Properties business line described in section 2.2.3.4, the period’s 2.2.4.2.1. Disposals (€16 million) and assets significant events are the following: under preliminary agreement 2.2.4.1. France Offices (€166 million) In the first half of 2018, four assets were sold for a total 2.2.4.1.1. Disposals (€224 million – profit or sale price of €16 million, including an asset located in loss on disposals: +€55.8 million) Milan (Bettineli 3) for €10.7 million. and assets under preliminary At 30 June 2018, the amount of assets under agreement agreement (€66 million) totalled €165.9 million. In the first half of 2018, Covivio sold assets for a total sale price of €224 million, including the assets at 10 and 2.2.4.2.2. Acquisitions (€106 million) 30 Avenue Kléber (€103 million), the Clichy Pegase asset (€36 million), the Éragny/CPRI asset (€8.5 million), and the Furthermore, the assets located in Milan were acquired Sevran/Cu asset (€5.6 million). during the period for €105.8 million. At 30 June 2018, the amount of assets under agreement The assets under development in Milan – Monte Titano totalled €65.8 million. (€22.5 million) and Colonna (€16.4 million) – were delivered.

2.2.4.1.2. Acquisitions (€134 million) 2.2.4.2.3. Set-up of debt instruments totalling €456 million and In April 2018, Covivio acquired its future headquarters, located on Rue Jean Goujon in Paris for €134 million. repayment of short-term debts In May 2018, 50% of the shares of the Cœur d’Orly In January 2018, Beni Stabili redeemed €350 million worth holding companies had been acquired, increasing the of 2014 bonds at maturity. stake in the Cœur d’Orly portfolio to 50%, versus 25% at In February 2018, a new bond issue (BBB-) of €300 million 31 December 2017. was placed with a maturity of 10 years and a coupon of 2.375%. 2.2.4.1.3. Development portfolio In March 2018, the bond maturing in 2019 (€250 million) and the mortgage loan maturing in June 2025 The asset development programme is presented in (€50.5 million) were redeemed ahead of schedule. Note 2.2.5.1.4. The first half of 2018 was marked by the completion of a development project and the acquisition of a project 2.2.4.2.4. Approval of the planned merger holding company: of Beni Stabili with Foncière des • May 2018 saw the delivery of the Toulouse Riverside Régions building located in the centre of Toulouse, owned by Following the approval given by the Board of Directors Covivio since 2001. of Beni Stabili on 24 May 2018, the Board of Directors This 11,400 m2 office and service building has 2,100 m2 of Foncière des Régions approved the planned merger of flexible floor space, two independent entrance halls, of the two companies and the exchange ratio of 8.5 a landscaped forecourt and 146 parking spaces Foncière des Régions shares for 1,000 Beni Stabili shares. • in May 2018, Covivio acquired the shares of N2 The two companies’ Boards of Directors met on 18 to 19 July Batignolles, a company holding a joint development to approve the draft merger agreement. The transaction project with Assurances du Crédit Mutuel. The project will be submitted to shareholder vote at the Extraordinary involves a 16,200 m2 building, including a 4,900 m2 2 2 General Meeting of Beni Stabili on 5 September, and that aparthotel, 9,400 m of office space and 1,900 m of of Foncière des Régions on 6 September. The merger is retail space. expected to be completed by the end of 2018. 2.2.4.1.4. Refinancing and redemption This event does not impact the 30 June 2018 financial statements. On 16 January 2018, the outstanding balance on the 2012 bond issue was redeemed at maturity (-€266.4 million). 2.2.4.3. Hotels Europe In the first half of 2018, Covivio converted 1,873,434 bonds out of a total of 4,071,757, thereby reducing its 2.2.4.3.1. Disposals (€189 million) and assets bond liability by €158.7 million (nominal value of €84.73 under preliminary agreement per bond). The conversion of the bonds gave rise to the creation of 323,044 new Foncière des Régions shares, (€213 million) representing a capital increase of €30.1 million. In the first half of 2018, Foncière des Murs sold its entire Quick portfolio for €162.9 million, as well as five Jardiland assets for €22.5 million, cottages in Belgium

2018 First-half financial report — 81 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

for €2.2 million, and a Courtepaille asset in Montbéliard 2.2.4.4. Germany Residential for €1.4 million. At 30 June 2018, preliminary sale agreements totalled 2.2.4.4.1. Asset disposals (€119 million) and €212.8 million, targeting Sunparks De Haan (a company assets under sales commitments holding one asset) for €102 million, 17 Jardiland assets for (€147 million) €79 million, a Novotel asset for €18 million and the Tryp Jerez de la Frontera asset for €13 million. €119 million of disposals were made during the first half of 2018. 2.2.4.3.2. Acquisitions (€16 million) – deposit At 30 June 2018, the amount of assets under agreement on 13 hotels (€30 million) totalled €147.3 million (net of costs). In March 2018, Foncière des Murs acquired a call option to purchase an NH hotel in Hamburg for €15.9 million 2.2.4.4.2. Acquisitions (shares: €185 million/ (discounted value). The acquisition of this hotel is assets: €46 million) expected to be finalised on 30 September 2018. In the first half-year, Covivio Immobilien acquired several In June 2018, Foncière des Murs paid a deposit of companies holding assets located mostly in Berlin and €30 million on the acquisition of shares in companies Hamburg (€185 million). holding assets in the UK. This consists of a portfolio of 13 The Group also acquired a portfolio of directly held four- and five-star hotels for £836 million. Three of the assets in Berlin for €34.9 million. hotels are under development. Eight of the hotels are located in England, while four are in Scotland and one Deposits totalling €11.4 million were paid for the is in Wales. acquisition of shares, a transaction that will unwind in the second half of 2018. 2.2.4.3.3. Development portfolio 2.2.4.5. France Residential The first half of 2018 saw the completion of three projects under development: Motel One Porte Dorée and two B&B 2.2.4.5.1. Asset disposals hotels in Berlin and Châtenay-Malabry. In France, Foncière Développement Logements continued its sales plan and made disposals for a sale 2.2.4.3.4. Financing price of €36.8 million (net of costs). In March 2018, Foncière des Murs financed a 7-year At 30 June 2018, the amount of assets under agreement corporate credit facility of €50 million. totalled €31.1 million (net of costs). In June 2018, the debt of SCI Porte Dorée – the holding company for the Motel One Porte Dorée project – was refinanced in the amount of €20 million for a 10-year term.

2.2.5. Notes to the statement of financial position 2.2.5.1. Portfolio Fixed assets in the concession segment – Concession activity 2.2.5.1.1. Accounting principles applicable The Covivio group has been applying IFRIC 12 in the to tangible and intangible fixed consolidated financial statements since 1 January 2008. An analysis of the Group’s concession agreements assets results in classifying agreements as intangible assets as the Group is paid directly by users for all car parks 2.2.5.1.1.1. Intangible fixed assets operated without a subsidy from public authorities. Identifiable intangible fixed assets are amortised on These concession assets are assessed at historical cost a straight line basis over their expected useful lives. less accumulated depreciation and any impairment. Intangible fixed assets acquired are recorded on the Note that the Group no longer has wholly owned car balance sheet at acquisition cost. They primarily include parks; accordingly it no longer has “Car Parks” tangible entry fees (long-term leases conferring ad rem rights and assets. occupancy rights for car parks) and computer software. Intangible fixed assets are amortised on a straight-line basis, as follows: • Software: over a period of 1 to 3 years • Occupancy rights: 30 years.

82 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.1.1.2. Business combinations (IFRS 3) de Ruyter and the international plan in accordance with and goodwill from acquisitions European TEGoVA standards and those of the Red Book of the Royal Institution of Chartered Surveyors (RICS). An entity must determine whether a transaction or event constitutes a business combination within the meaning of The real estate portfolio directly held by the Group was the definition of IFRS 3, which stipulates that a business is appraised in full on 30 June 2018 by independent real an integrated set of activities and assets that is capable estate experts including BNP Real Estate, JLL, DTZ, CBRE, of being conducted and managed for the purpose of Cushman, Yard Valltech, CFE, MKG, VIF, REAG and Christie providing a return directly to investors in the form of & Co. dividends, lower costs or other economic advantages. Assets were estimated at values excluding and/or In this case, the acquisition cost is set at the fair value including duties, and rents at market value. Estimates on the date of the exchange of the assets and liabilities were made using the comparative method, the rent and equity instruments issued for the purpose of capitalisation method and the discounted future cash acquiring the entity. Goodwill is recognised as an asset flows method. for the surplus of the acquisition cost on the portion of The assets are recognised at their net market value. the buyer’s interest in the fair value of the assets and liabilities acquired, net of any deferred taxes. Negative • For France Offices and Italy Offices, the valuations are goodwill is recorded in the income statement. primarily performed according to two methods: the yield (or income capitalisation) method: To determine whether a transaction constitutes a • business combination, the Group considers whether This approach consists of capitalising an annual an integrated set of businesses is acquired in addition income, which, in general, is rental income from to real estate. The criteria the Group uses may be the occupied assets, with the possible impact of a number of assets and the existence of a process such as reversion potential, and market rent for vacant asset management or sales and marketing units. assets, taking into account the time needed to find new tenants, any renovation work and other costs Related acquisition costs are recognised in expense in the discounted cash flow (DCF) method: accordance with IFRS 3 under “Income from changes in • consolidation scope” in the income statement. This method consists of determining the useful value of an asset by discounting the forecast cash flows The prospective additional costs are appraised at that it is likely to generate over a given time frame. fair value at the acquisition date. They are definitely The discount rate is determined on the basis of the appraised in the 12 months following the acquisition. The risk-free rate plus a risk premium associated with the subsequent change of these additional costs is recorded asset and defined by comparison with the discount in the income statement. rates applied to cash flows generated by similar After its initial recognition, the goodwill is subject to an assets. impairment test at least once a year. • For Hotels Europe, the methodology changes according to the type of assets: If the Group concludes that the transaction is not a business combination, then it recognises the transaction • the rent capitalisation method is used for restaurants, as an acquisition of assets and applies the standards garden centres and Club Med holiday villages appropriate to acquired assets. • the DCF method is used for hotels (including the revenue forecasts determined by the appraiser) and 2.2.5.1.1.3. Investment properties (IAS 40) Sunparks holiday villages. • For Residential, the methodology changes according Investment properties are real estate properties held to the type of asset: for purposes of leasing within the context of operating leases or long-term capital appreciation (or both). The assets are recognised at their net fair value. The fair value is determined based on: Investment properties represent the majority of the • a block value for assets for which no sales strategy Group’s portfolio. The buildings occupied by the Covivio has been developed or which have not been group are recognised as operating properties (corporate marketed headquarters, office buildings occupied by employees, and spaces operated for the Group’s own account as • an occupied retail value for assets on which at least coworking spaces). one offer has been made before the reporting date. The following valuation methods were used: Under the option offered by IAS 40, investment properties are assessed at their fair value. Changes in fair value are • for assets located in France: the leasing revenue recorded in the income statement. Investment property discount method and the comparison method is not amortised. • for assets located in Germany: the Discounted Cash Flow method. Valuations are carried out in accordance with the Code of conduct applicable to SIICs and the Charter of The resulting values are also compared with the initial property valuation expertise, the recommendations of rate of return and the monetary values per square metre the COB/CNCC working group chaired by Mr Barthès of comparable transactions and transactions carried out by the Group.

2018 First-half financial report — 83 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

IFRS 13 “Fair Value Measurement” establishes a fair value is included in the cost of the assets. The capitalised hierarchy that categorises the inputs used in valuation amount is determined on the basis of fees paid for techniques into three Levels: specific borrowings and, where applicable, for financing • Level 1: the valuation refers to quoted prices from general borrowings based on the weighted average (unadjusted) in active markets for identical assets rate of the particular debt. or liabilities that the entity can access at the measurement date 2.2.5.1.1.5. Tangible fixed assets (IAS 16) • Level 2: the valuation refers to valuation methods using Pursuant to the preferred method proposed by IAS 16, inputs that are observable for the asset or liability, operating buildings (head offices and coworking either directly or indirectly, in an active market business) and managed hotels under the operating • Level 3: the valuation refers to valuation methods using properties business line (Own Occupied Buildings inputs that are unobservable in an active market. occupied or operated by Group employees) as well as wholly-owned car parks are carried at historical The fair value measurement of investment properties cost less accumulated depreciation and any potential requires the use of different valuation methods using impairment. They are amortised over their expected unobservable or observable inputs to which some useful life according to a components based approach. adjustments have been applied. Accordingly, the Group’s portfolio is mainly categorised as Level 3 according to the IFRS 13 fair value hierarchy. 2.2.5.1.1.6. Non-current assets held for sale (IFRS 5) 2.2.5.1.1.4. Assets under development (IAS 40) In accordance with IFRS 5, when Covivio decides to dispose of an asset or group of assets, it classifies them Assets under construction are recognised according to as assets held for sale if: the general fair-value principle, except where it is not possible to determine this fair value on a reliable and • the asset or group of assets is available for immediate ongoing basis. In such cases, the asset is carried at cost. sale in its current condition, subject only to normal and customary conditions for the sale of such assets As a result, development programmes and extensions its or their sale is likely within one year and marketing or remodelling of existing assets that are not yet • for the property has been initiated. commissioned are recognised at their fair value, and are treated as investment properties whenever the For the Covivio group, only assets corresponding to the administrative and technical fair-value reliability above criteria or for which a sale commitment has been criteria – i.e. administrative, technical and commercial signed are classified as assets held for sale. criteria – are met. If a sale commitment exists on the account closing date, In accordance with revised IAS 23, the borrowing the price of the commitment net of expenses constitutes cost during a period of construction and renovation the fair value of the asset held for sale.

84 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.1.2. Table of changes in fixed assets

Change in scope and Increase/ Disposal/ Change in (€K) 31/12/2017 interest rates Allocation Recovery fair value Transfers 30/06/2018 Goodwill 1,572 112,041 0 0 0 270 113,883 Intangible fixed assets 24,592 43,316 -1,960 -2 0 -270 65,676(1) Gross amounts 96,137 45,979 1,065 -3 0 -10,112 133,066 Depreciation -71,545 -2,663 -3,025 1 0 9, 8 4 2 -67,390 Tangible fixed assets 203,781 1,122,528 15,119 -44,630 0 32,324 1,329,122 Operating properties 176,262 1,097,331 -19,736 -44,159(2) 0 38,049(3) 1,247,747 Gross amounts 202,930 1,316,904 1,005 -56,267 0 38,762 1,503,334 Depreciation -26,668 -219,573 -20,741 12,108 0 -713 -255,587 Other tangible fixed assets 8,399 23,399 -1,211 -471 0 2,727 32,843 Gross amounts 20,780 149,563 3,807 -1,195 0 14,030 186,985 Depreciation -12,381 -126,164 -5,018 724 0 -11,303 -154,142 Fixed assets in progress 19,120 1,798 36,066 0 0 -8,452 48,532 Gross amounts 19,120 1,798 36,066(4) 0 0 -8,452 48,532 Depreciation 0 0 0 0 0 0 0 Investment properties 18,417,648 232,586 443,829 0 448,778 -602,936 18,939,905 Operating properties 17,732,768 183,301 358,395 0 424,396 -447,639 18,251,221 Investment properties under development 684,880 49,285 85,434 0 24,382 -155,297 688,684 Assets held for sale 519,891 0 1,567 -475,660 8,002 569,025 622,825 Assets held for sale 519,891 0 1,567 -475,660 8,002 569,025 622,825 TOTAL 19,167,484 1,510,471 458,555 -520,292 456,780 -1,587 21,071,411 (1) ”Intangible fixed assets” include car park assets and concession contracts totalling €20 million, as well as Operating Properties goodwill totalling €42 million. (2) Net book value of the 10 & 30 Kléber buildings sold during the period. (3) Including €37.1 million for the transfer of investment property into operating property following the Group’s decision to operate the Nice Méridien asset. (4) Including the work done on Operating Properties assets (€2.9 million), the work done on the coworking assets The Line (€1.5 million) and Art&Co (€1.7 million), and the work done on the 10 Kléber building (€1.5 million). Instalments on a call option to purchase a hotel in Hamburg (€15.9 million) and on asset acquisitions in Germany (€11.4 million).

