MERLIN Properties SOCIMI, S.A. (MRL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MERLIN Properties 1H 2020 Results Presentation. [Operator Instructions] Also please be advised that the call is being recorded today, Thursday, the 30th of July 2020. And without any further delay, I would now like to hand over the call to your first speaker today, Ms. Inés Arellano. Thank you. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen, and welcome to MERLIN's First Half 2020 Results Presentation. We hope that all of you and your relatives are safe and sound. Today, the 3 top managers of the company will provide you with an overview of MERLIN's performance and will be available for a Q&A session after the presentation. With no further delay, I pass it to Ismael Clemente, CEO of the company. Thank you.

Thank you, Ines. Good afternoon, everyone. Welcome to the 6 months 2020 Results presentation of MERLIN Properties. Needless to say, the introduction -- the necessary introduction of our speech today is that we have been operating in these first 6 months of the year under very, very challenging operating conditions. The company performance has clearly suffered. The company has been affected mainly in the retail segment, in shopping centers. And in all the other asset classes, we can now proudly say that it's been similar to vision, as usual, for the 6 months to date in the year. Of course, we remain prudent and cautious for the rest of the year and the years to come because we are a service company. And as such, we need a good performance of our clients in order to survive and thrive. But eventually, I mean, we are, at the moment, safe and well prepared for what the future will hold. We are a very resilient company, and that resilience comes from a number of differentiating factors that, in some cases, have been the source of some critics in the past. The first one is the diversification of our business. As you know, we have 4 business lines, of which, one is now ailing, but the other 3 are functioning at almost a full steam. We obtain our income from offices, 51%; more than 30% from logistics, and net leases; and only 18% by value now in retail, with close to 2,000 tenants across all of our asset classes. We also enjoy a very high-quality portfolio that we have been thoroughly refining over the past 3 years. And now, a number of the decisions we took make more sense, including the sale of resi, which in Spain is having, of course, more difficult collection rates; the sale of hotels, which would have been another factor of worry had we still owned our hotel portfolio; the sale of the Juno portfolio in offices, which significantly refined the quality of our office portfolio. We basically said goodbye to around 1/3 of our client relationships. That represented only 4% of our rental income and 11% of our GLA at the time, and transactions like, for example, the contribution of the non-core shopping centers to CBDs last year. Our portfolio now is 91% in offices. These 91 located in prime CBD and new business areas, which are proving very resilient in this COVID environment. Our logistics portfolio is 90% e-commerce related. Again, we have divested over the past years of the most, I would say, industrial flavor type of shares in our portfolio. And shopping centers is focused 96% in urban and dominant malls, which -- for which we have the confidence that in the future they will emerge stronger from the upcoming retail crisis that we see for the coming years. On Page 5, we have made a little reminder of a point of situation regarding what the future might hold for this company in terms of resilience. In infrastructure terms, we have a very significant backlog. We have more than EUR 3 billion of contracted rents to first break and EUR 5 billion till maturity. We only have 15% of rents maturing before end of 2021: 3% this year, second half; 12% in 2021. We have fully booked all the hit of COVID-19 incentives in 2020 with no linearization, EUR 66 million, no change from the latest disclosure we gave to market. With rent collection loss, it will be in the region of EUR 70 million in top line, around EUR 60 million in cash flow. In the most damaged asset class, which is shopping centers, we have secured a minimum of EUR 101 million of rents for 2021 through lease extensions in partnership with our clients. And we only been between 3% and 4% of our tenants in shopping centers now irrecoverable, down from 5%, 6% at the beginning of the pandemic. That was the estimate we gave to you. Of course, this may contain errors because some of the clients may think they are feasible. And 12 months from now, the truth or the reality may demonstrate to them that they are not as feasible as they thought they were. But in principle, when in a Napoleonic legal system, somebody extends a contract for 1.5 years, is making a statement as to his belief in his future feasibility. So clearly, our assets -- our client base has demonstrated their willingness to continue doing business with us over the coming years. In terms of debt profile, we enjoy now a comfortable LTV of around 40%, 3.7x interest coverage ratio. We face no debt repayments till May 2022, have extended our maturity profile to 6.5 years and are BBB stable by S&P. But what is more important, our company enjoys the capacity to generate enough cash flow to serve and repay debt bond at least till 2025, which is a luxury in times like the ones we are living at present. On Page 6, we are going to go down to the concrete data for what has happened to the company in the first half of 2020. Our financial performance has been positive, with a like-for-like rental growth overall in the company of 2.7% year-on-year, evidencing the strength of our portfolio. Our FFO per share of EUR 0.29 has been affected clearly by the COVID-19 incentives in EUR 0.06 and the change of perimeter in EUR 0.02. But otherwise, it will show significant growth when compared to last year same quarter. That was our aim for the year. We were trying to be as flat as possible compared to the previous year despite the asset sales which were taking out around EUR 26 million from the company's top line that our internal ambition was to be as flat as possible through internal growth of rents and cash flow. Of course, all those ambitions have now go to the waste paper, given the new situation under COVID-19. But we will we will cope with it, and eventually, we will emerge stronger. Our valuations are flat versus December '19, with offices and logistics slightly on the positive territory based on rents, and retail down by 4.7%. The debt management exercise that we have been carrying out in the recent past results in a loan-to-value on par with last year and an average maturity extended to 6.5 years with no floating rate risk. In terms of