Inmobiliaria Colonial SOCIMI SA

MAD:COL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to the Inmobiliaria Colonial First Quarter 2024 results presentation. The management of the company will run you through the presentation, which will be followed by a question-and-answer session. [Operator Instructions] I would now like to introduce Mr. Pedro Vinolas, CEO of Inmobiliaria Colonial. Please, sir, go ahead.

[Pere Serra, executive]

Thank you. Good afternoon. This is Pedro Vinolas speaking, CEO of Colonial. I've with me Carmina Ganyet, Chief Corporate Officer; and Carlos Krohmer, Chief Corporate Development Officer. And it's a pleasure to be with you again to present our results for the first quarter of 2024. First of all, maybe a qualitative comment before entering into numbers to share with you how do we see markets and in particular, how do we see Colonial in this first three months of the year. I would say to summarize that we remain with the perception of strong demand -- a strong demand that is mainly focused on premium space in prime locations, basically driven by a trend of clients whose strategic decisions on real estate are focused more and more on user experience. In the end, a polarization of demand, that's what we are seeing in the market, and therefore, a widening gap between what we could say, the best and the rest. And so, in other words, this demand for the best is more than in the past, and it's more than the rest. They are the two things that I would say about the evolution. Having said that, what I have to share with you is not big news because it's, as you know, those who follow us is that this trend to strong results is something that is not a question of weeks or a question of months. It's now a question of the last few years that we've been publishing this kind of numbers. Let's go into the numbers. I am on Page 5 of the presentation. The highlights are we are starting 2024 with outstanding results on the back of this polarization. And here, you can see the numbers. I start with the bottom line, and then I go to the top line. The bottom line for Colonial it's an EPRA EPS of EUR 8.7 per share, that is 25% more than last year. The EPRA earnings are for this quarter EUR 47 million, obviously, 25% more. And the group net profit is EUR 54.5 million, 96% more. So high double-digit profit growth would be the first comment to describe our results. As I said, if we have to talk about the bottom line and describe it means that you'll have to go to the top line. The revenue growth has remained strong. The revenues have been EUR 96 million, 6% more than a quarter, 18% in Paris more than the comparable quarter. The like-for-like, which is a number that again and again, we emphasize to explain the difference, Colonial is 6.3% for this first quarter. And the gross rental income growth in projects -- from projects is at 6.0%. This strong revenue growth comes on the back of outstanding operational performance. First of all, occupancy remains at the top end, 97.5% that is 34 basis points more than three months ago, still 100% in Paris in terms of occupancy. So, occupancy is great. Rental growth is great, too. It's 6% in three months. Rental growth, it's defined as the percentage between the signed rents and the ERB available in December 2023. That's why this 6% is remarkable. And the group release spread is at 12%. And the balance sheet remains solid. -- financial cost remains at 1.74% stable, slightly lower than December 2023. We've been disposing on track with last year EUR 2,000 million secured year-to-date at an 11% premium on gross asset value. So again, outperforming. And as you may have seen, we just published very recently that S&P has confirmed the rating of Colonial confirmed on April 24, BBB+, which is a strong a sign off in terms of healthy debt. If we can describe our situation in other words even better with a picture on Page 6 of the presentation, you can see the kind of outperformance that describes our situation in terms of occupancy. So, you can see how standing situation is in Paris, in Madrid and in Barcelona. I think that chart speaks for itself. Beyond occupation, rental growth, as I said, remains very strong. We've seen maximum rent sign of EUR 1,100 per square meter in berries. Maximum rent signed EUR 40 per square meter month in Madrid 28 in Barcelona. And you can see here several examples of these recent signings. But as you can see, in this slide #7, Paris 9% in three months, Madrid 3% in three months, Barcelona 7% in three months. As I said at the beginning, I'm on Page 8. There is a very strong trend of supporting Prime CBD exposure. You can see how rents have behaved in the last four years with Coronavirus small issue in between. Market has gone in the direction where Colonial's playing field is. That's why we remain with high conviction on the future outlook of our exposure. This would apply for Paris. This can also apply for Madrid. And as you can see here in this page, there is two things to highlight. The first is the positive evolution in actual terms. The other is the relative evolution compared to other markets, just as a comparison, La Défénse in Paris outside and 30 in Madrid. And of course, the explanation for that is at different levels of vacancy in both markets that have to do with the different products available. So, the highlights are that the performance of Colonial in these three months has been very strong. Now let's go into the details, and let's enter into the section about final -- financial performance, Section 2. Carmina, please step in.