The changes in tangible and intangible fixed assets table of changes in the portfolio excluding the effect of relate to the full consolidation of the companies in the depreciation (€487.3 million), to changes in inventories of Operating Properties business line following the merger the property dealer (€4.1 million) and adjusted for change of FDM Management into Foncière des Murs. in trade payables for fixed assets (€11.6 million). The tangible fixed assets of the hotels held as Operating The line item “Proceeds relating to the disposal of Properties totalled €1,108.1 million at 30 June 2018. tangible and intangible fixed assets” in the Statement In accordance with IAS 16, they are recognised in the of Cash Flows (€570.3 million) primarily corresponds to ”Tangible fixed assets” line item. income from disposals as presented in the Net Income Statement (€577.5 million), proceeds from the disposal The “Disbursements related to the acquisition of tangible of assets in inventory (€5.6 million) and property and intangible fixed assets” line item on the Statement development (€1.6 million), restated for the change in of Cash Flows (€497.6 million) refers to increases in the receivables on asset disposals (-€14.2 million).

2018 First-half financial report — 85 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.1.3. Investment properties

Change in scope and interest Change in (€K) 31/12/2017 rates Increase Disposal fair value Transfers 30/06/2018 Investment properties 18,417,648 232,586 443,829 0 448,778 -602,936 18,939,905 Operating properties 17,732,768 183,301 358,395 0 424,396 -447,639 18,251,221 France Offices 5,319,980 0 155,074(1) 0 62,272 -65,895 5,471,431 Italy Offices 3,738,469 0 124,154(2) 0 14,832 -120,089 3,757,366 Hotels Europe 3,634,633 0 14,144(3) 0 67,9 2 7 -126,117 3,590,587 Germany Residential 4,799,893 183,301(4) 64,656(5) 0 277,992 -107,967 5,217,875 France Residential 239,793 0 367 0 1,373 -27,571 213,962 Investment properties under development 684,880 49,285 85,434 0 24,382 -155,297 688,684 France Offices 166,046 2,085 28,217 0 14,199 -41,480 169,067 Italy Offices 428,900 0 36,642 0 365 -38,907 427,000 Hotels Europe 8 9,93 4 47,200 20,575 0 9,818 -74,910 92,617 Assets held for sale 519,891 0 1,567 -475,660 8,002 569,025 622,825 Assets held for sale 519,891 0 1,567 -475,660 8,002 569,025 622,825 France Offices 112,343 0 1,265 -118,373(6) 398 70,180 65,813 Italy Offices 22,453 0 0 -15,513(7) -44 158,996 165,892 Hotels Europe 207,396 0 302 -189,053(8) -6,907 201,027 212,765 Germany Residential 138,211 0 0 -116,728 14,555 111,251 147,289 France Residential 39,488 0 0 -35,993 0 27,571 31,066 TOTAL 18,937,539 232,586 445,396 -475,660 456,780 -33,911 19,562,730 (1) Refers to the acquisition of the Group’s future head office in Paris on Rue Jean Goujon for €133.9 million and to the work done in the amount of €15.8 million. (2) Acquisition of three assets in Milan for €105.7 million and work done for €18.4 million. (3) Work done during the period, of which €9.5 million on B&B assets and €3.6 million on the Club Med Da Balaïa asset. (4) Relates to share deals in Germany concerning companies holding assets in Berlin, Hamburg and Jesteburg for €183.3 million. (5) Acquisition of assets located in Berlin, for €34.9 million and work done during the period for €29.7 million. (6) Including the sale of the following assets: Clichy Pegase (€34.1 million), Éragny/CPRI (€7.9 million) and Sevran/CU (€5.6 million). (7) Sale of four assets including the Bettineli asset in Milan (€10.6 million) and an asset on Via Wagner in Palermo (€2.3 million). (8) Including the sale of 48 Quick assets (€163 million), five Jardiland assets (€22.5 million) and one Courtepaille asset (€1.4 million).

The amounts in the “Disposals” column correspond to the appraisal figures published on 31 December 2017.

CONSOLIDATED PORTFOLIO OF ASSETS AT 30 JUNE 2018 The Group has not identified the best use of an asset as (IN €M) being different from its current use. Consequently, the application of IFRS 13 did not lead to a modification of the assumptions used for the valuation of the portfolio. 245 Other In accordance with IFRS 13, the tables below provide details of the ranges of unobservable inputs by business 3,896 5,706 segment (Level 3) used by the real estate appraisers: Hotels Europe France Oces 19,563

5,365 German 4,350 Residential Italy Oces

86 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

FRANCE OFFICES, ITALY OFFICES AND HOTELS EUROPE

Yield rate (excluding Discounted duties, cash flow rate Yield rate weighted Discounted cash (weighted Grouping of similar assets Level Portfolio (€M) (excluding duties) average) flow rate average) Paris Centre West Level 3 1,023 3.1% – 7.7% 4.1% 4.0% – 7.3% 4.8% Paris North East Level 3 380 3.6% – 7.8% 5.1% 4.5% – 6.5% 5.3% Southern Paris Level 3 713 3.5% – 5.8% 4.4% 4.5% 4.5% Western Crescent Level 3 1,557 3.7% – 7.4% 5.4% 4.5% – 8.0% 5.1% Inner rim Level 3 1,181 4.0% – 7.0% 5.2% 4.5% – 6.3% 5.1% Outer rim Level 3 62 4.8% – 13.9% 8.7% 4.5% – 11.5% 5.5% Total Paris Regions 4,916 Major Regional Cities Level 3 575 4.1% – 8.4% 5.0% 4.5% – 11.5% 5.4% Other French regions Level 3 191 4.3% – 13.5% 8.8% 4.5% – 12.0% 6.6% Total Regions 766 Total Logistics assets 25 TOTAL FRANCE OFFICES 5,706 Milan Level 3 2,089 1.9% - 6.3% 4.2% 4.4% - 7.0% 5.3% Rome Level 3 226 3.3% - 8.1% 5.7% 4.5% - 8.1% 6.4% Others Level 3 1,608 4.8% - 7.9% 6.3% 5.0% - 7.9% 6.5% Total in operation 3,923 Development portfolio Level 3 427 5.5% - 6.0% TOTAL ITALY OFFICES 4,350 Hotels Level 3 3,544 3.4% - 6.6% 5.2% 4.0% - 7.9% 5.8% Retail Level 3 259 6.0% - 9.2% 7.0 % 6.9% - 8.3% 7. 5 % Total in operation 3,803 Development portfolio Level 3 93 5.0% - 6.9% TOTAL HOTELS EUROPE 3,896

2018 First-half financial report — 87 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

GERMANY RESIDENTIAL AND FRANCE RESIDENTIAL

Yield(1) Block valued Discounted Average Grouping of similar assets Level Portfolio (€M) Total portfolio properties cash flow rate value (€/m2) Great East Level 3 6 4.5% – 6.5% N/A N/A 1,545 Provence-Alpes-Côte d’Azur region Level 3 59 2.5% – 7.0% 3.5% – 5.5% N/A 2,219 Paris-Neuilly Level 3 86 1.5% – 4.0% N/A N/A 8,254 Rest of Paris region Level 3 60 3.0% – 5.5% N/A N/A 5,025 Rhône-Alpes region Level 3 26 1.0% – 4.0% N/A N/A 3,152 South West-Great West Level 3 8 3.0% – 7.0% N/A N/A 2,053 TOTAL FRANCE RESIDENTIAL 245 Duisburg Level 3 274 4.3% – 5.8% 4.3% – 5.8% 4.8% – 10.2% 1,161 Essen Level 3 528 4.0% – 6.8% 4.0% – 6.8% 3.9% – 7.6% 1,397 Mülheim Level 3 170 4.0% – 6.3% 4.0% – 6.3% 2.6% – 8.7% 1,259 Oberhausen Level 3 149 4.5% – 6.0% 4.5% – 6.0% 5.1% – 8.1% 1,038 Datteln Level 3 128 3.5% – 5.8% 3.5% – 5.8% 4.4% – 8.2% 970 Berlin Level 3 3,002 3.0% – 5.8% 3.0% – 5.8% 1.8% – 9.1% 2,481 Düsseldorf Level 3 108 3.5% – 4.8% 3.5% – 4.8% 3.6% – 5.6% 1,973 Dresden Level 3 331 3.8% – 5.3% 3.8% – 5.3% 4.3% – 6.4% 1,677 Leipzig Level 3 125 3.3% – 5.0% 3.3% – 5.0% 3.9% – 7.6% 1,184 Hamburg Level 3 392 3.0% – 5.0% 3.0% – 5.0% 3.5% – 6.6% 2,679 Others Level 3 158 3.8% – 5.8% 3.8% – 5.8% 2.3% – 7.6% 1,561 TOTAL GERMANY RESIDENTIAL 5,365 (1) Yield rate: France Residential: Potential yield rate excluding taxes (potential rents calculated by the appraiser/appraisal values excluding taxes determined by the appraiser). Germany Residential: Potential yield rate assumed excluding taxes (actual rents/appraisal values excluding taxes).

IMPACT OF CHANGES IN THE YIELD RATE ON CHANGES IN THE FAIR VALUE OF REAL ESTATE ASSETS, BY OPERATING SEGMENT

Yield rate Yield rate (€M) Target Yield(2) -50 bps +50 bps France Offices(1) 5.2% 594.9 -489.7 Italy Offices 5.4% 401.4 -333.2 Hotels Europe(1) 5.4% 394.6 -326.6 Germany Residential 4.5% 679.0 -541.9 France Residential 3.1% 4 7. 1 -34.0 TOTAL(1) 5.1% 2,117.1 -1,725.4 (1) Including assets held by equity affiliates (excl. operating properties assets). (2) Return on operating portfolio – excluding duties. • If the yield rate excluding taxes drops 50 bps (-0.5 point), the market value excluding taxes of the real estate assets will increase by €2,117.1 million. • If the yield rate excluding taxes increases 50 bps (+0.5 point), the market value excluding taxes of the real estate assets will decrease by €1,725.4 million.

88 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.1.4. Investment properties under development Properties under development relate to building or redevelopment programmes that fall within the application of IAS 40 (revised).

Acquisitions Capitalised Change in Transfers and Changes (€K) 31/12/2017 and works interest fair value disposals in scope 30/06/2018 France Offices 166,046 26,245(2) 1,972 14,199 -41,480 2,085(1) 169,067 Italy Offices 428,900 27,743(3) 8,898 366 -38,907 0 427,000 Hotels Europe 8 9,93 4 1 9,0 2 8 (4) 1,548 9,817 -74,910 47,200(5) 92,617 TOTAL 684,880 73,016 12,418 24,382 -155,297 49,285 688,684 (1) Acquisition of the shares of N2 Batignolles, a company holding a joint development project. (2) Of which the work done on the following assets: Silex phase 2 (€11.4 million), Lezennes Helios (€4.5 million) and Toulouse Riverside (€5.2 million). (3) Of which the work done on the following assets: Symbiosis (€16.3 million), Principe Amedeo (€3.9 million), Corso Ferrucci (€3.1 million) and Monte Titano (€2.9 million). (4) Relates to the disbursements for the work done on the Meininger assets in France (€10.8 million) and in Germany (€2.0 million), and B&B assets in France (€3.9 million) and in Germany (€2.43 million). (5) As of 1 January 2018, full consolidation of SCI Porte Dorée, the company holding the Motel One Porte Dorée project delivered in April 2018.

The list of projects under development is presented in Part 1 of this document.

2.2.5.2. Financial assets 2.2.5.2.1. Accounting principles

2.2.5.2.1.1. Other financial assets Other financial assets consist of investment-fund holdings, which cannot be classified as cash or cash equivalents. These securities are recognised upon acquisition at cost plus transaction costs. They are then recognised at fair value in the income statement on the reporting date. The fair value is arrived at on the basis of recognised valuation techniques (reference to recent transactions, Discounted Cash Flows, etc.). Some securities that cannot be reliably measured at fair value are recognised at acquisition cost. Securities available for sale of listed and non-consolidated companies are recorded at their stock-market price with an offsetting entry in shareholders’ equity in accordance with IFRS 9. Dividends received are recognised when they have been approved by vote.

2.2.5.2.1.2. Loans At each reporting date, loans are recorded at their amortised cost. Moreover, impairment is recognised and recorded on the income statement when there is an objective indication of impairment as a result of an event occurring after the initial recognition of the asset.

2018 First-half financial report — 89 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.2.2. Table of financial assets

Change in Change (€K) 31/12/2017 Increase Decrease fair value in scope Transfers 30/06/2018 Ordinary loans(1) 162,119 21,918 -63,627 0 -7,043 -17,710 95,657 Total loans and current accounts 162,119 21,918 -63,627 0 -7,043 -17,710 95,657 Advances and pre-payments on acquisition of shares 147,120 30,080 -3,020 0 -43,336 -78,646 52,198 Securities at historic cost 43,651 -45 -625 0 0 -14,356 28,625 Subscribed capital not paid up 20,040 0 0 0 0 0 20,040 Total other financial assets(2) 210,811 30,035 -3,645 0 -43,336 -93,002 100,863 Finance-lease receivables 0 0 0 0 0 0 0 Total finance-lease receivables 0 0 0 0 0 0 0 Receivables on financial assets 12,860 0 -85 0 1,500 17 14,292 Total receivables on financial assets 12,860 0 -85 0 1,500 17 14,292 TOTAL 385,790 51,953 -67,357 0 -48,879 -110,695 210,812 Depreciation and amortisation(3) -30,726 -284 11 0 1 14,389 -16,609 NET TOTAL 355,064 51,669 -67,346 0 -48,878 -96,306 194,203 (1) Ordinary loans include receivables from equity investments in equity affiliates. The Financière Hope bonds subscribed by Foncière des Murs were redeemed (-€59.1 million). (2) Total other financial assets are broken down as follows: - Advances and deposits made to acquire shares of companies In Germany, deposits of €125 million were used following the final acquisition of company shares. A deposit of €30 million was paid for the acquisition of shares in companies holding hotels in the UK; - Securities at historic cost The investments held by Beni Stabili in property funds (€17.1 million) are valued at their historical cost. Potential impairments are recorded in the income statement; - Share capital of Foncière Développement Tourisme subscribed by Caisse des Dépôts et Consignations and not paid up (€20 million). (3) Includes impairment losses on securities at historical cost held by Beni Stabili (€11 million) and impairment losses on receivables for disposals of more than one year (€3.3 million) and for receivables related to financial assets (€2.3 million).

