Inmobiliaria Colonial SOCIMI SA

MAD:COL

Earnings Call Transcript 2019-Q1

[Operator]

Welcome to the Inmobiliaria Colonial First Quarter 2019 Results Presentation. The management will run you through the presentation, which will be followed by a Q&A session. [Operator Instructions] I am now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial. Please, sir, go ahead.

[Pedro Viñolas Serra, CEO & Executive Director]

Thank you. Good afternoon. This is Pere Viñolas speaking, CEO of Colonial. Together with me, I have today as usual Carmina Ganyet, Corporate Managing Director; and Carlos Krohmer, Chief Corporate Development Officer. The idea is to present to you our results for the Q1 of this year, and the structure of the presentation will be the usual one, too. First of all, I will go through the highlights of what happened during these first 3 months. Then Carlos Krohmer will drive you through the -- our view of the market and then the consequences on these on our operational performance. Carmina then will jump in to disclose our numbers regarding financial performance. And then I will end with some comments on our growth value drivers and some conclusion remarks.So I'm now on Page 6 of the presentation, basically, to share with you that we had an excellent first quarter. You will now be able to dig in the details, but as you will see, we can be quite happy about the results. First of all, we will start by highlighting our results concerning EPS -- recurring EPS. The recurring EPS that we are disclosing for Q1 is EUR 0.065 per share, which means 41% year-on-year growth rate. So as we said in previous presentations that we expected high double digit, well, we are confirming this very positive trend.The gross rental income is EUR 87 million for the first quarter. That means a 4% like for like and the recurring earnings of EUR 33 million, 65% year-on-year growth.Behind these good, let's say, numbers, obviously, there is a strong operational performance. We've been able to sign more than 30,000 square meters that have been let with top-tier clients. We have been able to achieve an even healthier vacancy level, which is now 4%. It is not only about rents being higher that you will see. Other good news regarding these 3 months is the successful pre-letting of certain projects, which are also good news. But basically, we've been able to enjoy the strong growth in rental prices, which are based on capturing market rental growth, which means double-digit spreads and which means a solid base for capital value growth.As conclusion of that, we'll share with you our confidence about our outlook but basically confirm that we are comfortable with the delivery of our views -- of our -- for the business plan of the company. And we are still comfortable with our view of CBD outperforming secondary, so we believe that we are quite well positioned for capturing future growth.On Page 7, again, this -- let's say, the highlights of our numbers, you can see those regarding P&L. The gross rental income figure, the recurring net profit figure and the EPS figure, that is value what I mentioned, EUR 87 million of GRI, EUR 33 million of recurring net profit, EUR 0.065 of recurring EPS, which means these quite high year-on-year variations.If we have a look at the like-for-like growth from different markets, later Carlos will give more in details, but you can see that, as usual, all markets are strong. In this particular quarter, maybe Madrid has offered a higher like for like, but then when we look at different numbers, you will see that Barcelona and Paris are also very strong. But in terms of like for like, Madrid 7%, Barcelona 3%, Paris 3%.Our EPRA vacancy is 4%. The volume of square meter signed is 32,000 square meters, 25 transactions. And the other, let's say, highlight, if you look at the rental growth from the point of view of double digit, that is 14% for the whole company, 23% Barcelona, 22% Madrid, 7% Paris. If instead of looking at these, you look at the rental growth measures like the comparison between the rental price signed versus the ERV of December '18, that means 3 months ago, then the rental growth is 11%, Barcelona 21%, Madrid 5%, Paris 10%. You will see that Barcelona numbers maybe are affected by certain specific transactions.So let's say, the executive summary, the highlights, as you can see, very satisfactory. I will now ask Carlos to chime in with the vision of the market and then the operational performance of the company.

