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

Thank you. Good afternoon. This is Pedro Vinolas speaking. I will be presenting the transaction that we want to share with you today. But as usual, I have with me Carmina Ganyet, Chief Corporate Officer and Carlos Krohmer, Chief Corporate Development Officer for any additional comment or question that it may be necessary. What we would like to share today to you, it's one initiative that in fact represents two different initiatives that we would like to present. The first one has to do with our capital structure. We would like to announce that today, we signed an agreement with CriteriaCaixa that will become, as a consequence of this agreement, a new reference shareholder of Colonial. This will happen through capital increase -- a capital increase in kind for a total amount of EUR 622 million, which will deserve a number of shares that will represent a blended price of EUR 6.1 per share [indiscernible] for a dividend of around EUR 7.1 per share. That is a very significant premium on current share price. And if you allow me on the weighted average price of the last few days, I think then in excess of 20% if we look at the last 10 days. This contribution will include 2 different layers. The first one is a contribution in cash of EUR 350 million. And there is second one of a contribution of assets that currently belong to Criteria, more specifically to InmoCaixa, which is real estate branch. And this second layer of contribution, the one in assets, will include 60% of assets in the category of living or residential, and 40% of this contribution will be in the office segment. This contribution and this initiative of Criteria in order to become a new reference shareholder in Colonial is in the framework of a strong endorsement of Colonial strategy and which is taking place with a long-term strategic investor with an industrial growth approach. So this is the first thing that I wanted to share today. There's another thing which is very much related, which is the fact that at the same time, we are announcing the launching of a new project pipeline that the so-called Alpha X, which is an initiative in order to develop in excess of 110,000 square meters that will involve a CapEx for circa EUR 385 million. That is a very interesting initiative of growth opportunities, where we expect very interesting returns with leverage IRRs in the range or in excess of 9%. This new initiative will go hand in hand with the assets contributed by Criteria for a total amount of EUR 272 million. As I said, this contribution will have a mixed nature 60% living, 40% office, also with interesting expected returns. And I think that putting both things together, the capital structure re-enhanced with Colonial with Criteria as a new shareholder, and this reloading of Colonial's core growth profile, I think that we have to understand this in a framework of increased financial flexibility for opportunistic acquisitions. That is, we expect these initiatives to be the first layer of this growth story, but we are doing this in a framework of increased financial flexibility in the future. The financial impacts of this transaction are as follows: First of all, we would like to highlight more qualitative element, and that is that this transaction allows for a more attractive total shareholder return, basically because it allows Colonial to fully develop its capacity through new growth projects and because the company is doing this to increase financial flexibility. That will be the first qualitative element that it's more linked to the long-term strategy. More -- going into the short term of the immediate financial impacts or financial implications. Well, we believe that this deal -- it's attractive first of all, because it's taking place at a premium or relevant premium on share price. As I said before, I think it's 22% above the weighted average of last week. And that means, let's say, a strong endorsement for the value of the company. From capital structure point of view, it's very accretive in terms of LTV. That is an improvement of more than 450 basis points. That is, of course, because this transaction includes no debt whatsoever. And at this level, I would like to highlight that we believe that this LTV improvement is to remain sustinent over time, not only as an immediate impact. Regarding the EPS, we confirm that the guidance that we disclosed for this year remains unchanged post-transaction that is, looking at the return profile of Colonial for the year 2024, the EUR 30, EUR 32 range in terms of euros per share, remains unchanged, which is relevant, taking into account the nature of this transaction that includes a capital increase. And of course, this transaction has a slightly dilutive impact on the last reported NTA, which I would like to emphasize that is the NTA of December 2023. We expect -- we estimate that a new number post-deal would be around EUR 9.55 per share. That is 4% less than the available number for the end of 2023. And finally -- and by the way, I'm on Page 4 now of the presentation, a comment on governance. As I said, CriteriaCaixa is expected to own circa 