[Carmina Cirera, executive]

Thank you, Pedro. In this section, as you can see as Pedro mentioned, as Colonial Prime Strategy delivers this first quarter a very strong growth in earnings. Gross rental income increasing 6.2% year-on-year, 6.3% like-for-like, up to EUR 96 million, in line as well as the EBITDA growing 8% year-on-year. And consequently, the EPRA EPS and then I will cover more details on the figures, increasing 25% year-on-year to EUR 8.7 per share. If we go to the gross rental income, basically, the gross rental income is growing on the back of the core portfolio and project delivered, as you can see in Page 11. So, we have quite a positive impact of the Core Portfolio in terms of like-for-like, growing 6% and as well the positive impact of the delivery of projects, 6%, basically Louvre Saint [indiscernible] and [Adidas]. And these two positive impacts of 6% H1 has compensated -- overcompensated the disposal program and as well the IBM impact that the contract [indiscernible] was finishing at the end of last year and will be a new project, so will become a new project and new income for the future. So consequently, gross rental income increased 6.2% with 12%, thanks to the Alpha strategies overcompensating the disposal projects and the IBM Rescission and the -- in beginning of the works on the idea. But one has been -- what has been this gross rental income in which market and why? In Page 12, you can see that the gross rental income in a healthy number in the net healthy growth of 6% is across market, especially highlighting Paris with close to 8% like-for-like growth and Barcelona, 8% like-for-like growth. And basically, we have a positive impact of rental growth, 2% above all inflation. Additionally, we have a positive impact of 3%, thanks to the indexation of our contracts and additionally 1.2% of occupancy. So today, in this first quarter, we present EUR 89 million gross rental income for this first quarter, increasing 6% like-for-like, 6.3%, basically additional impact -- a positive impact of occupancy and a positive impact above indexation, thanks to the pricing power of our portfolio. If we go to the EPS in Page 13, you can see how this positive impact of gross rental income has been translated into the EPS growth, EUR 11 million of the portfolio continued operations. Additionally, we have this first quarter a positive impact of the financial results, thanks to the [asset] management overcompensating, as I mentioned, the negative impact from the disposals and the negative impact of the [IBM Rescission] to become a new project. So, the EPS is growing 25% year-on-year in this first quarter. We maintain, as you can -- as you see here, the EPS guidance is on track as we released in our previous press release. We continue on track in our disposal program. As you know, we have been announced a disposal program of EUR 500 million. We have been closed this first quarter the disposal of Disposal of Sagasta 31. Sagasta, it's a small size asset vacant with a very small for plants. So very inefficient to refurbish in line what is the Colonial aims. So, it's part of our recycling strategy and all this EUR 200 million, including the last one, as I mentioned, in Sagasta, it has been done at a premium of 11% of the last supported processing value. So we are on track and we are confirming valuation above the valuation, I mean, with the premium in the disposals. So thanks to this active asset management and active capital structure management. We have been reducing our debt in the last three months. Today, we have a net debt of $4.7 million, almost EUR 4.8 billion. We have enhanced consequently -- we have enhanced our liquidity. Today, Colonial has close to EUR 3 billion of liquidity, covering 1.5x debt that will mature between 2024 and 2026.We maintain a very stable cost of debt. So we remain, as you know, a very -- in a pre-hedge and hedge policy, confirming our debt below 2% this year and [prolong t]o value remains stable in line with this has been disclosed December 2023. So consequently, as Pedro was mentioning, S&P has been confirmed our credit rating with BBB+ with a stable outlook. Thanks to the cash flow resilience, thanks to the strong liquidity, as I mentioned before, and thanks as well to the interest rate hedge policy that we have been sharing with you in the last quarters in the last year. Today, Colonial, as you know, we have 100% of debt fully hedged. And also, the pre-hedge position for the next years. And the next maturity will be at least more than 50% of our debt expiring in the future maturing. So, we can maintain this low or healthy interest cost of debt below 2.5% in the following years. We have been also as well tapping the market with 200 million bonds maturing in 2029 with a private placement. And thanks again for the -- of the presented strategy that we have been able to put in place to implement the cost of debt. The cost of this new tapping bond remains below 2%, exactly 1.9.

