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

Ladies and gentlemen, welcome to Colonial First Half 2024 Results Presentation. The management of the company will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I would like to introduce Mr. Pedro Vinolas, CEO of Inmobiliaria Colonial. Please, sir, go ahead.

Thank you. Good afternoon. This is Pedro Vinolas speaking. As usual, I have with me Carmina Ganyet, Chief Corporate Officer; and Carlos Krohmer, Chief Corporate Development Officer. And it is a pleasure to have the opportunity to share with you the results this time for the first half of 2024. Before going into the numbers, I think that it's important to give some comments on the strategic positioning of Colonial because we believe that it has a direct relationship with the results that we have. As you know, the office asset class it's an asset class that is having a behavior quite challenging in some parts of global markets. We would like to emphasize is that they are different markets with totally different behavior within this office market. Our strategic focus has been in the prime asset class where we believe that there is an outperformance due to the unique nature of the demand and supply of this asset class. The prime asset class product is an asset class where demand has been showing consistently since the start of COVID and increasing momentum, characterized by very strong appetite by end users which are looking for uniqueness of user experience which are looking for a top product. So the demand as opposed to some trends in other parts of our universe. The trends are very strong, are very positive. And if we think about supply, the uniqueness of our positioning is that supply is definitely limited. The first characteristic of our universe, of our prime asset office universe is the scarcity. The scarcity means limited new supply, means limited stock. If you put these two trends, a super strong momentum on demand and super scarcity in supply, which I know it does not happen in other parts of the office world. The logical consequence is very healthy rental growth and very high occupancy level, which again, I understand that is not the case in some other areas of the office product. But we believe that is totally different characteristic in our case. It's a totally different characteristic in our market. And this has been the case now for almost 5 years since the start of COVID. The best is clearly very different than the rest. And if we go for a simplified view of the office market, it's not reflecting reality. And it's not helping us all, and we believe that our unique positioning is the one that explains the kind of performance that we will now share with you. Also, I think that the uniqueness of the prime positioning has two other important characteristics. The first one is that it allows for value creation through human transformation of the office product that we own. There's a capacity through the platform that Colonial represents to provide higher value to the transformation of our office assets. And second, there's also the optionality of providing additional value through new users to a new mixed-use approach to the properties that we own. I think that this remark is very important now, because every now and then, when we go through the results that we present, we see a differentiated approach that deserves a differentiated view and that it's really what explains the results that we are sharing with you on a regular basis. On Page 5 of our presentations are the main highlights of the results for the first half. There are 4 things that we can say about the results for the first half. The first and more important would be the sustainable cash flow growth. The gross rental income is growing 6.5% like-for-like, 7% in Paris, 9% in Barcelona. That is translated into EPRA earnings of EUR 92 million, 6% and an EPRA earnings per share of $0.17 per share, 6% growth, too. What is driving this sustained cash flow growth, it's the outstanding operational performance. Again, a 6% rental growth, as we will see later, that means very healthy pass-through dynamic in our properties plus an outstanding rental growth performance, a 9% release spread and an occupancy that remains very close to full occupancy, 97.3%. This is remarkable, but this is not -- nothing new. I mean we've been showing this kind of performance, this kind of results for several months and years so far. And as you know, I'd like to emphasize that are not only very high, they are not only very good, but they are better than, better than what you can see everywhere else in the market -- in the office market. Maybe what is different this time from the last time we shared the results with you, is regarding asset values. The other thing that is happening or has happened during the first half of the year is that not only operational performance has remained strong, but also asset values has stabilized. In fact, they've shown a slight growth. Our gross asset value now is equal to EUR 11.3 billion. That represents a growth of 0.7% like-for-like, as we will see later. This, again, is not only good but better than. Regarding the balance sheet, in the 6 months. We've been delivering the disposal strategy, EUR 200 million year-to-date with an average of 11% premium on appraisal. And as a result of this performance, the net tangible assets per share are now at EUR 9.66 per share. Finally, we remain with a solid capital structure. You know that there's been a relevant fact that is not part of the first half of the year, but it's already existing and executed in the company. The net tangible assets are now 5.8 billion post Alpha after the new equity injection of more than EUR 600 million because of the recent transaction. The loan-to-value remains lower 36.7% post alpha, and the financial cost remains, again, as usual, on the control, 1.74% is the average cost of our debt. So very healthy numbers, we believe. This, of course, has a direct relationship with the kind of assets that we own and specific uniqueness and location of these assets that you can see on Page 6. The best prime property is delivering our performance in rental levels. You can see that now in Paris, to have a maximum rent of above EUR 1,000, EUR 1,100, it's now something that is not extraordinary. It's starting to be ordinary course of business for us and Paris is showing a 14% rental growth for the second quarter of this year. The same kind of healthy rental performance is clearly shown in Madrid and in Barcelona. But as I said just before, maybe what's new this time as opposed to 6 months ago is that it's not only the rental growth, which is growing is that this rental growth is offsetting the limited cap rate increase that our asset value has increased, and therefore, as a consequence, our assets are showing growth of 0.7% like-for-like compared to December 2023. Of course, because of the disposals that executed, the absolute number shows a slight decrease and now the GAV is EUR 11.267 billion. But as I say, this figure shows an improvement compared to 6 months ago and is showing a different kind of dynamics that we saw in 2023. And finally, the last highlight that I would like to share is that in this new environment, the new projects that we are developing are important. We just announced the Alpha X project as a result of that transaction that we announced with the new shareholder criteria joining the company. These projects are being launched and are, I think the other characteristic of the performance that we are experiencing this year is not only about ordinary growth from our existing assets. It's also new expectations of value coming from the urban transformation from a new cycle of urban transformation that is going to take place through these different projects that we are launching with very good expectations of return for all of them. So in a nutshell, as you will now see in details, very good numbers for the first half of the year, both on the operational side, but also on the valuation side. With this introduction, let's now go more in details. And Carmina, please go ahead with a section on financial performance.