17% of Colonial post-transaction, roughly speaking, in line with Qatar Investment Authority that will remain in a similar range. And last but not least, to be more specific, what we signed today is an MOU that now we have to execute. This means that we will have to call for a general shareholders' meeting, an extraordinary shareholders meeting, that probably will take place during the month of June after the formal issues that have to take place in a contribution in kind of capital increase have been fulfilled, which will take place in the remaining part of this month of May. I will go now more into the details. So first of all, I would like to go more in depth on the first thing that I mentioned, which is the fact that Colonial is reinforcing its capital structure with CriteriaCaixa as a new shareholder. And on Page 6 now, and just to emphasize again, we will be doing a capital increase of EUR 622 million at a price of EUR 7.1 per share pre-dividend. This will be subscribed by an institutional, long-term investor like CriteriaCaixa is, at an obvious premium to the share price that we've seen recently. And this, we believe that, is showcasing Colonial's value potential. This EUR 7.1, it's premium on year-to-date VWAP and above also obviously current trading. This transaction is all equity, so will provide substantial deleveraging and will provide enhanced financial flexibility and of course, will significantly increase the market cap of the company post-transaction. This contribution is distributed in 2 different layers. This first contribution in assets for a total amount of EUR 272 million. The way this EUR 7.1 blended price has been drafted is based on the fact that the EUR 272 million contribution of assets, it's being valued with an NTA parity December 2023 as the basis for the contribution. And the contribution in kind, EUR 350 million is done at EUR 5.80 which is the average price of the last few days. These two things put together is what are leading us to this EUR 7.1 of blended average price. We emphasized a technical issue. Just for clarification, as you know, the next ordinary shareholders' meeting will be approving and, therefore, distributing an ordinary dividend, the one that we already expect of EUR 0.27 per share as this contribution of Criteria and delivery of the shares to them will happen after the dividend is paid. The blended price post-dividend will be EUR 6.83. We believe that this transaction is very positive, very good for Colonial from a short-term point of view, but more importantly, from a long-term point of view. It's even more important, the qualitative element, the quantitative element. CriteriaCaixa is one of Europe's leading investment holding companies. And what we are doing through this transaction is reinforcing our capital structure with a new long-term and prestigious shareholder that is total catalyst for Colonial's growth strategy. I will now jump into Section 3, which is about the transaction rationale of this announcement. And I will jump into the other part of the equation. The fact that today, we are also announcing the reloading of Colonial's growth with the launch of a new project pipeline. I'm on Page 8 of the presentation. We announced that we will be launching a project pipeline that will include 4 projects, 2 based in Spain, 1 in Madrid and 1 in Barcelona; 2 based in Paris. These 4 projects account for more than 110,000 square meters of prime assets, including EUR 385 million of CapEx to be invested. All of them are within the philosophy of urban transformation with good returns, as you will see, with respect to yield on cost in excess of 6%, that will allow for substantial reversion to be captured with more than EUR 64 million of rental revenues. And as I said, within a framework of urban regeneration, that means that all of them include philosophy that goes into the direction of urban mixed-use transformation in other nature like healthcare or life science or business companies. Besides this project pipeline to be launched, Colonial will be developing and extracting additional value from 8 assets to be contributed by CriteriaCaixa in this transaction, again, in line with this urban regeneration strategy, as I said before, with a total value of EUR 272 million, 40% office, 60% living and with -- on one site, offices based in Madrid, CBD and Mendez-Alvaro and one asset based in Barcelona and a number of units in the living sector, also basically Madrid and other cities. To go more into detail, Page 9, the first 4 projects that I was describing that are based on the existing portfolio of Colonial. What we intend to develop is, as I said, 2 projects in Spain, 2 projects in France. On the left-hand side of this slide #9 will be the first one, we already provided certain details in the past, is Sancho de Ávila, a project of transformation of a current office building into a healthcare unit -- into a healthcare project based on an already existing agreement -- already pre-let with a leading Spanish operator with a 30-year contract. And that means that we expect from this project a very sound return, but particularly an even more, a very good risk-adjusted