2.2.5.3. Investments in equity affiliates and joint ventures 2.2.5.3.1. Accounting principles Investments in equity affiliates and joint ventures are recognised by the equity method. According to this method, the Group’s investment in the equity affiliate or the joint venture is initially recognised at cost, increased or reduced by the changes, subsequent to the acquisition, in the share of the net assets of the affiliate. The goodwill related to an equity affiliate or joint venture is included in the book value of the investment, if it is not impaired. The share in the earnings for the period is shown in the line item “Share in income of equity affiliates”. The financial statements of associates and joint ventures are prepared for the same accounting period as for the parent company, and adjustments are made, where relevant, to adapt the accounting methods to those of the Covivio group.

90 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.3.2. Table of investments in equity affiliates and joint ventures

Of which Of which distribution share and of net change in (€K) % held Operating segment Country 31/12/2017 30/06/2018 Change income scope France Offices SCI Factor E and SCI (Properties under Orianz 34.69% development) France 5,194 8,075 2,881 2,881 0 Lenovilla (New Vélizy) 50.10% France Offices France 71,236 68,936 -2,299 2,610 -4,909 Euromarseille (Euromed) 50.00% France Offices France 39,325 40,340 1,015 1,015 0 Cœur d’Orly (Askia) 50.00% France Offices France 2,883 12,054 9,171 2,615 6,556 Investire Immobiliare and others Italy Offices Italy 17,762 17,197 -565 -18 -547 Belgium, Iris Holding France 19.90% Hotels Europe Germany 14,141 14,269 127 756 -629 OPCI IRIS Invest 2010 19.90% Hotels Europe France 28,226 28,190 -37 1,331 -1,368 OPCI Camp Invest 19.90% Hotels Europe France 1 9,95 1 19,627 -325 791 -1,116 Dahlia 20.00% Hotels Europe France 16,784 16,635 -148 612 -761 SCI Porte Dorée(1) 50.00% Hotels Europe France 10,328 0 -10,328 0 -10,328 France and FDM Management(1) 40.70% Hotels Europe Germany 143,072 0 -143,072 0 -143,072 TOTAL 368,901 225,321 -143,580 12,594 -156,174 (1) Companies fully consolidated at 100% as at 30 June 2018.

Investments in equity affiliates as at 30 June 2018 amounted to €225.3 million, compared to €368.9 million as at 31 December 2017. The change over the period (-€143.6 million) is mainly due to the change in the consolidation method used for FDM Management and SCI Porte Dorée (-€153.4 million) and the net income for the period (+€12.6 million).

2.2.5.3.3. Breakdown of shareholdings in the main equity affiliates and joint ventures

SCI Factor E/ SCI Orianz Euromed SCI Lenovilla (Bordeaux Ownership Cœur d’Orly Group (New Vélizy) Armagnac) Foncière des Régions 50.0% 50.0% 50.09% 34.7% Non-group third parties 50.0% 50.0% 49.91% 65.3% Crédit Agricole Assurances 50.0% 49.9 % Aéroport de Paris 50.0% ANF Immobilier 65.3% TOTAL 100% 100% 100% 100%

Iris Holding OPCI Iris OPCI Indirect ownership France Invest 2010 Campinvest SCI Dahlia Foncière des Murs 19.9% 19.9% 19.9% 20.0% Non-group third parties 80.1% 80.1% 80.1% 80.0% Crédit Agricole Assurances 80.1% 80.1% 68.8% 80.0% Pacifica 11.3% TOTAL 100% 100% 100% 100%

2018 First-half financial report — 91 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.3.4. Key financial information on equity affiliates and joint ventures

Total Total non-current current liabilities liabilities Total Total non- excluding excluding Cost of net balance current financial financial Financial Rental financial Consolidated (€K) Asset name sheet assets Cash debt debt debt Income debt net income Cœur d’Orly Cœur (Askia) d’Orly 95,949 76,475 17,568 883 12,280 58,679 1,172 - 683 5,230 New Lenovilla Vélizy and (New Vélizy) extension 296,510 270,808 7,168 0 1,482 157,420 5,755 - 916 5,210 Euromarseille Euromed (Euromed) Center 209,923 191,992 7, 2 61 921 9,803 118,520 2,919 - 392 2,029 SCI Factor E and SCI Bordeaux Orianz Armagnac 99,148 97,601 1,382 0 171 74,754 0 0 8,305 Iris Holding AccorHotels France Hotels 198,904 182,383 14,567 13,574 4,363 109,167 6,390 - 1,345 3,799 OPCI IRIS AccorHotels Invest 2010 Hotels 258,242 243,758 12,531 4,002 3,161 109,423 8,529 - 885 6,689 OPCI Camp Campanile Invest Hotels 181,512 169,905 7,295 0 1,598 81,287 5,854 - 1,034 3,977 AccorHotels Dahlia Hotels 164,879 162,012 1,080 0 1,611 80,092 4,145 - 754 3,062

2.2.5.4. Deferred tax liabilities on the reporting date

Increases Decreases Net Other Net Balance First time income changes income Balance (€K) sheet as at consolidation for the Shareholder’s and for the Difference Shareholder’s sheet as at DTA 30/12/2017 scope period equity transfers period in rates equity 30/06/2018 Losses carried forward 51,677 7,526 308 -4,561 54,950 Fair value of properties 1,766 2,135 -158 3,743 Derivatives 5,918 184 21 -17 6,106 Temporary differences 15,891 4,920 2,437 -352 22,896 75,252 8 7, 69 5 DTA/DTL offset -69,313 -71,704 TOTAL DTA 5,939 14,765 2,766 0 0 -5,088 0 0 15,991

92 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

Increases Decreases Net Other Net Balance First time income changes income Balance (€K) sheet as at consolidation for the Shareholder’s and for the Difference Shareholder’s sheet as at DTL 30/12/2017 scope period equity transfers period in rates equity 30/06/2018 Fair value of properties 591,617 104,938 59,434 -1,813 754,176 Derivatives 913 61 965 -37 1,902 Temporary differences 27,813 1,177 395 -979 28,406 620,343 784,484 DTA/DTL offset -69,313 -71,704 TOTAL DTL 551,030 106,176 60,794 0 0 -2,829 0 0 712,780 NET TOTAL -545,091 -91,411 -58,028 0 0 -2,259 0 0 -696,789 Total impact on the income statement -60,287

As at 30 June 2018, the consolidated unrealised tax position showed a deferred tax asset of €16 million (versus €6 million as at 31 December 2017) and a deferred tax liability of €713 million (versus €551 million as at 31 December 2017). The primary contributors to the net balance of deferred taxes are: • Germany Residential: €488.3 million • Hotels Europe: +€207.9 million. The change in net deferred tax liabilities (-€151.7 million) is mainly due to the consolidation of companies in the Operating Properties business line (+€84 million) and to the impact of deferred tax liabilities relative to increases in the appraisal values of foreign assets. The impact on net income is detailed in paragraph 2.2.6.7.2. In accordance with IAS 12, deferred tax assets and liabilities are offset for each tax entity when they involve taxes paid to the same tax authority.

2.2.5.5. Short-term loans and finance lease receivables – current portion

Changes (€K) 31/12/2017 in scope Increase Decrease Transfers 30/06/2018 Short-term loans 34,411 -24,226 2,864 -9,835 -20 3,194 Finance-lease receivables 30 0 0 0 -30 0 TOTAL 34,441 -24,226 2,864 -9,835 -50 3,194 Amortisations and provisions 0 0 0 0 0 0 NET TOTAL 34,441 -24,226 2,864 -9,835 -50 3,194

Short-term loans diminished due to the change in the consolidation method used for LHM Propco following the restructuring of companies in the Operating Properties business line (-€24 million).

2018 First-half financial report — 93 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.6. Inventories and work-in- 2.2.5.7.1.1. Receivables from operating lease progress transactions For operating-lease receivables, a provision is made at 2.2.5.6.1. Accounting principles applicable the first non-payment. The impairment rates applied by to inventories Covivio group are as follows: • no provision is recorded for existing or vacated tenants Inventories are intended to be sold during the normal whose receivables are less than three months overdue course of business. They are recorded at acquisition price and, as applicable, are depreciated in relation to the • 50% of the total amount of receivables for existing sale value (independent appraisal value). tenants whose receivables are between three and six months overdue • 100% of the total amount of receivables for existing 2.2.5.6.2. Inventories and work-in-progress tenants whose receivables are more than six months at 30 June 2018 overdue The “Inventories and work-in-progress” line item on the • 100% of the total amount of receivables for vacated balance sheet primarily consists of trading inventories in tenants whose receivables are more than three months Italy Offices (€18 million), Germany Residential (€8 million) overdue. and France Residential (€0.9 million). Moreover, this The receivables and theoretical provisions arising from line item includes the assets dedicated to property the rules above are reviewed on a case-by-case basis development in the France Offices segment (€13.5 million) in order to factor in any specific situations. and inventories of hotels (€2.2 million), following the full consolidation of companies in the Operating Properties business line. 2.2.5.7.1.2. Receivables of hotels under operation 2.2.5.7. Trade receivables The receivables of hotels under operation are recognised at their amortised value. When the recoverable value 2.2.5.7.1. Accounting principles applicable is lower than the net book value, the Group may be required to recognise an impairment charge through to trade receivables and the profit or loss. receivables of hotels under Receivables are impaired according to payment operation deadlines. Trade receivables mainly consist of operating lease The receivables and theoretical impairments arising from receivables. These items are measured at amortised the rules above are reviewed on a case-by-case basis cost. In the event that the recoverable value is lower in order to factor in any specific situations. than the net book value, the Group may be required to account for an impairment charge through profit or loss.

2.2.5.7.2. Trade receivables

(€K) 30/06/2018 31/12/2017 Change Expenses to be reinvoiced to tenants 207,229 141,028 66,201 Rent-free periods 103,335 110,717 -7,382 Trade receivables 107,805 54,179 53,626 Total trade receivables 418,369 305,924 112,445 Impairment of receivables -27,410 -26,626 -784 NET TOTAL TRADE RECEIVABLES 390,959 279,298 111,661

The balance of net trade receivables mainly includes The line item “Expenses to be re-invoiced to tenants” expenses to be re-invoiced to tenants for €207.2 million is best understood in connection with the liability item (including €35 million from the application of IFRIC 21), “Advances and deposits received” (€186.9 million), net trade receivables for €80.4 million and receivables referring to claims for projected expenses incurred with related to the linearisation of relief granted on rent for tenants. €103.3 million. The ”Trade receivables” line item recorded an increase of €42.9 million from the full consolidation of the companies in the Operating Properties business line.

94 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

The line “Change in working capital requirements on continuing operations” on the Cash Flow Statement consists of:

(€K) 30/06/2018 31/12/2017 Impact of changes in inventories and work in progress 26 -8 Impact of changes in trade & other receivables -83,793 -4,761 Impact of changes in trade & other payables 105,506 5,488 CHANGE IN WORKING CAPITAL REQUIREMENTS ON CONTINUING OPERATIONS (INCLUDING EMPLOYEE BENEFITS LIABILITIES) 21,739 719

2.2.5.8. Other receivables

(€K) 30/06/2018 31/12/2017 Change Government receivables 68,250 71,954 -3,704 Other receivables 19,682 26,216 -6,534 Security deposits received 18,588 5,281 13,307 Current accounts 4,694 4,577 117 TOTAL 111,214 108,028 3,186

• The government receivables of €68.3 million break for which no provision is recorded, amounting to down as follows: €24.3 million for France Offices, €13.7 million (see 2.2.2.9.4). €19.6 million for Italy Offices, €21.7 million for Hotels • The change in receivables on disposals is from: Europe and €2.3 million for Corporate. The receivables France Residential (+€2.4 million), Germany Residential are mainly VAT and government receivables following (+€4.8 million) and France Offices (+€6.1 million). the payment of tax adjustments recognised and

2.2.5.9. Cash and cash equivalents 2.2.5.9.1. Accounting principles applicable to cash and cash equivalents Cash and cash equivalents include cash, short-term deposits, and money-market funds. These are short-term, highly liquid assets that are easily convertible into a known cash amount, and for which the risk of a change in value is negligible.

2.2.5.9.2. Table of cash and cash equivalents

(€K) 30/06/2018 31/12/2017 Money-market securities available for sale 420,179 732,582 Cash at bank 903,831 564,054 TOTAL 1,324,010 1,296,636

As at 30 June 2018, the portfolio of money-market • Level 2 corresponds to instruments whose fair value securities available for sale consists mainly of Level 2 is determined using data other than the prices standard money-market collective investment vehicles mentioned for Level 1 and observable directly or (SICAV). indirectly (i.e. price-related data). • Level 1 of the portfolio corresponds to instruments Covivio holds no investments subject to capital risk. whose price is listed on an active market for an identical instrument.

2018 First-half financial report — 95 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.10. Total shareholders’ equity 2.2.5.10.1. Accounting principles applicable to equity

2.2.5.10.1.1. Treasury shares If the Group buys back its own equity instruments (treasury shares), these are deducted from shareholders’ equity. No profit or loss is recognised in the income statement when Group equity capital instruments are purchased, sold, issued or cancelled.

2.2.5.10.2. Statement of changes in shareholders’ equity The capital of Foncière des Régions totalled €225.8 million as at 30 June 2018. In the first half of 2018, Foncière des Régions increased its share capital by €1.3 million through the issue of 448,615 new shares, of which 323,044 were issued following the conversion of 1,873,434 ORNANE 2019 bonds and the allocation of 125,571 vested free shares. Reserves correspond to parent company retained earnings and reserves, together with reserves from consolidation. As at 30 June 2018, the share capital broke down as follows:

Number of authorised shares: 75,278,579 Number of shares issued and fully paid-up: 75,278,579 Number of shares issued and not fully paid-up: 0 Par value of shares: €3.00 Share class: none Restriction on payment of dividends: none Shares held by the Company or its subsidiaries: 49, 4 4 2

CHANGES IN THE NUMBER OF SHARES DURING THE PERIOD

Shares Transaction Shares issued Own shares outstanding Number of shares at 31 December 2017 74,829,964 56,006 74,773,958 Capital increase – delivery of bonus share plan 125,571 Capital increase – conversion of ORNANE-type bonds 323,044 Own shares – liquidity agreement 13,220 Own shares – employee award -19,784 NUMBER OF SHARES ON 30 JUNE 2018 75,278,579 49, 4 4 2 75,229,137

The statement of changes in shareholders’ equity is presented in Note 2.1.4.