Thank you, Pere. In this section, as usual, we are going to analyze in more details all the financial KPIs. In Page 10, as you can see, we delivered another quarter with a strong growth in earnings, basically back on the property -- on the prime property strategy. The gross rental income increased 6.5% like-for-like and up to EUR 192 million for the first semester of this year. In the same line, we are delivering an EPRA earnings of EUR 92 million, 6% gain versus previous year and 10% without considering the disposal that you see that we have been facing since June 2023 up today. In this respect, EPRA EPS in terms of per share we provide -- we delivered a growth of 6%, up to EUR 0.17 per share in this first semester. As you know, we have been updated the appraisal this semester. As Pere was mentioning, the updated gross asset value shows an increase of a slightly positive 0.7% like-for-like. And as you know very well, the settlement of the transaction of Alpha X, or Alpha 10, so the capital increase and the contribution of assets as well at the disposal of Mendez Alvaro Residential has been settled in July, 2024. So as a result of these two transactions, the gross asset value would represent EUR 11 billion -- EUR 11.4 billion. Consequently, the debt for the first semester remained stable, but we need to consider the transaction that has been executed in the first part of July -- in the first days of July. So the capital increase, the contribution of Caixa and as well the disposal of Mendez Alvaro. And after these transactions, the pro forma debt shows a figure of EUR 4.4 billion, which represents a reduction of EUR 500 million. Consequently, the net tangible assets in absolute terms post transactions is EUR 5.8 billion. In terms of shares, where pre transactions in terms of euros per share, it's EUR 9.66 per share. So after being updated the appraisals, after being paid the dividend, the net asset value is EUR 9.66 so in line when you add the dividend that we have been paid when you will see later on in more detail. But after the transaction -- the execution of the transaction of the capital increase, the net asset value in terms of euros per share so is a figure of EUR 9.3 per share, in line, slightly better that we have been delivered and we released when we announced the transactions of post Alpha X, slightly better base at that moment, December, and the figures December 2023. Now after being updated the appraisal, the figures remain slightly better than we have been releasing when we announced the transaction. In the next page, we saw in more details what are the main drivers of this strong performance. The first part is growth rental income showing this 5% year-on-year. But in terms of like-for-like, as we said 6%, basically, the portfolio in terms of like comparable portfolio, this pricing power are adding EUR 11 million, 6% growth and thanks to the project pipeline that we have been delivering in the second part of 2023, that now are impacting the full semester of 2024, we are adding additionally 6% of rental income. On the opposite side, as you know, we have these two main positive impacts of the like-for-like growth of the comparable portfolio and the project delivery are overcompensating the disposals that we have been facing during this period of time. In the next page, you can see how has been behave in the three markets. All the three markets has been behaved positively. In absolute terms, Madrid, 16% decrease is due to the fact of the disposal that has been concentrated in the Madrid market. But when we go in comparable terms, the like-for-like shows a very positive performance in the three markets, 7% in Paris, Madrid 3% and Barcelona 9%. Basically, behind this strong performance or the strong like-for-like growth is mainly driven by rental growth 2%. Again, indexation, you know that we are having this indexation impact with all our contracts of 3.1% growth through indexation and better occupancy, especially in Barcelona of 1.3%. So these are the main drivers behind this gross rental income, highlighting the pricing power above indexation in all the three markets. When we look at the EPRA earnings, the trend is the same. So we have acceleration towards upper range of our guidance. We can confirm our guidance of the EPS for 2024, between EUR 0.30 and EUR 0.32 , confirming the upper end, thanks to the strong performance of this first semester. As you can see here, portfolio continued operations adding EUR 12 million in comparison to the recurring profit of last year, overcompensating the other negative impact, especially the discontinued operation during this period of time. So consequently confirming the upper range of the EPS for 2024. As I said, in next page, we are going in more details about the appraisal and how has been the updated figures of our appraisal. As you can see, we have a positive impact of this rental growth, especially with this prime position of updating rents in the upper range of the rental market adding this close to 2%, [ EUR 213 million ] more in our gross asset value. This has a positive impact of 2%. On the other side, in this semester, we are experiencing a slightly expanding yields, which has this rates impact of EUR 130 million, minus [ 1.16% ]. So Consequently, the pricing power, the rental growth are overcompensating and offsetting the negative impacts on rates. When you see in the variation of