Colonial SFL, Socimi S. A. (COL) Earnings Call Transcript & Summary

Welcome to the Inmobiliaria Colonial Half Year 2020 Results Presentation. [Operator Instructions] I'm now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial.

Thank you. Good afternoon. Good morning to everyone. A pleasure to be here again sharing the results for the first half of this year with all of you. Today, on the line and through the line, I have with me Carmina Ganyet, Corporate General Manager; and Carlos Krohmer, Chief Corporate Development Officer that, as usual, are going to support this presentation and present the results to all of you. I'm going to follow the presentation as usual, but today more than ever. I'm Page 5 with the main highlights of our results for this first half of the year. We have recorded for this first half of the year, an EPRA NAV of EUR 11.2 -- EUR 11.21 per share, that is 7% year year-on-year growth. So that means also a total shareholder return for 2019 and after today, year-on-year of 8.4%. The gross asset value is now at EUR 12.2 billion, which is 4% like-for-like year-on-year. The gross rental income of the company is EUR 177 million, 1% like-for-like. The net rental income is EUR 165 million, 4% like-for-like. The recurring earnings for this first half are EUR 83 million, which is a 20% growth year-on-year. And the recurring EPS is EUR 0.1624 per share, which is 20% up. The group net profit is finally EUR 26 million after a negative return that is of losses. I will go in detail, into the presentation, of these results, but mainly what you will see is, first of all, an idea of stability regarding any KPI that has to do with valuation, and growth regarding any vision of the earnings -- recurring earnings of the company or of the EPS. Behind these numbers, you will see that basically, we remain a company with a very high level of occupancy, which is at 96%, as of today. And I would say, more importantly, and I will come to details later on, with a very good level of letting activity ongoing so far. As I will explain later. Basically, this second quarter of the year has been very positive. And despite what anyone could think of at the beginning of this second quarter, at the end we acknowledge that it's much more similar to the first quarter to the pre-COVID world than to any, let's say, more negative kind of scenario that we may foresee for the future. It's been a good quarter in terms of letting activity. And that explains a little bit this situation of the results at the end of this first half. You will see also that it's not only has been a good quarter in terms of letting activity, it also has been a very good quarter in terms of rental growth and positive release spreads. We will show you also some improvements regarding our project pipeline, which now is reaching 33% of pre-letting. And it's widely well-known already, we've been able to carry through the disposal of certain noncore assets as were -- as it was expected. On Page 6, we go a little bit more into the detail. We're saying EPRA NAV 11.2%. The previous one was close to 11.5%. So it's -- the NAV, it's down 2%. So 2.2%, 6 months. But if we look at the year-on-year, it's 6.5%. Looking at the GAV, which is in the end, it's the primary source of this NAV, the GAV, it's now EUR 12.16 billion, which is 0.2% down from December '19 or 4% up year-on-year, 12 months ago. And if we go into the breakdown of this, you can see that we have a 2% downside on the valuation of Madrid and Barcelona, and a 1% up in the case of Paris. If instead of talking about gross asset value, we talk about profit and loss, the gross rental income, it's EUR 177 million, 2% growth like-for-like. The net rental income will be EUR 165 million, which is a 5% amount like-for-like. Other recurring net profit would be EUR 83 million, which is a 20% plus than the previous number. The same happens with the recurring EPS, which is senior EUR 0.1624 per share, which is 20% up. The total amount of balance sheet, as I said, it's EUR 12.1 billion for the gross asset value, EUR 5.7 billion for the EPRA NAV. Regarding the loan-to-value of the company, it's -- at the end of this first half, it's 36.6% and we remained at a very solid liquidity of EUR 2.5 billion. And as everybody knows, the same rating from Standard & Poor's, BBB+ stable. If we go to the next page, the Page 7, and looking at other KPIs. As I said, the first half of the year has been strong. We ended with a vacancy of 4%. We will explain that later on in more detail. But we have signed 42,000 square meters, which is outstanding, as we will see later on. And that is the result of 32 transactions that have been signed. In terms of like-for-like, as I said, the GRI of the company went up 1%, maybe more interestingly because here is a number of things happening. If we look at the offices themselves, the