96 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.11. Statement of liabilities 2.2.5.11.1.1. Tenants’ security deposits The Covivio group discounts security deposits at the 2.2.5.11.1. Accounting principles applicable average financing rate of the structure and over the to debt average remaining term of the leases determined for each type of asset. Financial liabilities include borrowings and other interest- bearing debt. 2.2.5.11.1.2. Derivatives and hedging instruments At initial recognition, financial liabilities are measured at fair value, minus the transaction costs directly The Covivio group uses derivatives to hedge its floating attributable to the issue of the liability. They are then rate debt against interest rate risk (hedging of future recognised at amortised cost based on the effective cash flows). interest rate. The effective rate includes the nominal rate Derivative financial instruments are recorded on the and actuarial amortisation of issue expenses and issue balance sheet at fair value. The fair value is calculated and redemption premiums. using valuation techniques that use mathematical Financial liabilities of less than one year are posted under calculations based on recognised financial theories and “Current financial liabilities”. parameters that incorporate the prices of market-traded instruments. This valuation is carried out by an external Convertible bonds (ORNANE-type) issued by Covivio service provider. group are either (i) recognised at fair value in the income statement or (ii) recognised separately as a financial The Group has been applying IFRS 13 since liability at amortised cost and an embedded derivative 1 January 2013. This standard requires accounting for measured at fair value in the income statement. counterparty risk (i.e. the risk of a counterparty defaulting on its commitments) in the assessment of the fair value For Foncière des Régions, the fair value is determined of financial assets and liabilities. according to the closing bond price. The majority of the financial instruments in Italy Offices In the case of financial liabilities resulting from the qualify for hedge accounting as defined by IAS 39. recognition of finance lease agreements, the financial liability recognised against the tangible fixed asset is In this case, changes in the fair value of the effective initially recognised at the leased asset’s fair value, or portion of the hedge are recognised net of tax in if lower, at the discounted value of the minimum lease shareholders’ equity until the hedged transaction payments. Only companies in the Operating Properties occurs. The ineffective portion is recorded in the income business hold assets through finance lease agreements. statement. Only Beni Stabili used hedge accounting as at 30 June 2018. All derivative instruments in the other segments are therefore recognised at their fair value, and changes are reflected in the income statement.

2018 First-half financial report — 97 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.11.2. Table of debt

Changes in Other (€K) 31/12/2017 Increase Decrease scope changes 30/06/2018 Bank borrowings 5,577,368 567,722 - 344,001 566,093 - 27,012 6,340,170 Finance lease borrowing 0 0 - 1,740 20,063 2 7,0 1 2 45,335 Other borrowings 117,998 11,774 - 18,351 17,778 0 129,199 Treasury bills 777,400 430,000 - 33,000 0 0 1,174,400 Securitised loans 3,978 0 0 0 - 1 3,977 Non-convertible bonds 3,084,340 395,070 - 866,400 0 0 2,613,010 Convertible bonds(1) 545,000 0 - 158,736 0 0 386,264 Subtotal interest-bearing loans 10,106,084 1,404,566 - 1,422,228 603,934 - 1 10,692,355 Accrued interest 63,356 27,115 - 70,215 6,550 0 26,806 Deferral of loan expenses - 75,554 10,470 - 11,165 - 7,099 - 1,640 - 84,988 Creditor banks 26,673 0 0 73 127,105 153,851 Total borrowings (LT/ST) excl. Fair Value of ORNANE-type bonds 10,120,559 1,442,151 - 1,503,608 603,458 125,464 10,788,024 of which Long-term 8,596,316 9,126,774 of which Short-term 1,524,243 1,661,250 Valuation of financial instruments 186,012 0 0 - 2,224 - 39,124 144,664 Convertible bond derivatives 88,666 0 0 0 - 48,413 40,253 Total derivatives 274,678 0 0 - 2,224 - 87,537 184,917 of which Assets - 48,178 - 51,880 of which Liabilities 322,856 236,797 TOTAL BANK DEBT 10,395,237 1,442,151 - 1,503,608 601,234 37 ,927 10,972,941 (1) Convertible bond movements are presented in 2.2.5.11.4 – Convertible bonds.

The new financing taken out during the year is presented in 2.3.2.2 – Liquidity risk and in 2.2.5.11.3 – Bank borrowings.

DEBT BY TYPE AS AT 30 JUNE 2018 (in €M)

133 Other 386 45 Convertible CB loans bonds 1,174 Treasury bills 6,340 10,692 Bank borrowings 2,613 Non-convertible bonds

The “Proceeds relating to new borrowings” line item of the Statement of Cash Flows (+€1,393.3 million) refers to: • increases in interest-bearing borrowings (+€1,404.5 million) • less new debt issuance costs (-€11.2 million). The “Repayments of borrowings” line item of the Statement of Cash Flows (-€1,422.2 million) corresponds to decreases in interest-bearing borrowings.

98 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.11.3. Bank borrowings The table below outlines the characteristics of the borrowings taken out by Covivio group and the amount of the associated guarantees (principal amount over €100 million):

Outstanding Appraisal Outstanding Initial debt value on debt on Date of amount of (€K) (> or < €100 M) Debt 30/06/2018(1) 30/06/2018 signature debt Maturity France Offices €280 M (2015) and €145 M 29/07/2015 280,000 29/07/2025 (2015) – Tour CB21 and Carré and and and Suffren 413,675 01/12/2015 145.000 30/11/2023 €167.5 M (2015) – DS Campus 161,637 23/03/2015 167,500 20/04/2023 €300 M (2016) – Orange 300,000 18/02/2016 300,000 30/06/2028 > €100 M 2,182,692 875,312 < €100 M 403,900 165,638 Total France Offices 2,586,592 1,040,950 Italy Offices €252 M (2015) – Europe 197,559 09/06/2015 255,000 09/06/2025 €760 M (2016) – Central 756,169 15/09/2016 760,000 14/09/2024 > €100 M 1,947,832 953,728 < €100 M 648,600 185,080 Total Italy Offices 2,596,432 1,138,808 Hotels Europe €447 M (2013) 193,712 25/10/2013 447,000 31/01/2023 €255 M (2012) – Covered bonds 186,553 14/11/2012 255,000 16/11/2021 €450 M (2016) – Rock 410,933 29/07/2016 450,000 29/07/2023 €278 M (2017) – Roca 199,242 29/03/2017 277,188 29/03/2025 €290 M (2017) – OPCI B2 HI (B&B) 267,000 10/05/2017 290,000 10/05/2024 > €100 M 3,094,258 1,257,440 < €100 M 1,528,680 598,907 Total Hotels Europe 4,622,938 1,856,347 Germany Lyndon Immeo 01 110,897 12/12/2011 140,000 29/01/2027 Residential Refinancing of Indigo, Eagle, Faust, Berlinum 2 173,982 09/03/2012 180,251 31/03/2024 Cornerstone 135,460 01/10/2014 138,851 30/06/2025 Refinancing Wohnbau/ Dümpten/Aurélia/Duomo 121,989 20/01/2015 150,000 30/01/2025 Refinancing Amadeus/ Herbstlaub/Valore/Valartis/ Sunflower 162,732 28/10/2015 147,095 30/04/2026 Quadriga 186,751 16/06/2015 223,656 31/01/2024 Golddust 111,702 23/03/2016 115,000 30/04/2027 Lego 129,370 24/06/2016 145,003 30/09/2024 Lyndon Immeo 02 179,303 26/01/2017 230,000 14/03/2022 > €100 M 3,231,044 1,312,186 < €100 M 2,017,721 897,386 Total Germany Residential 5,248,765 2,209,572 Total collateralised 15,054,727 6,245,677

2018 First-half financial report — 99 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

Outstanding Appraisal Outstanding Initial debt value on debt on Date of amount of (€K) (> or < €100 M) Debt 30/06/2018(1) 30/06/2018 signature debt Maturity France Offices €345 M (2013) – ORNANE 186,264 20/11/2013 345,000 01/04/2019 Treasury bills BT/BMTN 1,174,400 €180 M (2013) – Private placement 180,000 28/03/2013 180,000 30/04/2020 €500 M (2014) – Bonds 226,457 10/09/2014 500,000 30/09/2021 €500 M (2016) – Green bond 500,000 20/05/2016 500,000 20/05/2026 €500 M (2017) – Bonds 595,000 21/06/2017 500,000 21/06/2027 > €100 M 2,862,121 < €100 M 0 Total France Offices 3,313,817 2,862,121 Italy Offices €250 M (2014) – Bonds 125,000 30/03/2015 125,000 30/03/2022 €200 M (2015) – Convertible bonds 200,000 03/08/2015 200,000 31/01/2021 €300 M (2017) – Bonds 300,000 17/10/2017 300,000 17/10/2024 €300 M (2018) – Bonds 300,000 20/02/2018 300,000 20/02/2028 > €100 M 1,793,260 925,000 < €100 M 140,477 Total Italy Offices 1,793,260 1,065,477 Hotels Europe €200 M (2015) – Private placement 200,000 29/05/2015 200,000 29/05/2023 > €100 M 566,050 200,000 < €100 M 166,651 Total Hotels Europe 566,050 366,651 France Residential < €100 M Total France Residential 246,135 0 Germany Residential < €100 M Total Germany Residential 129,137 25,000 Car parks Total Corporate 53,710 0 Total unencumbered 6,102,108 4,319,249 Other debt 127,429 GRAND TOTAL 21,156,836 10,692,355 (1) The portfolio includes the fair value of occupied assets and real estate inventories (trading, development).

The borrowings are valued after their initial recognition at cost, amortised based on the effective interest rate. The average interest rate on Covivio’s consolidated debt stood at 1.55% as at 30 June 2018.

100 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

Breakdown of borrowings at their nominal value according to the time left to maturity and by interest-rate type:

Outstanding Outstanding Outstanding debt on debt on Maturity debt on Maturity from 30 June 2023 (€K) 30 June 2018 in < 1 year 30 June 2019 2 to 5 years (over 5 years) Fixed-rate long-term financial liabilities 5,672,380 1,341,892 4,330,488 1,610,253 2,720,235 France Offices – Bank borrowings 148,912 1,537 147,375 97,375 50,000 France Offices – Ornane(1) 186,264 186,264 0 0 0 France Offices – Other 68,151 0 68,151 41,776 26,375 Italy Offices – Bank borrowings 65,267 0 65,267 65,267 Italy Offices – Convertible bonds(1) 200,000 0 200,000 200,000 0 Hotels Europe – Bank borrowings 362,720 3,472 359,248 42,890 316,358 Hotels Europe – Other 59, 276 0 59, 276 38,146 21,130 Germany Residential – Bank borrowings 835,631 18,906 816,724 270,781 545,943 Germany Residential – Other 1,772 474 1,298 1,137 161 Total borrowings and convertible bonds 1,927,993 210,654 1,717,339 692,104 1,025,235 France Offices – Bonds 1,501,457 -139 1,501,596 406,596 1,095,000 France Offices – Treasury bills 1,127,400 1,127,400 0 0 0 Italy Offices – Bonds 725,000 0 725,000 125,000 600,000 Italy Offices – Securitisation 3,977 3,977 0 0 0 Hotels Europe – Bonds 386,553 0 386,553 386,553 0 Total debts represented by securities 3,744,387 1,131,238 2,613,149 918,149 1,695,000 Floating-rate financial debt 5,019,976 149,382 4,870,593 1,181,309 3,689,284 France Offices – Bank borrowings 892,038 6,328 885,710 167,383 718,327 Italy Offices – Bank borrowings 1,210,041 71,746 1,138,295 283,292 855,003 Hotels Europe – Bank borrowings 1,473,725 23,320 1,450,405 530,314 920,091 Germany Residential – Bank borrowings 1,397,172 47,988 1,349,183 153,321 1,195,862 Total borrowings and convertible bonds 4,972,976 149,382 4,823,593 1,134,309 3,689,284 France Offices – Treasury bills 47,000 0 47,000 47,000 0 Total debts represented by securities 47,000 0 47,000 47,000 0 TOTAL 10,692,355 1,491,274 9,201,082 2,791,563 6,409,519 (1) The ORNANE bonds are presented at nominal value.

DEBT BY OPERATING SEGMENT AS AT 30 JUNE 2018 (in €M)

2,282 3,971 Hotels Europe France Oces 10,692 2,235 German Residential 2,204 Italy Oces

2018 First-half financial report — 101 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.11.4. Convertible bonds 2.2.5.11.4.1. France Offices The features of the convertible bond issue are as follows:

Ornane-type bonds Features France Offices Issue date 20/11/2013 Issue amount (€M) 345 Issue price (€) 84.73 Conversion rate 1.14 Nominal rate 0.88% Maturity 01/04/2019 Number of convertible bonds issued 4,071,757 Number of convertible bonds as at 31 December 2017 4,071,757 Number of bonds converted into FDR shares -1,873,434 Number of convertible bonds as at 30 June 2018 2,198,323 Number of potential shares (maximum) 2,506,088 Amount of the issue after redemption and conversion (€M) 186

In the first half of 2018, 1,873,434 bonds were redeemed, into shares, based on the stock market prices over a equivalent to almost 46% of the nominal amount. determined period, at the Company’s discretion. This repayment generated a conversion premium of €38.7 million, a portion of which has been realised 2.2.5.11.4.2. Italy Offices through a capital increase (€30 million). The Italy Offices ORNANE-type bonds are hybrid Interest is payable half-yearly on 1 April and 1 October. instruments and are recognised as a Host contract (debt Based on the quoted price on 30 June 2018, the fair unit at amortised cost) and as an embedded derivative value of the ORNANE bonds is €102.1, giving a total fair (financial instrument at fair value through the income value of €224.5 million at 30 June 2018 (2,198,323 bonds). statement). Bond holders will have the option to convert their bonds At 30 June 2018, the ORNANE derivative maturing in 2021 either into cash and existing and/or new shares, or only of Beni Stabili was valued at €11.7 million.

The features of the convertible bond issue are as follows:

Ornane-type bonds Features Italy Offices Issue date August 2015 Issue amount (€M) 200 Issue price (€) 100 Conversion rate 102,712 Nominal rate 0.875% Maturity February 2021 Number of convertible bonds issued 2,000,000 Number of convertible bonds as at 31 December 2017 2,000,000 Number of convertible bonds as at 30 June 2018 2,000,000 Number of potential shares 205,423,172

102 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.11.5. Derivatives

Derivative instruments consist mainly of rate hedging instruments put in place as part of the Group’s interest rate hedging policy.

