Inmobiliaria Colonial SOCIMI S A : Transcripción Presentación Resultados 1T 2024

[00:00:00.740] - Pere Viñolas

Thank you. Good afternoon. This is Pere Viñolas speaking, CEO of Colonial. I have with me Carmina Ganyet, Chief Corporate Officer, and Carlos Krohmer, Chief Corporate Development Officer. It's a pleasure to be with you again to present our results for the first quarter of 2024.

[00:00:22.130] - Pere Viñolas

First of all, maybe a qualitative comment before entering into numbers to share with you how do we see markets, and in particular, how do we see Colonial in these first three months of the year.

[00:00:37.730] - Pere Viñolas

I would say, to summarize, that we remain with a perception of strong demand. A strong demand that is mainly focused on premium space in prime locations, basically driven by a trend of clients whose strategic decisions on real estate are focus more and more on user experience.

[00:01:04.550] - Pere Viñolas

In the end, a polarization of demand, that's what we are seeing in the market, and therefore, a widening gap between what we could say the best and the rest. In other words, this demand for the best, it's more than in the past, and it's more than the rest. These are the two things that I would say about the evolution.

[00:01:35.210] - Pere Viñolas

Having said that, what I have to share with you is not big news because it's as you know, those who follow us, is that this trend to strong results is something that it's not a question of weeks or a question of months. It's now a question of the last few years that we've been publishing this kind of numbers.

[00:02:02.700] - Pere Viñolas

Let's go into the numbers. I'm on page five of the presentation. The highlights are we are starting 2024 with outstanding results on the back of this polarization. Here you can see the numbers. I start with the bottom line, and then I go to the top line. The bottom line for Colonial, it's an EPRA EPS of 8.7 cents per share. That is 25% more than last year. The EPRA Earnings are for this quarter, 47 millions, obviously 25% more. The group net profit is 54.5 million, 96% more. So high double-digit profit growth would be the first comment to describe our results.

[00:03:06.450] - Pere Viñolas

As I said, if we have to talk about the bottom line and describe it, means that we have to go to the top line. The revenue growth has remained strong. The revenues have been 96 million, 6% more than a quarter, 18% in Paris more than the comparable quarter.

[00:03:33.220] - Pere Viñolas

The like-for-like, which is a number that again, and again we emphasize to explain the difference, Colonial is 6.3 for this first quarter. The gross rental income growth from projects is 6.0%. This strong revenue growth comes on the back of outstanding operational performance. First of all, occupancy remains at the top end, 97.5%, that is 34 basis points more than three months ago, still 100% in Paris in terms of occupancy. So, occupancy is great.

[00:04:24.220] - Pere Viñolas

Rental growth is great too. It's a 6% in three months. Rental growth is defined as the percentage between the signed rents and the ERV available in December 2023. That's why this 6% is remarkable. The group released spread is at 12%.

[00:04:49.950] - Pere Viñolas

The balance sheet remains solid. Financial cost remains at 1.74% stable, slightly lower than December 2023. We've been disposing on track with last year at €2,000 million secured year to date at an 11% premium on gross asset value. Again, outperforming. As you may have seen, we just published very recently that S&P has confirmed the rating of Colonial, confirmed on April 24, triple B plus, which is a strong sign-off in terms of healthy debt.

[00:05:53.730] - Pere Viñolas

If we can describe our situation in other words, even better with a picture. On page 6 of the presentation, you can see the kind of outperformance that describes our situation in terms of occupancy. You can see how standing situation is in Paris, in Madrid, and in Barcelona. I think that the chart speaks for itself.

[00:06:29.430] - Pere Viñolas

Beyond occupation, rental growth, as I said, remains very strong. We've seen maximum rent sign of €1,100 per square meter in Paris, maximum rent signed of €40 per square meter a month in Madrid, 28 in Barcelona. You can see here several examples of these recent signings. But as you can see in this slide, number 7, Paris, 9% in three months, Madrid, 3% in three months, Barcelona, 7% in three months.

