Ladies and gentlemen, welcome to the Inmobiliaria Colonial Second Quarter 2023 Conference 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 on your telephone keypad. I'm now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial.
Thank you. Good afternoon. This is Pere Viñolas speaking. We are very pleased to introduce you today the results for the H1 of the year. I'm on page three. The way we are going to structure this presentation is, first of all, I'm gonna deliver some views on the highlights of this H1 of the year. Afterwards, Carmina will step in with information on the financial performance. Carlos Krohmer will provide additional details on the portfolio performance and on the progress that we are having on the pipeline. Finally, I will go through some comments on the future growth of the company and some conclusions to summarize the presentation. The highlight about our performance in page four.
We wanted to highlight five outstanding topics for our performance so far this year. The first of all would be to say that the first characteristic of our performance is a very powerful delivery in terms of cash flow, EBITDA, and EPS. We are finishing June with an EBITDA that grows 18%, reaching EUR 152 million, compared to EUR 129 million of a year ago. If instead about EBITDA, we talk about EPS. Our EPS in June would equal EUR 0.16 per share. That is 14% more than a year ago. What's behind this outstanding performance in terms of cash flow is first of all, the strong letting volume.
Point two, we've been finishing June with close to 100,000 sq m, which are more or less equivalent to EUR 43 million of annualized rents. This strong letting volume means an outstanding occupancy. This occupancy, it's now at 97%, in excess of 97. It's practically a full occupancy. In fact, what is exactly fully let is everything that we own in Paris. I think that results cannot be higher. 100% in Paris, 97% for the group. We would like to emphasize that it's not only about volumes, it's also about quality. What more and more is providing color to our occupancy, is that it is based on international consultancy firms and luxury brands as leading tenants demand.
Besides EPS and EBITDA growth, growth is not only volume and occupancy, it's also rental growth. Rental growth remains a driving force. We've been signing contracts, which are, which mean a 7% ERV growth, compared to the ERV for December 2022. That means not only a very good number, but it means also an acceleration of rental growth that is happening. Of course, one of the driving forces, not the only one, as we will see, is a solid capture of indexation, which is happening there. Again, here the comment would be also on quality. Besides or behind these numbers, I think that is also the driving force of the ESG characteristics of our assets that are also playing a main driver.
Playing a main role in this capacity to attract the interest of tenants. As a result of that, we finish the H1 of the year with what we believe it is a resilient valuation. Gross Asset Value goes down 3% like for like. In relative terms, we believe it's outstanding. It's on the high end. It's a negative number, but it's very good in relative terms. That is because value creation through projects, the ERV growth that we've seen, this is offsetting the fact that, of course, yields are going up.
In fact, we would like to highlight that after this figure of NAV that you will see for 2023, June 2023, what is there, it's already 57 basis points of cumulative yield expansion. It's, let's say we are a long way into this repricing of the assets with a certain work done while the valuation becomes quite resilient. The final point about discipline in the capital structure. We've been able to deliver in this six months a relevant amount of disposals, EUR 550 million is divested around appraisal values. Which means that the ratios, like a net debt on a BPA, are improving significantly.
We remain in any case, with a very important hedging strategy that ensures our interest rate remaining below 2.5% in the long term. In this first section, maybe what I would like to do is also to provide a little bit of our views on the framework where our activity is happening, no? In a moment that everything related to real estate and in particular to offices, no, are quite challenging, we feel we have to emphasize a little bit the obvious, no? One of the obvious remarks to be made is that we are benefiting from fundamental differences happening in the performance of Europe versus USA, no? Despite the fact that the, let's call it American view, is dominating the scene, no?
Particularly in capital markets, the actual data are what they are. What we can see in this slide, for example, is the difference between post-pandemic office re-entry rate, which remains very high in Europe, particularly high in Paris and in Madrid. Nothing close to what may be happening in the U.S. Also, we could make some comments on the net absorption in Europe and U.S., compared to a 10-year average, which is quite positive in Europe, as remains very negative to the U.S. You can look at the also at how the performance is doing, comparing the number of quarters with positive net absorption since 2020. You can see here the difference or simply the vacancy rate, no?