like-for-like growth of the offices for these 6 months is 3%. Even more interesting, if we talk about net rental income, we've been working hard on the efficiency of our portfolio. And if we talk about growth, like-for-like for our portfolio, as I said, in terms of net rental income, the growth for the group, it's 4% year-on-year, reaching a new number of EUR 165 million. And if we concentrate in the like-for-like growth of the offices, it's a 5% this -- like-for-like year-on-year rental growth for net rental income. In this page, we also remember, which is obvious, which is our positioning, which is as of today is 76%, as we like to say, real CBD. 60% of our portfolio being based in Paris, 40% in Spain and 93% of this portfolio with good levels of certifications by BREEAM or LEED with this good levels of sustainability. If we look at the numbers regarding the rental growth. If we talk about release spreads, we remained with a double-digit release spreads, 29%, which are good numbers for all of our markets. If instead of release spreads, we talk about rental growth, meaning the growth between whatever has been signed and the ERV existing at the end of last year, then the rental growth is 9%. And again, as you can see, if we talk about the different markets, it's 8% for Barcelona, 6% for Madrid, 10% for Paris. So that means all markets performing well during this 6 months of 2020. So as you can see, the main KPIs, the main highlights for these periods are good. We'll go more in detail to provide visibility -- additional visibility on this. But the next section, first of all, will be devoted to the management of COVID-19 situation and particularly the client management. As a reminder, in Page 9, we show what we've shown before, which is the main highlights of everything that we've gone through since the situation started last March. I won't go through these because it's very well known. And maybe I would insist on what has happened more recently, between June and July. First of all, the preletting of Marceau in Goldman Sachs in Paris. And second, the end of the period of negotiation with our clients in Spain with an impact of around 2% of the -- our expected gross rental income for this year. And in July, the main highlights have been the disposal of the logistic portfolio through the settlement of Call Option, that Prologis had, and in the presentation of the results, that we are just going through today. As I was saying, Page 10, there are no great news regarding the agreements, regarding the COVID-19 crisis. We have had conversations with approximately 41% of our clients. The agreements are almost finalized. Basically, they are finalized in Spain. There are a few files remaining in France. And the discounts remain very limited. As I said, with everything we've seen so far, it's 2% of our anuual G -- gross rental income. What I saw -- and what we saw and so this can only go through certain changes if final negotiations in France come with any meaningful deviation. But let's say, this message of 2% year-to-date impact would be the current status of this topic. As we stated before, besides this, there are no relevant defaults of payment of the invoice. So it's a default rate of 0.5%, what you have as of today, which means that it's very limited due to the nature of our clients and the nature of the sectors where we are. As you know, our exposure to retail is limited. The same message is the one that would apply to Page 11. Here, what I would like to maybe emphasize is that as we explained in the previous meetings, these discussions with our clients have not only been about getting some allowances or some reliefs regarding the lockdown period, some of them have gone through, it's also been about enhancing the nature -- the profile of the contracts that we have with them. And if -- in one hand, we have this impact equivalent to 2% of our gross rental income as of today, in exchange we've got an extension of the maturities of the contracts for those kind of clients, that is equivalent to between 24 and 36-month of average. And that is a maturity extension of an accumulated 800 months, if you want to look at this, or an additional secured future gross rental income of EUR 40 million due to these longer maturities agreed with those clients who have -- where we have been providing certain agreements due to the situation. So no big news on the COVID end. And as I said, in Spain as of today, at the very least, the situation that happened between March and June is finished. It's finalized. In France, it's not there -- not still finalized. Therefore, this part of the negotiation, it's not still over. But as of today, the numbers will be mainly the same. I will now ask Carlos Krohmer to step in and to explain a little bit on market situation, point 3, and also our operation performance, point 4. Carlos, go ahead.