return because we are talking about a pre-let unit. The second one, and I go into the Paris zone for a minute, has to do with Condorcet. Condorcet, it's an existing asset that belongs to SFL, 24,000 square meters. Here, we are launching a project for a future campus on the 9th [indiscernible] where we pretend to create additional GLA in a mixed-use approach basically based in office, but also open to other users in the field of sustainable housing and sustainable accommodation. The third one would be Santa Hortensia, the former IBM headquarters in Madrid, almost 50,000 square meters. And there, we are in advanced progress for identifying different mixed-use strategies that will be able to deliver very attractive on-year returns and also leverage returns with, as I said, a development of a mixed-use approach based in office and other uses. And finally, another one that is already on the way. It's the project scope in a building, which is the former [indiscernible] headquarters in Paris, where multipurpose building offering a unique range of services with generous outdoor spaces is already being developed by SFL. It's a project next to one of the main transportation hubs, the Gare de Lyon in Paris. And obviously, it will have the best standards in terms of ESG and the best characteristics for a business cap. On Page 10, you can see where these projects are located, always in line with the strategy of Colonial being very much focused in prime CBD. And on Page 11, you can see a summary of what we intend to do. You may see the distribution for different kind of uses, and all of them in urban central areas, but with a transformational element, which is very much central to the overall strategies for the different units. You may see that the delivery of these projects is expected to happen between 2026 and 2028. And the total value of these projects will allow for on-year returns that will be able to create substantial value for shareholders. Page 12, there is a little bit of detail for the assets that are to be contributed by CriteriaCaixa. We are talking -- first of all, as I said, 40% of the contribution is office, is what you may see. I don't know if you are following the presentation, and you can see that there are 3 that are in a blue framework. There are these 3 office projects. One is based in Barcelona. The other 2 are central CBD in Madrid [indiscernible] 30 is the address and the other is based in Mendez-Alvaro, which is the so-called visionary building, which is a next-generation building that has just been recently refurbished with the best standards and which is geographically very close to our own projects in Mendez-Alvaro. And besides this, the 60% of the contribution has to do with 5 different residential units that are already leased that are basically in Madrid, but then the 2 additional projects in Málaga and in Zaragoza. For us, the exposure to residential, we see it as a very good complement, natural complement for any strategy of any company which wants to develop office projects inside the urban central areas. Let's go to the next section, which is section 4 on the financial impacts of the this project. As I said at the beginning, for us, first of all, the important thing to emphasize is that we believe that this transaction allows for Colonial to accelerate its total return for shareholders. That means this transaction is based on a number of projects that we are launching, based on a solid financial framework, and this means that the expected total shareholder return for shareholders will be enhanced, will be better. And at the same time, what will be better is the capital structure and will be enhanced in a material way because of the nature of this transaction. And we believe that this transaction allows for additional flexibility, flexibility to develop the projects that we have presented today, but also any other opportunistic acquisition that may be available in the market. So this qualitative element -- and mid- to long-term element is very important. Having said that, now if I go into the short-term impacts, the first one and more obvious is that this transaction is having at a minimum premium on share price. [indiscernible] is that this transaction allows material reduction of the LTV. The EPRA LTV is to go down for more than 450 basis points. The third element is that EPS guidance is to remain wayward that is confirmed at a level of EUR 0.30, EUR 0.32 per share. And the final element is that there is a slight dilutive effect on the last reported NTA, on the December NTA, now looking to EUR 9.55 post-deal NTA after this transaction executed. And there's another set of comments regarding not so much the short term, but the mid-term. The first thing that we would like to highlight is that this improved LTV is expected to be sustained over time. That is that we don't expect to go, let's say, materially down LTV just immediately, but then not being able to remain low because of the different activities that the company may do. These initiatives of CapEx that we are announcing are spread among the next 4 years. Our expectations for the EPRA LTV is that we'll remain in this