[Carlos Krohmer, Chief Corporate Development Officer]

Thank you very much, Pere, and let's step to Page #9. Quick snapshot on the market. The 3 markets are in very good shape with very strong fundamentals. Starting in Barcelona, 135,000 square meters of take-up in first quarter 2019. This is an absolute record, never seen and 70% higher than the take-up in the first quarter 1 year ago.If we look at the supply side, again, also a quite historical unique situation. The CBD vacancy is at 1.9%, is a level of vacancy we have never seen. So with this tension of demand and supply, the rental growth is being strong as we can see on the columns. Madrid, quite similar picture, first quarter 150,000 square meters of take-up. This is 25% year-on-year growth. And 6.3% vacancy in CBD, progressively constantly vacancy in CBD is going down and prime rents also growing.On the Paris market, Q1, we had to take-up of a little bit more than 0.5 million square meters, and this space is the vacancy that is also historically low in the CBD. It's at 1.5%. There was really no product available. And so this leads then to rental growth and rental growth in 2 levels, on the spatial rent level where we see a 5% year-on-year variance and also in the incentives that have decreased from being at 15% in the last years and they are now at 10% in CBD.We'll skip to the figures of our company. The first quarter has been extremely strong, extremely satisfactory in line with what we have seen in the quarters of the year before. If we first look on the prices signed compared to the ERV, then we have plus 21% in Barcelona. This is to a big extent due to the release of the Pedralbes project. This has been a full repositioning. If we take out this alpha project, the rest of the portfolio has had a 7% increase, so prices were sent at 7% -- were signed at 7% above their market rental price of December 2014. In Madrid, this figure is 5%. And on the Paris contract signed, we have 10%.And this produces in the context where we have renewals in quite high release spreads. Release spread in Barcelona has been 23%, in Madrid 22% and in Paris 7%. Again, also here in our portfolio, the same than in the market, than in the CBD market. If we compare the incentives of all the transactions signed this first quarter, with the incentives of all the transactions signed, a year before, incentives have gone down from 15% to 8%. This is also rental growth.On Page 12, you can see several examples. You can see that this is really spread across the full portfolio of Colonial. After first quarter just some days ago, we have had 2 very significant lettings, and we have fully let the Avenida Bruselas project. This is a project in the sub market of Arroyo de la Vega that was initially acquired by Axiare and then we redesigned the project and have now delivered the project in Q4 -- in the fourth quarter 2018. Now it's fully let to MÁSMÓVIL company, a leading technology company. And what is quite substantial, it's a 7-year -- a 10-year contract with a 7-year fully obliged. So the first break option is at year 7. It's a quite important element.On the other hand, we have the project in the sub market of Campo de las Naciones, Ribera del Loira that we delivered last year. We have pre-let there 22% to a digital photo company, and we expect that this will act as an anchor to accelerate for the transactions in this building.On the next page, you see our vacancy profile as mentioned already by Pere. We have had some improvement in Madrid. In Madrid, we are now at 10% vacancy, but we -- if we take out the Axiare -- the part of the Axiare certain delivered projects, the traditional portfolio is at 2%; vacancy in Paris and Barcelona at 1%. Logistics is a little bit higher, but we had recent entry into operations. Total portfolio group vacancy profile 4%, quite very healthy level.If we take into account the recent relet and the recent pre-lets, so the 2 projects that were delivered last year, you see that we have a quite important impact on the vacancy. Madrid will come down to seven percent, more than 300 basis points with these 2 transactions. And the overall group vacancy will be at 3% so at the level of almost full occupancy.Last but not least, we have ESG as the core of our strategy. In March, we have been recognized by GRESB and BREEAM as the company with the #1 portfolio in the category of large portfolios of being -- having the most sustainable portfolio in Europe.

[Pedro Viñolas Serra, CEO & Executive Director]

Thank you, Carlos. We will now skip to the financial performance section. Carmina, please.

