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

Ladies and gentlemen, welcome to Colonial SFL First Half 2026 Results Presentation. The management of the company will run you through the presentation that will be followed by a question-and-answer. [Operator Instructions] I would now like to introduce Mr. Pedro Vinolas, CEO of Colonial SFL. Please, sir, go ahead.

Thank you. Good afternoon to everyone. We are very pleased to be able to share today the presentation of results for the first half of 2026. As you will see, we believe that they've been very robust. They've been very robust and in line with the strategic guidelines of the company. I'm on Page 4 with the main highlights that I would like to emphasize at the beginning of this presentation. The main takeaways from this presentation should be, first of all, we're finishing the first half of this year with a healthy gross rental income growth, 5% year-on-year, which means a 4% like-for-like gross rental income growth, with an obvious big spread on indexation. And that is a growth that is obviously also among the highest in Europe, European real estate. We have already data available for the peers, and we are at the top and with a certain gap. So very pleased to see this performance. This gross rental income growth is translated into a recurring earnings that reached EUR 111 million, again, a 4% growth year-on-year. Translated to EPS, that would mean EUR 0.178. That means that we are fully on track for our full year guidance for 2026. So the P&L going very well. Balance sheet, also very satisfied. We are going through a disposal program that had an initial objective of EUR 500 million. As of today, EUR 440 million disposals are confirmed. That means 87% of the original program being completed. All of them confirming appraisal values or above appraisal values. And with a strong capital structure behind this execution, in recent weeks, we've seen the confirmation by Moody's and Standard & Poor's of the Investment Grade of the company. That means that the balance sheet gearing in line with the leverage framework that we shared with the market in our Capital Markets Day. Where is this coming from? This is coming from, remember, our strategic framework. First of all, Prime CBD operations benefiting from polarization. Again, very good data regarding occupancy. In these 6 months, the occupancy has increased 200 basis points year-to-date, going from 92% to 94%. ERV growth, 5%. That means 300 basis points above indexation. And very healthy and good release spread, 9%, mainly driven by Paris, which is a multiyear high, 26%. That's box number one, Prime CBD operations. Box number two, our Alpha X and project deliveries going very well. 9,000 square meters leased from project deliveries in 1 quarter. Madnum in the final stages of the project, 92% by June 30, as we speak, even much higher. Haussmann reaches 54% let, again, as we speak on the path to much higher numbers. And as I said, capital recycling on track, disposal program on track. On the acquisition side, it's now already public our acquisition of the super-prime Berlin CBD portfolio, together with the old execution of the EUR 48 million buyback program, which was completed in very attractive terms. That's the main highlights. The main KPIs, you can see them on Page 5. So again, main takeaways, sustained cash flow growth, 5% gross rental income growth, EUR 207 million. EPRA earnings, EUR 111 million, 4% growth. EPRA EPS, EUR 0.178 guidance confirmed. Behind these numbers, outstanding operational performance, rental growth, meaning what we signed compared with the ERV December 2025, 5%. Let me emphasize 8% in Madrid. Release spread, 9%, let me emphasize 26% in Paris. Occupancy, 94%. Let me emphasize 200 basis points more than 6 months ago. If we talk about the balance sheet, our asset value growth which again, it's outstanding compared to available information on peers. I think that, again, proving that polarization effect. Net tangible assets, EUR 6.0 billion number. The net tangible asset per share at EUR 9.82, that is plus 1% in 6 months. And always with a priority of a solid capital structure and a capital discipline before anything else, we have secured EUR 440 million of our disposal program, which had an initial objective of EUR 500 million, so very much advanced and working already on the next level. Loan-to-value 36.7%, down 39 basis points versus December, liquidity remaining at EUR 2.5 billion. These are the outstanding numbers for the first half. As usual, now we'll go through the details. And at the end, I will come back with some remarks about the future growth. So let's go into the section of financial performance. Carmina, when you wish. Thank you.