FAIR VALUE OF NET DERIVATIVE INSTRUMENTS

Change in scope Premium 31/12/2017 or integration and cash Impact on Impact on 30/06/2018 (€K) Net method adjustments P&L shareholder’s equity Net France Offices -141,370 37,542 -6,640 -110,468 Ornanes Bureaux France -82,406 38,737 5,430 -38,239 Italy Offices 3,928 3,630 -2,092 -1,947 3,519 Ornanes Bureaux Italie -6,260 4,246 -2,014 Hotels Europe -33,030 2,224 12,462 -8,966 -27,310 Germany Residential -15,540 7,93 0 -2,795 -10,405 TOTAL -274,678 2,224 100,301 -10,817 -1,947 -184,917 Cash instruments of which - Liabilities -236,797 Cash instruments - Assets 51,880

The total impact of the value adjustments on the The “Unrealised gains and losses relating to changes derivatives on the income statement was -€10.8 million. in fair value” line item in the Statement of Cash Flows (-€445.9 million), which makes it possible to calculate It primarily consists of changes in the value of the cash cash flows from operating activities, mainly incorporates instruments (-€20.5 million), and the change in the value the impact of changes in the value of cash instruments of the ORNANE-type bonds (+€9.7 million). In accordance (+€20.5 million), the change in the value of the ORNANE- with IFRS 13, the fair values include the counterparty type bonds (-€9.7 million) and the change in the value of default risk (€0.6 million). the portfolio (-€456.7 million).

BREAKDOWN OF HEDGING INSTRUMENTS BY MATURITY OF NOTIONAL VALUES

Less than From (€K) At 30/06/2018 one year 1 to 5 years Over 5 years Fixed hedge Fixed rate payer swap 4,601,071 134,846 986,607 3,479,618 Fixed rate receiver swap 1,046,071 35,000 886,071 125,000 Total swaps -3,555,000 -99,846 -100,536 -3,354,618 Optional hedge Purchase of fixed rate payer swaption 100,000 -170,000 0 270,000 Sale of fixed rate borrower swaption 100,000 -70,000 0 170,000 Cap purchase 914,398 284,994 327,620 301,784 Floor purchase 125,050 75,520 2,080 47,450 Floor sale 141,942 0 68,942 73,000 TOTAL 7,028,532 290,360 2,271,320 4,466,852

BALANCE AS AT 30 JUNE 2018

(€K) Fixed rate Floating rate Borrowings and financial debt (including creditor banks) 5,672,380 5,173,827 NET FINANCIAL LIABILITIES BEFORE HEDGING 5,672,380 5,173,827 Swaps 3,555,000 Caps -914,398 TOTAL HEDGES 2,640,602

2018 First-half financial report — 103 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.5.11.6. Banking covenants With respect to Covivio Immobilien (Germany Residential), for which almost all of the debt raised is Excluding debts raised without recourse to the Group’s “non-recourse” debt, portfolio financings do not contain property companies, the debts of Foncière des Régions any consolidated covenants. and its subsidiaries generally include bank covenants (ICR and LTV), applying to the borrower’s consolidated Concerning Foncière des Régions, corporate credit financial statements. If these covenants are breached, facilities usually include an asset-secured debt covenant early debt repayment may be triggered. These covenants (100% scope), the cap on which is set at 25% and which are established in Group share for Foncière des Régions measures the ratio of secured debt (or debt with (Covivio) and for Foncière des Murs (Covivio Hôtels) and guarantees of any nature) to asset value. on a consolidated basis for the other subsidiaries of Covivio group’s covenants were fully complied with at Covivio (if their debts include them). 30 June 2018, as they stood at 46.1% for Group share LTV, The most restrictive consolidated LTV covenants 541% for Group share ICR, and 6.7% for the asset-secured amounted to 60% for Covivio, Covivio Hôtels and Beni debt ratio. Stabili at 30 June 2018. No loan has an accelerated payment clause contingent The threshold for the consolidated ICR covenants differs on Covivio’s rating, which is currently BBB, positive outlook from one REIT to another, depending on the type of (Standard & Poor’s rating). assets, and may be different from one debt to another even for the same REIT, depending on debt seniority. The most restrictive ICR consolidated covenants applicable to the REITs are as follows: • for Covivio: 200% • for Covivio Hôtels: 200% • for Beni Stabili: 150%.

Covenant threshold Company Scope Covenant Ratio €300 million (2016) – Orange Foncière des Régions France Offices ≤ 60% In compliance €447 million (2013) Foncière des Murs Hotels Europe < 60% In compliance €255 million (2012) – Covered bonds Foncière des Murs Hotels Europe ≤ 65% In compliance €200 million (2015) – Private placement Foncière des Murs Hotels Europe ≤ 60% In compliance €279 million (2017) – Roca Foncière des Murs Hotels Europe < 60% In compliance €254 million (2015) – Europe Beni Stabili Italy Offices ≤ 60% In compliance

Consolidated ICR Company Scope Covenant Ratio €300 million (2016) – Orange Foncière des Régions France Offices ≥ 200% In compliance €447 million (2013) Foncière des Murs Hotels Europe > 200% In compliance €255 million (2012) – Covered bonds Foncière des Murs Hotels Europe ≥ 200% In compliance €200 million (2015) – Private placement Foncière des Murs Hotels Europe ≥ 200% In compliance €279 million (2017) – Roca Foncière des Murs Hotels Europe > 200% In compliance €254 million (2015) – Europe Beni Stabili Italy Offices > 150% In compliance

These covenants, moreover, most often include specific covenants for the scopes financed. The purpose of these covenants, generally scope LTV, is mainly to limit the use of financing lines by correlating it with the value of the underlying assets provided as collateral.

104 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.12. Provisions for contingencies Conversely, when the adoption of a new scheme or change in an existing scheme gives rise to the vesting and losses of benefits after its implementation date, the past service cost is recognised as an expense on a straight- 2.2.5.12.1. Accounting principles applicable line basis over the average remaining period until the to provisions for contingencies benefits become fully vested. Actuarial gains and and losses losses result from the effects of changes in actuarial assumptions and experience adjustments (differences 2.2.5.12.1.1. Retirement commitments between actuarial assumptions and what has actually The retirement commitments are recognised in occurred). The change in these actuarial gains and accordance with revised IAS 19. Provisions are recorded losses is recognised in “Other items” of comprehensive on the balance sheet for the liabilities arising from income. The expense recognised in operating income defined benefits pension schemes for existing staff at includes the cost of the services rendered during the the reporting date. They are calculated according to year, amortisation of past service costs and the effects the projected credit units method based on valuations of any reduction or liquidation of the scheme; the cost made at each reporting date. The past service cost of discounting is recognised in net financial income. The corresponds to the benefits granted, either when the valuations are made taking into account the Collective Company adopts a new defined benefits scheme, or Agreements applicable in each country and in keeping when it changes the level of benefits of an existing with the various local regulations. For each employee, scheme. When new benefits are granted upon adoption the retirement age is the social security eligibility age. of a new scheme or change in an existing scheme, the past service cost is immediately recognised in the income statement.

2.2.5.12.1.2. Provisions

Change Reversal of provision in actuarial Change gains and (€K) 31/12/2017 in scope Charges Transfer losses Used Unused 30/06/2018 Other provisions for disputes 1,872 243 628 0 0 -80 -48 2,615 Provisions for guarantees 0 0 0 0 0 0 0 0 Provisions for taxes 523 7,93 3 0 0 0 0 0 8,456 Provisions for renovating sites 345 0 0 0 0 0 0 345 Other provisions 8,169 134 173 -33 0 -85 -84 8,274 Provision subtotal – current liabilities 10,909 8,310 801 -33 0 -165 -132 19,690 Provisions for retirement benefit 46,327 1,348 10,004 0 0 -219 -9,598 4 7, 8 6 2 Provisions for long-service awards 1,181 0 151 0 0 -12 0 1,320 Provision subtotal – non-current liabilities 47,508 1,348 10,155 0 0 -231 -9,598 49,182 TOTAL PROVISIONS 58,417 9,658 10,956 -33 0 -396 -9,730 68,872

2018 First-half financial report — 105 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

The provisions for litigation are broken down into The provision for retirement indemnities totalled €1.6 million for France Offices, €0.3 million for Italy Offices, €47.8 million as at 30 June 2018 (of which €43.5 million for €0.4 million for France Residential and €0.2 million for Germany Residential). Hotels Europe. The main actuarial assumptions used to estimate the Provisions for taxes concern Hotels Europe for €7.9 million commitments in France were as follows: (provision linked to the 2017 acquisition of hotels as rate of pay increase: managers 4%, non-managers 3% Operating Properties) and Italy Offices for €0.5 million. • • discounting rate: 1.34% (TEC 10 n +50 bps). Other provisions consist primarily of the following: • other provisions for contingencies and losses: €7.7 million • provisions for sustainable development: €0.3 million • provisions relating to grantor rights (Car Parks): €0.2 million.

The main actuarial assumptions used to estimate the commitments in Germany were as follows:

Assumptions used in calculating provisions for retirement benefit obligations in Germany 30/06/2018 31/12/2017 Discount rate 2.1% 2.1% Annual wage growth 2.5% 2.5% Rate of social security charges 1%/2% 1%/2% Impact of provisions for retirement benefits on the income statement(€K) Cost of services rendered during the year -383 -581 Financial cost -447 -849 Effects of plan reductions/settlements TOTAL IMPACT ON THE INCOME STATEMENT -830 -1,430

2.2.5.13. Other short-term liabilities

(€K) 30/06/2018 31/12/2017 Change Social debt 36,151 20,733 15,418 Tax debt 71,078 1 9,0 2 8 52,050 Current accounts – liabilities 184 8,569 -8,385 Dividends to be paid 93 0 93 Other debt 26,015 69,429 -43,414 TOTAL 133,521 117,759 15,762

• The change in tax liabilities was €52.0 million (of which • The €43.4 million drop in other liabilities includes the €29.2 million for France Offices, €20.6 million for Hotels reclassification into ”accounts payable to suppliers Europe, €1.7 million for Germany Residential and of fixed assets” of the deferred payment on the €0.8 million for Italy Offices). acquisition of hotels in Spain (-€55 million) – whose payment is scheduled for the end of 2018.

106 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.5.14. Recognition of financial assets and liabilities

Amount shown in the statement of financial position measured at: Fair value through Fair value Line item in statement 30/06/2018 Amortised shareholders’ through profit Fair Value Categories according to IFRS 9 of financial position Net cost equity or loss (€K) Non-current Assets at amortised cost financial assets 69, 8 2 5 69, 8 2 5 69, 8 2 5 Non-current Loans and receivables financial assets 104,338 104,338 104,338 Subscribed capital Non-current not paid up financial assets 20,040 20,040 20,040 Total non-current financial assets 194,203 194,203 194,203 Loans and receivables Trade receivables(1) 2 8 7, 6 2 4 2 8 7, 6 2 4 2 8 7, 6 2 4 Derivatives at fair Assets at fair value through value through profit profit or loss or loss 51,880 51,880 51,880 Assets at fair value through Cash and cash profit or loss equivalents 420,179 420,179 420,179 TOTAL FINANCIAL ASSETS 953,886 481,827 0 472,059 953,886 Liabilities at fair value through ORNANE-type profit or loss bonds 426,517 190,306 236,211 429,367 Liabilities at amortised cost Financial debt 10,306,091 10,306,091 10,358,320(2) Financial Liabilities at fair value through instruments profit or loss (excluding ORNANE) 196,544 7,601 188,943 196,544 Liabilities at amortised cost Security deposits 22,315 22,315 22,315 Liabilities at amortised cost Trade payables 259,383 259,383 259,383 TOTAL FINANCIAL LIABILITIES 11,210,850 10,778,095 7,601 425,154 11,265,929 (1) Excluding rent exemptions. (2) The difference between the net book value and the fair value of the fixed rate debt is €52,229 thousand.

2.2.5.14.1. Breakdown of financial assets market transactions on similar instruments or based on an evaluation method whose variables include only and liabilities at fair value observable market data The table below presents the financial instruments at fair • Level 3: financial instruments whose fair value is value broken down by level: determined entirely or partly by using an evaluation • Level 1: financial instruments listed in an active market method using an estimate that is not based on market • Level 2: financial instruments whose fair value is transaction prices on similar instruments. evaluated through comparisons with observable

(€K) Level 1 Level 2 Level 3 Total Derivatives at fair value through profit or loss 51,880 51,880 Money-market securities available for sale 420,179 420,179 TOTAL FINANCIAL ASSETS 0 472,059 0 472,059 ORNANE-type bonds 429,367 429,367 Derivatives at fair value through profit or loss 196,544 196,544 TOTAL FINANCIAL LIABILITIES 429,367 196,544 0 625,911

2018 First-half financial report — 107 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.6. Notes to the statement of net income 2.2.6.1. Accounting principles 2.2.6.1.2. Share-based payments (IFRS 2) The application of IFRS 2 has resulted in the recognition 2.2.6.1.1. Rental Income of an expense for benefits granted to employees as According to the presentation of the income statement, share-based payments. This expense is recorded in rental income is treated as revenues. Revenues from income for the year. hotels under management, car park receipts, disposals Bonus shares are valued by Foncière des Régions at the of assets in inventory, and service charges are now shown date of their award according to a binomial valuation in specific lines of the statement of net income, after net model. This model takes into account the features of rental income. the plan (price and exercise period), market data upon As a general rule, invoicing is quarterly. The rental income award (risk free rate, share price, volatility and expected of investment properties is recognised on a straight-line dividends), and assumptions of beneficiary behaviour. basis over the term of the ongoing leases. Any benefits The benefits thus granted are recognised as expenses granted to tenants (rent-free periods, step rental leases) over the vesting period, and offset by an increase in the are amortised on a straight-line basis over the duration consolidated reserves. of the lease agreement, in compliance with SIC 15.

2.2.6.2. Operating profit 2.2.6.2.1. Rental income

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) France Offices 137,599 135,658 1,941 1.4% Italy Offices 104,433 101,860 2,573 2.5% Total Offices rental income 242,032 237,518 4,514 1.9% Hotels Europe 107,808 102,895 4,913 4.8% Germany Residential 118,712 112,880 5,832 5.2% France Residential 4,192 6,087 -1,895 -31.1% TOTAL RENTAL INCOME 472,744 459,380 13,364 2.9%

The rental income consists of rental and similar • an increase in rental income from Hotels Europe (+4.8%) income (e.g. occupancy fees and entry rights) invoiced principally as a result of acquisitions is Spain and for investment properties during the period. Rent Germany (+€5.1 million), increased rental income from exemptions, step rental schemes and entry rights are AccorHotels (+€1.1 million) and deliveries of assets under spread out over the fixed term of the lease. development in France (+€3.3 million), minus the impact of disposals in retail (-€5.2 million) Rental income amounted to €472.7 million at 30 June 2018 compared with €459.4 million at 30 June 2017, an • an increase in rental income from Germany Residential increase of €13.4 million. (+5.2%) following acquisitions (+€10.5 million), rent indexing (+€3.4 million), less the impact of disposals The changes by asset-type break down as follows: (-€8.2 million) • an increase in rents in France Offices (+1.4%) mainly • a (31.1%) decrease in France Residentialdue to disposals due to the delivery of assets under development in and assets made vacant for their disposal. 2017 and 2018 (+€5.9 million), acquisitions (+€2.1 million), the impact of the change in consolidation method for Note that the tenant Telecom Italia accounts for 47% of the Latécoère 2 – Dassault extension (+€2.0 million), total revenues in Italy Offices (€49.2 million). The company and rentals or lease renewals (+€4.2 million), minus the holding this asset portfolio is 51% held in partnership by impact of asset disposals (-€10.8 million) Beni Stabili and fully consolidated. • an increase in rental income from Italy Offices (+2.5%) due to acquisitions (+€4.1 million), as well as the delivery of assets under development (+€2.0 million), minus the impact of disposals (-€3.6 million)

108 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

RENTAL INCOME FOR THE FIRST HALF OF 2018 BY OPERATING SEGMENT (IN €M)

4 Other 108 138 Hotels Europe France Oces 473

119 German 104 Residential Italy Oces

2.2.6.2.2. Real estate expenses

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) Rental Income 472,744 459,380 13,364 2.9% Unrecovered rental costs -18,321 -26,126 7,805 -29.9% Expenses on properties -17,907 -12,323 -5,584 45.3% Net losses on unrecoverable receivables -1,582 -1,932 350 -18.1% Net rental income 434,934 418,999 15,935 3.8% RATE FOR PROPERTY EXPENSES -8.0% -8.8%

• Unrecovered rental costs: these expenses are net of • Net losses on unrecoverable receivables: these consist re-invoicing to tenants, and basically correspond to of losses on unrecoverable receivables and net charges on vacant premises. provisions on doubtful receivables. • Expenses on properties: these consist of rental For the period, the increase in unrecovered rental expenses that are borne by the owner, expenses costs (+€7.8 million) and the decrease in expenses related to works and expenses related to property on properties (-€5.6 million) are net figures, following management. reclassifications between accounts in Italy Offices. The net change of +€2.2 million is mainly due to the decrease in non-refundable taxes for France Offices (+€1.4 million).