[Pere Serra, executive]

And let's go into the next section, Carlos portfolio management.'

[Carlos Krohmer, executive]

Thank you very much, Pedro. I'm -- on Page 18. As Pedro mentioned, we have had a very successful quarter in letting operations. We've signed contracts for an annual amount of close to EUR 13 million. This is quite remarkable. If we look at the occupancy ratio where we come from three months ago, we were at 97%. We have increased this up to 97.5%, 34 basis points in the quarter, decreasing Madrid and Barcelona the occupancy. Out of the rental activity signed close to 60%, more than EUR 7 million comes from the Paris activity -- and this EUR 7 million have been signed at an average rent above EUR 1,000 per square meter a year basically that we have had two large operations at a price well above 1,100 -- 1,000. One has been signed to level of 1,100. So really signing maximum rent in the market and also in Madrid and Barcelona, we have signed this quarter at the maximum level contracts at 40 and also at 28. If we step to the next page, we see the rental growth performance. And basically, there are three interesting columns to look at. On the first, we are continuing capturing indexation, the impact -- annualized impact of all the indexation [interest] that we have done through the contracts in this first quarter is 5%. This is loading further growth because just a very minor part of this is embedded -- is included in our first quarter P&L. Then we have signed a double-digit release spread basically to highlight Paris, with plus 22%. We have a tier deals at very high levels at levels of 30%, 14.7% and 38%, three big deals. And on the rental growth, it's even more important. We are starting the year with rents that are being signed 6% above the ERV of our appraisals at December 23. So just in three months, we have signed ERVs that are 6% above the appraisal. Again, the leading market, Paris with plus 9%. We have here even examples of double-digit rental growth in some assets and some of the contracts signed, Madrid, plus 3%; and Barcelona plus 7%. So just 6% -- already 6% of growth just in three months. It's quite a lot if you look from -- this from an annualized perspective and much higher than the percentage that we had last year at this point of the year.

[Pere Serra, executive]

Thank you. So let me now just step into the final section of the presentation is about strategic situation on the future outlook for the company. The summary of the performance of Colonial in the first three months of the year. As you have seen, it's that -- it's a good performance. It's a better performance that [indiscernible] is a better performance than one could think. In terms of demand, in terms of occupation, in terms of rental growth. So any criteria, it remains a very strong results, the one for the first -- the first quarter of the year. The number that shows in the end all of these trends is the EPS that grows 25% on a year-on-year basis. And what's behind this number is that, first of all, the inflation hedge that we always emphasize that for the long run, is one of the main drivers of the performance of a company. So, it's not only about yields, it's about growth driven, first of all by inflation. But second, it's the rental growth beyond inflation, acting as a pipeline. Third, it is not only about returns coming from the existing pipeline, its returns coming from new opportunities that add value and finally, acquisitions and prime factory. This is what explains the performance of Colonial. On Page 22, I would like to stress again because those who follow us know for a long period of time, this will not come as a surprise, is that it's not only that our performance is better than expected, is that it's better than the rest. If you look at comparison of like-for-like for Colonial and a selected number of peers, you can see more or less where do we stand in terms of growth compared to peers. And I think that in a way has to do with this unique positioning of Colonial that it's very important at the moment where we are decoupling the office market into different markets and showing a totally different performance depending on the market -- the specific market that we are talking about. Page 23 is just to highlight that all the work that has been taking place on our project pipeline that has already been delivered, allow us for an expectation of rental growth, which remains very important. The final full potential top-up rent generation of our portfolio stands at EUR 80 million. And out of this EUR 80 million, 80% is already secured today. There is one final project that today is at the hard [indiscernible] of efforts that we are focused on, which is Méndez Ãlvaro.On Page 24 -- just a slide to comment on this. This is going very well. This is providing 19 million -- is to provide EUR 19 million of new rents. It's expected to deliver more than an 8% yield on cost. This project is about to be delivered in the next few months. There's only EUR 25 million pending in CapEx. And now we are in a commercial mood, in leasing mood. And I think that momentum is going quite well. It's not, let's say, finish the project. But as of today, -- they are signed ahead of terms that account for more than 20% of the surface of the available space in this unit. So I think that we are quite happy with the strong demand that this project is having. And this Page 25, it's part of a broader view of what we can deliver, which in the end is summarized on the chart at the right of this 25 -- Page 25, which in the end, what is telling us that the passing rent that we have today of EUR 426 million can be enhanced by a number of drivers. Madnum being one of them, you can see EUR 19 million coming for them, but also 49 million coming for the new projects that will come from our own balance sheet that will be able to lead us to far more than EUR 500 million of rent. So we believe that the momentum of Colonial allows for cash flow that is growing, for cash flow that is showing strong momentum. Final comment on the Page 26. First of all, as of today, we confirm the guidance for EPS 2024 that we gave not so long ago, $0.30 to $0.32 per share. Dividend per share is confirmed $0.27 per share, 8% growth year-over-year. And the disposal program remains on track with 200 million out of EUR 500 million secured as of today.Maybe a more general comment. We see real estate and capital markets closer to an inflection point. We see yields closer to peak. We believe that we have to be conscious of cycle. We believe that it's a moment for considering reloading into growth opportunities. Always this within a framework of a strong capital structure, which always remains a very important point. And it's a moment that we live in a world of interesting opportunities. And the message that we would like to pass is that we are not passive on this, and we are advancing on the different initiatives with attractive returns, always in the framework of a solid financial structure, and we are sure that we will be able to deliver news on this route during the course of this year. That's a more kind of qualitative message I wanted to pass. But as a summary, what we think are a very good set of results for this first quarter. That's what we have been proud to share with you today. And as always, we are open for the questions you may have. Thank you.