this last semester, you see in the Paris market, a growth a variance of the 6 months of 1% like-for-like in our portfolio, in Madrid, 0.6% and Barcelona slightly negative 0.5%. I would like to highlight the capital value. When you look at capital values in terms of euros per square meter in every single market, you can see here that we are in the prudent levels according the quality of the portfolio and according to recent transaction that we have seen in the markets and also the capital values and the transactions we have been able to dispose and to settle and execute over and above with a premium on the capital values from the price. So I think here, it's a very, I would say, illustrative levels of what we have the appraisal being updated. And if you look at the yields, we are in the range between 4.3%, 5% yield. These are the yields according the rates that has been -- hopefully being stabilized, which represents an expansion yield from the peak since the first semester of 2022 between 80 basis points up to 130 basis points in different markets. Consequently, after being analyzed what has been represented in the first semester and the appraisal in the next page, you see how this performance has been translated into the NTA. So the NTA remains stable. You can see here how has been the main impacts on the NTA evolution, a positive impact on the -- basically on the rental growth, as I explained before, in the variance on the gross asset value, a positive, of course, impact on the EPS for the first semester and a negative impact -- these two impacts compensates the NTA impact -- the negative impact on the NTA due to the rates and other impacts. So basically, the NTA pre dividend remains stable at EUR 9.93 per share. And after the dividend paid, EUR 0.27. The NTA in June remains at the levels of EUR 9.66. So 2% positive impact from recurring earnings and 3% positive impact through rental growth and project delivery, compensating the negative impact of the rates and other impacts. So basically, NTA remains in the stable zone. When we look at in absolute terms, equity value of the company in Page 16. Basically, as I mentioned, remains stable in the range of EUR 5.2 billion. But considering the execution of the Alpha X settled at the beginning of July, in absolute terms, equity value are in the EUR 5.8 billion. In terms of euros per share, as I mentioned, EUR 9.93, considering the dividend paid remained stable in June compared December '23 figures. But after the transaction of Alpha X, the capital increase executed in the July 2024. The euros in the NTA plus dividend in terms of euros per share are in EUR 9.57. This is in line, slightly positive with the numbers that we disclosed when we announced the transaction. At that moment, the numbers was based on the figures of December '23, which is, I would say, positive because after being updated, the valuation after the 6 months and after this semester, the numbers remain very positive and more positive that we've released at the moment that we announced the transaction. If we go to the other part of the capital structure, the debt, I am in Page 17. You can see here an improvement of net debt after the transaction of the capital increase. And after the transaction of the execution of Mendez Alvaro residential during the last days. So an improvement of EUR 500 million. This means a secure level of liquidity, which represents 1.8x covering the maturities from this year until 2026, which we are in the very healthy zone. And in terms of loan-to-value, we remain below 40% loan to value in the range of 44% loan-to-value. And considering the operating cash flow from our portfolio, we are in the debt to EBITDA in the range of below 11x. As you know, and Pere was mentioning, we have secured or we have a cost of debt secured for -- during this year and the following years. We maintain a low cost of debt of 1.7% since 2022. We are in line with what this cost of debt. And thanks to this pre-hedged policy, we can secure our cost of debt during the following year below 2.5% because all the debt are fully hedged, are fully pre-hedged for the future maturities. And in the last page, some comments about the what we have been enhancing and strength, the liquidity. Basically, we have been renewal of EUR 1.9 billion of credit facility with updated ESG metric. This renewal has been extended with a maturity -- more -- a longer maturity of 5 plus 1 plus 1 with a better cost of margin. So we have been also improving our margin. Of course, with the pool of bank international preference of reference, institutional -- financial institutional and with a new ambition plan of ESG KPIs base or in line with our decarbonization plan that we have been releasing and sharing with you basically with an ambition plan of reduction of carbon footprint, of course with the asset certification of our portfolio and maintaining the outstanding level of GRESB rating. So thanks to this ambition plan on ESG, we have been able to improve our margin. And of course, if we succeed in our Ambition ESG plan, we will have a better financial condition. Again, we have been also actively doing a liability management during this first semester. So we have been refinancing in advance the bond maturity this year, tapping the market of EUR 200 million of reference of 2029 highlighting that we have been confirmed by S&P, our BBB+ rating from the rating agency.

