The group, whose portfolio comprises office buildings located in Spain and in Paris, swung into the red from a year-ago profit of 355 million euros.

It reaffirmed its full-year guidance projected in February, expecting earnings per share of between 0.28 and 0.30 euros.

Real estate investment companies such as Colonial and its peer Merlin Properties focus on the rental of their property assets.

But they have to include in their results the impact of an updated valuation of their properties every six months.

Central banks' monetary policy tightening has put the real estate sector under pressure since the second half of last year, slowing down investments in properties.

With government bonds offering higher yields due to high interest rates, investors are demanding higher returns on real estate assets, driving down their values.

Colonial's portfolio lost 3% of its value in the first half of the year, ending at 12.21 billion euros.

"This adjustment process (of asset valuations) is advancing according to our forecasts, but it is not finished yet," Colonial CEO Pere Viñolas told reporters in a conference call.

Still, Colonial reported a strong operating performance over the period, with rental net income growing 13% on a like-for-like basis and recurring net profit rising 14% as lease contracts were adjusted upwards due to high inflation.

Occupancy was at 97% on average, with Paris' properties at full occupancy.

Net debt fell to 5.04 billion euros at the end of June after Colonial carried out a divestment plan of around 500 million euros, and Viñolas said "there may be more" divestment in the second half.

Colonial shares are down 2.7% year-to-date.

($1 = 0.9095 euros)

(Reporting by Matteo Allievi, editing by Andrey Khalip and Jane Merriman)

By Matteo Allievi