[Operator]

Ladies and gentlemen, the Q&A session starts now. [Operator Instructions] The first question comes from Florent Laroche from ODDO BHF.

[Florent Laroche-Joubert, analyst]

Good evening, thank you very much for this presentation. I would have three questions. My first question would come -- will need to come back on the investment market. I have seen your comment on the yields that are close [to peak]. But on the investment market, how do you see the appetite of investor? And at the end, how do you see as [indiscernible] to value the asset at the end of June and at the end of December compared to December 2023? So that would be my first question. ‘My second question, so on your leasing challenges for the rest of the year. Could you please say a word on the releasing of the Haussmann 106 in Paris. That will be at the end of June, if my understanding is correct. And my third question would be on your comment on your [indiscernible] growth profile. So we understand that you look for from -- maybe from acquisition opportunities. So does that mean that at the end of the year, you could be net by [Audio Gap]

[Pere Serra, executive]

And I think I heard your third question is about -- based on our appetite for growth and acquisition opportunities that we may if we see ourselves as a net buyer. I don't know if that was the question?

[Florent Laroche-Joubert, analyst]

Yes, that was the question.

[Pere Serra, executive]

Look, on the first question, it's true that 2024 remains a year that's still challenging in many ways. It's true that investment markets have not come back on track to, let's say, normal moot. Therefore, it remains a certain -- uncertainty on where they can be during the course of the year. And as you were saying, what impacted, they may have in valuation in June and in December. But I would say that on our side, we have a few comments. First, in our case, we see the repricing more having taken place in 2023 that it may happen in 2024. That's a very subjective and personal opinion. So, talking about the future, it's one of the most difficult things to do. But that's the feeling that we have. And we believe that 2024, it's a year for inflection, and we cannot be more precise than this and that from our point of view, which -- where we see ourselves as long-term investors, that's more an interesting point and an opportunity than a particular flat. Your second question on the Haussmann, yes, where we confirm that this is a property that now needs a little bit of active management because it's becoming available. What we can say today is that the rents or the income for this year 2024, the way it was managed is secured that so for the short term, there's no particular downside. And for the midterm, the conviction that we have, in particular, the conviction in the SFL team is that the potential for value creation of a stronger cash flow generation, it's high. So, it's a challenge -- an ordinary kind of challenge that we have to manage, but with a high degree of confidence. And I'm very sure that the management of SFL is about to do a great job as they always do in this particular situation. So -- on the question of the growth profile, acquisition opportunities being net buyer or net seller, it's a very, let's say, a complex moment now that we are going through because when you are in a situation where there's an inflection point at some point, but you cannot be specific. You have to do two things at the same time, which are -- that can be seen as contradictory. One is do not lose the growth opportunities that may be out there. And second, remain with a solid balance sheet. Maybe at the day of today, I cannot be more specific, but I can say that we will be in the mood for acquisition of growth opportunities that may come from the inside of the balance sheet or from the outside. At the same time securing a strong or stronger balance sheet. This may not mean that we are necessarily net buyers by the end of the year, but we feel this more of a cycle as closer to being proactive than we experienced last year.