Thank you, Carmina. Let's now step into the next section dedicated to portfolio management. Carlos, please step in.

Thank you very much, Pere. I'm on Page 21. As Pere explained at the beginning, we are playing an asset class that is the prime segment, that is the prime property in the urban city center, and this prime asset class is delivering our performance. What does this mean? Let's be factual, let's look at this page. We have signed year-to-date, 66,000 square meters, 20,000 in Q1, 46,000 in Q2. This is quite remarkable. First of all, as you -- all of you know, our normalized run rate is 100,000 square meters per year. Half of the year, we've already done 2/3 of our normalized run rate, and this is even more remarkable if we start from a point where we are already at almost full occupancy at the beginning of the year. So we are letting quite a lot. If we go a little bit more into the details and see the velocity from 1 quarter to the other, we see that it's even accelerating. We have signed 46,000 in Q2. This is more than 2x what we signed in the first quarter. And if we go into the details in terms of the different markets, we have signed, for instance, out of the EUR 28 million of annualized rents that are behind the 66,000 square meters, EUR 10 million of Paris assets for a total surface of 12,000. So EUR 10 million divided by 12,000 means that all of the contracts that we have signed are on average above EUR 1,000 per square meter, and we've signed quite a lot of them even higher. And a typical question that some of you put us in the one-on-ones and what are the incentives attached to it, the incentives on the office lettings in Paris are 11.6%, the super low-end range on the retail premises signed in Paris 6%; and in Spain, 6%. So low incentives, but very high rents. And as you can see here, with quite top-tier clients, and we have here some examples. So this is the first overview of what is happening and what has happened during the first and second quarter of the year 2024. If we turn the page on Page 22, this translates into super high occupancy, 97.3%, an increase versus the beginning of the year. And if we go into the details, our CBD exposure is close to 100%. And it's not that some assets are a super high occupancy, and we have some of them empty, it's really spread across the portfolio. So again, the prime asset class really outperforms the market and outperforms in both terms, in absolute terms and in relative terms. What is the economic impact of that we have signed. This is on Page 23. First of all, we are capturing all of the indexation. Main driver is now Paris because we have here a lagging element of the index. And then I would like to highlight the other two metrics that this is release spread and the ERV growth. If we go to the release spread is plus 9%. This is quite high. The last 3 years, it was well below in 2021 at 7%, in '22, at 6%, in 2023 at 5%. We've signed at 9%, quite high, especially the most prime market of Europe, our Paris portfolio, plus 22% super strong release spread. When we go to the ERV growth, the ERV growth is what are the rents that we've signed compared to the market rent in our appraisals as of December. So this shows in a way the rental growth for the first 6 months of the year. We have a blended rental growth of 6%. This is quite high and in line with previous years. And we have a significant acceleration in Paris with double-digit ERV growth, plus 10% for the first half. Again, when we go quarter-on-quarter, you see here at the right-hand side at the bottom of the page, you see, especially in Paris and Madrid, relevant acceleration. So it's not just that we are letting up more space in Q2, we are letting it also in a more expensive way. Then we are delivering -- we are finishing our previous project pipeline. Almost everything has been delivered. We are about to deliver during the year an urban mixed-use campus in the south of the city of Madrid, in the center of Madrid. These are very attractive mixed-use premises, 56,000 square meters office, 4,000 square meters retail. We are having -- experiencing a lot of interest as of today, we have 25% of GLA with head of terms and even before of delivering the project. There's almost no CapEx to be deployed anymore, roughly EUR 15 million. And we expect of this premise once it is led to have EUR 19 million of annualized rents, yield on cost in excess of 8%. And finally, what's obviously also very attached to the prime asset class is to be really at the high end in terms of sustainability. As you know, the CDP, Sustainalytics, GRESB, we really top at the high end. Moreover, in recent weeks, we have been also recognized by Financial Times and Time among the world more sustainable companies in 2024, that is quite also a very important element in our strategy of positioning in the prime asset class.