Okay. Thank you very much, Pere. I go to Page 13. On Page 13, we see the latest available data about the rental market. Basically, what we can see is that the prime rents remain where they were 1 quarter ago. On the vacancy side, it's -- we have, at the moment, just the data point from the end of the first quarter, where the vacancy was quite low. We have not yet the official data, but on June, what we have heard from the brokers is that it will be quite similar. And I understand that in the next days, it will be released. So basically, in the CBD, the supply of product remains very, very low. Regarding demand, as you can imagine, in this COVID quarter, there's not that much visibility, not that much to say. So we will have to see how it looks like in the coming months. If we go to the next page, on Page 14, we have shown here some examples of activity in the 3 markets where we are, with square meters signed and with the prices signed. This is now in the middle of the COVID. Basically, what you can see here is that for CBD, activity remains. And when we look at the pricing levels, we have here in blue on Page 14, the example from Colonial, and in gray, examples from the rest of the market. Activity at the moment, the prices remain where they were. Also activity is low, but the prices remained where they were for the prime product. When we go a step further to Page 15, here, we have shown a snapshot of the investment market. The volume has been low, almost nonexistent in the second quarter. But because obviously, a little bit of uncertain -- on the one hand, the uncertainty, on the second-hand that you cannot do any visits. But what we are hearing now from the brokers is that activity is again picking up. And that for some of the product that is coming to the market, there's quite a lot of demand. The yields, you see them here on the left-hand side, prime yield in Barcelona 3.6%, Madrid 3.35% and Paris 2.75%. And spreads versus the reference rate close to 300 basis points, 286 in Paris and a little bit higher in Madrid and Barcelona. So at the moment, the markets remain with high spreads and interest for prime CBD product remains there. So let's now step into the highlights of the operational performance in Chapter #4. Let me start with Page 17. First, on the left-hand side, on the first 3 columns, you see the volume of letting activity in our portfolio. In the first quarter, pre-COVID, it would be 13,500 square meters. And now in the COVID quarter -- in the middle of the COVID quarter, we have done -- we have almost doubled the activity that we had in the first quarter. So it has been quite a quarter with decent volume. Comparing with the second quarter of last year, Madrid and Barcelona are almost at the same level. So it's quite a somehow normalized volume. Madrid is the one where there has been almost no volume. This is basically because of 2 elements: on the one hand, some of the break options have been extended, and so there was not really a renewal; and the second is that the available product that we have in Madrid is basically in more secondary areas, and it's more challenging. On the right-hand side, you see cumulative for the first half, the KPIs. Here, release spread and maturity, I think Pere already mentioned this in his introduction. So let me then step to Page 18. Here, on Page 18, what we're doing is to do -- to make a zoom on the second quarter activity. So on the quarter that has been fully in the COVID period. As you can see -- you can see on the left-hand side highlighted with a gray shadow. There have been 14,000 square meters in Spain and 14,000 square meters in Paris. On the right-hand side, you see the mix of tenants, of areas, of renewals and letting. But -- so it's a quite healthy mix. And I think the very interesting element is what are the terms of the contracts that have been signed in this COVID quarter. First of all, the maturities are quite good, 7 years on average, if people stay until the end of the contract or 6 years if they stay until the first break option. And the release spreads of this COVID quarter has been 45%, plus 45% in Spain and plus 14% in Paris. And if we compare with the ERV as of December, '19, the prices signed have been plus 10% in Spain and plus 12% in Paris. I insist all of these KPIs are specifically of the Q2 of the COVID quarter. Page 19, there is a little bit of zoom. You see here the full year 2019 release spread, and the first quarter '20 and then the second quarter release spreads. And then on the right-hand side, the prices signed versus ERV 2019, first quarter '20 and then the COVID quarter. As you can see, as of today, the terms that we're signing are quite in line what we had seen so far. Page 20 and Page 21. Page 20 is just to show, as we always do, that this is release spread across the portfolio. It's not just concentrated in a few assets. The most relevant milestone, I'm on Page 21, is a pre-let of the Marceau project. We are now at an 80%, 8 0, of pre-let of the total gross rental income that we expect from this project. We have mentioned this already in previous update calls. We are extremely happy with the transaction and it is a top-tier client, as you can see here. Because they basically, the product is also a high-end product. On Page 22, update on vacancy. Group vacancy stands at 4%. It has increased slightly versus the first quarter. This has basically 2 effects: on the one hand, there has been some tenant rotation in Barcelona. Part of this is also related to our renovation program. And then we have put into operation Grenelle. Grenelle, as you will remember, is one of the assets in our renovation project -- program. It has been released, the square meters have been done there. So it's now available for the market. So this explains the increase of vacancy in the Paris portfolio. Excluding this Grenelle effect, that is basically new square meters that come as an offer to the market, Paris would stand at 2% of like-for-like vacancy and the global vacancy would stand at 3%. If we exclude the vacancy in the secondary Axiare -- former Axiare assets, the core like-for-like vacancy of the CBD assets is at 2% as of June 2020. And here, on the next page, on 23, as I mentioned, here, you see where the vacancy basically concentrated on the 1 hand is Grenelle renovation program that entered into operation. And then on the bottom of the chart here, the assets where we have, as of today, some vacancy or secondary assets that, as you can imagine, are more and more challenging in such an uncertain environment, whereas CBD is much more resilient. Finally, to end with the operating chapter. Just to remind, we just released this some days ago on the logistics disposals, we have settled with the buyer the call option he had for the rest of the portfolio. We signed a disposal -- not a disposal contract in 2019. There was a call option with 2 steps. This has been now settled. And we expect now we will receive now in July, EUR 100 million of cash and then the rest in the fourth quarter of 2020. So with this, I pass to the financial performance chapter.