That you can see in Europe, single digits compared to USA. I, obviously, I'm just mentioning data that apply to the whole market, not to the high-end or to Colonial's numbers. That would be a first comment. Another, maybe comment on this very general framework, I think that we are benefiting in continental Europe, from the fact that European offices remain attractive for employees and with an increasing momentum. You can see on page six, some comparisons on the office re-entry path, different cities around the world, and you can spot the difference. Some comments also that we are providing on companies and what they're stating about the return to the office. On page seven, maybe a comment more related to Colonial itself.
As you know, we have a long-term strategy of being very much concentrated on the prime CBD assets. We want to outperform based on the polarization trend that is happening everywhere. Certainly, you can see something happening in Colonial when you look at the high activity that is happening in our markets, at what's happening to the office prime ERVs. About the scarcity and demand from Grade A assets, and about the trends regarding international employers in their path to return to the office. In our case, this means high quality kind of tenants entering into our office buildings. That means not only very good letting performance, very good annual rents, very good ERV growth, it's a kind of exposure that we like.
Page eight is a simple picture that illustrates here for Paris and Madrid, what's going on with our buildings in terms of occupancy. Very small information regarding the market is comparing that in Paris, 100%, compared to 97% in the CBD market, 84% in La Defense market. In Spain, 97% Colonial occupancy rate compares with 95 in the CBD market, 82 in the outer M30 markets. Page nine remembers or reminds us of where the buildings of our group are, and what kind of performance are we achieving in terms of rental growth. 11% in Paris, for example, or the level of rental level euros per square meter in Paris, Madrid, or Barcelona, which are very much in the high end.
Because of everything I said, because of what are the mega trends in our markets, what are the mega trends in our specific focus of our strategic approach to the market. Basically, what is happening to our valuation, page 10, is that it's quite resilient. You can see here a 3% like for like impact on our EUR 13 billion valuation as of December 2022. That translates, including some disposals in EUR 12.2 billion in June 2023. You can see here that, of course, what's happening to our assets is that they are being impacted by a 57 basis points yield expansion so far. Which means that during this H1 of the year, you have a significant impact in the valuation of our assets downwards.
You can also see to what extent rental growth, indexation, project delivery is offsetting partially what's happening to the valuation of our assets. The conclusion is a quite a resilient performance, outperforming, in relative terms, the market as a result of these underlying mega trends that are benefiting the positioning of our company. This will be my introductory remarks. Now I will ask Carmina to step in to talk about the financial performance of Colonial.
Thank you, Pere. In this section, as usual, we are going to detail the main indicators and the keys that underline the strong evolution of the results. The results of this, the first semester, as Pere mentioned, are described in the first place by a strong growth of the cash flow. Revenues increasing 10% like for like, up to EUR 183 million. In the same strong direction, the EBITDA growing 18% and 23% considering the continued operation. Recording net profit increasing 14% year-on-year, 25% without considering the asset sales. The same growth year-on-year, up the EPS up to EUR 0.161 per share. Secondly, the first semester with the valuation update is also described by a strong resilience in the valuation of our portfolio.
A decrease of 3% like for like in six months, EUR 12.2 billion at the end of the first semester, the NCA per share at EUR 12.88 per share, 6% decrease in six months considering the dividend per share. Additional, we have demonstrated as well, the ability to undertake investments in a very narrow market, confirming valuations for a value of almost EUR 550 million, updated with recent sales executed in July recently, for an amount of EUR 75 million. Finally, due to an active management of the balance sheet carried out on the permanent basis, the debt has been reduced of more than EUR 300 million.
We continue as well with a very strong liquidity position, removing any financial risk. We maintain, as you know, a fixed cost of debt below market levels at 169% spot, and as well for the following years, well below market levels, which ensures certainly debt coverage ratio according to credit rating. In the following slide, you can see the more relevant indicators, more visually, that show the growth of Colonial cash flow as well, the resilient profile of our portfolio. If we go to page 14, if we analyze the recording results, we see that it increases by 14%. Without taking sales into account, the increases would be 25%. You can see in the building blocks, the positive contribution of the continuing operation portfolio, EUR 23 million.
The negative impact of the disposal of non-strategic assets, EUR 4 million, and on the other hand, the negative impact of the financial cost of only EUR 8 million, basically due to the rate effect. Remember that in June 2022, the financial cost was 1.3 for our debt, compared to the current 1.69%. The market has increased by more than 300 basis points, while the cost for Colonial has only increased less than 40 basis points. The EPS increased by 14% year-on-year, up to EUR 0.161 per share, confirming the upper range of the annual EPS guidance. This strong EPS is based in a strong growth of gross rental income year-on-year. The portfolio in operation adds EUR 14 million, 8%.