[Carmina Ganyet I. Cirera, Corporate General Director]

Thank you, Pere. Well, the first message, as you have listened, by Pere is this strong top line growth of rental income of 5% in the first quarter 2019 with an outstanding 4% like for like in every single market as you can see in the chart in Page 18. So in this chart, you'll see the split or impact in this rental growth from acquisitions, disposals and project refurbishments. But we would like to highlight this EPRA like-for-like growth in every single market, especially in Madrid, this first quarter of the higher like for like of 7%. If you jump to Page 19, like-for-like growth is driven by rental prices increases, Barcelona with 3% like for like with the strong rental price increases and occupancy improvement in comparison to the first quarter 2018. Madrid with a higher like-for-like with 7%., important both impact rental prices in combination with additional volumes or additional letting up spaces -- of vacant spaces. And Paris, again, we maintain strong like for like with 3%, especially also with increasing in occupancy -- and also in occupancy improvement.On the liability side, we have been able to continue in being very active, improving our cost of debt in different actions. The first is we have been refinancing the Axiare bilaterals and merging part of the synergies. Thanks to the merger with Axiare, we have been able to improve the margin of more than 45 basis points, canceling the mortgages and the securities and converting this debt into sustainable loans with the first sustainable loan granted to a real estate company in Spain in 2019. Also, we have canceled the remaining debt, more than EUR 130 million. The action #3, we have been taking advantage of short term negative interest rate through issuing European commercial paper program. The program is EUR 500 million, EUR 300 million the first quarter, so we have been able to achieve or to reduce an interest cost of debt from close to 2% interest cost of debt to 1.6% or 1.60% interest cost. And thanks to that active liability management, thanks to the prime collateral, the loan maturity and also the important liquidity position that we have, Standard & Poor's maintained their positive -- BBB+ in the [indiscernible] and Moody's changed to stable outlook thanks to this [ active ] policy and sticking our financial policy of being in a long-term value range between 36%, 40% with a strong ICR more than 2.5x.So thanks to this outperformance in the rental growth and also reducing the interest cost of debt through this active liability management. Our recurring EPS increased high double digit, so we maintained what we said, more than 40% increase recurring EPS. In the actual terms, our recurring results increases more than 60%, 65% from EUR 20 million to EUR 33 million. And as you can see, the big blocks, the impact of our increase is as a result of the rental growth, improvement in occupancy, increasing our exposure in SFL and also the remaining part of Axiare. The -- our recurring would come from EUR 20 millions to 35% (sic) [ EUR 35 million ]. With considering the asset that we have been disposed in 2018 with a negative impact for this first quarter result of EUR 1 million, as a consequence of that, the results of our recurring earnings increased 65% up to EUR 33 million with an EPS of EUR 0.065, meaning up more than 40% increase in -- in terms of recurring EPS.

[Pedro Viñolas Serra, CEO & Executive Director]

