Welcome to the Inmobiliaria Colonial first quarter 2023 earnings call. The management will run you through the presentation, which will be followed by a Q&A session. You can request to ask a question at any point during the presentation by dialing star one one on your telephone keypad. I am now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial.
Good afternoon. Good morning to everyone. This is Pere Viñolas speaking. Also with me, Carmina Ganyet, Chief Corporate Officer, and Carlos Krohmer, Chief Corporate Development Officer. I'm very pleased to share with you the results for the first quarter 2023. As you will see in a minute, I believe they are a quite solid results, and a strong cash flow, strong operations, and a solid balance sheet.
Let me go now to page six, where you can see the summary of the results, and then I will go as usual more into details. We have finished the first quarter of 2023 with a recurring net profit of EUR 38 million. It is 5% more. If we adjust for doing the right comparison in terms of continued operations, the recurring net profit growth is 14%. The EPS, it's EUR 0.07 per share. It is 5% more. 14% more in terms of continued operations. EBITDA, EUR 65 million, 13% more, 19% in terms of continued operations. Revenues, EUR 90 million, 11% more, 10% like-for-like. These are the main KPIs regarding the cash flow, which as you can see is quite strong.
In terms of operations, we have improved our occupancy, which was already quite high, from 96% - 97%. That is 115 basis points more, very close to the 100%. A letting volume that is 13% more than the previous quarter, more than 45,000 square meters. A 6% indexation for our existing contracts. In terms of rental growth, 6% re-leasing spread, 3% growth on the December 2022 ERV. That is 3% in a single quarter. Finally, on the balance sheet management side, we remained with S&P credit rating confirmed at BBB+ stable outlook. As a coincidence, today S&P has delivered in written their opinion about us. Liquidity remains above EUR 2.5 billion. All of our debt remains 100% at a fixed cost. This cost, the cost of debt, is just 1.67. A solid balance sheet, strong operations, strong cash flow.
Let me summarize what's going on at least this quarter and which is quite consistent with what we saw already last year. First of all, the obvious comment is that Colonial remains delivering very strong cash flow growth with full pricing power. In this sense, we achieve one of the highest gross rental incomes or net rental income like-for-like growth in the sector. As we will see later, this double digits growth rate, it's quite higher than the rate of growth that we used to have in the recent months and years, and clearly above our peers. We show a leadership at this level, coming from our very well-known leadership position in terms of polarization.
We continue to deliver a perfect inflation hedge. Colonial is capturing the cash flow growth coming from indexation in full. As you know, the game is now that interest rates are already up because inflation is already higher. The question is who's able of delivering an inflation hedge with cash flow that grows together with indexation? This is our case for this quarter as it was for the last year. All of these excellent performance in terms of operations have also as a consequence, an out performance in terms of occupancy. Colonial is improving its own occupancy, which was already very high. And not only this, but again, we are outperforming the market in terms of this ratio of occupancy or vacancy. We have the highest occupancy among our peers as of today. Good operations, good data on occupancy.
Now going to the balance sheet issues. I just mentioned that today S&P confirmed our BBB+ credit rating, which it is very good news. Let's not forget that we are at the moment of the market where maybe 50% of the market is getting downgraded or negative outlooks. We remain the same, we remain strong in terms of balance sheet, this is because of a number of issues. Let's just mention two of them. First, strong hedging profile, which keeps our financial costs under control. Not only under control, but in very good terms no, for the next few years.
Also with this solid balance sheet position is because of the outcome of our disposal program that has already been completed in rough terms, as I will mention later. The Colonial EUR 500 disposal program has been completed, and particularly it has been completed again in line with the NTA valuation, in line with the appraisal results. All in all, a set of very good news, very good performance, better than the past, better than the rest. Now let's go into details. Let's go to the next section on Financials.
Thank you, Pere. In this section, we are going to see in more detail the main financial indicators. The first is, as you see in page nine, a strong profitable growth in all metrics. gross rental income increasing 11%, 10% like-for-like, up to EUR 90 million, as well as rent, net rental income percent growth, like-for-like 11%. EBITDA with EUR 65.4 million, increasing 13%. Considering the impact of the disposals, as mentioned in the continued operation, this growth would have been 19%. Consequently, the recording net profit increases 5%, 14% considering the continued operations. The earning percent as well shows a solid growth of 40% continued operation, 5% in absolute terms.
What has been the main driving forces of this EPS growth? In next page, you can see the recording years of continued operations increasing by 14%, EUR 11 million almost. On top, we have a negative impact due to the disposals achieved in this 1st quarter of EUR 4 million. Financial cost negative impact of EUR 4.7 million due to the fact of the rates increasing. As we, you can see later on, the impact of this financial cost has been only increasing 26 basis points when the market has been increasing more than 350 basis points in interest rates. You will see in more detail in the following pages.