The entry into operation of the project has also a positive impact of additionally EUR 20 million, 12%. Important to highlight that the Alpha strategy represents 22% of the growth of our gross rental income for this 1st semester. In the opposite direction, the sales, as you can see in the building blocks of non-strategic assets, had an impact of EUR 20 million. As a result of all, the portfolio with a higher quality has shown year-on-year, a total increase of the gross rental income of 8%.
Where has been this growth and why? I'm in page 16. It should be note that the 8% rental growth has been positively impacted by a great performance in the Paris market, with 14% rental growth. In comparable terms of the portfolios, the three markets have performed very positively with an extraordinary evolution in Paris and Madrid. This extraordinary like-for-like growth of 10% is basically due to the combination of rental growth, due to the lack of product in the markets where we operate, as well as in the indexation effect, as you can see here in the split of the price impact.
Thanks to the quality of the contracts and clients. Finally, thanks to an improvement of the occupancy, adding 12% of the growth of this like-for-like increase. This rental growth is being accelerated. In this page, page 17, you can see the extraordinary year of the rental growth compared to the last three years. Above all, you can see the growth capacity of rentals beyond the indexation effect. Based on the scarcity and quality of profile of our portfolio, as you will see later in the following section, led by Carlos.
As you all know, Colonial is characterized by a very active portfolio management in order to recycle capital and strengthen the capital structure. In a market as narrow as the current one, we have been able to sell almost EUR 550 million, confirming valuation. The operation carried out in the month of July have reached EUR 75 million more, including a plot of land bank and a secondary asset with 17% vacant. Both assets outside M30 in Madrid, with an average premium of 13% to gross asset value, June 2023.
The high, I would like to highlight that the blended yield of the total portfolio, achieved with the prices that has been signed and closed, has been at 2.7%. This is the implicit yield at the pricing levels of the total portfolio, the total asset program of EUR 550 million. With this new disposal, we have been expanded the development plan that we have shared with you in the last presentation of the day. As we commented previously, the updated valuation of the portfolio shows a clear sign of resilience, with a valuation correction resulting from the expansion of yields of only 3% in the last six months, in comparable terms, since December 2022.
Basically, the negative impact of this expansion in yields has been offset by the increase in rents and the delivery of the projects. In the table on the right-hand side, you can see the yields resulting from the valuation at June. Bear in mind that in Paris, the yields are net, and in Paris, Barcelona, they are gross yields. The cumulative expansion to date, 67 dips almost 70 basis point in Paris portfolio, and between 36 and 39 basis points for the Spanish portfolio, with a total average yield expansion for the portfolio of circa 60 basis points. As we have been sharing in each quarterly presentation, Colonial has carried out a very active management of the capital structure and reform of the debt, and above all, successfully, successfully covering the interest rates and any refinancing risk.
In this sense, there has been a decrease in the net debt of EUR 370 million, with a Loan-to-Value as of June post-dividend, including the dividend that has been distributed in July of 39%. We have a fixed cost of debt at a current rate of 1.69%. Additionally, as a consequence of the pre-hedge close in 2021 for 50% of the debt at the rate of 0.67%, we can guarantee a financial cost in the coming years below market levels in the range of 2.5%.
Finally, if we look at Debt-to-EBITDA ratio, in line with what has been analyzed by the rating agencies and considering the portfolio in operation, income producing in annualized basis, the ratio has been decreased, reaching today a level of 12.5 times. The same ratio is reached in a dynamic view when the existing project pipeline is completed and generating full income. In the financial management, another important milestone of this semester that demonstrates Colonial ability to have access to the financial market, has been the signature of a new revolving facility of EUR 835 million under very favorable conditions and providing additional liquidity to the group.
This revolving credit facility is qualified as a Green Loan, referenced to a very ambitious green KPIs, that allows us to maintain a strong liquidity position of 4 times the maturities for the following two years, and confirms our commitment in the ESG strategy for the group. Finally, the updated NTA calculation that is showing in page 22, shows the benefit of a quality portfolio and an active portfolio management.