Thank you, Carmina. I would now skip to the next section before talking about the future, just to summarize what we've seen. Basically, what we are sharing with you is that this first quarter we've seen extremely good rental growth no matter if we talk about double spreads, releasing spreads, if you talk about rental growth compared to December ERV, if we talk about like for likes, so extremely, extremely good. And then on top of that, we are saying that we have good news regarding certain pre-lettings that allow us to improve our vacancy rate, will then make the outlook even better and have, as a consequence, I mean, a very bolt-on result in terms of EPS growth.And then moreover, we can say that if we look at the balance sheet, we're enhancing still a little bit more our balance sheet profile. And if we look at the ESG qualitative part of the company, we still come with additional good news. So no matter how we look at it, I think that we are facing a very good set of results for the first quarter.So the question is, looking forward into the future, where do we remain in terms of value drivers in terms of future value creation? This is at Slide 23. It's not a slide that is brand new. I mean it's a typical one that we use to say that growth will remain important and comes from different sources, first of all, of course, because of the leadership that we believe that will happen in prime offices. But then we always talk about delivery regarding the pipeline. We talk about the reversion potential in our rents. We talk about where the investment market is and what do we do regarding this investment market in terms of capital allocation.So let's review these topics a little bit more in detail in order to not only look at the past, the last 3 months, but look forward. Page 24, it's again a typical slide where we highlight the profile of our pipeline, which is -- which means, roughly speaking, $1.3 billion of total cost. This dozen of different projects, in this particular quarter, what -- regarding them, what we would like to highlight is that we can already show a number of significant pre-lettings. Number one project Pedralbes Centre, which has been a very successful progress of transformation of our -- one of our operational assets. As of today, we are explaining that -- I will go into details regarding this in a minute, but we are saying that this is already mainly pre-let. The #2, Gala Placidia, it's also mainly pre-let through our co-working company, which is Utopic. The #5 project, which is Diagonal 525, it's also now pre-let, which was not 3 months ago. And last but not least, the project #12, Louvre Saint Honoré, today, we can announce that it's pre-let so again, good news. So basically, one of our main growth drivers, which is our project pipeline, you can see that improves in terms of quality and value because of news regarding pre-letting.This is what is explained a little bit more in detail on the next page regarding one of our key projects, which is Louvre Saint Honoré. It's been announced recently that this key project has gone through a major milestone recently with the signature of pre-letting contract with the Richemont Group. Basically, we're talking about the signature of a 20-year turnkey contract that will be the future of this redevelopment of more than 18,000 square meters of retail space. The building permit of which has already been obtained by the end of March. So now we are starting work under the leadership of the prime contractor, which is B. Architecture and Jean Nouvel. And obviously, we're talking about a long-term project that will mean that the leasing period will start June 2023. But basically, what we're saying today is what -- sharing with the market that this important asset, it's already pre-let. It's very important and significant in terms of future cash flow, uncertainty and in -- finally about value of this project.In Page 26, it's already something that has been shared with the market recently. But Pedralbes Centre, that has gone through significant restructuring, is now significantly pre-let mainly with UNIQLO that signed a 17-year contract for his flagship store in Barcelona. We are talking about a blended rent of EUR 46 per square meter per month; EUR 63, we talk about the ground floor. UNIQLO will become a very strong anchor tenant for this development. I think that all of these are also very good news and will mean a very strong value uplift that we hope we will capture in the very short term. So these are 2 specific news that are quite unique.A more general overall comment on Page 27 is about capturing reversion. So if we talk about the future, what we want to highlight is, number one, you can see the kind of release spreads that we are facing recently. So you can look at the left-hand side of this slide, the numbers that we have last year. You can look then at the numbers that we are showing for the first quarter of the year, and you can see that they are really remarkable, particularly if we talk about Spain, Barcelona and Madrid.Then we look at our rent roll and we do see that we have a very significant percentage of leases that have a first potential exit during 2019 and 2020. So that means that we see this as an opportunity to capture additional value through additional release spreads that may be captured in the next 2 years.And the final comment that we would like to add is, as you know, we never rely simply on the market and how the rents look like. On the [ EBITDA ], we always put the emphasis