Consequently, 5% recording profit growth, 14% continued operation, and the EPS guidance, thanks to this 1st quarter results, keeps on track as we release in the annual results when we release EPS guidance. If we go to the top line, the gross rental income, you can see here the main impact of this growth of 11%. The core portfolio contributes with 9% growth in revenues, basically backs of the superior pricing power. Additionally, the project that has been delivered during the 1st quarter is adding 3% to the gross rental income. Additionally, on top, the acquisition of Pastell mainly contributes with 5% growth in the revenues.
If we go to the market and what has been basically the main impact and the main sources of this growth in different markets. In the following page, you can see that Paris, Madrid remains very strong in terms of like-for-like growth. Outstanding Madrid with 16%. Barcelona remaining flat in the first quarter. The main impacts of this gross rental income basically is a combination of indexation. This 8% price impact, half of this pricing power is coming from the indexation, from the updated all the contracts at the rates of indexation in France and in Spain. On top, the occupancy has been contributed positively with 2.3%, outstanding the occupancy in Madrid.
If we go to finally in the capital structure, as Pedro mentioned, S&P has confirmed the BBB+ credit rating with a stable outlook recently. As you can see, the interest cost of debt, the financial cost is in the low levels of cost of funding among peers. We have a significant interest expenses protection thanks to the hedge and the fixed cost of debt. As you can see here, since 2021 and 2022, the last year, sorry, the financial cost has been increasing 26 basis points from 1.4% to 1.67%, when the markets has been increasing more than 350 basis points. This is thanks to the fixed hedge cost of debt strategy.
Thanks to also the disposal, the loan-to-value has been significantly improved, less than 37% loan-to-value, in this first quarter. As you can see here also, the profile of debt maturity, shows a very strong and stable debt maturity profile, with 75% debt maturing after 2026 and with a significant liquidity position covering almost two times the debt maturing in 2023 until 2024. Consequently, the limited debt maturity, the large pre-hedge position and significant also secure liquidity strength, Colonial debt service and mitigates any financial risk for the following almost three years. Carlos.
Thank you, Carmina . A quick look on operations. I'm on page 15. As Pere already mentioned, this quarter has been extremely strong in letting activity, more than 45,000 square meters . This is +13% versus the previous year, previous quarter. This is quite substantial taking into account that we are already at high occupancy levels and have less and less space to be offered. Most of this has been vacant space, so we have improved a lot, 115 basis points the vacancy profile, and we have locked in long-term contracts, seven years until first exit and 10 years until contract expiry. When we go into page 16, go a little bit more into the detail.
Here you see that 27,000 square meters or 60% out of the letting activity in the first quarter has been new lettings, so the new spaces. This at the end is a consequence of a very significant occupancy profile, especially in Madrid, where we hit now 97%. In Barcelona, we have improved by 355 basis points. Paris, we are remaining at a full occupancy close to 100%.
If we go into the next page, on page 17, where is the vacant space located in our portfolio? Out of the 3.3% availability, half of it is scarce space of high quality product in the CBD of our portfolio, in the CBD of Paris, 0.2%, 0.6% in Madrid. Part of this is Velázquez, where we have already, as of today, let up a significant chunk and 0.6 in CBD Barcelona. The rest is entries into operation, especially in 2020.
If we go to page 18 and look at the performance, how we are signing, which rents we are signing. From the first indicator on the re-lease spread, we are remaining one of the highest re-lease spreads in the sector, 6%. When you compare with other people that have reported, this is an extremely good result, especially driven by the very strong pricing power and re-lease spread in Paris that is at double-digit levels of 10%.
On the ERVs, we are remaining and maintaining ERV growth. Just in a quarter, we have increased already 3% because you have to take into account that this 3% is rents that we have signed comparing with the very recent market rent references of the appraisal of December 2022. Just in one quarter, an increase of 3%. In Madrid, really outstanding 8% increase. Really, we're really quite happy and confident with how it's going on in our portfolio.
Thank you, Carlos. Maybe I would like to come back to my initial comments and go more in deep with providing some visibility on the strategic angle of these results. I'm in page 20. As you know, Colonial is a company which for a long time has had a focus on prime CBD which means not only prime assets, it's prime clients, it's prime contracts. It's about targeting the people, the companies that today have a behavior, a clear behavior, which is to secure the best assets more than ever.
In current market circumstances, what we are seeing is that on the back of this polarization trend, there is quite a very good tailwind for our business the way we are approaching it. We've seen in the presentation today that demand, the take up this quarter has been double digits better than the previous quarter. Which, as you may remember, was already a fantastic year, the year 2022. Demand has been, in terms of square meters, much better. Occupancy has grown even more at the moment that we were already at a 97%. Rents have improved. Everything put together, what means is that our productivity is performing very, very well.