The increase in cash flows, as well as delivery of projects, have been partially offset the expansion in yields resulting from the increase in rates. Showing, consequently, a decrease of net NTA of 6% pre-dividend, EUR 11.1 per share, and a decrease of 8% post-dividend compared to December 2022, resulting up to EUR 10.9 per share. It's important also to highlight the additional equity value created through the debt and through our hedge strategy. This is shown in the debt disposal value, reaching the level of EUR 11.5 per share.
Thank you, Carmina. You can see that in this section, we've delivered quite substantial good numbers in terms of cash flow generation, revenue is growing 10% like for like, EBITDA growing 18%, EPS growing 14%, and valuations quite resilient, no? GAV 3% like for like down, and NTA 6% after dividend to the new number of EUR 10.88. Well, that's, I think it's quite remarkable numbers. Let's now understand a little bit more what is there behind those numbers. Carlos will step in to talk about portfolio performance and pipeline.
Thank you very much, Pere. Let me just start with page 25, 24, a short view on the market. As you know, we are at the top-notch slice of the market. Why are we there? How is this market behaving? As you can see here in the CBD area, the Grade A product, so the top product, is almost inexistent in Paris. It's 4.4%, today, 28,000 sq m, and this has been throughout the last six years. This really scarce availability of top product that everybody is looking for is really creating a significant upwards pressure on rents. As you can see, it has moved up from EUR 850 per square meter a year in Paris, CBD in 2017, up to EUR 1,000 square meter per year.
We have many examples in our portfolio where we are setting really the benchmark of these high-end rents. The same behavior in the top segment of the Madrid market. There, the CBD Grade A availability is below 2%, corresponding to 70,000 sq m, so also almost nothing available. We have seen there in the last six years, a growth, a cumulative growth of 19, reaching at the moment, a prime rent of around EUR 37. As you have seen in such examples, we, in some examples, which is signed even above. With this, let's go to page 25, our letting activity in this H1. As Pere already mentioned, 1,000 sq m. This is another year in a row, a really historical high volume.
We are at the same level at last year that was historically high, and we are more than 50% above the year 2021. In terms of quality, what we are signing is contracts with an average ward of 10 years, so really long-term tenants locking in for long term. Who is driving this demand is the luxury industry, tech and media, advisory services. They account for more than 50% of the contract signed in the H1 of this year. Our buildings have delivered strong rental growth. As you can see here on page 26, in the second quarter, the growth on ERV in the office portfolio has been 7%, outstanding Paris, with +11%, Madrid, +4%, Barcelona, +8%. We look quarter on quarter, quarter one had a blended ERV growth of 3%.
Q2 has a blended ERV growth of 7%, so a significant acceleration. On release spread, also very good numbers. Again, here, outstanding Paris. That is really the strongest market, as you can see, also because of the market data, no, in the market. On top of it, on all of the contracts that had an indexation review during the H1 of this year, we have passed through the indexation. The total effect, the annualized increase of cash flow that we have put through is 5.7%, 6.3 in Paris, and 4.3 in Madrid and Barcelona. What is important to highlight, the contribution of this increase in our PNL year to date is just 3%, because not all of the contracts have been signed at the beginning of the H1.
They are being signed when the contract is due, they are coming now progressively into our PNL. To say it in other words, we have secured 6% of rental growth of the pool contract portfolio, of which three are already in the PNL, and another 3% will come in the coming months. When we go to our occupancy profile, what you can see, as Pere mentioned, we are at 97%. That's really one of the highest occupancy ratios in the sector, and we have improved in year to date, 160 basis points. We have improved on every single market. Paris is at 100%. Madrid, we have improved 137 basis points, and in Barcelona, more than 500 basis points.
Barcelona is at 85%, is basically concentrated in two renovation programs and one secondary asset. Excluding this impact, the rest of the portfolio is at 95%. We look on the next page, the overall vacancy rate of the group is 2.8%, Here you see really the benefit of the diversification strategy in many cities. These 2.8 account from 4.7% CBD Madrid availability, 4.4% CBD Barcelona, and 1.7% renovation program and secondary assets, San Cugat and Cedro. Secondary assets perform. We have almost no secondary asset left, one in Barcelona, San Cugat, and Cedro, a secondary asset in Madrid with a 17% vacancy. We just have sold it out, This will further improve our vacancy profile for the next quarter.