2.2.6.2.3. Income from other activities

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) Managed hotel revenues 122,443 0 122,443 N/A Managed hotels operating expenses -87,689 0 -87,689 N/A Managed hotel income 34,754 0 34,754 N/A Income from other activities 14,876 14,035 841 6.0% Expenses of other activities -13,493 -10,190 -3,303 32.4% Income from other activities 1,383 3,845 -2,462 -64.0% TOTAL INCOME FROM OTHER ACTIVITIES 36,137 3,845 32,292 N/A

• Following the full consolidation of the companies in the • Net income from other activities was down €2.5 million, Operating Properties business line as of 1 January 2018, mainly due to the drop in net income from the the net income of hotels under management consists property development business line in France Offices of the €35 million EBITDA of the hotels operated. (-€2.5 million).

2018 First-half financial report — 109 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.6.2.4. Net cost of operations These consist of head office expenses and operating costs net of revenues from management and administration activities.

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) Management and administration income 8,151 9,567 -1,416 -14.8% Business expenses -3,066 -3,120 54 -1.7% Overhead -56,047 -56,849 802 -1.4% Development costs (not capitalised) -148 -249 101 -40.6% TOTAL NET OPERATING COSTS -51,110 -50,651 -459 0.9%

Management and administration income rose by €1.4 million. At 30 June 2017, it included a €0.6 million commission on the refinancing of a portfolio of hotels in France.

2.2.6.2.5. Depreciation of operating assets The increase in this line item (€24.4 million) was mainly due to the depreciation of equipment and buildings operated by the Group (new coworking and hotel activities).

2.2.6.3. Income from asset disposals The period’s income from asset disposals (+€55.3 million) mainly stemmed from the sale of the Paris assets at 10 and 30 Avenue Kléber (Covivio headquarters), recognised at amortised cost in the consolidated financial statements (own occupied buildings).

2.2.6.4. Change in the fair value of assets

(€K) 30/06/2018 30/06/2017 Change (€K) France Offices 76,869 125,695 -48,826 Italy Offices 15,147 44,215 -29,068 Hotels Europe 70,838 81,175 -10,337 Germany Residential 292,547 286,181 6,366 France Residential 1,373 1,964 -591 TOTAL CHANGE IN FAIR VALUE OF PROPERTIES 456,774 539,230 -82,456

• For France Offices, the fair value was boosted by the rise in the value of well located assets in Paris and major regional cities, in particular assets under development delivered in 2018 and renovated assets • For Hotels Europe, value creation was mainly driven by the acquisition of the Spanish portfolio in early 2017, as well as Belgian assets with the return of growth in hotel rental income, and the assets under development delivered • For the German Residential segment, asset values were pushed upwards by the significant rise in rents and increase in values, particularly in prized locations in Berlin, Hamburg, Dresden and Leipzig. 2.2.6.5. Income from disposal of securities and income from changes in scope The merger transactions in the Operating Properties business line and the transfer of 50% of the shares of SCI Porte Dorée were treated in accordance with IFRS 3. Following the change in consolidation method for the companies in the Operating Properties business line and SCI Porte Dorée (from equity accounting to full consolidation), the €103 million income from the disposal of securities stems from the sale of the initial stake in these companies (FDM Management for €85 million and SCI Porte Dorée for €18 million).

110 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

A loss of €136.0 million was recognised under ”Income from changes in scope” due to: • the goodwill impairment (-€131.1 million) recognised on the restructuring operations (€242 million), following the re-valuation of Operating Properties assets on the acquisition date • share acquisition costs (-€4.9 million) which, under IFRS 3, must be recognised in profit or loss. 2.2.6.6. Cost of net financial debt

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) Interest income on cash transactions 6,966 7,092 -126 -1.8% Interest expense on financing operations -85,086 -118,399 33,313 -28.1% Net expenses on hedges -17,996 -25,997 8,001 -30.8% NET FINANCING COST -96,116 -137,304 41,188 -30.0%

Excluding costs to repurchase fixed-rate debt and penalties (€12.1 million at 30 June 2018 versus €49.2 million at 30 June 2017), the cost of debt declined by €4.1 million, under the effect of refinancings and restructured hedges.

2.2.6.7. Net financial income

Change Change (€K) 30/06/2018 30/06/2017 (€K) (%) Cost of net financial debt -96,115 -137,304 41,189 -30.0% Changes in the fair values of financial instruments -20,492 51,220 -71,712 Changes in the fair value of Ornane-type bonds 9,675 -17,480 27,155 Changes in the fair value of financial instruments -10,817 33,740 -44,557 -132.1% Net financial expenses from discounting -161 768 -929 Free share expenses -4,666 -3,542 -1,124 Discounting -4,827 -2,774 -2,053 74.0% Amortisation of loan issue costs -10,419 -10,877 458 -4.2% Other expenses and extraordinary financial income -359 -1,203 844 -70.2% Expenses net of financial provisions and other -10,778 -12,080 1,302 -10.8% TOTAL NET FINANCIAL INCOME -122,537 -118,418 -4,119 3.5%

2.2.6.8. Taxes payable and deferred (1) Exemption of SIIC revenues The revenues of the SIIC are exempt from taxes taxes (including the exit tax) concerning: 2.2.6.8.1. Accounting principles applicable • income from the leasing of assets to current and deferred taxes • capital gains realised on asset disposals, investments in companies having opted for the tax treatment or 2.2.6.8.1.1. SIIC tax regime (French companies) companies not subject to corporation tax in the same Opting for the SIIC tax regime involves the immediate business, as well as the rights under a lease contract liability for an exit tax at the reduced rate of 19% on and real estate rights under certain conditions unrealised capital gains relating to assets and securities • dividends of SIIC subsidiaries. of entities not subject to corporation tax. The exit tax is payable over four years, in four instalments, starting with (2) Distribution obligations the year the option is taken up. In return, the Company The distribution obligations associated with exemption is exempted from income tax on the SIIC business and is profits are the following: subject to distribution obligations. • 95% of the earnings derived from asset leasing • 60% of the capital gains from disposals of assets and shares in subsidiaries having opted for the tax treatment or subsidiaries not subject to corporation tax with a SIIC corporate purpose for two years • 100% of dividends from subsidiaries that have opted for the tax treatment.

2018 First-half financial report — 111 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

The exit tax liability is discounted on the basis of the 2.2.6.8.1.3. SIIQ tax regime (Italian companies) initial payment schedule determined from the first day Opting for the SIIQ tax regime triggers immediate liability the relevant entities adopted SIIC status. for exit tax at a reduced 20% tax rate on the unrealised The liability initially recognised is discounted and an capital gains relating to the assets eligible for SIIQ tax interest charge is applied at each closing, allowing the treatment. The exit tax is payable over a maximum of liability to reflect the net discounted value as at the five years. closing date. The discount rate used is based on the Note that in 2014, a new decree was enacted (Law yield curve, given the deferred payment. Decree No. 133/2014). Previously, the Company was exempted from tax on the SIIQ revenues (“rental” asset 2.2.6.8.1.2. Ordinary law regime rental income and dividends of subsidiaries subject and deferred taxes to the tax regime) on condition of an 85% distribution Deferred taxes result from temporary differences in ceiling. This ceiling has now been lowered to 70%. taxation or deduction and are calculated using the Moreover, the decree requires that 50% of the capital liability method, and on all temporary differences gains on the disposal of assets eligible for the SIIQ in the Company financial statements, or resulting regime be distributed within two years following their from consolidation adjustments. The valuation of the recognition. deferred tax assets and liabilities must reflect the tax consequences that would result from the method by In compensation, no tax is payable on capital gains from which the Company seeks to recover or settle the book asset disposals and earnings from this business activity. value of its assets and liabilities at year-end. Deferred taxes are applicable to Covivio group entities that are 2.2.6.8.1.4. SOCIMI tax regime not eligible for the SIIC tax regime. (Spanish companies) A deferred tax asset is recognised in the case of The Spanish companies held by Foncière des Murs deferrable tax losses in the likely event that the entity in opted for the SOCIMI tax regime, effective 1 January question, not eligible for the SIIC regime, will have taxable 2017. Opting for SOCIMI does not trigger an exit tax upon future profits against which the tax losses may be offset. making the option. However, the capital gains on the period outside of the SOCIMI regime during which assets In the case where a French company intends to opt were held are taxable when disposing of said assets. directly or indirectly for SIIC tax treatment in the near future, an exception under the ordinary law regime is The rental income from the leasing of assets and applied by anticipating the application of the reduced proceeds from disposals of assets held under the SOCIMI rate (exit tax) in the valuation of deferred taxes. regime are exempt, provided 80% of rental profits and 50% of asset disposal profits are distributed. These capital gains are determined by allocating the taxable gains to the period outside the SOCIMI regime in a linear basis, over the total holding period.

2.2.6.8.2. Taxes and theoretical tax rate by geographical area

Taxes Deferred tax Deferred tax (€K) payable liabilities Total rate France -451 415 -36 34.43% Italy -130 -60 -190 27.90% Germany -7, 2 8 3 -54,290 -61,573 15.83%(1) Belgium -1,061 -3,259 -4,320 29.58%(2) Luxembourg -810 -2,016 -2,826 30.00% Netherlands -270 -114 -384 25.00% Portugal -151 -503 -654 23.00% Spain 0 -461 -461 25.00% TOTAL -10,156 -60,287 -70,443 (-) corresponds to a tax expense; (+) corresponds to a tax income. (1) In Germany, the tax rate on property goodwill is 15.83%. However, for companies in the Operating Properties business line, tax rates can exceed 30%. (2) In Belgium, the tax rate used for 2018 and 2019 is 29.58%. It will go down to 25% as of 2020.

112 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

The income tax payable in France mainly relates to The income tax payable on disposals amounts to the withholding tax paid on the Beni Stabili dividend €2.1 million, of which €1.9 million for the German Residential. (-€0.8 million). The income tax payable by companies in the Operating Properties business line amounts to €3.0 million, of which €2.1 million for the Rock portfolio in Germany.

Impact of deferred taxes on income

(€K) 30/06/2018 30/06/2017 Change France Offices 0 0 0 Italy Offices -60 294 -354 Hotels Europe -5,316 -6,657 1,341 Germany Residential -54,981 -51,334 -3,647 Corporate and not attributable 70 59 11 TOTAL -60,287 -57,638 -2,649

• The deferred tax charge of Hotels Europe is mainly • The deferred tax expense of Germany Residential related to the increase in the value of leased assets mainly relates to an increase in the value of assets. (-€6.7 million), offset by deferred tax income of €1.4 million from the Operating Properties business line

2.2.7. Other information 2.2.7.1. Personnel remuneration and benefits 2.2.7.1.1. Personnel expenses HEADCOUNT BY COUNTRY IN NUMBER OF EMPLOYEES Personnel expenses amounted to €64.5 million as at 30 June 2018, compared with €35.9 million as at 30 June 1 150 Spain 2017. In the Statement of Net Income, the period’s Italy personnel expenses are included in ”Overheads” (€33.9 million) and in ”Managed hotels operating 2 expenses” (€30.6 million) for companies in the Operating Luxembourg Properties business line. 455 882 Germany 2.2.7.1.1.1. Headcount 274 At 30 June 2018, the headcount of fully consolidated France companies, excluding companies in the Operating Properties business line, was 882. In the first half-year, the companies in the Operating Properties business line had an average headcount of 1,485 people. The average headcount during the first half of 2018 was 867 employees.

2018 First-half financial report — 113 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.7.1.2. Description of share-based payments

Foncière des Régions awarded free shares in 2018. The following assumptions were made for the free shares:

Corporate Corporate Employees – officers – with officers – with with Employees – performance performance performance without condition – condition – condition – performance performance internal Covivio performance Plan of 14 February 2018 condition scenario target scenario Date awarded 14/02/2018 14/02/2018 14/02/2018 14/02/2018 Number of shares awarded 10,523 14,000 14,000 52,000 Share price on the date awarded €86.30 €86.30 €86.30 €86.30 Exercise period for rights 3 years 3 years 3 years 4 years Cost of non-collection of dividends -€14.14 -€14.14 -€14.14 -€18.92 Actuarial value of the share net of dividends not collected during the vesting period €72.16 €72.16 €72.16 €67.38 Revenue-related discount: In number of shares 1,721 1,670 1,670 7,531 As percentage of share price on the date awarded 16% 12% 12% 14% Value of the benefit per share €58.04 €46.31 €46.40 €37.53

Employees – with Italy with Italy – with performance performance performance condition – condition – condition – Beni internal Covivio performance Stabili internal Plan of 14 February 2018 target scenario objective Date awarded 14/02/2018 14/02/2018 14/02/2018 Number of shares awarded 52,000 1,000 1,000 Share price on the date awarded €86.30 €86.30 €86.30 Exercise period for rights 4 years 3 years 3 years Cost of non-collection of dividends -€18.92 -€14.14 -€14.14 Actuarial value of the share net of dividends not collected during the vesting period €67.38 €72.16 €72.16 Revenue-related discount: In number of shares 7,531 119 119 As percentage of share price on the date awarded 14% 12% 12% Value of the benefit per share €41.16 €41.93 €46.40

In the first half of 2018, a total of 144,523 free shares were awarded. As stated elsewhere, the corresponding expense is recognised in income over the entire vesting period. The cost of the free share awards recognised at 30 June 2018 amounted to €3,837 thousand, while the related social security contribution (URSSAF) totalled €829 thousand. These expenses are presented in the income statement on the “Discounting of liabilities and receivables” line. The cost of the free share awards includes the impact of the 2014 plan for €151 thousand, the 2015 plan for €571 thousand, the 2016 plan for €1,041 thousand, the 2017 plan for €1,427 thousand, and the 2018 plan for €647 thousand.