In terms of like-for-like in this page 20, you can see that this quarter we had a 10.3% like-for-like in our rents, which is a lot more that we saw in the previous four years, as you can see for both gross rental income and net rental income on the left part of this chart. Which is also more better than what we can see in our peers, either if we look at the median or the average of our of our colleagues. I think that this strategic difference is paying off. In a very visual way, you can feel, no, this on page 21. When you look at these pictures, I don't know what else we could add, no, in terms of how these buildings are performing.
You can see where they are, you can see how much they are looked for by the market, how much people like them, in the end, what kind of occupancy we do have. Implicitly in these numbers, page 22, what's happening to us is that there's no debate about us passing through inflation. There's no debate about pricing power because our performance is even better. As has already been disclosed, discussed before by Carmina and Carlos. As you can see in this table on page 22 on the left, we are capturing indexation at a level of 6%. We have already a cumulative impact year to date of 3% just in one quarter. We have another 3%, which is to crystallize further in further during the rest of the year.
In this context, we are friends today, the last available number is a 6.5% ELAT. In Spain is a 4.1%, just released last week. Well, we are securing that our cash flows reflect this accordingly, which as I always say, is the other side of the coin of interest rates going higher. Page 23 is just to say that all of this tailwind in terms of cash flow is coming not only at the level of our existing portfolio, which is already delivering its yield, its cash flow. It's already coming more and more from our project pipeline where we have already six projects out of eight delivered, and there are two more to come. Recent news in the project pipeline where that we finalized Plaza Europa 34.
This building has been delivered as expected in terms of cost. Has been delivered very well, fantastically well in terms of occupancy because it's fully pre-let by the group of Puig. It's already up and running. Now our efforts remain only concentrated in two projects, which is Louvre Saint-Honoré and Méndez Álvaro Campus. Louvre Saint-Honoré, as everybody knows, is being pre-let, no, already. We have just to deliver the project to our tenant. This is happening this year. It's happening in the second half. It's happening earlier than we expected. I think we'll have a positive deviation on this. It's happening without any deviation in terms of cost.
The remaining issue for next year, which will be Méndez Álvaro, which where we are concentrating now our efforts in terms of leasing. All in all, that means that in our cash flows, there are EUR 34 million that is coming analyzed from this pipeline. We have more than this to come. We have EUR 55 million, which is already secured. On top of that, an additional yield that will come mainly from Méndez Álvaro that will yield up to a total global for all of the pipeline of EUR 82 million, which only a small part of this is in our current cash flow. By the way, this 6.7% yield on cost, 16% yield on CapEx. Page 24, just a reminder of where our efforts are.
Louvre Saint-Honoré, as I just said, with a 40-year contract already signed. Here the news is that we are delivering this project through SFL, which is doing a fantastic job, earlier than expected. Méndez Álvaro Campus on track, and Rives de Seine, a new project, for your in your horizon for a new office complex in Paris.
Maybe my final comment would be on asset management and the way we are approaching our balance sheet. As you know, we are quite consistent over time. What we have been doing, not only this year, but in the past, has been to always work in a trend to secure the best rating for the company. We've done a relevant number of disposals in recent years.
In this page 25, by the way, you can see that always at a significant premium on GAAP. In the last 12 months, basically in line with the expertise with the Gross Asset Value. We've delivered these, sales of, approximately EUR 500 million. That's part of our strategy, of, being a net seller. Two things in mind. First of all, with this, we are enhancing the capital structure of the company. Number two, we are providing repeatedly examples of arbitrage between, what's the, value of our transactions and what is the, value that we see in the stock market. Basically, this is another way of providing value to shareholders that, so far this quarter has been very successful and, we probably will keep on going in the same direction in the next few months.
Final remarks on page 27. A little bit of a summary of what we've already seen. Things to be highlighted. Main takeaways from this presentation. Our EPS going up 14% on continued operations, so comparing the same set of assets, that's the trend of EPS. Which means that we have been able to deal with divesting, divests without hurting our EPS. This is because the underlying strength of the market is quite high, and this can be summarized in a double-digit rental growth number.
11% like-for-like for net rental income on the back of very strong demand, on the back of increasing occupation. An 11% like-for-like, which is at the high end of our history and at the high end of our peers. As I just said, occupancy going even higher. It's difficult when you are at 96, no? To go higher. You cannot go very much higher than this. We went a little bit, 97. All of these trend of strong demand, strong occupancy, also in a framework of additional cash flow coming from indexation and coming from rental growth, which remains relevant. The other takeaway, as we just saw, pipeline delivery almost completed, which is about to deliver significant future cash flow to come.