One of the very important real estate highlights this H1 is the delivery of Louvre Saint-Honoré, one of our most impressive project. We have signed a contract, 40-year contract, with Fondation Cartier, with the first break option at year 20. This asset has been delivered just last Friday, as some months in advance of the initial calendar. The yield on cost is above 7%, and the capital value creation has been in excess of EUR 350 million. We have created value in excess of EUR 350 million just in one asset. This is a capital gain on total cost of more than 168%. This is also a big driver of our strategy. We deliver strong value creation and rental growth through urban transformation projects as, for example, this.
With this, we have basically almost finished our project pipeline. You know that we have a project pipeline of eight projects. I'm on page number 32. Out of these eight projects, seven have been fully let and fully delivered, so it's just pending Méndez Álvaro. Méndez Álvaro is going to be delivered during the H1 of 2024. Out of this project pipeline, in our PNL year to date, are EUR 34 million of rents. What already has been signed and is not fully in an annual way in our PNL is EUR 58 million of rents. Also, to highlight, the pending CapEx of this project pipeline is pretty residual, in the range of EUR 70 million-EUR 80 million, so almost nothing left. Fully de-risked the project pipeline. On page 32, you see basically, you know, what is the final execution of the project pipeline.
Louvre Saint-Honoré delivered, Méndez Álvaro, a big, known, iconic campus on the way, and we are working on reloading the pipeline with a very impressive additional asset, 3% in our portfolio, that we are currently in an analysis stage, and we will, you know, soon in the future, give some additional details on it. Important comment on page 33. It's not just about projects in itself and location in itself, it's also about asset quality, and in particular, on this page, ESG credentials. We really have a strong commitment to ESG in order to create low carbon destinations for our clients. This is what our clients want. We have a clear ambition.
We have signed the SBTi trajectory pathway, and we have done quite a significant delivery year to date, 68% in carbon reduction since our base year, 2018. We are top-rated on CDP. We have the highest rating on the Carbon Disclosure Rating, top 1.5% among 19,000 companies across sectors worldwide. We had in 2022, a solid carbon performance with a 27% like for like decrease. Moreover, we create low carbon destinations. We have here the recent examples, Miguel Ángel 23 and Biome. Both are nearly Net Zero buildings with very low operational emissions. What is more important than that, the construction, the transformation of this building has been done in the most efficient way, with the lowest embodied carbon ratios in the market, 600 kilograms per square meter in Miguel Ángel and 700 on Biome.
Thank you. Maybe some final comments from my side on the strategic level, how do we view the positioning of Colonial as of today? As you can see on page 35, our main remarks have to do with cash flow. Basically what we think is happening is that obviously, market is going through a certain repricing that has to do mainly with, you know, with the dynamics of capital markets, of investment markets. This is something that will have a certain time framework and a certain extension in terms of how wide it will be. Everyone can do their own assessment about this.
On the other hand, there is something expected to happen with the cash flows, which in the short term, will offset, at least partially, what's happening to capital values, and in the long term, will remain as the only one remaining driver for outstanding performance of any company. Really, that cash flow generation is a priority. Basically, we believe that you have to work in different layers of cash flow generation. Inflation is obviously one, no? That we have to prove every quarter that we are delivering what inflation means, no, in for our cash flows. We've seen so far what has happened this year with a full pricing power. On top of that, you can see the rental growth coming from the prime positioning of assets.
On top of that, you may think of an additional cash coming for from new projects and also from the delivery of acquisitions that are coming at the prime factory level. The result that you can see in this, at this moment, is EBITDA growing 18%, earning per share growing 14%. I think that this is a very powerful tool in order to be very resilient at this moment of the market. By the way, based on the EPS you see for the H1, we confirm the EPS guidance that was given before in the range of EUR 0.28-0.30. We are biasing our guidance towards the upper range, close to EUR 0.30 and not close to EUR 0.28.
On page 36, I would also like to highlight two things. One is our cash flow is resilient despite the fact that we are successfully disposing of assets. We remain above EUR 400 million of passing rents at the moment where we've sold a relevant part of our assets in the, in the last few months. The second message, this rough figure of 400 is expected to exceed 500, basically coming from the just the pipeline that we are just finishing, and then for the different projects that the company is involved at, at this moment. My final comments on page 37, again, have to do with a more qualitative analysis of the, of the situation.