on the alpha. That means that by the time that an asset may have a lease, which is expiring, we have a renovation program in place in order to maximize growth. And here, we are just reminding everybody of a number of examples where we capture additional rental growth not only through the overall behavior of the market but also through our alpha added value. That's concerning rental growth.On Page 28, just to let you know that regarding investment market, we remain quite confident. This is like what we usually do is put recent news, the green dots, regarding transactions that have happened in the market and as just a very, let's say, basic number how this compares to our Colonial appraisal value average. And you can see that in these 3 markets the comparison is quite good.In terms of rotation of assets, investments, disposals, these are also a number, let's say, [indiscernible] transaction that we've just recently closed that we would like to highlight. I'm talking about 1 of our iconic asset, which is Torre Marenostrum in the 22@ neighborhood in Barcelona. Mainly what we find very recently is the acquisition of the remaining 45% stake of that building that we did not own. We were former owners of 55% of this asset. What we've now doing is buying the 45% remaining. We've done it at an implicit GAV of EUR 4,500 per square meter. That means a total investment of EUR 28 million. We believe that this is a very good investment. Particular regarding the location of this asset is in the 22@, you know there is a part of the Barcelona market that is being -- it's being particularly vibrant recently in terms of take-up, in terms of market behavior. For example, just this week in the news, we were reading about Telefónica about to close a transaction not far away from this building, according to the press in the range of EUR 150 million for an above ground surface of 25 square meters. So that means -- and again, I'm talking about price -- around EUR 6,000 per square meter of value per square meter. So we believe that we've done a good acquisition.But we would like to highlight that this is a part of a wider transaction, Page 30 and 31. What basically have done is reach a global agreement with Naturgy, our former partner in the ownership of this building and our tenant of this building. Basically, we have agreed with them 3 transactions. The first one, they will remain for a while in part of the building, but they will be leaving. So this building will become available in order to be leased in the market, we believe, at better rents than what we had in the past. So we see this not as a threat but as an opportunity, mainly as an upside in terms of value. This is the leg -- the first leg of this transaction.The second leg of this transaction is that Naturgy will relocate part of their headquarters in our building on Diagonal 525. That means that one building that will become vacant, was about to become vacant in the next few months, will become fully let in terms that are highly accretive compared to our previous situation to our current valuation. So that will be very good news for our Diagonal 525 building, and that will go through a little bit of renovation. Remember that it's a building that we bought not so long ago, so this is very good news for the future of this building.And the third leg of this transaction is this acquisition of part of the building. To be more specific, what we are buying is 45% of the equity of the company that own this building and then emphasizing this because that means that there are a number of upsides beyond the pure real state rationale of this transaction. That means regarding taxes, financing, cash flow and a number of things that become accretive for us. To put it in a single number, we are buying at a 13% discount on our NAV at December '18. So basically, that means that we are talking about a transaction that it will be quite accretive. And of course, as I said before, the first leg means that we have to lease this building. But if we compare previous rents with future rents or where the market is today, we see this as an opportunity. This is what is explained in Page 30 and 31. As I said, this is an overall transaction that is quite accretive.And this part of our capital allocation strategy, which is shown in Page 32, basically, what it shows, Page 32, is that after a certain period of previous years where we have been mainly buying, recently, we are buying and selling. By now 2019, there's no significant activity. But we are mainly doing both things, buying and selling, and we expect to add some value coming from this.That's mainly it. The conclusion which is shown in Page 34, I will not go through this in detail because I wouldn't like to repeat myself too much. But basically, we are proud to share with you the results for this quarter, where mainly we're talking about impressive rental growth. Also some pre-lettings reduced vacancy. And as a consequence of all of these very important growth in terms of EPS.That means good behavior of our company, I would like to say, in all markets, also good performance enhancing our financing structure. And we'll remain confident about where our company is because of all of these things that I've been sharing with you regarding our pipeline and our recent transactions.That's the end of the presentation. Thank you very much for your attention, and now we are available if you have any questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from Pedro Alves from CaixaBank BPI.