Thank you, Carlos. Before giving the word to Carmina, just to summarize in this area, basically, I think that the more outstanding highlights are: number one, it's our commercial activity, has been outstanding, as you can see, the numbers even higher than the one of the first quarter. It's true that it's the influence of certain particular file. But second, also, the rents -- consider rents exceed those ERVs of December '19. So as a summary, as we said at the beginning, the traditional performance of this quarter, it looks much more similar to the pre-COVID world in the first quarter than to anything else that you can imagine about the future. Let's now enter into the financial performance. Carmina, when you wish.

Okay. Thank you, Pere. So in this section, as usual, we show you how we have been impacting in the P&L, with a strong performance that we have been described previously. The first one is the gross rental income. The first message here is the gross rental income increase is 2% year-on-year. Having been disposed -- be aware that last year, we've been disposed a very significant amount of nonstrategic assets of more than EUR 400 million. So even considering this disposal program, we have been able to deliver this 2% gross rental income growth. Second message also important impact of the projects and renovations, including also some indemnity adding EUR 6 million to the gross rental income. And third message, very important, this outstanding rental growth like-for-like of 3%, very important levels in Paris -- sorry, in Madrid and Barcelona market. A 9% in Barcelona, 7% in Madrid. And a stable like-for-like growth in Paris, mainly driven by volume, slightly vacancy levels growth rates increasing this semester, some tenant rotation and also some immaterial impact coming from some conference centers that we have in 2 assets in Paris. So totalizing this strong performance of 3% offices, gross rental income with a total amount of 7% growth. In others, as you see here, which represent a very small amount of gross rental income, less than 2.5%, basically, it's driven -- this decrease is driven by retail secondary assets and hotel in Paris. So highlighting the performance of offices of 3% like-for-like. But what are behind this increase of 3%? In Page 27, you can see the operational performance section. The release spread remains very strong. So this is the reason why you see here the price effect of 2.1% in the rental growth and maybe flat in terms of the volume. If you go to the markets, so very important price impact in Barcelona. And also in Madrid, impacted also by volume, basically, because as you see in the previous pages, the vacancy rates being increases significantly also in Madrid. In next page, you know that we are consistently fighting for efficiency in our operational activity. And in this semester, it's what you see here, and this is why -- what we would like to highlight, showing you the growth of net rental income of 4% total portfolio and, specifically, 5% in the office. So this improvement of 95 basis points, basically, it's a combination of increasing occupancy in average terms, but moreover, efficiency cost policy resulting in this outperformance level of growing of 5% plus rental income. In Page 29, we show the other important update in this semester, it's the valuation. As Pere mentioned at the beginning, the valuation remains flat in the 6 months, but growing 4% year-on-year. But what is behind the component -- or what is behind the valuation -- of this levels of valuation? If you go to Page 30, here, we show the details of the price evaluation, what has been impacted in the like-for-like variance due to different reasons. The first reason we'd like to highlight is the positive impact in the valuation of the project delivery. So the project delivery, which has been -- all the projects that have been delivered in the first semester, has been impacted positively, 1.2% in the valuation in the first semester of 2020. The second impact are ERV. As you can see here, the ERV impact is mainly flat. It means that the prices remains ERV spot at the same level, so flat. No impact to the price evaluation to the ERV valuation due to the spot ERV. Okay. The other impact that we highlight and we show here in more zoom analysis is the yield. The yield also has remained flat in this portfolio, especially for prime assets. So for prime office assets has been -- the yields remain -- the prices stabilized the yields at the same levels that we had December '19 in average terms. So this is why you see the impact on the like-for-like gross asset value, mainly flat or 0 impact. And the main impact of this valuation is the growth profile. The growth profile has been updated from the appraisal. Meaning the ERV expectations for the rest of the future of the year. Basically, the appraisals have been updated into the V-shaped environment according to the macroeconomic expectation, which is the main difference as we had December '19. So as a summary, important and positive impact coming from the project delivery. Spot levels remain flat, no impact at all on the prices. Yields remained flat, no impact on the price evaluation. And growth profile accordingly to the macroeconomic environment, which has been impacted for the prime offices, 1.1% on our updated valuations. So very, I would say, as a summary, a flat updated value according to the price evaluation. So if we go to the Page 31, you see here pre valuation impacts, our recurring earnings on our recurring results increases as you see here, 20% from EUR 69 million to EUR 83 million basically driven by a strong net rental income. As you see here, EUR 15 million EBITDA