[00:07:14.640] - Pere Viñolas

As I said at the beginning, I'm on page 8, there is a very strong trend of supporting prime CBD exposure. You can see how rents have behaved in the last four years with coronavirus issue in between. Market has gone in the direction where Colonial's playing field is. That's why we remain with high conviction on the future outlook of our exposure. This would apply for Paris. This can also apply for Madrid. And as you can

see here in this page, there's two things to highlight. The first is a positive evolution in actual terms. The other is the relative evolution compared to other markets.

[00:08:20.370] - Pere Viñolas

Just as a comparison, La Défense funds in Paris, outside M30 in Madrid. Of course, the explanation for that is different levels of vacancy in both markets that have to do with the different product available. So, the highlights are that the performance of Colonial in these three months has been very strong. Now, let's go into the details and let's enter into the section about financial performance, Section 2. Carmina, please step in.

[00:08:56.850] - Carmina Ganyet

Thank you, Pere. In this section, as you can see, as Pere mentioned, as Colonial Prime strategy delivers this first quarter, a very strong growth in earnings, gross rental income increasing 6.2 year-on-year, 6.3 like- for-like, up to €96 million. In line as well as the BBA of growing 8% year-on-year, and consequently, the EPRA EPS, and then I will comment more details on that figure, increasing 25% year-on-year to €8.7 a central of euros per share.

[00:09:32.380] - Carmina Ganyet

If we go to the gross rental income, basically, the gross rental income is growing on the back of the core portfolio and project delivered, as you can see in page 11. We have a very positive impact of the core portfolio in terms of like-for-like, growing 6%, as well the positive impact of the delivery of projects, 6%, basically, Louvre Saint-Honoré and Adidas, and these two positive impacts of 6% each one has overcompensated the disposal program and as well the IBM impact that the contract that was finishing at the end of last year and will be a new project, so will become a new project, a new income for the future.

[00:10:20.310] - Carmina Ganyet

Consequently, gross rental income increased 6.2, with 12% thanks to the alpha strategies, overcompensating the disposal projects and the IBM decisions and the beginning of the works on the IBM.

[00:10:38.770] - Carmina Ganyet

But where has been this gross rental income, in which market, and why? In page 12, you can see that the gross rental income in a healthy number, in a net healthy growth of 6% is a cross-market, especially highlighting Paris with close to 8% like-for-like growth, and Barcelona, 8% like-for-like growth. Basically, we have a positive impact of rental growth, 2%, above the all inflation.

[00:11:12.820] - Carmina Ganyet

Additionally, we have a positive impact of 3% thanks to the indexations of our contracts, and additionally, 1.2% of occupancy. Today, in this first quarter, we present 89 million gross rental income for this first quarter, increasing 6% like-for-like, 6.2%. Basically, additional impact, a positive impact of occupancy and a positive impact above indexation thanks to the pricing power of our portfolio.

[00:11:45.010] - Carmina Ganyet

If we go to the EPS in page 13, you can see how this positive impact of gross rental income has been translated into the EPS growth. Eleven millions of the portfolio continued operations. Additionally, we have this first quarter a positive impact on the financial results thanks to the deep cash management, overcompensating, as I mentioned, the negative impact from the disposal and the negative impact of the IBM rescission to become a new project.

[00:12:19.880] - Carmina Ganyet

The EPS is growing 25% year-on-year in this first quarter. We maintain, as you see here, the EPS guidance is on track as we released at our previous press release. We continue on track in our disposal program. As you know, we have been announced a disposal program of €500 million. We have been closed this quarter, the disposal of Sagasta 31. Sagasta is a small-size asset, bacon, with a very small for plant, so very inefficient to reform it in line with this Colonial aims. It's part of our recycling strategy, and all this €200 million, including the last one, as I mentioned in Sagasta, it has been done at a premium of 11% of the last reported process set value.

[00:13:19.830] - Carmina Ganyet

So, we are on track, and we are confirming valuation with a premium in the disposals. So, thanks to this active asset management, active capital structure management, we have been reducing our debt in the last three months. Today, we have a net debt of 4.7, almost €4.8 billion. We have enhanced conceptually, we have enhanced our liquidity. Today, Colonial has close to €3 billion of liquidity, covering 1.5 times the debt that will mature between 2024 and 2026.