I think that what's happening to Colonial, first of all, is that we are benefiting for certain tenant trends that are happening in certain European city centers. There's an obvious scarcity of Grade A stock. There's a race to quality that is accelerating bifurcation in Europe. We are benefiting for this. There's an obvious appetite for low carbon, carbon destinations, which are outperforming the market in occupancy and rental levels. We are also benefiting from this. We believe that in terms of behavior of the final user, central locations are benefiting from short commuting times, from a better appeal for this final tenant, from a better experience and cultural benefit of central prime offices with a higher level of well-being.
All of this trend as of today, so far, it's being proven, it is creating this superior performance that I think that is positioning us on the higher end. Demand is concentrated on prime assets in central locations. You've seen the high volumes that we are experiencing. You've seen how this momentum has been accelerating, how the ERV growth remains strong. Last but not least, what kind of clients are joining us. You've seen very remarkable deals in the luxury sector, also in the tech and consulting sector. This qualitative driver is very important. We remain a company which likes to invest in order to grow, to develop additional experience destinations.
We've seen the benefits of the value that is created in projects like Louvre or Méndez Álvaro in Spain. We have a strong track record on urban transformation with outstanding capital gains. You've seen the example of Louvre, for example. Regarding debt, we know that this is a sensitive topic. We remain quite disciplined on this. Our starting point is that we have had, believe, a successful hedging strategy. I always like to remark that it's not only on spot terms analysis, it's particularly going forward, where will we be three or four years from now? That remains a fantastic differential tool. We are, because of that, benefiting from a spot cost of debt of 1.7%, which are expected to remain quite low for a number of years.
In any way, in any case, we remain disciplined regarding LTV with a good track record of diversion so far, EUR 500 million divested at appraisal value. I think that we are disclosing quite positive numbers regarding capital structure. Finally, how does this translate into valuations? There are short-term reductions in valuation, certainly. I would only maybe emphasize a couple of things. One is we are going down the road more than 50 basis points already in the valuation, existing valuation of our assets. This is something that has a certain time framework, after which, what remains now as sole driver for growth is your cash flow growth.
We believe that regarding this, our prime buildings are outperforming the market and are allowing us to remain very resilient in relative terms to the situation of the market. This has been the presentation of the results for the H1, we would be very pleased if in the near future, we can come with the same kind of performance. That's all. Thank you. I will be very pleased to answer your questions. Thank you.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one on your telephone keypad.
Please be informed that there can be a short silence while questions are being registered. Thank you. The first question comes from Véronique Meertens from Kempen. Please go ahead.
Hi. Good evening, all. Thank you very much for the presentation this evening. Maybe to start off with, maybe a bit of the obvious, the guidance that you recently, well, said it's going to be on the wider end, but you're already reporting at EUR 0.60 now. Cash flow is growing while your debt is stable, cost of debt is stable. Isn't it very conservative, the six that you're EUR 0.28-0.30 for the full year?
Véronique, maybe we have a reputation of being prudent and conservative, I don't know. We don't want to lose this reputation easily. I don't know. Yes, the numbers are what they are, and we prefer to stick to the higher end. At the same time, we acknowledge that so far the evolution is what it is. It's quite strong. Yes, let's call it prudent, but we want to remain on the higher end of our guidance.
Okay. Okay, that's clear. Thank you. maybe zooming in a little bit on Spain, specifically Barcelona, you mentioned there's now 15% of vacancy, of which 10% can be attributed to the programs. I was wondering, how is that pre-letting going, and what are your expectations in terms of occupancy there? also looking at the re-leasing spreads, because you do mention one of the highest reversionary potential in Barcelona of 15%, but at the same time, the lowest release spread. I was wondering what happened there and if it were specific leases that you relet there.
I start with a general comment, and maybe Carlos can step in with an additional comment. Well, we've been seeing in the last months, maybe in the last year, that Barcelona is not doing as well as Madrid and Paris, where, by the way, we have a vast majority of our exposure. We believe that this has to do maybe a little bit with the fact that Barcelona growth was basically driven by the 22@ neighborhood.
I think that today, demand is maybe weaker than the average, while supply, you know, remains strong there. That means that it may take a little bit more time than needed to grow the occupancy, but in any way is growing. No, you see the last six months, that has been growing nicely, not to the level of Madrid and Paris, which cannot be better, but I think that's mainly the driver. Regarding maybe the release spread, Carlos, you would like to add any comment?