Thank you, Carlos. Let's now enter into the final section, which is focused on some comments about present and future growth. I'm going to slide 27. The first thing I would like to share is that maybe one of the main characteristics that are describing our recent performance is a very strong EPS growth that we are experiencing. We shared a 6% increase number. Let's not forget that this is in the framework of a period we've been disposing of a number of assets. If we look at the number of the EPS growth under like-for-like of continued operations comparison, then the growth would be 10%. I think that this is a consequence of a multilayer growth platform. It's because of the fact that the kind of product that we own. First of all, it's proving to be a perfect asset in terms of pricing power of passing through inflation. Therefore, the characteristic of any real estate asset, which is an inflation hedge is proving to be perfect in our case. It's also rental growth that is happening because of the balance between supply and demand in our product. And it's also coming from the project pipeline and the acquisitions that we're going through in recent years. So very good EPS growth as starting coming. But if we look beyond that number, what is the main driver, the main reason? I think that, as I said at the beginning, the fact that the best prime property is delivering the highest rental growth. I think that the main concept to retain here is prime is different, the best is not the rest. They have different performances. In this Page 28, you can see the different performance, the different behavior of the office rental market for prime properties in Paris or in Madrid as opposed to the outer M-30 in Madrid to La Defense in Paris. So there's a very different performance in these two different markets. And as a consequence, you can see on the next slide, Page 29, the outperformance that we are experiencing in terms of occupancy. We are today 100% occupancy. We have today 100% occupancy in Paris, 96% in Madrid, 99% in prime CBD Barcelona, 86% in non-prime CBD Barcelona. So let's say, as I say, the main characteristic of our positioning is that we are benefiting from the fact that prime is different. Prime is different. And therefore, it's not a coincidence that the results we are showing this first half are not only good in absolute terms, but in relative terms to our peers. In Page 30, we are comparing the gross rental income year-on-year growth for the gross rental income like-for-like year-on-year growth and the occupancy numbers, and you can see where Colonial ranks compared to the general sector. And maybe the other thing to highlight is that the -- this is not only relevant talking about, let's say, the P&L, talking not only about rents. It is also the situation, the same situation when we talk about value. Our prime assets are leading the market in the value stabilization. You can see here the GAV like-for-like evolution in the last 6 months. And you can see that it's closely correlated to the asset class, either if you are prime or you are in the rest of the office market, the performance is different. So this is the starting point on where we are now. The other comment on where we are is about the cycle. On Page 32, we can see where are we today? So we've gone to a 4-year period, where we experienced a price adjustment in 2023, where the rental growth being very important could not offset the value decline coming from increased rates, increased yields. But this year, for the first half of 2024, we can see that we come back to the general rule that we already saw in 2021 and 2022, where rental growth and project delivery more than offset the impact that evolution of rates may have in our gross asset values. In other words, we are at a moment of a cycle that is changing compared to 6 months ago. So in this context, which are the strategies that we would like to favor, let's say, three things. The first thing, of course, is to benefit from the growing demand for premium space in prime locations. So we will remain focused in this strategy of flight to quality that is showing a better performance than the rest, and that would be the base case for our strategy going forward. Number two, we will be positioned to serve evolving client needs through urban transformation. So we will be -- we are already creating value through the transformation of the assets we own or we may buy. An obvious comment that I would like to make in this direction, this is not new for Colonial, I mean we are a platform that we have been doing this for years. You cannot see in this slide, for example, when we transform an office building into the [ Madeleine ] Hotel in Paris already some years ago, but you can see more recent examples of transformation of an office building in Louvre Saint-Honore in premium commercial, which are very good returns or more recently, in Madrid, the transformation, a new development of a new urban mixed-use campus with a combination of office and residential. And if you look at the new projects that we are developing, they are either a transformation for a higher value remaining with an office use as the main component, but