[00:14:08.880] - Carmina Ganyet

We maintain a very stable cost of debt, so we remain as you know, in a pre-hedge and hedge policy, confirming our debt below 2% this year. A prolonged value remains stable in line with what has been disclosed December 2023.

[00:14:32.930] - Carmina Ganyet

So, consequently, as Pere was mentioning, S&P has been confirmed our credit rating with triple B plus with the stable outlook, thanks to the cash flow resilience, thanks to the strong liquidity, as I mentioned before, and thanks as well to the interest rates hedge policy that we have been sharing with you in the last quarters, in the last year.

[00:15:01.450] - Carmina Ganyet

Today, Colonial, as you know, we have 100% of debt fully hedged, and also the pre-hedge position for the next year, and the next maturity will be at least more than 50% of our debt expiring in the future, maturing, so we can maintain this low or healthy interest cost of debt below 2.5% in the following years.

[00:15:25.580] - Carmina Ganyet

We have been also as well tapping the market with 200 million bonds maturing in 2029 with a private placement. Thanks again of the pre-hedge strategy that we have been able to put in place to implement the cost of debt. The cost of this new tapping bond remains below 2%, exactly 1.9%.

[00:15:54.960] - Pere Viñolas

Thank you. Let's go into the next section, Carlos, Portfolio Management.

[00:16:04.760] - Carlos Krohmer

Thank you very much, Pere. I'm on page 18. As Pere mentioned, we have had a very successful quarter in letting operations. We've signed contracts for an annual amount of close to 13 million. This is quite remarkable. If we look at the occupancy ratio where we come from three minutes ago, we were at 97%, we've increased this up to 97.5%, 34 basis points in a quarter, increasing Madrid and Barcelona, the occupancy.

[00:16:36.680] - Carlos Krohmer

Out of the rental activity signed, close to 60%, more than €7 million, comes from the Paris activity. This €7 million have been signed in an average rent above €1,000 per square meter a year. Basically, that we have had two large operations at a price well above 1,000. One has been signed at the level of 1,100. So really signing maximum rent in the market and also in Madrid and Barcelona, we have signed this quarter at the maximum level, contracts at 40 and also at 28.

[00:17:19.930] - Carlos Krohmer

If we step to the next page, we see the rental growth performance, and basically there are three interesting columns to look at. On the first, we are continuing capturing indexation. The annualized impact of all the indexation exercise that we've gone through the contracts in this first quarter is 5%.

[00:17:43.800] - Carlos Krohmer

This is loading further growth because just a very minor part of this is embedded, is included in our first quarter P&L. Then we have signed a double-digit release spread. Basically, it's to highlight Paris with plus 22%. We have had deals at very high levels, at levels of 30%, 14%, and 38%, three big deals. On the rental growth, it's even more important. We are starting the year with rents that are being signed 6% above the ERV of our appraisals at December 23. So just in three months, we have signed ERVs that are 6% above the appraisal.

[00:18:30.640] - Carlos Krohmer

Again, the leading market is Paris with plus 9%. We have here even examples of double digital rental growth in some assets, in some of the contract signed. Madrid, plus 3%, and Barcelona plus 7%. So already 6% of growth just in three months. It's quite a lot if you look at this from an annualized perspective and much higher than the percentage that we had last year at this point of the year.

[00:19:04.670] - Pere Viñolas

Thank you. So, let me now just step into a final section of the presentation about strategic situation and the future outlook for the company. The summary of the performance of Colonial in the first three months of the year, as you have seen, it's that it's a good performance. It's a better performance than a street talk, it's a better performance than one could think in terms of demand, in terms of occupation, in terms of rental growth.

[00:19:47.710] - Pere Viñolas

So, with any criteria, it remains very strong results, the one for the first quarter of the year. The number that shows in the end all of this strength is the EPS that grows 25% on a year-on-year basis. What's behind this number is that, first of all, the inflation hedge that we always emphasize that for the long run is one of the main drivers of the performance of a company.