predisposals. And also an important positive impact due to savings on the financial expenses after being optimized the capital structure in 2019. As you can see here in the building blocks, predisposals, the significant -- the recurring earnings shows a significant increase. And also the impact due to the sales of secondary assets. At the end result are recurring earnings of 83%, growing 20% from the previous years and also showing a recurring EPS from EUR 0.135 per share shares to 16.2% -- sorry, EUR 0.162 per share.. In the next page, showing all the P&L and also the different impacts below the recurring earnings is the details, you can see here in Page 32. So the first line, as you -- as I mentioned, the gross rental income increase is 2%, 6% recurring EBITDA, thanks to the improvement on the efficiency side. Also improvement on recurring financial results through saving costs after reorganizing the total -- the capital structure in 2019, so the recurring revenue shows this increase of 20%. Below this recurring earnings, we have here the impact of the asset valuation mainly EUR 100 million negative impact, less than 1% of the total GAV on the EUR 12 billion, basically due to 2 main impacts: one impact is what we saw before on the operational portfolio being adapted by the appraisers, the ERV growth profile according to the V-shaped expectation due to the COVID situation; and the second impact is, as always, the delay in the valuation from the appraisers on some renovation programs, on some project pipeline. As you know, the CapEx is being booked in the balance sheet, and appraisal will be updated in the future or more in the future, according to their different milestones that this project pipeline will be achieved as, for example, preletting, or as for example, the development program after being completion. So this is a small decoupling in terms of time line between the CapEx that has been booked in the balance sheet and the recognition of this valuation from the appraisal. So this combination, these 2 impacts mainly is the impact in the P&L that you see here, maintaining the valuation flat -- the impact from this valuation being flat. This negative impact basically is due to these 2 effects that I've mentioned. So as a result, the profit attributable to the group is minus EUR 26 million due to this accounting impact, due to the -- or as a consequence of this, mainly recognition of the V-shaped expectation in the growth profile ERV in the appraisal, which is very immaterial. But -- and the other impact, as I mentioned, this delay in recognition from the appraisals on the project pipeline and the CapEx being invested in the balance sheet. So if we go to the Page 33, I think it was already mentioned. And then also we mentioned in the previous call we had, we have been confirmed being investment-grade from the rating agencies. Also, we have been able to increase our liquidity position. Signing a new ESG loan in Spain of EUR 200 million linked to the GRESB rating. And also, we have recently increase our liquidity also in France. You know that we have some revolving lines undrawn, but also, we have been extended a new revolving facility until 2025 of EUR 150 million. So -- and also, in France, we have been issuing new bonds, EUR 500 million with a fixed coupon of 1.5%, 7 years maturity, a very well acceptance from the market for more than 4x oversubscriptions with a very well balanced profile of investors. So today, we have a very, I would say, solid capital structure. As you can see in Page 34, basically, the key indicators of this solid capital structure is a net debt of EUR 4.6 million, which represents 36.6%. Loan-to-value and with an average maturity of, broadly speaking, 5 years. And also with a cost of debt of 1.69%, considering that the majority of our debt are unsecured, so with corporate guarantees. And it means that, thanks to the undrawn balances, undrawn facilities and also the cash position today, our liquidity position, it's close to EUR 2.5 million (sic) [ EUR 2.5 billion ], which represents more than 6x the maturities in 2020 and 2021. So a healthy position of liquidity, healthy capital structure, although, of course, we work hard to improve in a daily basis, this capital structure for a better comfort and for our -- also our stakeholders. So as a consequence of the updated valuation and as a consequence of this debt position and also due to the EPS growth of 20%, as we saw before, in Page 25, you see the NAV updated. And what it represents in terms of annual shareholders' return. So our net asset value comes from EUR 11.46 to EUR 11.41 considering the dividend that has been already distributed to our shareholders. And considering this dividend, the net asset value is EUR 11.21 per share, which on annualized basis, represents a total return per share of 8% and flat considering the last 6 months. So I think on the next page, you can cause the different sources of this total shareholder return. Basically very important, the Value captured by the project that has been delivered in this first semester. So also the important recurring EPS, which has been added with EUR 0.16 to our NAV. So in this page, as you can see, we reinforce our strategy in the Alpha approach. Also in this environment, delivering this annual shareholder return of 8% and flat in the last 6 months, we believe that shows the right approach of this Alpha strategies and also the right approach of the specialty of our activity. And we believe that the CBD well-balanced diversification has demonstrated this resilience or risk profile of the resilience, accordingly the environment situation that we have been facing in the last quarters.