[Operator]

The next question comes from Fernando Abril from Alantra.

[Fernando Abril-Martorell, analyst]

So thank you very much for the presentation. A few questions. First, on net debt. So net debt is down around EUR 100 million versus December. I don't know how much of the EUR 200 million disposals are already included in this net debt? Then also linked to this, the latest disposals you have done in Madrid as far as the building. So correct me if again, this is a, let's say, a conversion into our residential -- luxury residential unit. I don't know within your EUR 300 million remaining, you have also more, let's say, projects similar to this one. I mean offices reconverted into residential or different -- I don't know if you have any visibility on the remaining disposals you've targeted? And last also on the update on management. So very strong [pre-rating] activity, I would say. I don't know if you have any range of pre-rating before the year-end? You've mentioned around more than 20% is in advance -- very advanced conversation. I don't know if you are targeting, I don't know, 30% to 40% before year-end? Or I don't know what's included in your business plan?

[Pere Serra, executive]

Yes. I will start by these more operational kind of questions and the divestments questions, and then Carmina can step in with comments on the debt. So, I will go in the reverse order. And regarding Madnum, it's -- honestly, it's very difficult to be more specific at this moment. But because of the situation it's quite open. There's a very wide range of expectations. And on Page 24, we are saying if you have seen that we have signed 3,000 -- 13,000 square meters of GLA in terms of Head of Terms, but we have High Interest for 150,000. And that means that there are some conversations that are really binary, so they change completely the outlook. But we are now at a typical moment where particularly the operational team wants to be very prudent and not generate expectations on certain conversations that would completely change the outlook at the end of the year. But the only thing I can say is that we are beating our own internal expectations and that we are quite happy about where the speed that this is going and it's better than we expected. But I wouldn't be able yet to give you a more specific, range maybe in a few months, we can be more specific. I'm more happy with the result in number. You mentioned about Sagasta. Sagasta we are in advanced -- advanced situation regarding the potential disposal. We are under exclusivity. We are under a very advanced moment of due diligence. I understand, but it's not for me to say that, not the buyer may have a look at this property in the range of recommission to office into other kind of users, luxury residential, but you will understand that it's more for a violent for us. But it's true that we saw an arbitrage opportunity here because we thought that resi and particularly the resi in the luxury front could allow for a much higher value and that we expect to deliver in this particular side. We keep on starting for any asset, any alternative. And I think that this is part of a trend where we insist a lot. We will listen from us that we use the term urban transformation and work a mix use or a flex approach to projects, meaning that I think that today, the evolution -- the natural evolution of office is to consider a wider spectrum of users. And this is an example. But there are many. In the case of Méndez Ãlvaro, we have a good example of also opening our objectives to exposure to resi has been a good choice, and we can have more of this in the future. And your initial question was about the debt. Carmina if you want to step in.

[Carmina Cirera, executive]

In the debt, it's not the figure you see in the net debt still is not included this commitment -- committed disposal. So, it still needs to be better the net debt in the following month and in the following quarter because of the execution of this sale. Although in the long-term value proforma has been included this transaction. So, it's not in the calendar - in the net debt, but in the figure of this in Q1.

[Fernando Abril-Martorell, analyst]

I still got two another question, which is regard to the guidance. So, one this question. So, you started with a very strong EPS in Q1. If we analyze Q1, you get to around EUR 0.35. So, I understand that Q1 had some positive probably one-offs? Or do you expect things to soften throughout the year? Or I don't know if you can walk us again through the guidance. So it may look conservative or not?

[Pere Serra, executive]

It's a mix of several things. First of all, more than being conservative is that in this early stage of the year, we consider maybe too soon to revise the guidance. Maybe we want to wait a little bit more. The second comment, yes, it's true that the operational performance is being very strong. But third, let's remember that we are open to different scenarios of disposals that may change little with the outlook. I think that this may lead us not maybe to a better outlook for the guidance in the second half of the year, but we are still not there yet. That's why we remain in the guidance that we gave just a few weeks ago or not so long ago. And we remain with the guidance of 32%. Let's see what the rest of the year delivers. And if in the second half, we can revisit this guidance.