more, let's say, then are more important, the urban transformation in the direction of new users for our office buildings, two examples here, Santa Hortensia that it was pure office. It will be a combination of different users. And another one, even more evident, Sancho de Avila which used to be office building. The systems headquarters in Barcelona, as you can see in the picture, will be an important asset in the life science and health care environment. It will be a hospital that has already been pre-let. This will be a substantial source of value, as you can see in Page 35 and with a different mix in terms of nature. As I say, more focused to urban transformation and mixed use, less dependent on office. On Page 36, what we'd like to highlight is that this is not only about refilling the pipeline which is important. As you know, in the past, we went through this and we were quite successful through important projects that take certain time to deliver returns. It's also something that we do on the ordinary course of business with our platform, with our asset management expertise providing rental growth and value extraction in, let's say, more kind of ordinary activity. You can see here several examples. Some examples, by the way, are coming from the recent deal with criteria, the office portfolio called Visionary building that came to criteria. It's one of the projects where we are now working in order to extract value. Another one is the leading portfolio that we are working on right now that is also coming from criteria or let's put maybe one additional example, Haussmann St-Augustin in Paris, fantastic location, fantastic building used to be leased to WeWork. WeWork left with no pain on our side, I have to say, because of the conditions of the leasing agreement that we had in this particular case. What are we doing here? We have just launched the renovation program with very limited CapEx of EUR 40 million. Our central expectation and that will allow rents to jump from EUR 800 per square meter to EUR 1,000 per square meter. So our expectations will be once this is finished, we expect mid-'25. This will be producing 2 million more than it used to produce compared to EUR 40 million of CapEx. This will be a very good return. Well, this is a kind of nice things that we like to do and we will do. All in all, putting everything together, the overall consequence of this will be increased gross rental income growing from EUR 400 million to EUR 565 million. This morning as I was saying, it's not so long ago that we were in the 300 million figure, we are in the 400 and soon will be in excess of EUR 500 million. So this is more or less the outlook. So value creation through transformation, not only office, other users in blue, and this will be our future. As a recap of everything I shared with you today, the last slide, Slide 38, on a strategy outlook. I think that we have shared with you today another strong set of financial results with good numbers and superior numbers in terms of like-for-like growth and cash flow from deliberate projects. We show today, and this is new because the previous point has been the ordinary thing we shared with you for the last 4 years so far. The second thing which is brand new is different moment of the cycle. Prime properties showing a value stabilization. Our numbers leading the market in terms of this value stabilization is another fundamental point of our presentation today. And it was also evident that the group's expertise on the prime asset class has been delivering continuous outperformance on operations. The final two points is we are now very much focused on extracting value from the new project pipeline that will generate further organic growth -- organic cash flow and value growth. And we are -- we will be paying a lot of attention to the real estate cycle and the current situation, which looks to be different from the one we saw 6 months or a year ago. My final comment would be in this framework of results that we shared today. Number one, we confirm the EPS guidance for 2024, range of EUR 30 to EUR 32. Maybe I would add an acceleration towards the upper range of that guidance, as you saw from the results. Second thing, divestments, you've seen that we are on track and ongoing maybe situation is changing a little bit. Three things have happened or are happening as we speak. Investment markets remain challenging across Europe, number one. But number two, hand in hand with a different view on valuation trends, so values are stabilizing. And number three, we just have gone through a significant transaction with an important equity injection. Everything together means that we'll be more fine-tuning our disposal program in the framework of the real estate cycle. That means that with the capacity to have, let's say, a more flexible view to selling or buying in this new environment. And finally, growth profile, as you can see, remains strong, significant reversion from prime properties initiatives balance remain. So this has been the presentation of results for today. Thank you very much for your attention. And now we are available for any questions you may have. Thank you.