[00:20:23.340] - Pere Viñolas

So, it's not only about yields, it's about growth, driven, first of all, by inflation. But second, it's the rental growth beyond inflation, acting as a pipeline. Third, it is not only about returns coming from the existing pipeline, it's returns coming from new opportunities that add value, and finally, acquisitions and the prime factor.

[00:20:52.740] - Pere Viñolas

This is what explains the performance of Colonial. On page 22, I would like to stress again, because those who follow us know for a long period of time, this will not come as a surprise, is that it's not only that our performance is better than expected, it's that it's better than the rest. If you look at comparison of like for like for Colonial and a selected number of peers, you can see more or less where do we stand in terms of growth compared to peers.

[00:21:28.350] - Pere Viñolas

I think that way has to do with this unique positioning of Colonial that is very important at the moment where we are decoupling the office market into different markets and showing a total different performance depending on the specific market that we are talking about. Page 23 is just to highlight that all the work that has been taking place on our project, pipeline that has already been delivered allow us for an expectation of rental growth, which remains very important. The final full potential top rent generation of our portfolio stands at 80 million, and out of this 80 million, 80% is already secured today.

[00:22:25.470] - Pere Viñolas

There is one final project that today is at the heart of the efforts that we are focused on, which is Méndez Álvaro on page 24. Just a slide to comment on this. This is going very well. This is to provide 19 million of new rents. It's expected to deliver more than 8% yield on cost. This project is about to be delivered in the next few months. There's only 25 million pending in CapEx. Now we are in a commercial mood, in leasing mood, and I think that momentum is going quite well. It's not, let's say, finished, the project, but as of today, they are signed ahead of terms that account for more than 20% of the surface of the available space in this unit.

[00:23:39.390] - Pere Viñolas

So, I think that we are quite happy with the strong demand that this project is having. And this, page 25, it's part of a broader view of what we can deliver, which in the end is summarized on the chart at the right of this page 25, which in the end, what is telling us that the passing rent that we have today of 426 can be enhanced by a number of drivers, Madnum being one of them, you can see 19 million coming for them, but also 49 coming for the new projects that will come from our own balance sheet that will to be able to lead us to far more than €500 million of rent.

[00:24:36.200] - Pere Viñolas

We believe that the momentum of Colonial allows for cash flow that is growing, for cash flow that is showing a strong momentum. Final comments on the page 26. First of all, as of today, we confirm the guidance for EPS 2024 that we gave not so long ago, 30 to 32 cents per share. Dividend per share is confirmed at 27 cents per share, 8% growth year for year. The disposal program remains on track with 200 million out of 500 secured as of today. Maybe a more general comment. We see real estate and capital markets closer to an inflexion point. We see yields closer to peak. We believe that we have to be conscious of cycle. We believe that it's a moment for considering reloading into growth opportunities.

[00:25:57.530] - Pere Viñolas

Always, this within a framework of a strong capital structure, which always remains a very important point. It's a moment that we live in a world of interesting opportunities. And the message that we like to pass is that we are not passive on this, and we are advancing on different initiatives with attractive returns, always in the framework of a solid financial structure, and we are sure that we'll be able to deliver news on this front during the course of this year.

[00:26:40.410] - Pere Viñolas

That's a more kind of a qualitative message I wanted to pass, but as a summary, what we think are a very good set of results for this first quarter, that's what we have been proud to share with you today, and now as always, we are open for the questions you may have. Thank you.

[00:27:02.530] - Operator

Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press *5 on your telephone keypad. Thank you.

The first question comes from Florent Laroche from ODDO BHF. Please go ahead.

[00:27:20.540] - Florent Laroche

Hi. Good evening. Thank you very much for this presentation. I would have three questions. My first question would be to come back on the investment market. I have seen your comment on the yield that are close to peak, but on the investment market, how do you see the appetite of investor? And at the end, how do you see the out poses to value the asset at the end of June and at the end of December compared to December 2023? So that would be my first question.