As I said, on the Barcelona market, the vacancy basically concentrated or mainly concentrated on three assets. One is one of our, I would say, almost last secondary assets in Barcelona, that is Sant Cugat. Sant Cugat is a difficult market. We sold last year an asset in Sant Cugat, here in this asset, this is more challenging in the secondary market. The other two assets are renovation programs of Torre Marenostrum and Diagonal 530. Diagonal 530 is one of the best assets in the Barcelona market. We have had a lot of progress, and we are there ongoing with a solid letting momentum, we would see improvement on that one. The Torre Marenostrum asset is in the 22@.
Here we need a little bit more momentum of international demand, but we remain positive on this asset, but maybe it is a little bit slower than the Diagonal 530. Having said this, it's also important to highlight that the weightening of the Barcelona market on the total portfolio of Colonial is really very little. It's a minor impact on the total portfolio. No, we did right in having this diversification and asset allocation as we have it today.
Thank you very much. That's helpful. Maybe one last question
Yes.
back on the, on leverage. A question on LTV of 39%, but looking at a proportionate basis, excluding this, I actually get to a bit more, 44%. I was wondering, you mentioned briefly discussion with the credit rating agencies. How much headroom do you have, or maybe in terms of valuation declines, how comfortable are also the credit rating agencies at this point with your, with your leverage?
Yes, thank you. Well, as you know, the rating agency look at the credit metrics in more dynamic and quality and resilient profile of the cash flow. When they analyze all the metrics, they don't only see or look at only the Loan-to-Value. They look at also the quality of the cash flows, the resilience of this cash flow, the quality of the tenant, and how it look like this cash flow when the projects should be completed. Some of them, you know, that are pre-let. All in, they have confirmed the rating, even stressing some valuation as they did in the release they published at the beginning of this year.
They stress the valuation, and with this stress valuation, the stress test, I mean, because of the quality and the dynamic cash flow and the pre-let and the potential reversionary also, they qualify with a stable outlook on the rating. Having said that, is not only Loan-to-Value, it's also the quality of the cash flows and the any refinancing risk, thanks to the liquidity and also any debt coverage stress because of the hedge.
Okay, thank you very much. Thank you.
Thank you. The next question comes from Céline Huynh from Barclays. Please go ahead.
Hi, good evening. Two questions for me, please. The first one is on disposals. We can see that you're selling assets with high vacancy, project, and land plots, which is quite interesting because it doesn't impact your PNL. How much of your portfolio do you think you can continue to sell without impacting too much your income? My second question will be a follow-up to Véronique's question. By how much do asset value need to fall before it hits your covenant? Thank you.
Start with the second question.
Well, on the second question, again, it's not having additional expansion that triggers the rating. As I said, no additional expansion would trigger one rating. On the other hand, you have this quality analysis about what I mentioned before. It's not that now we are in the range, that the rating is for Colonial BBB, confirmed BBB plus, with this Loan-to-Value over the, with the rating, with the metrics they are considering, with this updated valuation. We still have room to confirm even with additional expansion, it's not only a matter of debt, plus debt, plus equity ratio, it's also the interest of.
Sorry, Carmina Ganyet. Sorry, Carmina Ganyet, I wasn't being clear here.
Yeah.
I'm not talking about credit rating. I'm talking about your bank covenant.
Our main covenant in the.
Bank covenant.
The bank covenant, sorry. The bank covenant, we have Loan-to-Value and ICR, and we are with a huge buffer on the covenants of Loan-to-Value according to existing metrics. It's, we have a more than double digit, let's say half double digit buffer up to the Loan-to-Value covenant in the balance.
Regarding the first question on disposals versus earnings, well, you've seen that first of all, how disposals have been concentrated so far, quite a lot in assets which are a certain level of vacancy or even a land plot, as you suggested. The question I understand is, if we had to do more disposals, what we may expect, no? That could be happening on our earnings. We believe that is, would be quite limited, because first of all, for the good and for the bad, we are a company with have top prime assets, which means that our yields that are not so high usually. For the good and for the bad, this doesn't impact so much.