Finally, good strength at the level of the balance sheet. Disposals plus outstanding financial hedging and pre-hedging, securing a low interest rate. All in all, providing a strong balance sheet outlook, which has allowed us to have a confirmation from S&P about our rating level just today. Based on all of this, as of today, it's just the first quarter. The first quarter usually means that we should be more prudent than usual and more when we go in the second half of the year. As of today, we can only do a confirmation of our guidance for the EPS of this year, 2023. Which means EUR 0.28-0.30 per share.
As is already well known, in the short term, we are going to submit to our general shareholders meeting the payment of a dividend fully in cash of EUR 0.25 per share, which means a 4% growth year-on-year. This quarter, you know that it's not the quarter where we go through the revaluation of the assets, which in our sector happens in June and December. We can only provide strong evidence on operations, also a little bit on balance sheet management. I would say that the summary of what we are delivering today is that it's quite satisfactory for us. Discussing the presentation. Thank you. Now, as usual, we are open to the questions you may have. Thank you.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one one on your telephone keypad. Please be informed that there can be a short silence while questions are being registered. Thank you. We have a question from Jonathan Kownator from Goldman Sachs. Please stand by while we open your line. Jonathan, please go ahead.
Thank you. Thank you very much for taking my question. Three questions, if I may. First of all, could you help us understand what's happening on the transaction market? I understand there's processes happening in Paris in particular. You know, what is the feel in terms of asset valuations and yield increases? The number of investors obviously concerned that prime assets would reprice the most because they have very low yield in Paris. A bit more color on that would be helpful. Then we'll go through the other questions maybe afterwards.
Thank you, Jonathan. No, on our side, just to confirm maybe that the current outlook, first of all, has been for us quite different in France and in Spain. maybe in Spain, there's been a much more visibility for an investment market, where our assets are very appealing for family offices, no? Basically in that segment, we have been able to deliver the most part of our divestment program and expense most of the EUR 500 that we have already done. On the other hand, Paris remains quite in a transition mode where no activity is happening.
I think that basically my view is that investors are trying to assess how to underwrite an asset, and they still probably are in the process of having more visibility on what cost of capital, inflation, rental growth they can expect from the assets. Of course, they come maybe with some much more strict numbers, or let's say, much more demanding on the pricing that they can have. What happens is that on the other side of the table, there are no willing sellers at that price, no. For those assets that are so unique and irreplicable.
As a summary, I think that, this, first quarter, and I would say until today, investment markets, in France remain, quite in a transition mode, trying to find a repricing, maybe at a, at a higher level of yields, but still with very low visibility.
Okay. That's clear. Second question maybe. Obviously, your operating performance appears to be strong. Your interest cost, you know, hasn't moved too much and you're high, you know, obviously the good level of hedging. The question is to what extent, you know, your guidance would be conservative. I mean, obviously it's only first quarter. You're saying that there's more, you know, positives. The question is, you know, is your guidance perhaps a bit conservative, given the strength of the market? Or are you expecting, you know, deterioration from here and your metrics maybe to not be as strong from, you know, COVID impact perspective that would've run until now?
It's.
Post-COVID impact.
Yeah. It's very difficult because, yeah, as you know, at this time of the year, we usually have to be more prudent than usual. We maybe are more conservative than anything in whatever we may say. As you see, the current generation of cash flow is very good. I am not in the position to say that the guidance should be revisited. I think I have to stay where I am, no, as of today, because at this time of the year, there's still too many uncertainties in front of us. There's nothing happening to our assets in terms of more weakness, a recession, nothing as of today.
Because of everything that's going on, I think that, we have to remain with this outlook, in terms of guidance for the rest of the year.
Perhaps, you know, if I can expand on this, obviously your like-for-like rental growth is quite elevated, obviously. Appreciate there is inflation coming through, those levels are, you know, substantially above inflation. Can you help us understand whether, you know, that comes from additional rental from, you know, surfaces that were previously in sort of soft refresh? Is that just because of the reversion or, you know, why is the incremental, you know, like-for-like rent growth versus, you know, inflation, where does that come from? Ultimately, you know, should we expect that like-for-like trend, you know, trend back to inflation quite quickly given your full occupancy already at your-
Maybe Carlos is taking this one.
Obviously it's a combination of several things, but we have been on a recurrent basis, always repositioning and putting the assets in the best shape. This we are doing as a continuous policy, and this allows us to really capture then that extra rent. When you look into the ERV growth, into the like-for-like growth, into the release spread, wherever you look at, you will see that basically the assets that are leading the trend are especially the Paris assets. There we are having the strongest growth. As we put then brand new additional product on the market, and this highlights also explains the figure in Madrid. We are there also capturing significant market rental growth.
It's a combination of reshaping the things, but capturing really the maximum rent in the market by putting the supply of the best product. But as you can see, it's, i t's well in excess of CPI. We are generating in excess of CPI on the like-for-like, a 5% extra, like-for-like cash flow growth. This is actual.