new level, in line with the number that we are seeing post-transaction. And that's, by the way, in line with our strategy and intention as a company. We believe that we want to have our LTV in this new set of range. And this transaction is, therefore, consistent with our strategy. Also for the mid- to long term, we expect this transaction to be accretive on a forward-looking EPRA EPS. That obviously is because of the higher return attached to the new projects. And also as a consequence, we expect this transaction to provide for a certain mid-term acceleration in NTA growth, again, because the return expected for these transactions is materially higher than the current yield for our assets. So let's go into final conclusions. I'm on Page 16. We are very happy with this transaction. It has the 2 sides of the coins that today, we believe that, you need to have. You need to have a growth profile that is reloaded, and you need to have, at the same time, a framework with solid fundamentals -- with fundamentals that are even better than what you have. And that, from, let's say, a business point of view, quantitative point of view, at the same time, I'm going back to the new shareholder issue. If you can do that with an additional shareholder which is very much in line with Colonial strategy, we believe that, that's true and a real catalyst. Obviously, this transaction provides for significant deleverage. I would like to emphasize that as we've been sharing in many presentations, Colonial today, it's under no stress regarding leverage. We don't have any maturities in the next 3 or 4 years that are not covered by our existing cash. Our unused credit facilities are in excess of EUR 2 billion. Our cost of debt is at 1.7% and expected to remain for the next few years in this range. And last but not least, just a few days ago, S&P confirmed the rating of the company at BBB+. So that means that when talking about leverage, we see this more as a preferred choice in terms of capital structure because of the financial flexibility that is providing more than particular constraints that we have to face in the short term. So therefore, one thing we like of this transaction is the additional firepower that it offers in order to accelerate Colonial's growth profile, and particularly at the moment of the cycle, where the interesting Alpha strategies can be identified. We believe that this enhancement of our capital structure goes hand in hand with a new set of Alpha projects that are very much in line with our history and where we believe that we will be able to generate value, very good returns, and a very interesting transformation for the assets that we will be managing. And finally, we are also happy with the assets that are contributed by Criteria. You will have seen that both in the office and the residential sector. Two comments regarding this, more long-term strategic kind of thinking, we believe that to be in the office means to be in the urban transformation business today to have exposure to residential. It's a very good complement, which allows for the best use of your assets and your spaces, which allows you to take your best capabilities. Therefore, we like that. More in the -- from a short term point of view, we believe that for those assets, we have the capacity of extracting additional value that we can extract -- meaningful strategies that will provide good returns also on these assets. And all of this together will mean substantial reinformance of the growth profile of the company with rents, as you can see in the chart of this page, that will jump from EUR 412 million of rents to an estimate of potential rents above EUR 560 million. Some final comments on the transaction agreed with Criteria. Today, what we did is a signature of an MOU in order to execute everything that I described today. By the way, this happened after an approval by Colonial's Board of Directors that I have to say that unanimously approved the transaction with high conviction from all directors and existing relevant shareholders sitting at the Board. After the signature of the MOU, we start with formal procedures for this kind of contribution in kind of projects. That means that we'll have to deliver an independent expert report that we lead off to the signature of a contribution agreement. This final agreement will have to be approved by an extraordinary shareholders' meeting that we expect to happen during the month of June. And the delivery of the shares, the final issuance of the shares and the effective contribution will take place either by the end of June or more probably during the month of July. So this is the transaction that we wanted to share with you. As I said, in a word -- in two words, we think that is very good for the company. It's very good for its growth profile, for its financial structure. We believe that is very good for the short term, and we believe that is very good for the long term. And from a quantitative and financial impact's point of view, but also from a qualitative impact. This is it. Thank you very much for your attention. And now, as always, we are available for any questions that you may have.