[Operator]

The next question comes from Celine Huynh from Barclays.

[Celine Huynh, analyst]

Just two question from me, please. The first one is on your occupancy rate in Barcelona. It looks like it improved this quarter, but did you include the IBM building in reported occupancy? And the second question is that does something else I've always been wondering, but why not selling more funds? Why are you targeting so much thing?

[Pere Serra, executive]

I start with the second part, and then Carlos will step in on comments on occupation in Barcelona and potential impacts from IBM. I think that in the case of France, I think that the market, it's cold that we've seen in Spain until today, 2023, 2024. I think that this is a function of several things, but maybe among them that being a market of a much bigger average size for units that are in the market. The potential buyer market remains very much institutional, which is the one that remain, let's say, more passive for the moment. Whereas if we talk of a market of a smaller size for what is available, you have a wider range of potential buyers that have been more active. So that's why in Spain during 2023 and 2024 as you can see, we believe that liquidity is there more -- in a more obvious way. I think that in the case of France, we still have to wait a little bit more. So that's why we remain a little bit more cautious. Then, of course, it's also a function of going case-by-case. Regarding occupation, maybe Carlos on Barcelona and on the potential future impact of IBM.

[Carlos Krohmer, executive]

On the rational portfolio, we have had some progress. I would also like to highlight that the portfolio in the CBD is at 98%. So, it's basically concentrated on three assets Torre Marenostrum, Illacuna and Sant Cugat. On Torre Marenostrum , we are starting to see momentum and Illacuna, we are also positive. So, this would be the main comment on this. On the IBM, I think this is something that already we started to talk to the market. We had here for many, many years, IBM as a talent on a very interesting asset that is Santa Hortensia, 46,000 square meters with super large floor plates. We are currently analyzing a new project in this asset that can be very attractive and that will have very probably a significant reversion, both on rental cash flow and also on value. We are working on the final design on the final plan of these assets in order to come soon to the market to disclose the details of what we're going to do there.

[Operator]

The next question comes from Ignacio DomÃnguez from JB Capital.

[Ignacio DomÃnguez Ruiz, analyst]

Just one from my side. Where do you plan to carry out the remaining disposals in 2024? Do you still plan to carry out further disposals in Madrid or we have scheduled some in Paris or Barcelona?

[Pere Serra, executive]

We don't have a specific calendar for our disposals. As you know, this disposal strategy, it's a function of maximizing what we pretend is maximize the strength of our balance sheet. Also, it's a function of a real estate rationale. So selling assets that we believe that either there have become nonstrategic or are too mature. And finally, it's also a function of a potential for arbitrage, meaning the gap between the price at which we are selling, which on a regular basis, its appraisal value compared to what we may see in capital markets. So these are the different drivers for sale. What is not a driver is that we need to sell. So, we have available lines for debt for much more than the maturities for the next three years. We have a cost of debt that is much lower than market cost of debt and is to remain in very low levels for a long period of time. That means that what drives our disposal strategy, it's driven more by opportunity than by specific goals that we have to achieve. So, we -- it's true that we provided the market with a sort of guidance of EUR 500 million. But we'll manage this objective within a range of, let's say, a very comfortable agenda, and that means that we don't expect any particular moment for disposing specific assets. I would say that in general terms, answering also your question, we would tend to see more disposals in France than in Spain as a goal. But in the short term, Madrid remains very liquid and Paris, not yet. So, if you had to sell something tomorrow morning, which is not the case, it will be more normal to see this happening that we've done in Paris. For the longer term, we expect a little bit of change in this trend.

[Operator]

The next question comes from Veronique Meertens from Kempen.

[Veronique Meertens, analyst]

For me, some follow-ups on the growth profile or the last slide of your presentation because you mentioned what you do it in the framework of solid financial structure. Can you maybe give some additional details on the report of S&P? I don't think there's an official report out as in what is a comfortable range for them in terms of LTV and also maybe what's a comfortable range for you to be in terms of LTV?