Okay. Maybe last questions regarding, you know, LTV and disposals again. I mean, do you have a sort of target where you wanna get to? Obviously, you've done this. You're doing this EUR 500 million program. You know, where should we expect, you know, where should investors expect your LTV to be positioned as a sort of target this future?
I think that to have a view on the LTV, that is difficult because that depends on, really, on the V, you know, that we have to see how for the development during the year, no. In terms of divestments, I think that we will be monitoring the market and we may do more in terms of divestments because it has this double logic. First of all, to enhance a little bit the LTV, it's good, it's well received by the market, both from the debt market and from the equity market.
On top of that, today, if you sell at the equivalent of 12 what the market is pricing at 5.6, I think it was, today, it's a no-brainer, no. If we can do more of this, we'll do it. We have a few transactions that we are working on as we speak, although at a, let's say, smaller volume. Just to answer your question, we will be still doing a little bit more if market conditions allow us to do so in terms of divestments.
Um-
Sorry, Jonathan.
Thanks. Yeah.
Sorry. This is Carmina. Jonathan, also I think it's not only a matter of loan-to-value, no. Because the fact that we have this, I would say, hedge and safe positions with interest costs, even with 37 or 39 or whatever loan-to-value, we don't have any deterioration of the debt services. It is why the rating agencies approach is not this criteria. Of course, a decent loan-to-value, through the loan-to-value, but it's not only loan-to-value because you can have a very low level of loan-to-value and a high risk of deterioration of the debt service because of the floating rates, no.
Sure. Of course. Maybe one final conceptual value on your disposal program. Would you rather sell assets maybe at the lower quality end of your portfolio, slightly higher yielding then? Would you consider the top end of your portfolio lower yielding, or would you even have the ability to sell assets with no cash flow at this stage?
Uh, one-
It may be development or land or...
Yeah. Look, that of course, it's asset by asset. In theory, the pecking order is first of all, you will have a land plot which is secondary, then we sell. It has to be a good asset because you would not sell this at appraisal value if it was not good. Number one, we've already done a little bit of that, but of empty assets or land, and we may do more of this, no. Next, it's maybe secondary Spain, which is in the list.
It's not only that we are not so fond of this for the long term, but usually in many occasions in Spain, you have a short term vault that we don't like, but this impacts negatively in let's say in our pricing power that we always are paying attention to. That would be second and would apply more to Spain than to France. Finally, we do know that these days to do smaller than bigger works, works better, no. I think basically, this is the case and it comes one by one, the, and depending on the analysis, we may choose one asset or the other.
Okay, thanks.
Thank you, Jonathan.
Thank you. We have a question from Véronique Meertens from Van Lanschot Kempen. Please stand by while we open your line.
Well, thank you very much for the presentation, this evening, and congratulations on the solid results. Just one question from me. I believe on the sixth of June in Paris, they are voting on a new urban planning. I think it could make mandatory for specific assets to transform 10% into social housing upon disposal refurbishing. I was wondering how this, if it actually applies to one of your assets and what your view is towards this and how this could also impact, for instance, the Rives de Seine project that you just announced in the presentation.
Sorry, Véronique, we could not listen very well. You are referring to the change in legislation that happened in Spain regarding residential. Is that what? That was your question?
Mm-hmm.
We could not hear you very well.
No, no. No, it's about Paris. They are voting on a new urban planning.
The Paris one. Okay.
Talking about-
Yeah, yeah.
About the 10%.
No, yeah.
S ocial housing on specific assets.
Yeah. Yes. The French word is pastillage, no? That's the word they're using these days, no. Just for sense of clarity so for everybody is on the same page. What Véronique is referring to is recent changes in the urban planning in Paris, which means for a significant number of assets in Paris, that the future may be more linked to residential than to office, which in many cases may be detrimental in terms of valuation. That, that is may apply to several hundreds of buildings in Paris. What I can say today is that according to our information sources, there's no single impact of this new urban planning framework for our assets in SFL.
Let's say that these, the assets we own, the city believes that they better remain the way they are. Let's put it this way. As of today, what I can tell you is that we don't have any visibility, or I could confirm that there's no relevant impact in our assets.
Okay. That's very clear. Thank you. For instance, for that new project, that's now announced in the pipeline or that you're looking into, would that apply to that one?
Yes, it does not. It does. The urban planning is not affecting the percent either. We don't have, let's say, news from that may impact Rives de Seine or the rest of the assets of SFL as of today.
Okay, that's very clear. Maybe one other question. Operationally, Paris definitely stands out again. We see it also the recent spreads in Marshall and Madrid are lagging a little bit. Could you maybe highlight what you're currently seeing in the market from an occupational perspective?