Okay. Thank you, Pedro. Let's move into the financial performance, starting with the gross rental income. So gross rental income reached EUR 207 million in the first half of the year, up 5% year-on-year. That growth breaks down into 3 main components. The first driver, our like-for-like Prime CBD operation contributed EUR 8 million or 4% growth. That growth is being driven primarily by a positive release spread on renewals and rental growth on new letting, combined with genuine pricing power across our core markets. Second driver, Alpha X delivered project added a further EUR 6 million, or 3% growth. This reflects the entry into operation of our recently delivered assets, mainly Madnum in Madrid and Haussmann in Paris, which are now contributing rental income for the first time and will continue to ramp up through during the rest of 2026. And finally, this was partially -- this positive impact has been partially offset by EUR 3 million or minus 2% from disposals, the natural results of an active capital recycling program, as you know. So put together, the total growth of 5% and combining the operational like-for-like performance with the project contribution, underlying growth reaches 7%. So digging into the like-for-like number, gross rental income grew from EUR 180 million to EUR 188 million, up 4%. That 4% is composed of 3 drivers: Indexation contributed 1.5%; rental growth premium, our reletting of repricing effort above indexation added 100%; and occupancy gains contributed a further close to 2%, 1.9%. What's particularly relevant here is the spread, as Pedro mentioned before, over indexation, almost 300 basis points, 286 basis points, which is a clear evidence of genuine pricing power. And this outperformance is broad-based in our markets. Barcelona delivered 10% like-for-like gross rental income growth. Madrid delivered 6% like-for-like and it is not here, Paris as well, 3% positive gross rental income like-for-like growth. Versus peers reported ahead as of today, our 4.4% like-for-like growth is well above our peers, as you can see in this chart. The rental growth, next page, flows straight through to our earnings. EPRA recurring earnings reached EUR 111 million, up 4% year-on-year. First, Prime CBD operation like-for-like contributed EUR 7 million. Alpha X delivered project added EUR 6 million. Together, that's 12% earnings growth, offsetting by EUR 8 million of higher financial costs and EUR 1 million from disposal, netting to the reporting 4% growth. EPRA EPS came in to EUR 0.178 per share, up 4% on a stable share count of 627 million shares. Note that EUR 14.5 million share buyback program and cancellation was completed in the late June. So its full accretive impact on the average share count will show through from the second half onwards. It's not here. This keeps us firmly on track for our full year 2026 guidance of an EPS between EUR 0.34 and EUR 0.35 per share for 2026. And so in the next slide, turning to valuation. Gross asset value stood at EUR 12.1 billion at June, up to 3.4% like-for-like year-on-year, driven by EUR 282 million from rental growth and project delivery, on top EUR 108 million from yield movement, so yield changes and partially being offset by EUR 169 million of net disposals. By geography, this is positive across 3 markets, Madrid led with 5.8% like-for-like growth, Barcelona at 4.3% and Paris 2.4%. All 3 markets in positive territory, which confirms the diversified pan-European or pan-geographic nature of the value creation. In capital value terms, Paris stands, as you can see here in the details at EUR 18,000 per square meter, Madrid in the range of EUR 7,000 and Barcelona in the range of EUR 5,000, being in the prudent area according to the transaction, and you can see in the appendix more details about the recent transactions with valuation yields remaining stable across portfolio, 4.2% in Paris, 4.7% in Madrid, and 4.2% in Barcelona. Finally, the EPRA net initial yield, including the available space at market rents show levels between 4% in Paris and 5% in Barcelona, very solid and stable yields. Finally, the balance sheet, which continued to strength alongside the operational performance. We've secured, as Pedro mentioned, EUR 4.4 million of disposal year-to-date, 87% of the original disposal program, with EUR 383 million already executed and confirming appraisal values and a further EUR 59 million to EUR 60 million committed, including accelerated execution on the residential assets. This execution is feeding directly into leverage. Loan-to-value stands at 36.7%. EPRA loan-to-value at 46.3%, which -- this ratio includes the dividend committed but not paid in June, has been paid after the closing, but it's included in this ratio and this rating as well are not considering the disposal that are committed and under negotiation and not today yet included in this rating. Our credit profile remains full intact. Both Moody's and S&P reaffirmed our investment-grade ratings in the second quarter, Baa1 by Moody's and BBB+ by S&P with a stable outlook. And liquidity has actually increased despite the disposals and investment activity. So EUR 2.5 billion today, covering debt maturities up to 2029. Cost of spot debt remains contained less of 2%, being the average cost of the first half of the year at 1.9%. Taking together, rental growth, earnings growth, disposal execution and a strengthening balance sheet, this is a very set of first half results, a very solid set of results. In the following section, Carlos -- you will see with Carlos the details and the fundamentals of the main value drivers behind these results.