[Pedro Jorge Gouveia Alves, Non]

Two if I might. The first one on the recurring EBITDA of EUR 69 million, which is adjusted from temporary property taxes. Could you please give more details on this adjustment? Because you usually have higher property taxes in the first quarter. So this adjustment means any extraordinary property tax levels compared to last year. And second question regarding the logistics portfolio and after the latest news flow on the potential divestment. Could you please update us on the process, the expected valuation metrics in terms of [ health ] and perhaps transaction type? And what would be the plan for the proceeds, I mean if you have another alpha project in mind?

[Carlos Krohmer, Chief Corporate Development Officer]

Yes. On the -- correct, as you have seen on the recurrent earnings, what we have done is that we have analyzed the property tax impact that is booked typically for most of the assets in June to have really a linear result, so that is what we have done. And moreover, this a very relevant impact that otherwise you could not be able to make a right interpretation of the first quarter results. And it's a relevant one because we have a much bigger portfolio. Remember that last year, the month of January, we still did not have Axiare. So this is the explanation.

[Pedro Viñolas Serra, CEO & Executive Director]

Regarding the second question, talk about the logistics. There's not much that I can add, moreover, because of the sensitive nature of this potential transaction. What I can say is, first of all, I can confirm that we're going through the analysis of a potential transaction that would -- than the normal scenario would be simple sale of our logistics portfolio. As we said in previous meetings, we would like to highlight that we do not need to sell these. That means that we are basically exploring if the market appetite should be in line with the interest of us as owners of this portfolio. So normal life could be that we do our transaction, but we are -- do not plan for these to be done no matter what.And that's also linked to the second part of your question. What do we want to do with the money? What's our vision? We don't have a specific means of financing for particular investments and do not have specific target investments that should take place. Basically, we are driven by 2 principles. First of all, our trend should be to deleverage the company, let's say, smoothly in the next quarters. That's one, let's say, principle that we try to follow. The second principle is wherever there's an interesting deal that we can do either buying or selling, we will be there if there's value to be created one way or the other, as we saw in the, let's say, smaller transaction that we did. So there is nothing in particular expected for the money that we could have if we did the deal in this -- regarding this particular logistic portfolio. So long answer just to say that basically not much more to be said except confirm that the process is on the way. And we are having the reasonable progress that we should be expected to have at this moment that we are satisfied with where we are so far in this process.

[Operator]

The next question comes from Jonathan Kownator from Goldman Sachs.

[Jonathan Sacha Kownator, Financial Analyst]

Could you please elaborate perhaps a bit further on the market, on the CBD market in Paris and Madrid and Barcelona [ in your view ]? Obviously, we have very low vacancy rates at this stage. Is it that good -- as good as it gets? I.e. do you see more supply coming in? And is your like-for-like rent growth likely to come down a bit further? Or on the contrary, do you think that there's still very limited new supply coming in despite perhaps [ EUR 2 billion ] being built in Paris and therefore, you see further prospects for maintaining a strong like-for-like rent growth in these markets?

[Carlos Krohmer, Chief Corporate Development Officer]

Yes. Well, what we see is limited supply, so very low vacancy and really limited supply, especially the City Center but also by the nature of the segment of the city that there's really no land plots, nothing that can be refurbished. So it's very limited supply. And I think our figures show it very clearly. When you look at the first quarter, we have also some data points from our Paris field trip on our web page. We have many, many contracts with upward revision and did you manage it when you have -- when there is no really supply in the market, especially what is really discussed is assets with big floor plans. So maybe smaller -- such with small floors of 600 square meters, you can find; but big ones, you can't almost not find in the City Center. This is what will come on the market. So we are very positive. And again, I think at the end, this data, the first quarter really confirms that the trend continues at this point equally as in 2018.

[Pedro Viñolas Serra, CEO & Executive Director]

If I have -- this is Pere, Jonathan -- have to add some additional comments, geographical comments, first of all, Barcelona really impressed or really satisfied with the behavior of a market, stronger than usual, even stronger than expected, so had no particular sources of concern as of today. Madrid also quite strong there. Yes, we want to always highlight that CBD versus secondary is a little bit of slightly different [ rules ] for us. So for us to be able to disclose that we've been able to [ hire ] to lease. Avenida de Bruselas 28 (sic) [ Avenida de Bruselas 38 ] really happy because they are the dynamics of the market, at a little bit different, the vacancy may remain double digit and as so, it's not exactly the same, the activity, but still is quite strong.And finally, regarding Paris, not to the same level as Barcelona, but compared to what we could have expected, I would say better than expected, also quite very positively surprised by the behavior of the market and of course, has probably quite a lot to do with the vacancy numbers in Barcelona and in Paris, which have to do also with limited supply.In the case of Paris, on top of that, we always like to highlight that on top of rents you have to have a look at the incentives that are so important for this market that, that is really telling you what's going on in our numbers in terms of incentive. And I would say the overall numbers of incentive for CBD are extremely good. So...