The second thing that I would say, as you have seen for the H1, the performance of the cash flow, in terms of indexation, in terms of growth from any point of view, it's been so remarkable that we've been able to absorb any downside on EPS coming from disposals. I believe that we can remain with a strong set of cash flow KPIs, even if we were to divest additionally, following a little bit the same path that we've experienced in the H1 of the year.
Thank you very much.
Thank you, Céline.
Thank you. The next question comes from Fernando Abril from Alantra. Please go ahead.
Yes. Hello, thank you very much for the presentation. Most of my questions have already been answered. Just maybe you can talk a bit about the investment market. How, what is the mood right now in the food market that you operate? Also linked to this, an update on the Méndez Álvaro project. You started commercialization a year ago. I don't know what are the plans, what are your plans for this big asset? Thank you.
Thank you, Fernando. On the first question regarding performance of the investment market, we see a little bit of the same that was happening in the H1 of the year, even on the second half of last year. Which means that we have to differentiate between different submarkets. If we talk about a market for CBD and the average size of an asset is not big, then the market is being quite liquid and performing quite well. I think that the interest, the appetite that we see remains there and remains in levels of valuations as the ones you see when we inform about any transaction, no? That we've done.
This remains the same, as of today, the kind of interest that we are having from certain potential investors. If we talk about a more institutional market, I think that we still are in early stages of normalization. I think that we are going the right direction. I think that what's happening is, it's simple. Institutional investors need the final clarification of the framework in terms of interest rates and inflation going forward. I think that every month that goes by, no, and we are closer, no, to a clearer picture, then you know that there's a more tactical story above the denominator effect. For whatever reason, anyway, I would say that the institutional market for bigger transactions is not there yet, no?
I think that we have to be a little bit more patient and particularly when you are sitting on very high quality assets, I think that our duty is just to wait for the right moment to strike a deal that it's in interest of shareholders, as we've done in the last few months. On Méndez Álvaro, I think that we're still in the early stages. We've done some initial strategies on the marketing front, with leading brokerage companies or commercialization companies.
We are seeing the initial interest. I would say that as of today, the degree of confidence of the team is quite okay. I have no particular concern. I think that it will follow its path. No great news as of today, still early stages, but at the same time, not a particular concern on our side on this. Hopefully, in the next quarters, we'll come with more specific news, but still very much at the beginning regarding Méndez Álvaro.
Okay. Thank you, Pere.
Thank you, Fernando.
Thank you very much, ladies and gentlemen. Let me remind you again, if you have any questions or comments, please dial star one on your telephone keypad to enter the queue. Thank you. The next question comes from Jonathan Kownator from Goldman Sachs. Please go ahead.
Good evening. Thank you for taking my question. Just looking at your earnings guidance and your concern towards the upper range, can you comment on where your cost base is, in particular? I mean, obviously you have strong rental growth. How are your costs evolving? You expecting them to increase, and do you see a chance that you could year above guidance? Thanks.
Jonathan, I missed the last part of the question.
Yeah.
Could you rephrase it? Sorry, because the sound was not very good.
Sorry, I just wanted to see if whether you had a chance of being above the guidance that you already provided.
Okay.
Your cost base was particularly low this H1, or was it a run rate on a constant basis?
No I l ook, honestly, there was a discussion internally regarding guidance because the numbers are what they are. As of today, with regard for the H1, as of today, we do not identify any downside because of we know of anything happening on the second half. Other things being equal, no, it may come that this guidance may be revisited, but simply maybe because of prudency or being too conservative, we decided just to remain on a guidance on the upper end, no, of what was being said, no, a few months ago. Just to provide a little bit of color, as of today, we do not identify anything happening in the second half that would change the performance of our cash flow generation.
Okay, thanks.
Thank you very much. Ladies and gentlemen, once again, if you do have a question, please dial star one on your telephone keypad. Thank you. There are no further questions. I turn the conference speakers, back to you.
Well, thank you. Just as a final remarks, just to thank you for your attention. I think that the summary is that the, the machine is working, no, in Colonial. That having said that, there is this market situation that we have to navigate. I think we've delivered a strong set of results regarding cashflow. Just to emphasize what I just said, if anything, we are doing surprises on the, on the good side, we should remain that, at that level regarding the second half, at least with the information we have today. Hopefully, may, in the next few months, we can reconfirm our strength regarding our performance. Thank you very much, and have a very good day. Thank you. Bye-bye.