Thank you, Carmina. As we highlighted on the Capital Markets Day, our short- and mid-term growth relies on 3 strategic value drivers that is Prime CBD operations, projects Alpha X and active portfolio management. So let's go into section where we are on the different buckets. On Page #13, first look at the letting performance of our Prime CBD operations. We signed 61,000 square meters. Out of this, two things to highlight, 60%, so more than 35,000 square meters are lettings of new spaces, of empty spaces. Specifically Paris, the 14,000 square meters has been all of them available spaces. So our Prime segment is working very well and generating a lot of demand. Second element in terms of activity, always the Spanish activity because of the more short-term nature of the contracts is higher, and we are securing a lot of future rents through all of the Spanish letting activity, 77% of the 61,000 square meters has been Spain. Paris, we are signing at very high prices, as you can see with the examples at the left-hand side. And maybe a third interesting element, we are really mission-critical space for high value-add jobs, in particular, tech and AI, 30% of the contracts that we have signed have been in this segment. If we go to the next page on Page 14, as we've signed a lot of available space, we have had an improvement of 200 basis points year-to-date. So 100 basis points in the quarter, we are at the level of 94%, a very healthy level, and we are progressing quite well on the projects and on the rest of the available space. So a very good speed, thanks to the top product that we have. If we look at the nature of what we are signing on Page 15, first element, we have achieved a 5% ERV growth in all of the contracts that we signed. Important to highlight that this is compared to December 2025. So it's 5% in 6 months, just in 6 months, 5% outstanding Madrid and Paris with 8% and 4%. And as we said on the Capital Markets Day, we are getting an extra growth premium on the indexation because of the high quality of our product. Blended is 300 basis points. In Madrid, the first half, it has been 600 basis points, Paris close to 400 basis points. On the release spreads, we are maintaining very high levels, 9%, especially thanks to the Paris portfolio, where we achieved 26% that is an all year high mark, as you can see on the right-hand side. This is the first bucket, CBD operations. The second bucket of growth, a very relevant part is our project pipeline. We are progressing very well on the 2 delivered projects, the short-term projects that we have to fill. Madnum will fully stabilize, generate EUR 19 million of rents. We have already secured EUR 17 million. As you can see, 92% led as of today and conversations to get quite soon at close to 100%, 99%. Important to highlight that in the P&L as of today, there are just EUR 7 million because these are flowing in progressively as we sign the contract. So we have EUR 17 million secured and just EUR 7 million have been crystallized so far in the P&L. So we are securing future rents. On Haussmann, we are at half of the asset fully let. This is equivalent to EUR 6 million in the part in our P&L, there have been just EUR 2 million as of the first half. If we look at the total project portfolio, we have also things pre-let, for instance, like Sancho de Ávila and one floor on Scope. We have already today secured an annual amount of EUR 30 million of rents. That is quite a relevant part of the EUR 80 million that we have to get in 2028 to achieve our midterm EPS guidance. On the CapEx, we are remaining with the figures where we had. Last is the third driver. It's active portfolio management. As Carmina already mentioned, our initial disposal program of EUR 0.5 billion, we have almost 90% done. We are already working on identifying candidates for the additional enhancements of EUR 200 million. And we have also deployed very successfully the EUR 200 million that we guided on the capital market side to be invested, a buyback program in very attractive terms and the super-prime portfolio in Berlin that Pedro will explain with more detail.