[Jonathan Sacha Kownator, Financial Analyst]

So you expect the situation to continue and you expect to have at least the level of like-for-like rent growth that you've demonstrated at Q1.

[Pedro Viñolas Serra, CEO & Executive Director]

It's very difficult to put a number to this, but as of now, we remain quite confident. Let's not even forget that some of the news that we have been sharing today have happened in fact in April. Some of the deals that we are mentioning are being shared today but are -- more took second quarter than first quarter. So yes, we remain confident. I'm not able to provide a number.

[Jonathan Sacha Kownator, Financial Analyst]

Okay. Perhaps one more question. When you -- I'm not sure I've seen for the EUR 69 million EBITDA and from the gross rental income to that number, you should have the splits between the property expenses and the operating expenses. That would be helpful. And in that respect, do you see any opportunity to reduce that [ caught ] space at this stage given you've integrated Axiare? You're trying to reduce a bit occupancy further. Do you think that your EBITDA margin effect has some room for improvement? Or is it at a stable level at this stage?

[Carlos Krohmer, Chief Corporate Development Officer]

Yes. Regarding on the EBITDA margin, what we have in our results book, you have to take into account that there is this one-off first quarter effect of the property taxes, so the [ EBITDA ] margin that you have to use to really to see the full year projection is another one. And yes and we remain confident because this EBITDA margin also is, at this moment, negatively influenced by things that came into operation that are not yet fully let like Ribera del Loira where we have just 22% let. So in that cases, you have the cases you have the full cost and that you cannot reinvoice. So as soon as we let up these spaces, this has a very substantial impact, but we can also have for this one a separate more detail for -- that you can get it.

[Operator]

The next question comes from José Cravo from Banco Santander.

[José Francisco Cravo, Equity Analyst]

Can you hear me?

[Pedro Viñolas Serra, CEO & Executive Director]

Yes. Carry on.

[José Francisco Cravo, Equity Analyst]

Okay. So just 2 questions from my side. I mean you've elaborated a lot on what is going on, on Madrid CBD. Could you also give us a view on what you're seeing outside of the M30 ring road with regards to take-up and also rental growth? That would be my first question. And the second one will be with regards to this Torre Marenostrum building, if there was any eviction costs associated with this deal?

[Pedro Viñolas Serra, CEO & Executive Director]

Starting with the first question, yes, we do believe that there is a different pattern between Madrid CBD. And secondary, roughly speaking, the vacancy rate for secondary can be easily double digit in most submarkets, which does not happen in a CBD, and therefore, the ability to capture rental growth is much tougher. And therefore, there, let's say, we are driven more by being able to show vacancy being reduced than rental growth as in the step. And that's why, let's say, the fact that we just leased Avenida de Bruselas 28, it's really good news.Regarding the second question, no, there are no -- I -- as we said, acquisition cost -- eviction costs. No, no, no. Basically, this is a company -- this is an asset that it's owned by a company that it's 55% -- was 55% Colonial, 45% Naturgy. That had a little bit of debt. That -- it was not a [ assotime ] because of a Spanish regulation. That means that it had to pay taxes on a regular basis. So mainly the transaction not only means that from a real estate point of view, I would believe has done quite a good deal in terms of how much we pay for the asset. But then when you go to the other things that may play a role in this transaction, all of them means additional accretive elements like better financing for this subsidiary, like taxes being removed. And everything else taken into consideration, when we measure these in terms of NAV, that's why we are buying at a discount on the most recent valuation of that building. So -- but there are no specific eviction cost regarding this transaction, I can confirm.

[Operator]

The next question comes from Marie Dormeuil from Green Street Advisors.

[Marie Amelie Charlotte Dormeuil, Senior Associate]

I just have a question on the Avenida Bruselas and Ribera del Loira, if you could give us an indication of the rental levels that you've achieved.

[Carlos Krohmer, Chief Corporate Development Officer]

Yes. The rental level that we have achieved in the different transactions you say?

[Marie Amelie Charlotte Dormeuil, Senior Associate]

Yes.