114 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.7.2. Earnings per share and To calculate the diluted earnings per share, the average number of shares outstanding is adjusted to reflect diluted earnings per share the conversion of all dilutive potential ordinary shares, including free shares being vested and convertible bonds 2.2.7.2.1. Earnings per share (IAS 33) (ORNANE) type. Basic earnings per share are calculated by dividing the The impact of the dilution is only taken into account if income attributable to holders of ordinary Foncière des it is dilutive. Régions shares (the numerator) by the average weighted number of ordinary shares outstanding (the denominator) The dilutive effect is calculated using the treasury stock over the period. method. The number calculated using this method is added to the average number of shares outstanding In accordance with the rules set out in IAS 33, when and becomes the denominator. To calculate the diluted shares are issued with preferential subscription rights, the earnings, the income attributable to the holders of number of ordinary shares to take into account when ordinary Foncière des Régions shares is adjusted by: calculating basic and diluted earnings per share for all all dividends or other items under potentially dilutive periods prior to the rights issue is the number of ordinary • ordinary shares that were deducted to arrive at the shares outstanding before the issue, multiplied by the income attributable to the holders of ordinary shares following factor: interest recognised during the fiscal year to the Fair value per share immediately prior to exercise of the • potentially dilutive ordinary shares right/Theoretical fair value per share ex-right. • any change in the income and expenses resulting from the conversion of the dilutive potential ordinary shares.

Net income Group share (€K) 465,294 Interest on Ornane-type bonds 1,152 Change in fair value of Ornane-type bonds -5,430 Group share after conversion of the Ornane-type bonds (€K) 461,016 Average number of undiluted shares 74,842,467 Impact of dilution – free shares(1) 488,367 Number of free shares(1) 488,367 Average number of shares diluted by free shares 75,330,834 Dilution impact of conversion of France 2019 Ornane-type bonds 2,506,088 Conversion of Ornane-type bonds 2,506,088 Average number of fully diluted shares after conversion of Ornane-type bonds 77,836,922 NET PROFIT (LOSS) PER NON-DILUTED SHARE (€) 6.22 IMPACT OF DILUTION – FREE SHARES (€) -0.04 DILUTED EARNINGS PER SHARE OF FREE SHARES (€) 6.18 DILUTED EARNINGS PER SHARE OF FREE SHARES AND ORNANE-TYPE BONDS (€) 5.92 (1) The number of shares being vested is broken down according to the following plans: 2014 Plan 5,359 2015 Plan 59,191 2016 Plan 149,171 2017 Plan 130,123 2018 Plan 144,523 Total 488,367

In accordance with IAS 33 § 49 “Earnings per share”, the impact from the dilution related to the conversion of the France ORNANE-type bonds maturing in 2019 as at 1 January 2018 is taken into account, because the latter is dilutive.

2018 First-half financial report — 115 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.7.3. Related-party transactions The information mentioned below concerns the main related-parties, namely equity affiliates.

DETAILS OF RELATED-PARTY TRANSACTIONS (€ THOUSANDS)

Net Operating financial Balance Partner Type of partner income income sheet Comments Monitoring of projects and Cœur d’Orly Equity affiliates 43 105 11,978 investments, Loans, Asset fees Monitoring of projects and investments, Loans, Asset and Euromed Equity affiliates 360 0 34,596 property fees Lenovilla Equity affiliates 169 0 24,762 Loans, Asset and property fees SCI Factor E and SCI Orianz Equity affiliates 13,180 84 13,180 Loans

2.2.8. Segment reporting 2.2.8.1. Accounting principles • Hotels Europe: commercial buildings in the hotel segment, retail and hotel operating properties held as regards operating by Foncière des Murs segments – IFRS 8 • Germany Residential: real estate assets in Germany held by Covivio group through its subsidiary Immeo SE The Covivio group holds a wide range of real estate France Residential: residential real estate assets in assets to collect rental income and benefit from • France held by Foncière Développement Logements. appreciation in the assets held. Segment reporting is organised by asset type. These segments are reported on and analysed regularly by Group management in order to make decisions on The operating segments are as follows: what resources to allocate to the segment and to • France Offices: office real estate assets located in evaluate their performance. France The companies in the Operating Properties business Italy Offices: office real estate assets located in Italy • line have been fully consolidated since January 2018, held by Beni Stabili following the merger of FDM Management into Foncière des Murs.

2.2.8.2. Intangible fixed assets

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Concessions and other fixed assets 1,609 2,083 0 359 1 22,112 26,164 NET 1,609 2,083 0 359 1 22,112 26,164

Corporate 2018 France Hotels Germany France and not (€K) Offices Italy Offices Europe Residential Residential attributable Total Concessions and other fixed assets 1,499 2,407 153,933 1,702 0 20,018 179,560 NET 1,499 2,407 153,933 1,702 0 20,018 179,560

The “Corporate and not chargeable” column includes the intangible fixed assets of the remaining Car Park companies.

116 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.8.3. Tangible fixed assets

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Operating properties 152,572 18,086 1 5,603 0 0 176,262 Other fixed assets 1,693 1,508 423 4,590 12 173 8,399 Fixed assets in progress 10,155 0 3,478 5,487 0 0 19,120 NET 164,420 19,594 3,902 15,680 12 173 203,781

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Operating properties 144,822 17,761 1,079,679 5,485 0 0 1,247,747 Other fixed assets 2,188 1,410 24,170 4,905 8 161 32,842 Fixed assets in progress 10,217 0 24,071 14,244 0 0 48,532 NET 157,227 19,171 1,127,920 24,634 8 161 1,329,121

The increase (+€1,124 million) in Hotels Europe includes The change in fixed assets in progress (+€8.7 million) in hotel operating properties (+€1,108.1 million) and the the Germany Residential segment mainly relates to the acquisition of a call option to purchase a hotel in acquisition of buildings (-€3.4 million) and the instalment Hamburg (+€15.9 million). paid on the future acquisition of buildings (+€11.4 million).

2.2.8.4. Investment properties/Assets held for sale

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Investment properties 5,319,980 3,738,469 3,634,633 4,799,893 239,793 0 17,732,768 Operating assets held for sale 112,343 22,453 207,396 138,211 39,488 0 519,891 Investment properties under development 166,046 428,900 8 9,93 4 0 0 0 684,880 TOTAL 5,598,369 4,189,822 3,931,963 4,938,104 279,281 0 18,937,539

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Investment properties 5,471,431 3,757,366 3,590,587 5,217,875 213,962 0 18,251,221 Operating assets held for sale 65,813 165,892 212,765 147,289 31,066 0 622,825 Investment properties under development 169,067 427,000 92,617 0 0 0 688,684 TOTAL 5,706,311 4,350,258 3,895,969 5,365,164 245,028 0 19,562,730

In France Offices, the change in total assets (€5,471 million the change in fair value (+€14.8 million), the work done in 2018 as compared to €5,320 million in 2017) is due to the (+€18.4 million) and the reclassification of assets into acquisition of the future Parisian head office on Rue Jean assets held for sale (-€159 million). Goujon (+€133.9 million), the work done during the period In Germany Residential, the total for investment (+€20.8 million), the change in fair value (+€62.3 million), properties rose significantly (+€417.9 million), mainly due to deliveries of assets under development (+€41.5 million), acquisitions of asset-holding companies (+€183.3 million), the transfer of the Nice Méridien asset into an operating acquisitions of assets (+€34.9 million), changes in asset property (-€37.1 million), and the reclassification of assets values (+€278 million), the reclassification of assets into into assets held for sale (-€70.2 million). assets held for sale (-€108 million) and construction work In Italy Offices, the increase (+€18.9 million) is due to the (+€29.7 million). acquisition of three buildings in Milan (+€105.8 million), the delivery of two assets under development (+€38.9 million),

2018 First-half financial report — 117 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

In Hotels Europe, the €44 million decrease is mainly due to the reclassification of assets into assets held for sale (-€126.1 million), a change in the fair value of the assets (+€67.9 million) and to construction work (+€14.1 million).

2.2.8.5. Financial assets

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Loans 88,051 0 73,086 734 158 90 162,119 Current accounts 0 0 0 0 0 0 0 Other financial assets 650 7,078 41,359 124,685 2 11,922 185,696 Finance lease receivables 0 0 0 0 0 0 0 Receivables on financial assets 0 6,773 0 476 0 0 7,249 Investments in equity affiliates 118,637 17,762 232,502 0 0 0 368,901 NET 207,338 31,613 346,947 125,895 160 12,012 723,965

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Loans 84,903 0 10,507 8 169 71 95,658 Current accounts 0 0 0 0 0 0 0 Other financial assets 651 6,133 71,473 11,503 2 102 89,864 Finance lease receivables 0 0 0 0 0 0 0 Receivables on financial assets 0 6,705 1,500 476 0 0 8,681 Investments in equity affiliates 129,404 17,197 78,720 0 0 0 225,321 NET 214,958 30,035 162,200 11,987 171 173 419,524

The decrease in the financial assets of France Offices was largely due to the decline in loans granted to equity affiliates (-€3.2 million), mainly following the full consolidation of two Cœur d’Orly holding companies (-€4.7 million), offset by the increase in loans granted to the companies that own the Bordeaux Armagnac project (Orianz and Factor E) in the amount of €3.8 million. The decrease in the financial assets of Hotels Europe was largely due to the redemption of the ”Financière Hope” bonds subscribed by Foncière des Murs (-€59.1 million) and by the decline in loans granted to equity affiliates (-€4.7 million) following the full consolidation of SCI Porte Dorée.

2.2.8.6. Inventories and work-in-progress

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Inventories and work-in-progress 12,284 22,560 0 6,627 1,766 0 43,237 TOTAL 12,284 22,560 0 6,627 1,766 0 43,237

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Inventories and work-in-progress 13,462 18,026 2,244 7,947 921 0 42,600 TOTAL 13,462 18,026 2,244 7,947 921 0 42,600

In Italy Offices, the decrease in inventories was mainly due to the sale of the San Gallo asset in Firenze (-€4.5 million).

118 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

The increase in inventories of Hotels Europe is related to the full consolidation of companies in the Operating Properties business and corresponds entirely to inventories of goods used in the hotels’ operations.

2.2.8.7. Contribution to shareholders’ equity

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Group shareholders’ equity before elimination of securities 5,966,557 976,690 1,094,352 1,500,677 368,516 965,574 10,872,366 Elimination of securities 0 -1,245,504 -918,276 -1,025,966 -278,067 -1,041,246 -4,509,059 Shareholders’ equity Group share 5,966,557 -268,814 176,076 474,711 90,449 -75,672 6,363,307 Minority interests 342,609 1,221,753 1,317,964 9 1 9,9 72 0 2,054 3,804,352 SHAREHOLDERS’ EQUITY 6,309,166 952,939 1,494,040 1,394,683 90,449 -73,618 10,167,659

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Group shareholders’ equity before elimination of securities 6,002,459 1,102,256 1,236,346 1,647,950 349,804 1,065,605 11,404,420 Elimination of securities 0 -1,375,729 -1,065,470 -1,025,966 -278,067 -1,098,246 -4,843,478 Shareholders’ equity Group share 6,002,459 -273,473 170,876 621,984 71,737 -32,641 6,560,942 Minority interests 353,265 1,142,191 1,969,646 957,187 0 2,088 4,424,377 SHAREHOLDERS’ EQUITY 6,355,724 868,718 2,140,522 1,579,171 71,737 -30,553 10,985,319

For the first half of 2018, the change in shareholders’ equity was due to: • the acquisition of Beni Stabili shares on the market, increasing Covivio’s stake in Beni Stabili by 7 points to 59.9% • the restructuring of the Operating Properties business line via a merger transaction. 2.2.8.8. Financial liabilities

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Total long-term interest-bearing loans 1,057,502 1,965,242 1,673,578 2,072,778 39,902 1,787,314 8,596,316 Total short-term interest-bearing loans 9,9 9 1 390,350 36,955 58,359 -34 1,028,622 1,524,243 TOTAL LT AND ST LOANS 1,067,493 2,355,592 1,710,533 2,131,137 39,868 2,815,936 10,120,559

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Total long-term interest-bearing loans 1,093,364 2,107,015 2,232,680 2,158,851 0 1,534,864 9,126,774 Total short-term interest-bearing loans 14,908 84,583 79,132 65,973 152 1,416,502 1,661,250 TOTAL LT AND ST LOANS 1,108,272 2,191,598 2,311,812 2,224,824 152 2,951,366 10,788,024

2018 First-half financial report — 119 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

2.2.8.9. Derivatives

Corporate 2017 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Financial instruments – assets 430 8,306 5,748 6,663 1 27,030 48,178 Financial instruments – liabilities 14,640 10,639 38,778 22,203 0 236,596 322,856 NET FINANCIAL INSTRUMENTS 14,210 2,333 33,030 15,540 -1 209,566 274,678

Corporate 2018 France Italy Hotels Germany France and not (€K) Offices Offices Europe Residential Residential attributable Total Financial instruments – assets 8,637 8,535 5,327 11,293 0 18,088 51,880 Financial instruments – liabilities 59,856 7,0 3 0 32,637 21,698 0 115,576 236,797 NET FINANCIAL INSTRUMENTS 51,219 -1,505 27,310 10,405 0 97,488 184,917

120 — 2018 First-half financial report Condensed consolidated financial statements of Covivio as at 30 June 2018 Notes to the consolidated financial statements 2

2.2.8.10. Statement of net income by operating segments In accordance with IFRS 12, paragraph B11, inter-segment transactions, in particular management fees, are indicated separately in this presentation.

