Integrated Annual Report 2018
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2018 Integrated Annual Report 2018 Integrated Annual Report Main Figures 4 Colonial Integrated Annual Report 2018 Paris 20 ASSETS Madrid 43 ASSETS Barcelona 23 ASSETS Note: Logistics and other centres are not included. Main Figures 5 19% +17% 10,03€/share €5,051M Total Shareholder EPRA NVA - €/share EPRA NAV Market Return capitalization(1) €11,3 4 8 M 1,782,282sq m 4% +5% GAV s/above ground EPRA GRI var EPRA Group Vacancy Like-for-Like Specialists in prime offices A CBD portfolio 1% 91% 4% 3% 75% CBD(2) Offices Retail Logistic Others Prime CBD CBD BD Others Maximum energy efficiency Good diversification(3) Spain 42% France 91% 58% with energy certification Barcelona Madrid Paris Others Logistic (1) On 16 May 2019. (2) CBD Barcelona includes the assets of the 22@ market segment. (3) France = SFL shares valued at NAV. Spain = GAV directly held assets + NAV participation SPV TMN + Value JV Plaza Europa 34. 6 Colonial Integrated Annual Report 2018 EPRA Performance Measures Summary Table As at 31 December 12/2018 12/2017 €m € per share €m € per share EPRA Earnings 90 0.20 62 0.16 EPRA NAV 5,098 10.03 3,744 8.60 EPRA NNNAV 4,853 9.55 3,428 7.88 2018 2017 EPRA Net Initial Yield 3.0% 3.0% EPRA “topped-up” Net Initial Yield 3.3% 3.4% EPRA vacancy rate 4.1% 3.9% EPRA Cost ratio (including vacancy costs) 19.5% 18.4% EPRA Cost ratio (excluding vacancy costs) 17.9% 17.1% EPRA: European Public Real Estate Association: Association of listed European property companies that sets best market practices for the sector (www.epra.com) Summary Interview with the Chairman and CEO 8 01. Shareholders structure and Corporate Governance 12 02. Highlights 2018 36 03. Business evolution 54 04. Responsible business 98 05. Team of professionals 108 06. Eco-efficiency 124 07. Relationship with the Community 154 08. EPRA ratios 160 09. Our properties 170 10. Strategy for the future 218 11. About the Report 222 12. GRI content index & EPRA BPR’s 228 Additional information in electronic format: 01. Appendices 1.1. Consolidated balance sheet 1.2. Offices historical series breakdown 02. Consolidated Financial Statements 2018 03. Annual corporate governance report 2018 04. Glossary 05. Alternative performance measures 8 Colonial Integrated Annual Report 2018 Interview with the Chairman and CEO Juan José Brugera, Chairman Pere Viñolas Serra, Chief Executive Officer Interview with the Chairman and CEO 9 Colonial has once again closed an extraordinary year. What were the most prominent main achievements in 2018? J.J. BRUGERA P. VIÑOLAS The year 2018 was one of transformation for the Colonial As the Chairman has mentioned, 2018 was an extraordinary group. The year was a turning point for the company and year marked by a clear fulfilment of all the annual objectives, an acceleration of our business plan. enabling us to position ourselves as one of the property management companies with the best results in Europe In early 2018, Colonial acquired five assets under the in all areas, both operational and financial. Alpha III project with a total investment of €480 million. The investment mainly consists of developing over 110,000 sq m In the operational area, we formalised 103 contracts of office space in the south of the Central Business District corresponding to an above-ground surface area of over (CBD) in Madrid. 175,000 sq m and 43 million annual rents with top-class customers. One of the main aspects to highlight is the During the first half of the year, the merger and integration of increase in prices achieved with a year-on-year increase of Axiare was completed in record time, consolidating Colonial’s +8%, prominently in Barcelona with +10% and Madrid with leadership in prime offices in Spain and Europe. +8%. When comparing new and previous rents in lease renewals, the double-digit price increase is led by Madrid Capital was also rotated to maximise profitability for at +29%, followed by Barcelona at +23% and Paris at 14%. shareholders based on an active portfolio management. In this regard, the execution of Alpha IV increased the presence These parameters let us maintain the real estate portfolio in the capital of our Paris-based subsidiary SFL to 82%. Non- at full occupancy levels, reaching 96%, in which regard the strategic assets were also divested for 441 million, a figure Barcelona and Paris markets are particularly remarkable with representing a 12% premium on appraisal and a significant 99% occupancy. gain for our shareholders. It is also worth highlighting the good reception of our On a corporate level, I would like to highlight that all these successfully completed Discovery and Window projects in transactions were executed together with an important active Madrid and Parc Glories in