I think that what we see today is, as you just said, Paris is performing super strong because simply there's no available supply for prime CBD. Leasing team meetings are quite boring in SFL because we are preparing very much for future. Today, there's nothing to happen. There's only 0.4% vacancy in Grade- A buildings. Madrid a slightly higher 2.2% Grade- A vacancy, and the dynamics are very good. Barcelona, I think that we have to be maybe more specific. Grade-A availability is also scarce, so it's only 1.4%.
Maybe what's happening in Barcelona is that in beginning of 2022 at the balance between the supply and demand is less strong that you can see in other cities, in Paris and in Madrid. That explaining that why the occupancy rates are a little bit lower than that. That also is in a framework where our occupancy in Barcelona has improved from 80% to 83%. I think that still CBD is attracting very much the demand in Barcelona, so our occupancy is growing. The dynamics of demand and supply in Barcelona, I think that are not as strong as in Paris or in Madrid.
Thank you. We have a question from Markus Kulessa from Bank of America. Please stand by while we open your line.
Yes. Thank you. I hope you can hear me.
Yes.
I wanted to follow up with Barcelona and the not so tight supply demand. Is it why the like-for-like is flattish in Barcelona? Maybe you can just explain the slide 12 between. I understand the -10 is due to assets going into developments. The flat like-for-like, I struggle to see where it comes from.
Okay. Carlos taking this one. Thanks.
Yeah, we have it. Basically, you can see it on page 12. Now we are having a solid price increases of our gross rental income like-for-like in Barcelona is increasing by 4% in terms of pricing. We have, on the other hand, on a year-over-year comparison, first quarter 2023 with first quarter 2022, a little bit weaker occupancy profile. This is not one is offsetting the other, so we are flat. We are having basically at the moment a little bit weaker occupancy profile than previous year, the first quarter of previous year in Barcelona.
If I may add something. You know that, our share now in Barcelona is quite small, so we own a very small part of our asset under management, which are based in Barcelona. As a consequence, a small change in one asset or two assets that has an immediate impact in the numbers of a specific quarter. Probably this has more to do with the Asset A or the Asset B than the general trend in the market, probably because it's been so small, it's different than it would be if we talk about a much bigger market like Paris. It's more, I think, individually originated than a very, let's say, wide market trend in my opinion.
Yeah. Okay. Clear. On staying in Spain, the releasing spread seems to flatten or to be flattish in Spain. Does it mean that at the year end, post indexation, we might have a negative leasing spread in Spain?
Look, we as we always have said, you know, previously in previous webcasts, we do not really guide on future re-leasing spread. Obviously, what we can see is as Spain started much earlier, no indexation because it was CPI driven, not ILAT driven, with higher upwards revisions that we are catching up the quicker. We're catching up much quicker the re-leasing spread that we could have between passing rents and ERVs. I think we should also look at another interesting data point that is the ERV growth that we are experiencing in our office portfolio. We have experienced just in a quarter, +3%, in particular in Madrid, +8%.
What's gonna weigh more at the end, we will see because we are continuing also not in high indexation levels, but so far we are sustaining a good positive release spread. If you compare with other people that have released first quarter, much better than many others. This is what we can say about this today.
Okay. You said I didn't saw the split on ERV, so you have positive 4%-8% ERV growth in Spain, in Madrid and Barcelona.
In Madrid, it was 8%. Especially highlighting Madrid, the ERV growth in one quarter was 8%.
Okay. Thank you. Do you have an update, maybe I missed it earlier, on Méndez Álvaro? You say it's on track, do you have any specific share-
No, Marco, I just said that this is going through its regular, normal ordinary process, but no relevant news at this at this point. The typical flow of visits and conversations, but nothing relevant at this point.
Okay. Thank you. Just my last one, sorry. On the Paris change on regulation, which was addressed before. You're just saying you cannot say that it won't have any impact, it's you just don't know yet how the law will look like and if there will be an impact.
I wouldn't like to be too specific because I'm not involved directly. As far as I know, there's been no disclosure yet of the specific list of assets that could be affected by this. Our information and expectations is that none of the assets of SFL is going to be impacted. It's still something that it's not confirmed, that's our best guess of where we might be in the, in the short term.
Okay. Thank you very much.
Thank you. We have a question from Fernando Abril-Martorell from Alantra Equities. Please stand by while we open your line.
Hello. Thank you for taking my questions. I have three, please. A follow-up on like-for-like rental growth. You posted in Madrid an 8% positive impact from volumes. There has been 4%, 4 percentage points improvement year-over-year. I would like to better understand this 8% impact, which look high for me. Also linked to occupancy in Q1, which has been strong. I would like to better also understand the impact from asset disposals on your occupancy, especially in Madrid. Third question is on your reversionary potential. I don't know how much reversionary potential is left based on prices after the strong indexation you have carried out over the past few quarters. Thank you.