Corporate 2017 France Italy Hotels Germany France and not Intercos (€K) Offices Offices Europe Residential Residential attributable Intersector 30/06/2017 Rental Income 136,140 101,860 102,895 112,880 6,087 0 -482 459,380 Unrecovered rental costs -7,604 -12,471 -1,814 -2,014 -2,238 -32 47 -26,126 Expenses on properties -4,785 -2,769 -1,775 -7, 5 74 -658 -28 5,266 -12,323 Net losses on unrecoverable receivables -248 -746 -6 -816 -116 0 0 -1,932 Net rental income 123,503 85,874 99,300 102,476 3,075 -60 4,831 418,999 Income from other activities 2,411 -301 0 310 0 1,427 -2 3,845 Management and administration income 7,150 2,288 3,468 2,663 67 5,370 -11,439 9,567 Business expenses -1,219 -332 -2,768 -340 -206 1 1,744 -3,120 Overhead -13,259 -14,532 -5,649 -20,940 -1,292 -6,043 4,866 -56,849 Development expenses -249 0 0 0 0 0 0 -249 Net cost of operations -7,577 -12,576 -4,949 -18,617 -1,431 -672 -4,829 -50,651 Depreciation of operating assets -1,191 -699 -10 -775 -4 -1,729 0 -4,408 Net change in provisions and other -27 -1,064 -410 -50 23 739 0 -789 OPERATING INCOME 117,119 71,234 93,931 83,344 1,663 -295 0 366,996 Proceeds from disposals of trading properties 0 14 0 3,568 0 0 0 3,582 Net change in trading properties -51 -1,555 0 -2,543 33 0 0 -4,116 Net income from inventory properties -51 -1,541 0 1,025 33 0 0 -534 Income from asset disposals 103,576 38,937 5,068 23,035 58,772 15 0 229,403 Carrying value of investment properties sold -104,474 -39,117 -5,212 -22,264 -58,935 -16 0 -230,018 Income from asset disposals -898 -180 -144 771 -163 -1 0 -615 Gains in value of investment properties 142,611 74,314 100,583 294,857 2,152 0 0 614,517 Losses in value of investment properties -16,916 -30,099 -19,408 -8,676 -188 0 0 -75,287 Income from value adjustments 125,695 44,215 81,175 286,181 1,964 0 0 539,230 Income from disposals of securities 0 -5,927 0 0 0 -388 0 -6,315 Income from changes in scope 0 0 55 -2,345 0 -187 0 -2,477 OPERATING INCOME 241,865 107,801 175,017 368,976 3,497 -871 0 896,285 Income from non-consolidated companies 0 0 0 0 0 0 0 0 Cost of net financial debt -27,994 -34,417 -16,937 -35,815 -747 -21,394 0 -137,304 Value adjustment on derivatives 6,455 -26,186 14,508 15,807 -112 23,268 0 33,740 Discounting of liabilities and receivables -3,371 0 640 0 -9 -34 0 -2,774 Net change in financial and other provisions -3,535 -3,738 -2,702 -1,776 -329 0 0 -12,080 Share in income of equity affiliates 15,033 -225 7,471 0 0 0 0 22,279 PRE-TAX NET INCOME 228,453 43,235 177,997 347,192 2,300 969 0 800,146 Deferred tax liabilities 0 294 -6,657 -51,334 0 59 0 -57,638 Corporate income tax -2,990 -323 -1,336 -1,306 -3 -296 0 -6,254 NET INCOME FOR THE PERIOD 225,463 43,206 170,004 294,552 2,297 732 0 736,254 Non-controlling interests -13,515 -21,970 -98,521 -112,660 -890 329 0 -247,227 NET INCOME FOR THE PERIOD – GROUP SHARE 211,947 21,236 71,483 181,892 1,407 1,061 0 4 8 9,026

2018 First-half financial report — 121 Condensed consolidated financial statements of Covivio as at 30 June 2018 2 Notes to the consolidated financial statements

Corporate 2018 France Italy Hotels Germany France and not Intercos (€K) Offices Offices Europe Residential Residential attributable Intersector 30/06/2018 Rental Income 138,933 104,433 107,808 118,712 4,192 0 -1,334 472,744 Unrecovered rental costs -6,040 -7,837 -1,870 -1,029 -1,548 -1 4 -18,321 Expenses on properties -4,753 -7, 2 6 4 -1,864 -8,173 -374 -55 4,576 -17,907 Net losses on unrecoverable receivables 103 -918 -18 -756 7 0 0 -1,582 Net rental income 128,243 88,414 104,056 108,754 2,277 -56 3,246 434,934 Income from other activities -883 -1 34,747 763 0 1,516 -5 36,137 Management and administration income 7,0 2 9 2,176 3,489 2,219 -2 4,685 -11,445 8,151 Business expenses -1,294 -372 -3,002 -470 -98 -26 2,196 -3,066 Overhead -13,532 -11,251 -9,057 -21,284 -548 -6,381 6,006 -56,047 Development expenses 18 0 -6 -154 0 -6 0 -148 Net cost of operations -7,779 -9,447 -8,576 -19,689 -648 -1,728 -3,243 -51,110 Depreciation of operating assets -4,750 -504 -20,553 -755 -3 -2,219 0 -28,784 Net change in provisions and other -886 -839 823 72 -83 752 2 -159 OPERATING INCOME 113,945 77,623 110,497 89,145 1,543 -1,735 0 391,018 Proceeds from disposals of trading properties -36 4,500 0 2,264 850 0 0 7, 5 7 8 Net change in trading properties 0 -5,036 0 -2,237 -845 0 0 -8,118 Net income from inventory properties -36 -536 0 27 5 0 0 -540 Income from asset disposals 220,664 14,941 188,583 117,482 35,813 0 0 577,483 Carrying value of investment properties sold -164,845 -15,514 -189,055 -116,801 -35,994 -1 0 -522,210 Income from asset disposals 55,819 -573 -472 681 -181 -1 0 55,273 Gains in value of investment properties 81,296 78,138 83,676 302,411 1,438 0 0 546,959 Losses in value of investment properties -4,427 -62,991 -12,838 -9,864 -65 0 0 -90,185 Income from value adjustments 76,869 15,147 70,838 292,547 1,373 0 0 456,774 Income from disposals of securities 0 22 103,000 0 0 0 0 103,022 Income from changes in scope -1,002 -1,242 -131,316 -1,672 0 -757 0 -135,989 OPERATING INCOME 245,595 90,441 152,547 380,728 2,740 -2,493 0 869,558 Income from non-consolidated companies 0 0 0 0 0 0 0 0 Cost of net financial debt -19,351 -24,325 -22,968 -18,757 388 -11,102 0 -96,115 Value adjustment on derivatives -833 2,155 -8,966 -2,795 -1 -377 0 -10,817 Discounting of liabilities and receivables -4,438 0 -301 0 -32 -56 0 -4,827 Net change in financial and other provisions -2,305 -3,822 -3,142 -1,362 -147 0 0 -10,778 Share in income of equity affiliates 9,121 -18 3,490 0 0 0 0 12,593 PRE-TAX NET INCOME 227,789 64,431 120,660 357,814 2,948 -14,028 0 759,614 Deferred tax liabilities 0 -60 -5,316 -54,981 0 70 0 -60,287 Corporate income tax -517 -130 -4,718 -4,852 -5 66 0 -10,156 NET INCOME FOR THE PERIOD 227,272 64,241 110,626 2 9 7,9 8 1 2,943 -13,892 0 689,171 Non-controlling interests -5,533 -36,122 -72,583 -109,590 -0 -49 0 -223,877 NET INCOME FOR THE PERIOD – GROUP SHARE 221,738 28,119 38,044 188,391 2,943 -13,941 0 465,294

2.2.9. Subsequent events

No event has occurred between 30 June 2018 and the reporting date.

122 — 2018 First-half financial report 3

STATUTORY AUDITORS’ REPORT

2018 First-half financial report — 123 Statutory Auditors’ report 3 Statutory Auditors’ review on the half-yearly

STATUTORY AUDITORS’ REVIEW ON THE HALF-YEARLY

For the period from January 1 to June, 30, 2018

To the Shareholders, In compliance with the assignment entrusted to us by yours shareholders general meeting and in accordance with the requirements of article L. 451-1-2 III of the French monetary and financial code (“Code monétaire et financier”), we hereby report to you on: • the review of the accompanying condensed half-yearly consolidated financial statements of Foncière des Régions, for the period from January 1st to June 30th 2018; • the verification of the information presented in the half-yearly management report. These condensed half-yearly consolidated financial statements are the responsibility of the board of directors. Our role is to express a conclusion on these financial statements based on our review.

1. Conclusion on the financial statements

We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed half-yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 – standard of the IFRSs as adopted by the European Union applicable to interim financial information. Without qualifying our opinion above, we draw attention to the note 2.2.1.1 « Accounting standards » of the notes to the half-year consolidated financial statements explaining the change in accounting method emanating from the implementation of IFRS standards 15 “Revenue from Contracts with Customers” and 9 “Financial instruments”.

2. Specific verification

We have also verified the information presented in the half-yearly management report on the condensed half-yearly consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed half-yearly consolidated financial statements.

Courbevoie and Paris-La Défense, July 25, 2018 The Statutory Auditors French original signed by

MAZARS ERNST & YOUNG et Autres Gilles Magnan Jean-Roch Varon

124 — 2018 First-half financial report 4

CERTIFICATION OF THE PREPARER

2018 First-half financial report — 125 4 Certification of the preparer

CERTIFICATION OF THE PREPARER

I certify that, to my knowledge, the abridged accounts for this past semi-annual period have been prepared in accordance with the applicable accounting standards and give a faithful image of the assets, of the financial position and of the results of the company as well as of all of the companies included in the consolidation, and that the attached semi-annual business report presents a faithful picture of the important events occurring during the first six months of the financial year, of their impact on the accounts, of the major transactions between related parties, as well as a description of the main risks and main uncertainties for the remaining six months of the financial year.

31 July 2018,

Monsieur Christophe Kullmann Chief Executive Officer Person in Charge of the Financial Information

126 — 2018 First-half financial report 5

DEFINITIONS, ACRONYMS AND ABBREVIATIONS USED

Cost of development projects Firm residual term of leases This indicator is calculated including interest costs. Average outstanding period remaining of a lease It includes the costs of the property and costs of calculated from the date a tenant first takes up an exit construction. option.

Debt interest rate Green assets • Average cost: “Green” buildings, according to IPD, are those where the building and/or its operating status are certified as HQE, Financial cost of bank debt for the period BREEAM, LEED, etc. and/or which have a recognised level + financial cost of hedges for the period of energy performance such as the BBC-effinergie®, HPE, Average used bank debt outstanding in the year THPE or RT Global certifications. • Spot rate: Definition equivalent to average interest rate over a period of time restricted to the last day of the Like-for-like change in rent period. This indicator compares rents recognised from one financial year to another without accounting for changes Definition of the acronyms and in scope: acquisitions, disposals, developments including abbreviations used the vacating and delivery of properties. The change is calculated on the basis of rental income under IFRS for • MRC: Major regional cities, i.e. Bordeaux, Grenoble, strategic activities. Lille, Lyon, , Aix-Marseille, Montpellier, Nantes, Nice, Rennes, Strasbourg and Toulouse This change is restated for certain severance pay and income associated with the Italian real estate (IMU) tax. ED: Excluding Duties • Given specificities and common practices in German ID: Including Duties • residential, the Lile-for-Like change is computed based • IDF: Paris region (Île-de-France) on the rent in €/m2 spot N versus N-1 (without vacancy • ILAT: French office rental index impact) on the basis of accounted rents. • CCI: Construction Cost Index For operating hotels (owned by FDMM), like-for-like • CPI: Consumer Price Index change is calculated on an EBITDA basis. • RRI: Rental Reference Index Restatement done: • PACA: Provence-Alpes-Côte-d’Azur • deconsolidation of acquisitions and disposals realised • LFL: Like-for-Like on the N and N-1 periods • GS: Group share • restatements of under work assets, i.e.: • CBD: Central Business District • restatement of released assets for work (realised on • Rtn: Yield N and N-1 years) Chg: Change • restatement of deliveries of under-work assets • (realised on N and N-1 years). • MRV: Market Rental Value

2018 First-half financial report — 127 Definitions, acronyms and abbreviations used  5

Like-for-like change in value Portfolio This indicator is used to compare asset values from one The portfolio presented includes investment properties, financial year to another without accounting for changes properties under development, as well as operating in scope: acquisitions, disposals, developments including properties and properties in inventory for each of the the vacating and delivery of properties. entities, stated at their fair value. For the hotel operating properties it includes the valuation of the portfolio The like-for-like change presented in portfolio tables is consolidated under the quity method. For offices a variation taking into account CAPEX works done on in France, the portfolio includes asset valuations of the existing portfolio. The restated like-for-like change in Euromed and New Vélizy, which are consolidated under value of this work is cited in the comments section. The the equity method. current scope includes all portfolio assets. Restatement done: Projects • deconsolidation of acquisitions and disposals realised on the period • Committed projects: these are projects for which promotion or construction contracts have been restatement of work realised on asset under • signed and/or work has begun and has not yet been development during the N period. completed at the closing date. The delivery date for the relevant asset has already been scheduled. They Loan To Value (LTV) might pertain to VEFA (pre-construction) projects or to The LTV calculation is detailed in Part 4 “Financial the repositioning of existing assets. Resources”. • Controlled projects: these are projects that might be undertaken and that have no scheduled delivery date. In other words, projects for which the decision to Net asset value per share (NAV/share), and launch operations has not been finalised. Triple Net NAV per share NAV per share (Triple Net NAV per share) is calculated Recurring Net Income pursuant to the EPRA recommendations, based on the The RNI is defined as the recurring result from operational shares outstanding as at year-end (excluding treasury activities and it is used as a measure of the company shares) and adjusted for the effect of dilution. performance. The RNI per share is calculated on the diluted average number of shares over the period Occupancy rate (excluding auto-control). The occupancy rate corresponds to the spot financial • Calculation: occupancy rate at the end of the period and is (+) Net Rental Income calculated using the following formula: (-) Net Operating Costs (including costs of structure, costs 1 - Loss of rental income through vacancies on development projects, revenues from administration (calculated at MRV) and management and costs related to business activity) Rental income of occupied assets + loss of rental (+) Income from other activities income (+) Costs of the net financial debt

This indicator is calculated solely for properties on which (+) RNI from non-consolidated affiliates asset management work has been done and therefore (-) Recurrent Tax does not include assets available under pre-leasing agreements. Occupancy rate are calculated using (+) RNI from discontinued operations annualised data solely on the strategic activities (=) Recurring Net Income portfolio. The indicator “Occupancy rate” includes all portfolio Rental activity assets except assets under development. Rental activity includes mention of the total surface areas and the annualised rental income for renewed Operating assets leases, vacated premises and new lettings during the Properties leased or available for rent and actively period under review. marketed. For renewed leases and new lettings, the figures provided take into account all contracts signed in the period so as to reflect the transactions completed, even if the start of the leases is subsequent to the period. Lettings relating to assets under development (becoming effective at the delivery of the project) are identified under the heading “Pre-lets”.

128 — 2018 First-half financial report Definitions, acronyms and abbreviations used 5 

Rental income Yields/return • Recorded rent corresponds to gross rental income The portfolio returns are calculated according to the accounted for over the year by taking into account following formula: deferment of any relief granted to tenants, in accordance with IFRS standards. Gross annualised rent • The like-for-like rental income posted allows (not corrected for vacancy) comparisons to be made between rental income Value excl. duties for the relevant from one year to the next, before taking changes scope (operating or development) to the portfolio (e.g. acquisitions, disposals, building works and development deliveries) into account. This The returns on asset disposals or acquisitions are indicator is based on assets in operation, i.e. properties calculated according to the following formula: leased or available for rent and actively marketed. Gross annualised rent • Annualised “topped-up” rental income corresponds to (not corrected for vacancy) the gross amount of guaranteed rent for the full year based on existing assets at the period end, excluding Acquisition value including duties any relief. or disposal value excluding duties

Surface • SHON: Gross surface • SUB: Gross used surface Unpaid rent (%) Unpaid rent corresponds to the net difference between charges, reversals and unrecoverable loss of income divided by rent invoiced. These appear directly in the income statement under net cost of unrecoverable income (except in Italy where unpaid amounts not relating to rents were restated).

2018 First-half financial report — 129 – Tel.: +33 (0)1 55 32 29 74 (0)1 55 +33 – Tel.:

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