So thank you, Carlos. Let me now go through a little bit of final remarks. My first remark, obviously, is about the execution of the value creation strategy. You can see that we are delivering. We have set up a clear framework of where things -- where value must come from, Prime CBD operations, managing and repositioning, Alpha X and Prime factory transformation and capital recycling. If we go one by one, Prime CBD operations are clearly delivering. Polarization is at stake, it's delivering. And as a consequence of that, we have delivered revenue growth of 4% like-for-like, 300 basis points above inflation, clearly above the peers that are not in our focus. The occupancy has grown by 200 basis points. The rental growth has been in the range of 5% in just 6 months. The release spread has been 9% with record performance in Paris of 26%. And so we are leading the sector, and we are delivering. And maybe I would like to add in this box how pleased we are about letting activity. You know that letting activity is important for me. Letting activity is not only about the past. It's also about the future. It has to do with next year P&L, with 2 years P&L from now. It has to be about our midterm guidance. Our letting activity has been very strong. You've seen that particularly strong contribution from Spain. When we talk about leasing, we are mainly a Spanish company. That's where our letting activity comes from. You saw a majority of new lettings, not just renewals. And you saw also a great share of technology sector among our clients. So all of this, it's giving us very good framework and expectations for the next year. The Alpha X is also delivering. It's contributing an additional 3% year-on-year group revenue. Madnum is 92% secured at 30 June. If I should tell you where we are today with the discussions we are having, we are even much higher. And particularly, this will be true for Haussmann that was 54%, June 30, but it's going in the right direction as we speak. And there's scope with the first pre-let secured and increasing market interest. So we are talking about more than EUR 30 million of additional revenues secured year-to-date, covering approximately 40% of the target for 2028. And coming quarters, we will crystallize significant amounts of secured rents. And the third box is about capital recycling, very much on track. EUR 440 million of disposals year-to-date, 80% (sic) [ 87%] of the target. Enhanced disposal program pipeline identified and progressing. Buyback already an old story, but also executing fully executed. And new acquisition on Berlin super-prime focus with an ungeared IRR of 8% and a strong rental reversion ahead. Well, all of this, what is telling us is that our guidance for this year is confirmed. You know that we announced also a midterm guidance for 2028 with a significant growth in terms of EPRA EPS attached to it. Everything that we've gone through these 6 months is telling us that this EPRA guidance -- midterm guidance is confirmed. I would like to share also a few words about the acquisition of a portfolio of prime assets in Berlin. Basically, the things I would like to summarize is you know why we are here. It's about prime. It's not about Berlin. It's mainly that we want to identify where we can put know-how at stake and generate the kind of IRRs that we see here. This portfolio of Berlin, we believe it's super-prime with potential. With potential means that we see capacity of rents going higher, ungeared IRR of 8% to 9%. We see this as a fantastic location, number one. With a fantastic physical characteristics, big horizontal box. But if you allow me, with the capacity of its management to be improved. And we have a plan A, which give us this minimum of 8% to 9% IRR, but we have plans at stake in the midterm to increase additionally the IRR of these projects to 9%, 10%, not on the basis of big CapEx, on the basis of light CapEx with upside in rents. So I think it's a typical thing that Colonial SFL has been delivering consistently in Spain and in France. And we would like now to deliver this together with our partner, Generali, great partner that we would like to show in the near future in this particular case in Berlin. On Page 21, you had a few pictures, basically location. It's a great, great, great asset for this portfolio. But most of all, physical characteristics, capacity to outperform in terms of initiatives that would deliver an additional rental growth in the future. So basically, just to summarize, our exposure to Berlin for us is a projection of what we have been delivering in the past in Madrid, Barcelona or Paris. Finally, strategy and outlook, a big summary. In the end, you know that our bet on prime office is about betting on polarization. It's about securing not only pass-through of inflation, but an additional spread that in the long term has an incredible value. So this recurring EPS of 4% of this revenue growth of 5% year-on-year, I think that is clearly what we want to deliver. As you can see, 286 basis points above indexation. Letting activity, very important, not only for the past, but for the future with solid rental price increases of 5% in the last 5 months. Occupancy, 200 basis points year-to-date, and projects being delivered as expected, generating additional revenues. You can see also from this data that portfolio value is growing across all geographies. Spain, slightly better than France, but our France, our Paris being super solid as we expected. Disposal program well ahead of schedule. The amount delivered EUR 440 million, it's in line with our expectations. And let me emphasize again, everything at or above appraisal values. Berlin done, Berlin Ultra Prime acquisition done with attractive ungeared IRR and strong reversion in the future expected and always, always, always leverage levels in line with our framework and strong credit profile. That means capital discipline, always a priority for us. And as a consequence of this, our guidance on track short term and also midterm. Well, this is the summary of the results for the first half of this year. Thank you, and let's go now for any questions you may have. Thank you.

[Operator Instructions] Now we already have a few questions. The first one comes from Jonathan Kownator from Goldman Sachs.

I have actually 3, but I'll start with 2. The first question seems obviously that letting is progressing well. I just wanted to -- a bit of clarification. It seems your annualized rent-free period went to -- from EUR 19 million at full year to EUR 45 million, and it seems to be driven by Paris. Can you give a bit more color on that, please? Let's start with that, and I'll go with the next one afterwards.

Just a minute, Jonathan. Carlos, you can the question?

Well, as I explained in my part, on the letting activity, we have delivered a very strong quarter. And on what we have today available in terms of Prime product and in particular, also the Haussmann project for the long -- for the short term and also scope, we are progressing and we are receiving a lot of interest. So we are confident, and we are seeing good progress and also have for the coming quarters positive confidence.

I'm sorry, it's not the another question I ask, apologies. It's good to hear, by the way. But this is related to lettings that have been done already and that were done over H1. So the annualized incentives went from EUR 19 million to EUR 45 million, and that is lettings that has been done at H1. And it seems to be driven by Paris because I think Paris is EUR 34 million of that. So have you delivered projects in Paris that Haussmann, or where do the incentives come from, please? Sorry.