Thank you, Carmina, then let's move into the next section. As you know, we want to highlight not only our financial information, but also our non financial KPIs. And the next session is devoted mainly to this. I'm in Page 38, basically in page 38 onwards, what we are highlighting is a fact that we continue on our strategy of increasing the number of assets and the share of our portfolio which has a maximum energy efficiency standards. And it was at 92% of our total portfolio at the end of 2019. Now it's 93% of all our portfolio, which has either a LEED or a BREEAM certificate. In other words, EUR 9.4 billion of our total portfolio has this kind of BREEAM certificates and EUR 2 billion have LEED certificates. Our strategy is not only to have the best efficiency standards at the asset level, but also at the company structural level. We have, therefore, involved in green financing with more than EUR 350 million of ESG loans. Colonial, on one hand, formalize a sustainable loan of EUR 200 million with a margin linked to the GRESB rating. And also together with a sustainable loan from 2019, which amount to EUR 150 million, that means that today, Colonial has issued EUR 350 million of sustainable financing. On Page 39, I'll comment about decarbonization and the Paris agreement. During this first half of this 2020, Colonial has stated their objectives regarding carbon-neutral policy. Our idea is to be carbon neutral by 2050 and to obtain a reduction of 75% of our footprint by 2030. That would be the general framework. The more specific framework of this year shows a very important reduction of 59% like-for-like equivalent kilos of C2 per square meter, only 8-kilos at the end of 2019. So I think that is in a very good shape. Page 40 has all of the big numbers of scope 1, 2 and 3 in absolute figures with reductions of 35% for 2019 compared to 2018. Also, in terms of scope 1 and 2, in figures, like-for-like, you can see this reduction of 59% regarding 2018. And therefore, only, as I said, 8-kilograms of CO2 equivalent per square meter, which I think it's very -- are very high standards. Regarding this first half of this year, in Page 41, just to remind that we finalized execution of an agreement in order to build the first wood office building in Spain. It will be a small premise, but that we pretended to be a sort of our decarbonization lab with everything that this involves and this will allow to accelerate our decarbonization strategy. Page 42 and 43 million come with some details on this. So as you can see, the current status of Colonial regarding decarbonization strategies, it's right on a track. So having gone through this, section 7 is about final remarks on our strategy. Our strategy, this is not a surprise, it remains consistent with the past. Our primary focus is to be a super core CBD company. I would like to highlight that this is not an attachment to the past, even if we have been always a company very well-known for this. If we had the opportunity of going to through detailed discussions, not about the past, but about the future. I think that basic conclusion, we could draw is that the kind of positioning that Colonial has is probably the best one to follow any challenge that we may face in the future. Basically, our super core approach is the one to allow us to provide, in the end, what the client of the future, what the investor of the future will demand, which is what I call the 3 Es: which is efficiency; experience; and environment. So if you think about what exactly the future will look like, it will probably be about these 3. And the best way to deliver these 3 is really to have a super core kind of portfolio. On top of that, if we talk about returns, if we talk about risks, I think that is statistically proven now that the kind of assets that we own are much better in terms of risk-adjusted returns than any other kind of portfolio. That's why we are quite comfortable in our positioning. Today, having a super core portfolio is not only about assets, it's also about clients with a strong solvency. That's what means intensive portfolio. Well, that was what Colonial has. So Page 46. It's a very usual slide just to reinforce this message of what the core portfolio is. And I'm saying that because these days, everyone is talking about resilience. Everyone is talking about being defensive and everyone, let's say, wants to present themselves this way. I think that our map of locations speak for themselves, as usual, and more than ever, we would like to reinforce that message. Maybe today, I would like to be a little bit more vocal on friends. Just to again highlight the obvious, but I think that it is important for Colonial. What we are showing in Page 47, it's a number of messages. Number one, we have an exposure as Colonial of 60% to the Paris market. 40% is the exposure to Barcelona and Madrid, 60%, as I said, is to Paris. What kind of tariffs? This is important. If you look at the chart, on the right-hand side of this slide, you can see that there are many different kinds of behaviors today in Paris. And the real interesting situation about supply and demand, it has to do really with certain neighborhoods, let's say, really central and not so much with others, which are not so central. Going back to the left of this slide, let's remember where our assets are. And in picture, which is in the middle of this slide and also in the numbers below. Basically, what we can see here is that the positioning of SFL to the, therefore, of Colonial, to the neighborhoods, which are really outstanding in terms of lack of supply and super strong demand, that these neighborhoods is where SFL is positioned. And basically, in relative terms to the peers -- to our peers, we are much better off. As this chart shows below. We have 10 billion -- sorry, 10 