Look, I will do a quick answer to this. I think when it comes down to more specific, number crunching, happy to do a separate, a call with the IR team.
Sure.
On the, on the like-for-like, I think it's very clear on page 16. What you can see here is a like-for-like gross rental income in the P&L of the Madrid portfolio is +16%, and the split is +8% comes from pricing.
Mm-hmm.
Part of the significant part of this 4.5% is passing through indexation during the last 12 months. You have to take into account that this comparison is first quarter this year with first quarter previous year. On top of this, we have also not captured, in addition to the indexation, rental growth that increases the gross rental income of our assets in Madrid. As you can see also on the vacancy figure, we have improved quite a lot. The occupancy of the Madrid portfolio, when you look at the map, you're not gonna find any single asset that is significantly below 90%. Mostly they are 100%. We have also a page of this in our webcast. We have also a quite important improvement in occupancy. These two elements together give the 16%.
On top of this, and but this will feed further, rental growth, we are continuing to sign good rents that will crystallize in future.
This is what we can say about it regarding the more detailed P&L impact on the disposals. We have showed here already more the, the figures, how they are, you know, grouped in the different floors, and a little bit more of color on this, I would then suggest that you do a specific call with the IR team not to take too much time.
Okay. The rest of questions, the impact from asset disposals and occupancy and also the reversionary potential left, coming from prices.
Well, I think this is also a very detailed question at the end. At this day, the assets that we sold, a part of them were 100% occupied, others were not fully occupied. The consequences all of this is that we are today at a good rate, but we are basically at a good occupancy rate because we have let a lot of vacant space, not because we are, you know, factoring out assets that were not occupied. This you can further clarify the details if you want with IR.
Okay. Okay. Thank you.
Go to the next one, maybe.
Thank you. Our next question comes from Florent Laroche-Joubert from Oddo BHF. Please stand by while we open your line.
Yes. Good evening. Can you hear me?
Yes, we can hear you.
Yes. Good evening. This is Florent Laroche-Joubert from ODDO BHF. Yes. I would have a follow-up question on what you have or said. As a consequence of your disposal plan and the increase of interest rates, could you remind us what could be the expected growth of your cost of debt? Maybe also how you are looking at the trajectory of your recurring EPS in due to the disposal plan. Are you looking for a positive growth of your recurring EPS, or are you looking more today at preserving your LTV ratio?
Yes. Thank you. Look, you mentioned something that, look, it's a good opportunity to refresh, you know, and that is that when we divest and we go through a number of disposals, I think this is very accretive for the company. It's very good news. Of course, it may have some impact on EPS, and this cannot be perceived as if the company was performing more poorly, you know. That's logical. But let me be more specific. We have been disposing of, as you have seen, EUR 500 million. After that, we are giving, providing for a guidance of EPS for this year, which is not going down compared to the year before.
In other words, I think that the detrimental effect of the disposals on EPS is compensated by the higher strength, you know, of the market, we don't see, as a consequence, any downside in the EPS. No, we remain at the close to EUR 0.30, you know, per share. Another way at looking at this is that if you instead of EPS, you look at the dividend per share, I think that we have a consistent policy of growing our DPS. Traditionally, it has been always double digit. We made two exceptions. One was in the year of COVID. The other has been now the... To which we are only doing 4% growth.
I think that anything we may do on the disposal side is consistent with DPS, dividend per share, growing. As I said, EPS in the short term, which is the maximum we can say today, the guidance is a good one at the level that we've mentioned. Going forward, I think that what will happen to our P&L is, as you mentioned, very much driven by the management we have done of our debt profile. Which mainly means that today we have a cost of debt of 1.6, 1.7, and then we have all of our debt fixed and hedged for a number of years. We have a pre-hedge for the year after.
What do we know today is that the cost of debt that is 1.6%, and Carmina may step in and correct me if I'm not too precise, but will go up in the next three, four, five years, but to a maximum of 2.2%-2.3%. If anyone would do a projection of our cash flows should do so with the assumption that our cost of debt for this period will remain at this very low level. Let's and this will be for the next five years. After that, let's not forget that we have pre-hedge after that, the initial period.
A very relevant part of our debt, which means that our cost of debt later on will be also, let's say, much more competitive than the one of the rest of the market. Will have the consequences that we may imagine for EPS, but we cannot be so specific for the EPS so much in the long term.
Okay. Thank you very much.
Thank you, Florent.
Hello. Sorry. Thank you.
Thank you. We have a question from Beltrán Palazuelo from DLTV Europe. Please go ahead.