I'm not sure if I got correctly the question, but on the...

I can refer you to the press release, if you want. It's in the annualized -- it's the -- sorry, Page 29 in the EPRA net initial yield table. So you have essentially at the end of 2025, you have EUR 19 million of notional rent expiration of rent-free periods, and it's gone up to EUR 45 million as of H1 '26.

Jonathan, I'm sorry. Now we follow you because we didn't understand. Sorry, Jonathan. No, so I think there are 2 questions here. One needs to be adjusted in the EPRA yield, which are the incentives that are booked in our accounts to convert the cash on cash or the P&L yield into cash-on-cash yield. So this is the part of the incentives that is linked to the gross rental income this first half of the year. And the other is incentives that we are signing with the new contracts in Paris and in Spain. So basically, in Paris, it's true that ImmoStat has raised the data about the incentives, which averaged 30%, with outstanding 40% in La Défense, being in CBD in the range of 18%. In our case, Jonathan, the letting activity for the first quarter that we have been signing in France, which is 8,000 square meters, I think, it's in the average of 16%, so between 14% and 16%, in line with the CBD and according to the quality of our assets. In Spain remains stable, so 4 months in the range of 4%, 6% max in economic terms. This is the incentives that we are signing this city. The adjustment that you are referring, Jonathan, it's about the incentives of the historical, say, contract base that are booked in our accounts and that needs been adjusted in the methodology EPRA to convert P&L gross rental income into cash-on-cash rental income.

This is the full portfolio and a totally different thing that you cannot tie up is the current first half activity because the EPRA yields cover the full portfolio. But it's very...

It does, but it's not so much the magnitude. I mean, obviously, you do business, you do incentives. We all know that. Is the change from 2025 to beginning of 2026, which is more than doubling. That was really the question.

We'll check the numbers because it needs to be -- normally, as you know, in Paris, the fact that they are long contracts and we have big long contracts like Pasteur, like La Banque Postale as well, this is the most important part of this incentive. But let us check, again, vis-a-vis 2025...

Let us do a specific call where we check this.

Yes.

Hello? Can you hear me? Yes. Sorry, I had a second question. So on the LTV, I'm getting a bit confused, I have to say. So I'm looking at your disclosure, and obviously, you have your reported LTV and you have the EPRA LTV and you have different types of EPRA LTV. But if I look at the magnitude, I go from something like 36% to 49.5%, something like that. So that's quite like 13 percentage points difference is quite very substantial. So can you help us understand really the difference? And I think this EPRA number that you're showing is actually increasing and not decreasing. So how does that exactly work? What's the difference here?

Yes. On the EPRA loan-to-value, included the dividend that has not been paid and has been paid after closing. So for methodology, Jonathan needs to be included as a cash out...

Okay. But I suspect you've paid it by now, right?

Yes. And the payables. And it's true that in this loan-to-value for the -- EPRA loan-to-value, this is a cutoff, I would say. One is basically the dividend, which are coming some days later. And another is the disposal program that are on track and has not been included yet in this loan-to-value in June 2026.

Okay. So where do you think is -- if you include all this, where is this EPRA number when you look at it? And I mean, again, the range, so 36% number already includes all these elements retreated as well?

No, no, sorry, in the 36% by methodology because it's the spot debt that you have at closing and the 1st June, it hasn't include the dividend. It has been paid after the closing, the debt. So basically, the loan-to-value by methodology, it's the net debt spot at 30th of June on the total assets. But by methodology, EPRA loan-to-value needs to include the payables that has been booked not being debt yet that will be...

Carmina, if I may, you also have a pro forma LTV number. And so that pro forma LTV numbers also show 49.4% at Page 30, in the release. But I'm just trying to understand, so is that pro forma number including also all the recent disposals? I think it says that it includes your disposals or does it exclude the recent ones that you've just signed?

Yes. No, very important question. So this pro forma has not included the disposals that is being, I would say, agreed and not executed. So it's not a pro forma and it's following the methodology, and I understand -- I agree with you that could be some misunderstanding. So it's following the methodology, but they are not including any pro forma disposal as of today, which are secured, but not executed...

And so can you help us understand where that number is like if you fully load it and if you do -- I mean, it's called pro forma, but if you do a pro forma, including the disposals that you've done, including the dividend that you paid, like where should that number be you think?