buildings of more than 15,000 square meters in the central location of Paris, where others are not so well exposed. So therefore, we feel quite resilient if we summarize this and reminding that Colonial is 60% exposed to Paris, and in particular, to specific part of Paris, that is a real one that is being performing. Page 48 is just also to remember that when we talk about these valuations, what our valuations are today are in very relative terms, in very good relative terms. Regarding the valuations that we see in the market, in this Page 48, you can see the implied valuation yields in our portfolio in Barcelona, Madrid and Paris. We can also look at this in terms of spread valuation yields, or we can look at this in terms of capital value per square meter. In any of the metrics, I think that the valuation that is implied in our books, it's quite compelling, looking about the reality of the market. Reality of the market is that, as you can see in Page 49, it's today happening with a number of transactions, which are explaining to what extent the positioning of Colonial, it's a good one. Page 50, I said that our portfolio is defensive in terms of the nature of our assets and also in terms of the nature of our clients. In this Page 50, we'll like to provide a little bit of highlight of the risks embedded to our client profile. When the year started, in our previous presentations, we said that the pending maturities for 2020 had an equivalent amount of EUR 72 million. As of today, as we end the first half of the year, these pending maturities are only EUR 29 million, out of which there are already 9 where either there's been a break option not executed, either there's been already kind of a signature, or where we are under advanced stages of negotiation, or the retention is highly expected because of the number of circumstances. Therefore, for the remaining of the year, we have to concentrate in maturities which are worth EUR 20 million. Where I would like to highlight that part -- the share -- the part of this EUR 20 million, that is actually having an impact in 2020 is not even EUR 2 million. It's EUR 1.7 million. So we are working on maturities that are worth EUR 20 million, out of which EUR 1.7 million will have an impact in this year. That's the extent of the risks that we are managing now. In the meantime, as you can see on Page 51, the reality of what we have been signing is very strong in terms of release spread that has been captured. And therefore, in terms of price potential reversion that you have as of June 2020 for all of the 3 markets. Page 52, a quick word on our pipeline. This pipeline is well known. It's EUR 1.3 billion of pipeline. I also -- I always highlight that out of this EUR 1.3 billion, there's a small figure remaining to be invested because most of this has to do with acquisition cost and CapEx already incurred. So there's no real remaining cash flow risk here. And here in this slide, what you can see is that after the preletting of Marceau -- 80% of Marceau, the preletting of the pipeline has gone from 25% to 33%. And if we look about -- this as a percentage of the committed pipeline, this goes even more than that 50%. In other words, at the beginning of the year, we expect that in the future, EUR 84 million of rents, EUR 84.7 million coming from this pipeline. This new expectation is now EUR 85.4 million, and we have a preletting of 33% of this pipeline. And as I stated in previous meetings, in this table about this pipeline -- detailed pipeline, we highlight the expected yield on cost. This yield on cost does -- is not changing materially from our previous disclosures, not that we have done. As we today, remain confident that these yields and costs will be there. In fact, as you can see in Page 53, if anything today, the expected yield on cost of our pipeline has gone up from 6.6% to 6.7%, basically because the Marceau project has been better than expected. And therefore, we remain confident that this pipeline will be able to send the company from a level of EUR 353 million of gross rental income to full project reversion level of EUR 436 million. Finally, a word about investments and disposals. This picture tells the story, what we have done in recent years. Colonial is a company that's been investing heavily in the period, let's say, 2015, 2018, EUR 2 billion more or less. In 2018, we started to change in the Alpha III and Alpha IV to more net divesture, net seller kind of a strategy, which has been the case in last year and this year so far. So our strategy is mainly the one of a net seller, but also the 1 of a company that consistently is doing the flights to quality kind of strategy. Basically, meaning that every time that we have been selling, we've been selling noncore or secondary kind of assets. Every time that we've been buying, we've been buying real prime. That's basically about strategy. So to finish with this presentation, Page 56. I won't repeat the numbers because we've gone through them extensively today. But basically, the idea is the one of, first of all, stability regarding net asset value, gross asset value. So there's a certain, let's say -- a certain trend downwards in the numbers, but that is limited, as you have seen. On the other hand, you've seen a very solid growth both in terms of income, that has to do with a good level of activity and more over with a good level of rental increase. As I said several times, the second quarter has been much more similar to the first quarter or to last year than anything else. And also this means, as a consequence, our recurring earnings are growing at a very good level of 20%. So these are the basic messages for today. We have maybe a number of additional things that we could share, but now maybe time for any questions that you may have. Thank you.