Good noon. Thank you very much for your presentation. I have 1 question. Pedro, you were mentioning that if the company was able, that maybe there would be more divestments. My question, my philosophical question is, at some point in the near future, if the company is able, let's say, to divest a good magnitude of assets, with that apart from, let's say, reducing debt, is there a possibility that if the investment opportunities are not as attractive as buying back shares, that the company, at some point, if it's able to divest a certain amount of assets, does a big buyback?
It seems that, let's say the values of where it's trading against your current NAV or let's say, or even if you put the assets minus 20% is still, let's say, very depressed. Is the company going that way or it prefers to, let's say, to reinvest the possible proceeds of divestments to keep growing the FFO long term?
Yes. Look, very good question and also very difficult to answer. First of all, let's say, let's do the following statement, no? We are very much comfortable with our assets for the longer term. We don't see that we own any stranded assets that are going to suffer, assets that are not going to generate a good unleveraged IRR. Most of them they are. We, on the long term, are comfortable with what we own. What happens, it's more tactical. Today, if we sell, two things happen. First, we reduce our debt. At the moment, that is a lot of sensitivity about this.
Maybe at the moment with less sensitivity, it is not so much appreciated, but at this moment we know that this has an impact, you know, of enhancing the perception of our shares. Number two, it's also function of the markets. If the markets are pricing us where they are today and we are selling at NAV, I think that, as I said before, it's a little bit a no-brainer. No? There are two reasons for selling today if the market is there. As you are suggesting, it's true that it may come a moment where you can say, "I am already in a situation where deleveraging is not accretive for shareholders.
I could think about different users, no, for the proceeds. This could be either investing in assets or buying back the shares. I think that what would be our answer if we came to that moment, it's still unclear, but I would say that today the gap between the stock price and and the selling price of the assets being what it is, that's it's quite an incentive to go into the direction of buying back, no, the shares. I think that it's a discussion that's still too early for us. I think as of today, we are not in that mood. We are in the mood of slightly enhancing the capital structure, so protecting the company more than anything else.
Therefore, this discussion will come at a later stage. As of now, we see ourselves mainly being simple net sellers in order to produce some upside, no, in the NAV and additional protection on our capital structure.
Thank you very much. Maybe if I may a follow-up. My question is the company, let's say, prepared if there was an opportunity to divest EUR 1 billion in assets at, let's say, close to NAV, is the company prepared, let's say, intellectually to, let's say, to reduce EUR 400 million in debt and to buy back EUR 600 million in shares? Is the company prepared to be, let's say, smaller but let's say with enhanced NAV or not?
Yeah, yeah.
Not there yet.
Yeah. Intellectually, as you say, yeah, what you say makes sense because in the end it's about creating value for shareholders. We don't have any problem in going this in this direction if market circumstances are there. As you say, it's at a more, let's say, intellectual level, at a more strategic, high level view than regarding a short term. I agree with you.
Thank you very much, and all the support from my side. Thank you.
Thank you.
Thank you. Lastly, we have a question from Marie Dormeuil from Green Street. Please stand by while we open your line.
Good evening. I just had one question with regards to Rives de Seine project. Just want to understand a little bit better. I assume that the tenant is vacating the asset. Do you need a catalyst, it is, for example, pre-let to launch the redevelopment or will you go speculative? The reason is because potentially this asset is a little bit outer of the very prime areas of the Paris market. Just wanna understand here.
First of all, we, our outlook, our agenda is that we will probably come with a more precise agenda for Rives de Seine in the presentation for the first half of the year in July. At this moment, we're going still through the process of evaluating all the details of this project in the future, you know. We know that Many years we knew that the tenant was leaving, so we know that there is a potential of doing a beautiful project there with good returns. I think that will be more specific in the month of July.
Having said that, as of today, to answer your question, the current situation of this project is that it is speculative as we speak, which is something that we believe that we can live with. At a very high level, with a lot of distance, the way we see our balance sheet is that we are managing around EUR 12 billion. Our, let's say, strategy for the long term was that 10% of this could be, let's say, the more risky environment of value add projects. What's happening now is that because we were managing the current environment, we've been delivering this pipeline, and this the percentage of value added on the total of the balance sheet is almost nothing.
In this context, to have a little bit of a speculative risk for this project in the framework of the global of the balance sheet, I think that is something that we can have, you know. Yes, I confirm that as of today will be speculative, and I think that we can be more detailed about this project probably in July.
Thank you.
Thank you, Marie.
Thank you. That was our last question. I would like to hand the call back to our speakers for any final remarks.
Oh, thank you for your attention today, particularly for those in Madrid today. We understand that maybe it's not the best day. Thank you twice, you know, for your attention. We will not repeat it. I think that we've been very happy to share with you this set of results and to have your attention with here today with us again. Thank you very much and have a good day.
Thank you. Ladies and gentlemen, this concludes your conference. You may now disconnect.