[Operator Instructions] The first question comes from Ben Richford.

I've got a few. Firstly, on the properties that you are acquiring. How can you give us more comfort around the upside potential? Is it -- have these been underworked assets? Do they have high occupancy rates versus your existing portfolio? Are they underrented? What are the property yields? And then so just a bit more around the current valuation and upside of the assets you are acquiring? And a second question, just around the pipeline of existing assets you're redeveloping and launching today. To what extent is this accelerated because of obsolescence in particular around ESG? And then a third question, could you give us some yields on costs and profit margins for those schemes, please? That's all my questions.

Okay. Thank you. First -- well, all of them will handled by Carlos Krohmer. Carlos Krohmer, go ahead, please.

First on the contributed assets, as you have seen in the presentation, basically, is concentrated on assets in Madrid and one asset in Barcelona. They are very well-located assets, all of them recently brand new refurbished. We are doing here together with the [indiscernible] project, really build up bit on the Mendez-Alvaro subsegment in the Madrid City Center. You know that it's one of the most dynamic markets in Madrid with the highest rental growth profile at the moment. So we are very happy with this exposure. The other asset of Madrid is in the CBD and fully rented. And we think we can, with our active management, extract significant additional rents and value. On the next point.

You want me to step in? First, 2 comments on the -- still on the first question, to be more specific. In certain assets, we see upside because occupancy is still not at its maximum. I would put, as an example, visionary building which is a brand-new building -- by the way, now that you were mentioning ESG elements with the best standards and with a very good state-of-the-art kind of design. But this building was just finished not so long ago, and now it's been leased. So that's where we see part of the potential. And more broadly speaking, and that would be specifically applicable to the resi assets. We have a vision that these assets are still underrented based on the analysis that we have done. We believe that we can extract the capacity of additional yield between initial yield and reversionary yield of 0.3%, 0.4% to be more specific. The leading portfolio is generating 4.2% initial yield, which we believe that can be enhanced for at least 30 to 40 basis points. The same applies to the office buildings where the initial yield of 4.5% could be enhanced to the range of 6%. The second question about ESG standards, No, we -- and now I understand that you are talking about our projects. No, it's not that they become obsolete. This was not the reason for them. It's mainly that we have the opportunity because they were becoming vacant. So to go through several examples or to one example, IBM at the time that we bought the building many years ago, we understood that there was a probability of IBM staying or leaving. We were happy with both things happening because we had identified a number of strategies that could provide value in the case that it has to be this redevelopment because the tenant was leaving. But having said that, it is true that the best ESG standards is at the heart of our strategy. So you know maybe it's not today to go very much into details about that, but Colonial has been recognized in the last 12 months at the top level of ESG standards in everything we do. So it's, as I said, at the heart of our strategies. And I think that the third question was already answered. You were talking about use on costs. If you could provide a little bit more of color. I think that I already went through this.

We'll give the floor to Veronique Meertens, who has the next question?

Congratulations on the new project. Yes, for me. Also a few questions. Also looking a little bit at slide 21. And I noticed that in it's sort of like the bridge on the left side, you do have the disposals for '23. But in the bridge on the right side, I don't see disposals for '24. So just wondering, are you also going to dispose less or at least no additions to what you've announced before? Or is that already incorporated somewhere else in this waterfall?

Yes. On the disposals, the disposals that we have done in 2024 have no impacts on rents because they were not generating any rents, none of them. So it has not had any impact on the passing rent that we show here on the adjusted passing rent.

But I mean, there was the EUR 500 million disposal program. Is that sort of also being canceled now? Or is that still the plan to be completed?

No, this is just actual figures -- pro forma based on actual figures and on the guidance. Yes. But on the fundamental question that you are asking, we are not canceling the divestment program. It is true that we always emphasize that this disposal program, it's done in a way that it's been -- taking into account the moment of the cycle, the nature of our stocks. So we are not in a particular hurry to develop these divestments in the very short term. But in the overall philosophy, and I don't know if this is related to the question that Ana was about to ask before, we remain committed to a very strong balance sheet, and we are not canceling these sales. We think anyway that the capital cycling, it will be more and more an important part of the strategy of any real estate company and therefore, to be able of taking advantages of new investment opportunities, certain divestments have to be done also.

The previous question was from Ana Escalante, and we've been able to recover. So please, could you state your question again, please, Ana. Apologies.

So my question before [indiscernible] was related with the capital structure and the LTV. So my question is, you've said that you would try to keep the LTV at the pro forma level resulting from this transaction. So that would be around 43%. What makes you confident that, that's the appropriate LTV for engaging into a new development pipeline? Are you expecting values to remain broadly flat from here on? Or would you be willing to make for disposal in case valuations for -- from here? Any color you can provide on why such kind of target level you believe is appropriate, would be appreciated?

Thank you, Ana, let me rephrase or maybe be more specific. So what we are seeing is a number of things. The first thing is that we are happy about the fact that the LTV is going down. The fact that there is a material reduction in the LTV of almost 500 basis points, it's material and important, and we are very happy about this. The second thing we wanted to share is that we don't expect the LTV to go higher again in the future. And furthermore, that it will be our focus for this LTV not to go higher. And I'm saying that because I understand that if we are disclosing a transaction where certain equity is injected into the company, at the same time, we are announcing certain projects that will mean some CapEx. Let's say, the immediate simplistic approach to this could be that the LTV goes low just for a brief period of time and then it goes up again. And I would like to emphasize that all of these projects that I mentioned, it's for a 4-year framework, are very much distributed in a long period of time. And in our own internal projections in the way that this is going to impact our LTV will mean, as I say, that LTV will not go higher. The third question is -- or the comment I wanted to make is about using the word comfort or about using the word right level of LTV. Here, that's a very, let's say, a very sensitive topic. The way we look at this is as follows: First, the approach you have to do regarding leverage has to distinguish those companies that are in need or under a certain threat because they have maturities, because they have a cost that is rising, because they have a rating that is going down. You have to distinguish that from those companies that are not in this situation. And therefore, the decision on leverage has different drivers. And what I wanted to highlight is that the financial strategy that will follow, I think, does not put us in the first chapter. And my second comment is that the desired level of debt, in our opinion, goes a little bit beyond the LTV. It has to look at a number of things which are the assets and the quality of assets that are supporting this debt which is the strategy of the company, which is the risk profile, many different things. And usually, the way to evaluate this is with a broader approach. And one example can be the rating, and that's why I was emphasizing that at the current level that we are, we've been able, before the announcement of this transaction, to have sustained BBB+ level for our company. And therefore, we believe that this transaction is adding additional component. So the message I wanted to pass I think is that we are going in the right direction, number one, and that we are moreover with a commitment to remain firm into this direction. I think that going beyond this, it will be maybe being too precise.