[Operator Instructions] The first question comes from Oliver Carruthers from Goldman Sachs.

I just wondered if you could possibly share some insight in the return-to-work strategy with your clients. What proportion of them -- or what proportion of their employees are currently in the office and how has that evolved over the last few weeks? And perhaps any insight that you might have in terms of how they've said that will evolve in the coming weeks? And how does that depend on what governments are saying?

Yes. I would -- thank you for your question, Oliver. I would say that basically, our clients are mainly in a situation of wait-and-see still as of today. On the regular studies that we do and conversations that we have with them, the main answer that comes is we have to wait and see before we have a more specific policy about how to manage this COVID situation. So I would say that most of them are still, let's say, giving a priority to work from home for their employees and/or a rotation policy for the employees, which are coming -- starting to come to the office. But I would say that nonrelevant trends have been seen so far. Because I think that basically, most of our clients in Spain and friends have decided to be prudent and not to do big shifts in what they do for the moment.

The next question comes from Celine Huynh from Barclays.

3 questions from me, please. My first question is on the like-for-like rental growth. Can you just clarify the like-for-like rental growth number you're showing, that 1%, including minus 1% in Paris. I recall that SFR this morning reported a minus 3% in Paris. I understand there might be some differences between GRI and NRI like-for-like. But what is the like-for-like net rental income growth for the whole portfolio -- for the whole Colonial portfolio, please? The second question would be on the accounting treatment of COVID-19. I think you mentioned 2% of rents at risk previously. Can we know where they could be accounted for in the P&L? I mean -- so basically, so I'm trying to understand what is accounted for already and what could come in H2? Also, I see that you excluded EUR 7 million of extraordinary provision and expenses. What is insights, please? And my third question will be on Slide 15 of your presentation. It looks like the yields you're reporting has been flat versus December '19. Does this Slide 15 is kind of showing a 10 bps yield expansion in Madrid and Barcelona. So do you think that the values can account for this in H2? Or do you think the yield can continue to expand by the end of the year?

Thank you very much for your questions. So if Carlos, you want to deal with the first one, please?

Yes, sure. Okay. So just to clarify the like-for-like figures in our presentation are on Page 26. So the like-for-like gross rental income for the total group is 1%. And then we have to have the split. If we look at the office portfolio, it's plus 3%. And in Paris, the office portfolio is 0.8%. When we talk about the office portfolio, both in Spain and France, we talk about the office buildings, also the high street retail in the ground floor of the office buildings, and we talk about the prime Galerie, Champs-Élysées and prime federal retail scheme. So what is not in this office figure that is the figure that is in others? The figure that is in others is the logistic assets. The 3 totally secondary retail assets from Axiare and an asset class that has really nothing to do with our core activity, this is the last hotel that we have, that is the Hotel Indigo in Paris. So this is what is in the others impact. So if you add the Hotel Indigo, that is a Paris impact to the Paris figure, you get the total Paris 3% like-for-like that has been flagged by the Paris subsidiary. If we go really to say and differentiate core CBD prime commercial product with other products, this is what we can see here. So 3% in our core portfolio. And then, as I said, other uses that are Axiare car retail, the logistics and the hotel are in these others.

Carmina, can you cover the second and the third question, please?

Yes. The second question I think is about how we booked the agreements with the clients. So basically, if the agreement are a modification, so this is less gross rental income that will be booked in the P&L in 2020. If the agreement is linked to some deferral of payment or deferral of rent, it should be accrued during the period that this deferral is being agreed. Having said that, in Paris, for example, all the agreements that we have reached with our clients, almost 90% of these deferrals will be collected this year. So no impact in 2020 because of the accrual accounting rules. In Spain, it will be 50-50. So it will be delayed a little bit. So a small impact in 2020. But being, I would say, collected between 2020 and 2021. So yes, it's less gross rental income if there is a modification, accrual of the rents during the period that has been agreed of this -- for this deferral. On the extraordinary or...

Sorry, Carmina. The deferrals you're talking about, where can I find them in the P&L?

No. It's -- you cannot find enough separate splitted. So it's not -- it's in the balance sheet. You can see in the balance sheet and assets to be accrued. It's the same of a void period of any new contracts that we face with our clients. So you can see in the balance sheet.

Sorry, now you're assuming for now that you're going to get the rent by the end of the year? Those deferred rents?