[Operator Instructions] Now we have the first question coming from Markus Kulessa.

Thank you very much and congratulations for your results. I have three questions. I will start with the like-for-like rental income. I just wanted to go a little bit forward because I saw different numbers, plus 6%, plus 6.5% and plus 4% on the net basis, can you maybe tell me what's the difference between net -- the 4% net and the 6% growth. And then on the net basis by city.

Markus, go through the three questions first or would like to...

Perfect. Perfect yes. Second question is on the disposals. I -- because I struggle to see this positive revaluation, how your LTV is going up. And I saw on your financial statements, actually 72 million disposals, not from the [ EUR 54 million ]. And I saw in form of EUR 56 million CapEx, so more disposals than CapEx or maybe I don't know if these numbers are just accounting, but explaining why your LTV is going up by 2 percentage points before, of course, the transaction despite positive revaluations and up an EUR 152 million disposals, but just to check also how much are actually effective in H2? And my last question is on the calculation of plus 0.7. This includes development revaluation, I suppose. So do you have the numbers without the impact of developments and maybe a point would be -- sorry, for just a point on your yield, net [ issue ] yield, which is going down and which looks a bit low. And especially it explain, but I have 7% rental and 1% net asset revaluation. So how come the -- also the overall yield is stable and especially going down in Madrid and Barcelona.

Thank you, Markus. Carlos will answer.