And sorry Ana, if I may add something, as Pedro mentioned, we have been confirmed by the S&P recently, but to give you a number, after the transaction, the levels of the analysis that the rating agencies are doing will be improved 500 bps below the threshold for maintaining the BBB+. So it means that being confirmed recently after the transaction, we are improving all the metrics that have been analyzed by S&P.

The next question comes from Thomas from Deutsche Bank.

Just a few follow-ups, actually. On your intention to keep the LTV stable. Just wondering, I mean, what are your key assumptions there regarding values? And also it seems like you need to pick up your disposal activity in order to keep the LTV stable if you consider all the investments you plan -- the new investments, basically, just maybe to get a better understanding?

Yes. No, look, we don't do specific assumptions about valuations in the short term, and we don't do specific assumptions about valuations on yield in the midterm. I think that our assumptions are more based on the micro analysis of our assets. The CapEx that we'll need, the rents that we will generate and the valuation that this may deserve with a current yield framework. And with all of this together, that's where we see this LTV remaining at this level. But we are not, let's say, depending on our assumptions about short-term or long-term movement on valuations.

Okay. The second question is actually on EPS accretion. Maybe we can get a bit more color for what you plan in the mid-term, and by when do you see the most basically? I mean you say this year, you keep the guidance unchanged. But what can we expect the next year or the following?

Yes. On the short term, we can be very specific because we've been working in deep on the situation of Colonial pre-transaction and also post-transaction. We've been looking at what can be generated from both ends during the year. And our best estimate as of now is that we still remain in this range of EUR 0.30 to EUR 0.32 despite the fact that we are issuing quite a number of shares, if you allow me, regarding this transaction, but that's our best estimate coming from an individual analysis of the cash flow generation capacity of each asset. In the longer term, we cannot provide a specific guidance. The only thing that we could highlight and what we are doing is that when looking at the specific new projects that we are embracing, we have good initial expectations in terms of yield on cost. And of course, in due course, that will enhance the EPS profile of the company. But going beyond that, we are still not providing EPS guidance for the next few years.

I understand. And maybe a last one, maybe you can roughly explain how it come to the deal. Did Caixa approach you or the other way around? Or what was the key driver for you?

I think that there was a coincidence of strategic views. But first of all, probably most of you will be aware that the history of Colonial and CriteriaCaixa are somewhat related. So the relationship has always been in excellent terms. So we are not far away from each other as institutions. And then as I said, I think that there's a coincidence based on the strategies that Criteria is having and Colonial is also having. Probably it's not for me not to talk on behalf of Criteria and its strategy. But I think that what I can say is that they clearly stated that they want to be involved in companies with a long-term strategic framework, with a value creation framework, with a good strong cash flow generation and very much looking at the fundamentals and giving a higher priority to an industrial long-term approach, more to speculative bets based on short-term cycles. So as I said, maybe I'm not the one to talk on their behalf, but I think that they've been fairly vocal about that. But that means that they like the industrial approach, they like a long-term framework, they like looking at fundamentals of the company. And where do we stand at Colonial? It's basically the same kind of conviction for the long term. And maybe I would add that in more short term, we think that the companies that we are trying to work out the best we can for the current situation, we have to be able, both at the same time to be able to feed the company with very good growth opportunities and at the same time, to do it with healthier fundamentals from a capital structure point of view. So putting everything together, I think that it was natural to have an approach, and we swiftly went into conversations that we reached into this final transaction. And I would like to emphasize again, when I mean Colonial that I'm talking about Colonial and more specifically about its Board of Directors and more specifically, also about current shareholders. And therefore, what I'm saying is that this vision, it's supported enthusiastically and unanimously by existing shareholders and existing members of the Board. But that's more or less the grounds for such kind of agreement to be happening.