[Carmina Cirera, executive]

You know that in the LTV, they look at the yes, there is a report, a public report. They look at the LTV as a debt plus equity. And they are in the range of 45, I think in the range of BBB+ are in the levels of 45%. That plus debt as equity, this is in line with what you will see in the report as well on the ICR metrics. They not only look at, as you know, metrics like these KPIs in terms of loan-to-value, ICR. They look at as a cash flow profile in the future. They look at as the maturity of all the contracts, the profile of the clients, the position of liquidity and if there is any refinancing risk, which is not our case, and as well all the hedge strategies that we have been secured confirming this low cost of debt. So, this is an overall approach, but they are quite successfully. They have been also done some tests about the potential stress and they have been confirmed the BBB+.

[Pere Serra, executive]

If you allow me we need two comments on my side. I think that it's true that we had the impression in recent times that debt markets are more comfortable about debt than equity markets. And it's very interesting when you look at how bonds are trading and how, for example, rating agencies are delivering their opinions. In the case of S&P and other, it's true that when you look about the work they do and the opinion they give, they use a very wide range of elements to be considered into the analysis as Carmina mentioned. Having said my second message is I would not like to give the wrong impression. We are not relaxed about LTV. We all want this to go higher. When I meant that we have to enter into growth opportunities within a solid fundamental framework -- financial fundamental framework. That means that it always has to be with LTVs lower than what we have today and not higher. So that would be my opinion on where the situation should be.

[Veronique Meertens, analyst]

That's very clear. But as a follow-up on that, because when I look at the yields, obviously, I get your point that in '23, we've probably seen or at least stabilizing reported yields by brokers, but your prime yields are still quite far off from those reported deals by broker reports. So, I would think that there will be still a small impact on your LTV from that side. And obviously, hopefully, some disposals can offset that. But I'm curious to see how -- and how acquisitions will not push that LTV higher? Or is there also a chance that you might do something in the form of a contribution in kind or different form of structures that would help your LTV?

[Pere Serra, executive]

I basically agree with your statements. So, markets are in a situation where still you see a range of indicators that it's difficult that they lead you to a clear picture. We also think that markets today are confronting not a lot of evidence coming from transactional markets. So, we take quite often examples of things that are not really comparable. We tend to believe that in our case, with the assets that we own and the quality than they have. The room for deterioration is open to individual subjective opinions. But as I said before, we are more in a situation where we've done a big part of this adjustment and not the opposite. And then as you suggest, yes, there are a wide range of things that we can do. And the market is a very -- is at a very interesting moment. And I think that the only thing that the message I can pass is that we are determined and with high conviction that we have to do both things at the same time, which is take advantage of the growth opportunities that are there and deliver anything that can be done there within the range of even stronger capital structure. But I cannot be more specific than that, but the conviction is there. And hopefully, we will be able to deliver and to show specific examples of this in the near future.

[Veronique Meertens, analyst]

Maybe one last question from my side. Looking at Spain, they were only slightly negative, but practically stable releasing spreads. Is this something maybe specific on these assets? Or do you see a more stabilized releasing spreads in Spain for the rest of the year as well?

[Carlos Krohmer, executive]

Well, basically, as I explained already in previous calls, we had a much quicker inflation pickup in the Spanish market because of the structure of the contracts, it is every single month because the inflation was much more rapid, higher because of it's just CPI and in France is [indiscernible]. This has put the passing rents higher -- but we are very, very confident that our rental growth of our product will be further pushing up the rents and so we will have release spreads in a way more or less at the same levels of rental growth. The first quarter, the figures that you are seeing here are not really so representative for instance, the figure that corresponds to the slightly negative release that in Barcelona is just an amount of EUR 400,000 of contract activity. So, it's not really so relevant. And then we have obviously a very large release spread impact from our Paris activities that is super, super strong. So, we are confident on this. But obviously, the short-term contracts in Spain and the evolution of the indexation and the structure of the concept that we have made that the passing rents came much earlier, much higher. And so now it's really about ERV growth. The game release spreads and rental growth is at the end, the same game in a way in Spain. And in Paris, we have a twofold game, but on both levels very, very strong. So, we are very confident on this. And yes, that's what we can say about this today.

[Operator]

Ladies and gentlemen, there are no further questions.

[Pere Serra, executive]

Thank you. As I said at the beginning, a pleasure to be able to share this kind of results with you, and we hope that in the near future, we will be able to do the same again. Thank you, and have a good day. Bye-bye.