[Pedro Viñolas Serra, CEO & Executive Director]

Avenida Bruselas and Ribera del Loira.

[Carlos Krohmer, Chief Corporate Development Officer]

Avenida Bruselas and Ribera del Loira, yes, we are there at levels of EUR 60 per square meter market.

[Marie Amelie Charlotte Dormeuil, Senior Associate]

For both?

[Carlos Krohmer, Chief Corporate Development Officer]

Yes, for both -- one is you have [ EUR 50 and one is EUR 60 ]. Yes, roughly EUR 60.

[Operator]

The next question comes from Celine Huynh from Barclays.

[Celine Huynh, Research Analyst]

I think you have already partially answered a similar question with Pedro, but if you could elaborate that would be great. And my question is on your appetite for acquisition at the moment. For the past 3 years, you have [ enrolled ] an alpha plan in the first half of the year. And this year, you continue with the alpha rotation, although this one is smaller than its predecessor. Also I see, this time, you went for an asset you already half owned, so I guess you know it very well. My question is considering your firepower of EUR 200 million per annum do you still see good external opportunities for acquisition. Or should we expect you not to use that fire power entirely?

[Pedro Viñolas Serra, CEO & Executive Director]

Yes. Thank you. It's difficult to be specific because the way we look at our company is that, first of all, we're in our comfortable position in terms of fire power, in terms of quality and level of our debt, and we don't have any specific target of acquisition and divestment. But therefore, we're mainly driven by, let's say, 2 guidelines or 2 principles. The first principle is that, other things being equal, we would prefer to slightly deleverage the company than to increase its leverage. So we may buy and sell. We may do a lot of both or not a lot of both. But on, let's say, other things being equal, the net outcome of all of these would mean more selling than buying, that's the strategy that we have for the year.The second principle that I would say that it's even more important, we always are in the market looking for opportunities that create value, meaning that the IRR of this project is higher than the cost of capital. And as you know, all of the alpha files that we've gone through have delivered this kind of investment, which mainly has been off-market transactions. So that means that, as a principle, we always look for transactions that may come with this kind of value added. Potential that usually will be a sort of complex off-market transaction. And if that appears and of course, with the KPIs in terms of financing remaining strong, we will do it. So that means that it's a little bit unpredictable how much can we make and when are we going to make? Normal life would be that we do a little bit of everything, more -- a little bit more selling than buying and smoothly reducing our LTV.

[Celine Huynh, Research Analyst]

So I understand that you're more likely to be a net seller or neutral at best this year.

[Pedro Viñolas Serra, CEO & Executive Director]

Yes.

[Operator]

The next question comes from Álvaro Andreu from BBVA.

[Álvaro Andreu, Research Analyst]

I simply wanted to ask on the rental income evolution in Madrid and in Paris quarter-on-quarter, if you could please give a little bit more color on that as it compares [ on a say per ] year-on-year evolution.

[Carlos Krohmer, Chief Corporate Development Officer]

Well, on the quarter-on-quarter evolution, well, I don't have this figure here, but what you can see quarter-on-quarter is 2 elements: number one that we remain at 1% vacancy in Paris and Barcelona and that we have signed better rents. So we will have an increase quarter-on-quarter if you mean with quarter-on-quarter first quarter 2018 to fourth quarter -- first quarter 2019 to fourth quarter 2019. And in Madrid, we have decreased vacancy.

[Pedro Viñolas Serra, CEO & Executive Director]

Well, this is -- I don't have the figure -- we can set up separate call for this.

[Operator]

Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company. Thank you.

[Pedro Viñolas Serra, CEO & Executive Director]

So thank you very much for these questions and for your attention to the presentation. Very happy to be able to share with you the set of results that we have disclosed today, and we hope to see you soon. Just to highlight that we're having another field trip prepared for Barcelona quite soon, and we'll have in October our Investor Day just to remind you of these special dates. But happy to keep in touch and to come back to you with another presentation quite soon. Thank you, and good afternoon.