[00:28:03.180] - Florent Laroche

My second question, on your leading challenges for the rest of the year, could you please say a word on the leasing of the Haussmann 106 in Paris, that will be free at the end of June, if my understanding is correct. And my third question would be on your comment on your appetite growth profile. So, we understand that you look for maybe it's from acquisition opportunities. So, does that mean that at the end of the year, you could be a net buyer…

[00:28:40.460] - Pere Viñolas

Oops! Are you there? Hello?

[00:28:48.050] - Operator

Let me try to see if the participant's still in the conference. One second, please.

Please, Florent, are you still in the conference?

[00:29:09.620] - Florent Laroche

Yes, I'm still on the conference. I think I'm back. Can you hear me?

[00:29:15.420] - Pere Viñolas

Yes, you are. I think I heard your third question is based on our appetite for growth and the acquisition opportunities that we make if we see ourselves as a net buyer. I don't know if that was the question. Yes.

[00:29:31.770] - Florent Laroche

Yes, that was the question.

[00:29:33.960] - Pere Viñolas

Thank you. Look, on the first question, it's true that 2024 remains a year that's still challenging in many ways. It's true that investment markets have not come back on track to, let's say, a normal mood. Therefore, it remains uncertainty on where they can be during the course of the year. As you were saying, what impact they may have on valuation in June and in December, but I would say on our side, maybe a few comments.

[00:30:22.780] - Pere Viñolas

First, in our case, we see the repricing more having taken place in 2023 that it may happen in 2024. That's a very subjective and personal opinion. So, talking about the future, it's one of the most difficult things to do. But that's the feeling that we have. We believe that 2024, it's a year for inflection, and we cannot be more precise than this, and that from our point of view, where we see ourselves as long-term investors, that's more an interesting point and an opportunity than a particular threat.

[00:31:15.160] - Pere Viñolas

Your second question on the Haussmann. Yes, we will confirm that this is a property that now needs a little bit of active management because it's becoming available.

[00:31:30.900] - Pere Viñolas

What we can say today is that the rent or the income for this year 2024, the way it was managed is secured. For the short term, there's no particular downside, and for the midterm, the conviction that we have, in particular the conviction in the SFL team, is that the potential for value creation or for stronger cash flow generation, it's high. So, it's an ordinary kind of challenge that you have to manage, but with a high degree

of confidence. I'm very sure that the management of SFL is about to do a great job as they always do in this particular situation.

[00:32:18.670] - Pere Viñolas

On the question of the growth profile, acquisition opportunities, being net buyer, net seller, it's a very, let's say, complex moment that now that we are going through because when you are in a situation where there's an inflection point at some point, but you cannot be specific, you have to do two things at the same time that can be seen as contradictory. One is, do not lose the growth opportunities that may be out there. And second, remain in with a solid balance sheet. Maybe at the day of today, I cannot be more specific, but I can say that we will be in the mood for acquisition of growth opportunities that may come from the inside of the balance sheet or from the outside, at the same time, securing a stronger balance sheet.

[00:33:29.280] - Pere Viñolas

This may not mean that we are necessarily net buyers by the end of the year, but we feel this moment of a cycle as closer to being proactive than we experienced last year. Thank you.

[00:33:44.430] - Florent Laroche

Okay. Thank you very much.

[00:33:50.120] - Operator

Thank you. The next question comes from Fernando Abril from Alantra. Please go ahead.

[00:34:04.620] - Pere Viñolas

We are not listening to Fernando.

[00:34:14.000] - Operator

Fernando, your line is open.

[00:34:18.200] - Fernando Abril

Yes, sorry. Apologies. Thank you very much for the presentation. A few questions. First on net debt. Net debt is down around 100 million versus December. I don't know how much of the 200 million disposals are already included in this net debt. Then also link to this the latest disposal you have done in Madrid, the Sagasta building. So, correct me if I'm wrong, but this is for reconversion into a luxury residential unit. I don't know if within your 300 million remaining, you have also more, let's say, projects similar to this one.