The next question comes from Markus, Bank of America.

It's Markus from Bank of America. Congratulation also from my side. A few follow-up questions. The first one on the deleveraging impact. Do you have any numbers on the net debt to EBITDA improvement?

Yes. Well, Markus, as you know, we published in the year-end results the top-up debt to EBITDA. You know that considering all the projects have become during the year into operation, this is the way that we approach. We released at that moment a debt-to-EBITDA to part of 12x. And after this transaction, the debt-to-EBITDA would remain in the range of 10.

Okay. Just to make sure on the timing of the process, so I understood all the, everything happens in H2. There's no increase in number of shares in H1.

Yes. That's right. So the transaction will be executed at the end of June, beginning July, so the impact of the new income and new shares would be second half.

Okay. Do you have a number of pre-let percentage on the new development projects, even probably some very long term? And do you have a number of existing rent of these projects? Maybe you have published it somewhere?

For the Colonial projects?

Project, yes.

Out of the 4, at Condorcet has no pre-letting yet, and [indiscernible] has no pre-letting yet. On the 2 in Spain, Sancho de Ávila is already fully pre-let to a local leading operator. And for IBM, there are a very good advanced ongoing discussions for different pre-let structures. So I mean, we are having discussions in order to decide which is the best outcome. So still no formal pre-letting but quite advanced ongoing discussions.

And maybe let me add some comments on the Sancho de Ávila, as you've seen in the presentation, it's a 30-year contract with the first break option at year 15 at rent well, well above the prime office rent in that area, and this is quite a relevant issue in terms of letting risk. There's no letting risk at all. So we are starting a project with a fully 15-year locked in pre-let. This is a very relevant element. And on the other projects, we have conversations, as Ascio said, on the Santa Hortensia is a mixed-use scheme. You will have noticed that all of these projects are large scheme with large floor plates that are much more competitive. So we really expect very high rent, the transformation of these products, and we reflect a yield on cost in excess of 6%. And on the Spanish project, it's even a little bit higher. So we are very confident that this would be a good risk-adjusted cash flow and value creation scheme.

Yes. Two very quick ones, last one. First, is there a lockup period, what's the lockup period for Criteria? And then the last question is you creating an exposure to residential, which probably is well perceived by credit rating agencies. Is this a new kind of business line? I know you put it a bit on your mixed-use schemes. But I'm just wondering if you have thought about a potential conglomerate discount like Covivio has been suffering off by mixing too many different property asset classes and not being a pure play on an asset class?

Yes, if you want to start with this last question and then Carmina can jump into the previous one because your question is a very good one and important. We are having initial exposure to resi through this transaction. This does not mean that we want to be a relevant operator on the residential segment. We believe that this is a business that requires scale, and that's, let's say, a different business, and it's not our strategy to become a relevant operator. At the same time, we are a firm believer that to be in the business where Colonial is today, you are better off if you can deliver in residential as a complement to what you do. And we see this more and more because in many circumstances, sometimes the micro analysis of each project comes with an answer that the best outcome is a mixed-use approach, and we saw that in Mendez-Alvaro and IBM is another alternative, which is obviously there. In Condorcet, it's also going to happen and that has 2 drivers. One is the demand, where the market is, which is supporting this view. And the other is the urban planning trends in major cities across Europe. The more you think of mixed-use kind of approaches, the better support you're going to have from an urban planning point of view. So we see this approach that we're having as one that allows us to be better off. But coming to the beginning of the question, and I thank you for your question because it's, it allows us to clarify. That doesn't mean that we are going to shake our strategy to become a different kind of animal that we've been. We are adapting the animal that we are to the new, let's say, challenges of our sector. On the lockup question.

The answer is yes, there is a lockup period for Criteria.

How long is it? And was it not public?

It's not public: So it will be public at the moment that we fulfill all the preliminary conditions, and we announced the extraordinary general shareholders' meeting.

The next question comes from Florent Laroche.

So a lot of questions have been asked. But maybe I would have one question, today, you have signed just a memorandum and the transaction would be executed in the coming months after the general meeting. So why are you confident that there will be a positive vote at the general meeting? So why should we be confident that you will be able to close this transaction?