Okay. So gross rental income like-for-like 6.5%. We have here exactly the breakdown. This first half, we have a little bit of divergence with [indiscernible] and income and net rental income because of temporary elements on the OpEx, but that will phase out during the year. You know that sometimes not some of the OpEx fall in the first part of the year and others in the second part of the year. And so this is the explanation on the like-for-like, so 6.5 and 4 in terms of net rental income. On the valuation, I think there was a question regarding total portfolio and operations portfolio. Operations portfolio is quite similar to the total portfolio. It's a 0.3% positive like-for-like, a positive 1% in Paris is offsetting slightly negative in Madrid and Barcelona. And then we have on top what lifts this up, up to 1%. The progress on our project pipeline that has been quite substantial. So in total, the like-for-like is 1%. In terms of valuation as we always want to very much highlight the most important element in terms of cost of capital and discount rate is a cap rate. So it's a valuation yield. That is a yield that we show because the net initial yield is a spot data point at a specific date of the year and can be influenced also by temporary movements and does not give really a full comprehensive valuation view in order to go more into net -- into the detail of this. I would then also suggest that we can do them separate technical call also to guide you that it is very technical through the movement of the debt. So this would be the answer on this. And on the [ LTV ], we will guide you through.

Carmina is starting this.

Now on the LTV pre-transaction of pre [indiscernible] hikes, be aware that the valuation, when you look at the gross asset value and the movement of the gross asset value, it's EUR 11.2 billion from EUR 11.3 million, slightly -- in terms of like-for-like, it's positive, but we have the impact of the disposals has impacted the gross asset value. And on the debt, we have been paying the dividend during this semester in June. So it's EUR 150 million dividends. We have generated EPS of EUR 80-something million EPS. And on the other side, we have some CapEx. So this is the movement in general terms of the debt. This is why the debt, the long-term value moves before transaction from 39.5 to 40.5. But after the capital increase and the transactions of Alpha X, it's 36.7.

So we move on now to the next question coming from Veronique Meertens.

For me, some questions around sort of like the disposals in the investment market. Because I just wanted to check with that last comment there, you mentioned about timing the real estate cycle that automatically means that the EUR 500 million disposal target that you initially had for this year is not as set in stone as it was before. And also me questioning how confident are you indeed that values are bottoming out if the investment market is still that shut down. And if it's not, isn't this a time to also sell a larger Paris office to show the investors in the market that values are in where the players are valuing them at the moment and to additionally improve your balance sheet a little bit.

Yes. Thank you. Look, on the disposal, it's -- I think it's true that we will be maybe more selective. As I said, I think that three things have happened or are happening. The market remains very, let's say, challenging as you are saying, this is number one; but number two, valuations are stabilizing. And I may come back to this point again; and third, we've been going through a transaction that has meant a significant increase in the equity and a significant deleveraging. When assessing disposing of assets, I think that we have to carefully assess as a company that pros and cons of the theoretical re-rating of a lower LTV. And on the one hand, on the other, the dilutive impact that this may have on the earnings per share of the company. Look, remember some years ago that after selling the year -- a year later, I would ask where the earnings were. So we have to carefully assess both things. And looking at the general evolution of the market, I think that we simply have to be more selective. We remain, let's say, very much inclined to disposing of assets in good terms. But with this, let's say, a revised view on where the market is. You say, well, it's always good to sell and show the market that you're selling at a premium, I agree. We've been doing this in the last 2 years. We sold EUR 700 million at an equivalent of an AVR 9 or 10 or 11 probably to have the market, probably didn't have that so much. It is a good thing to do. But as I said, we have to balance with other things. I think it remains a good thing to do, the disposal program, it will remain a priority for us, but we also have to be, let's say, selective based on current market conditions.

Okay. That's I think my point is more that for me where I feel that the most -- the biggest concerns for investors around Colonial are still the leverage. And I understand you also -- obviously, with the quality of the portfolio, the leverage can be higher, but it's still relative to peers, a lot higher. And then the other concern is valuations or at least there's still low yields. So I think you kind of kill two birds with one stone if you were able to sell a prime office [indiscernible].