Barcelona. The three projects management of the balance sheet, enabling Standard & were handed over on schedule, rented virtually at 100% Poors to improve its rating to BBB+, the highest real estate and with rents higher than the initially estimated figures rating in Spain and one of highest on the IBEX35. at the start of the project. To conclude, the remarkable 2018 profit of 525 million euros In the financial area, there was substantial active balance is one of the best results in the history of our company. A sheet management, thus enabling us to increase average more solid, diversified and larger company emerged during debt maturity to 5.9 years and reduce its average cost to this year with excellent growth prospects for the coming 1.77%. years. Consequently, Colonial closed out 2018 with an EPRA Net Asset Value of €10.03/share, thus representing a year-on- year value increase of +17%, which, together with a paid dividend of €0.18/share, resulted in a total return for the shareholder of 19% in 2018. 10 Colonial Integrated Annual Report 2018 Is there any non-financial aspect that you would like to highlight? J.J. BRUGERA P. VIÑOLAS Colonial also strives to gain a clear leadership in Corporate In addition to being fully committed to all areas of CSR, we Social Responsibility, an essential element in a growth believe that it is also important to closely examine all the strategy whose main characteristic is to offer the highest new trends that may arise in the sector to offer long-term quality. sustainable returns for our shareholders. In this regard, Colonial reached substantial milestones during For this reason, Colonial has accelerated initiatives in the 2018 in terms of the corporate ratings that evaluate all non- Proptech area during 2018 so we can maximize the service financial aspects. For example, MSCI increased our rating to our clients and lead new trends in our sector. from BBB to AA, with a particularly remarkable Corporate Governance score. For instance, we opened 3 new centres through our coworking subsidiary Utopicus: 2 in Madrid at Calle Orense We also once again secured the GreenStar level from and Calle Príncipe de Vergara, and another in Barcelona at GRESB, a rating that evaluates over 800 companies Plaza Cataluña. We also began taking the steps in terms worldwide, and our property portfolio in operation holds of procedures and construction to open 7 new centres in a 91% for maximum energy efficiency ratings from LEED the coming months. Once completed, we will manage 13 and BREEAM. centres with 35,000 sq m of surface area in Barcelona and Madrid. Colonial has also counted on advice from Liquid, a benchmark company in the field of digital strategic consulting and also signed an agreement with the accelerator Metaprop in New York. These agreements are yet another step in Colonial’s commitment to be at the forefront of the real estate sector and to deepen innovation as an engine for generating value for our shareholders. Interview with the Chairman and CEO 11 How would you gauge the climate of the markets in which Colonial operates? What are the prospects for the company in the coming years? J.J. BRUGERA P. VIÑOLAS The markets in which Colonial operates are reaping the As I explained earlier, 2018 was a year of transformation benefits of robust Spanish and French economies with for Colonial and laid the foundations for solid growth in the strong fundamental figures. coming years. In Spain, GDP is growing at rates of over 2% per year, Among the main milestones, I would like to highlight that which enables vigorous job growth and, consequently, a during these months we managed to generate a pipeline of solid demand for offices. This factor in combination with the projects worth over 1,300 million euros. Once completed shortage of quality offices in the central part of Barcelona and over the next 5 years, the projects will be able to generate Madrid generates rental price hikes. The economic outlook annual rents of approximately 100 million euros. of leading analysts places Spain’s economic growth at approximately 2% in terms of GDP over the next two years. Colonial’s teams are also focused on harness the rent As a result, we trust that the office market in both cities will increases in the markets where we operate and occupying perform well. the Axiare projects completed in 2018. The prospects for the city of Paris are still attractive with a Additionally, we will continue examining the possibility of slew of dynamic elements in the short and medium terms recycling capital through divestment of real estate without such as the “Grand Paris” project, possible positive impacts further value travel and reinvestment in attractive investment of Brexit, an accelerated growth of the economy based on opportunities in the office market.