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Spanish office REIT Colonial 2017 net jumps 149%, recurring up 14%

Pere Viñolas Serra, CEO of Colonial ©

Spanish office REIT/SOCIMI Colonial, which owns a majority in France's SFL, said attributable net profit last year, prior to its takeover of Madrid peer Axiare, jumped 149% to €683m. Per share recurring income rose 14% and its portfolio grew 15% to €9.28bn.

"2017 was an excellent year for Colonial," the firm said in a results release Monday. Managed by Chairman Juan José Brugera and CEO Pere Vinolas, Madrid-based Colonial achieved a record result, with 21% total shareholder return driven by an increase in EPRA net asset value of 19% per share to €8.60. “This return is a consequence of a strategy of specialisation on prime offices in the markets of Barcelona, Madrid and Paris," Vinolas said. The approach was one of value creation that it calls Prime Factory, prioritising quality of returns and financial discipline.

In 2017, Colonial’s achieved gross rental income of €283m, up 4% like-for-like and helped by rental increases. Recurring net profit reached €83m, up 14% on share basis, supported by the support of capital markets which boosted its share price by 26% by year end. The firm signed 99 letting contracts in 2017, corresponding to more than 134,000 sqm and €48m in annual rental income. EPRA vacancy held at 4% overall. It ended 2017 with a balance sheet that had loan to value of 31%, €2.43bn of liquidity and a solid investment grade rating by Standard & Poor’s and Moody's.

Looking at the portfolio, Colonial said the value of assets in Spain increased by 11% like-for-like including both Madrid and Barcelona which are the lion's share of holdings. By comparison the value of the Paris portfolio rose 13%. In general terms, the increase in asset values is a consequence of three factors: A growing interest by investors in prime assets, driving down yields, especially in the Paris CBD - one of the core markets attracting investors on a global level, rental increases captured in recent quarters by the group’s portfolio in the three markets, Colonial’s "industrial approach that enables superior value creation through portfolio repositioning and Prime Factory projects."

It said the takeover bid for Axiare, in which it now holds 87% after the acceptance period ended on 29 January - not high enough to force a shareholder squeeze-out - positions Colonial as a European office leader with more than €10bn of asset value, a portfolio of 1.7m sqm of surface area and 330,000 sqm under development. In addition it reinforces Colonials's bet on the office market in Spain, strengthening its positioning in Madrid. The potential income of the resulting group amounts to more than €500m once all the projects are delivered, the firm said.

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