operating performance, very interestingly, we are showing like-for-like growth in all asset categories, combining with a very sound release spread, which, as we have commented with you many times, marks the fact that the situation of the cycle in Spain will have been now caught by the COVID-19 pandemic, that the situation -- the point of situation of the cycle was much healthier than in most competing countries. I mean, you will see what release spread numbers we will be showing in the absence of external hits. The leasing activity has continued at a very good pace even during COVID-19, with more than 150,000 square meters signed in offices just in the second quarter. Of course, this is affected by 55,000 signed in the renewal of the Endesa lease in Campo de las Naciones. But still, 100,000 will be a very good mark for the second quarter. Retail, as could be expected by anyone, has seen a very modest activity with only 6,200 square meters signed, mainly because of deliveries in our flagship plan. I mean we have been finishing some units and delivering to the corresponding pre-lets. Logistics continued advancing with 45,000 square meters signed. And all leases have generally been signed above ERV, including the renewal of Endesa, which has caused a negative release spread in Madrid in the period. Our occupancy remains resilient, standing today where it was at the end of last year, 93.9%. The perspective is reasonable with a very high adoption rate of our covered commercial policy, which, as you all know, included an extension of contracts beyond -- generally January 2022, plus the extension of the Endesa lease in 2030, which further improves our rental backlog. So we have a very significant visibility on future rents. In terms of value creation, which is the source of very interesting valuation, a place for the company in the coming times. In landmark, we have seen -- we have signed very significant leases in Castellana 85 and Monumental in Praca do Duque de Saldanha in Lisbon. Rents have been signed at the same level as pre-COVID. Of course, most of those contracts had started negotiations pre-COVID. But it is at least meaningful to observe that there has been no evidence of any attempt of retrade by clients because the vacancy rate in Central Lisbon and Central Madrid remains at historical minimums, and the real estate market enjoys very significant inertia. I mean, this is something that is important to have in mind because nothing happens very quickly and very harshly in real estate. Both projects are achieving very, very compelling returns of 8.3% and 9.4% in terms of yield on cost above our underwriting because rents have been signed at very healthy levels. In the case of Lisbon, it's a record rent in the city. In the case of Madrid, it is also EUR 35. It's among the best rents signed in the city, which, together with some news we are receiving this week from Barcelona, show a very interesting resilience of rents in those cities. The interesting part of the landmark project is that it is securing additional future rents of EUR 13.3 million commencing in 2021, which will help offset whatever hit we continue feeling in 2021 in our shopping center portfolio, as we all expect. In terms of the flagship plan, the works have progressed more or less on pace, with slight delays, owing mainly to public administration delays in both El Saler in Valencia and Porto Pi in Palma de Mallorca. And in our logistic plans, Best II and III, we have delivered 2 projects in Sevilla, fully let, and have signed pre-lets for Madrid San Fernando II and Zaragoza-Plaza II, which again result in EUR 6.3 million of additional rents commencing in 2021. We are also moving Cabanillas Park extension now to priority 1 because we look closer, fingers crossed, to securing an anchor tenant for the operation of that park and the demand in the NRS corridor continues to be very strong. Without further delay, I pass the floor to my colleague, Miguel Ollero, who will comment on the financial results.

Good afternoon, everybody. We're having the financial results for the first half. First of all, I'd like to highlight that in this first half, in terms of gross rents, we were achieving EUR 257 million of rents, which implies a 2.3% reduction with regards to the prior year. Nevertheless, as was commented before, we have been able to catch up and to recover all the rents that we said goodbye this year as a result of the divestments we put in place. So in the end, it's pretty good outcome to be at such level of rents for the first half of the year. With regards to the net rents, it is what it is. We have been commenting before that as a result of the coronavirus pandemic, we took the bold decision to be part of the solution for the retail component of our portfolio. And we were putting in place 2 policies, one commercial policy during the lockdown that took place in the second quarter of the year. And also a follow-up commercial policy that will be since reopening in June this year until December. As a result of it, we have been accounting EUR 27.8 million of extraordinary incentives on a full expense basis. So we are not linearizing anything. So whatever doesn't come or whatever incentive has been provided to the tenant has been expensed in the balance sheet, in the P&L of the company. That implies that our net rents are close to EUR 200 million, EUR 198.7 million, 13% below last year. All of this flows through to the EBITDA level, that is EUR 184.1 million, with a 72% EBITDA margin for the company. Consequently, the FFO was set at EUR 134.3 million, which implies a EUR 0.29 per share, below what it was last year. But as we were commenting before, only EUR 0.06 were related to the coronavirus commercial policies that were put in place. So in the end, the company has proven even in these uncertain times that we are a cash flow generation company, well above our peers in the market. And we think that this is a characteristic of the company that is proof of our resiliency and also proof that we are very well positioned for whatever comes. Regarding the EPRA NAV of the company, it was EUR 15.68 per share, 3.8% above last year. If we move on to the next page, we have here the performance in terms of gross rents. So we have a like-for-like for the -- of 2.7% all across the portfolio, fairly commanded by office. The office component is bringing 4% of uplift on a like-for-like basis, followed by shopping centers at 2.8%. So despite the current situation, shopping centers continue having a healthy evolution in terms of rent. And net lease is 1.2% and logistics 2.9%. Again, logistics, which is the great winner of the current situation continues to be performing as it has been in the prior year. So as you can see, on top of it, so we were commenting before, we were losing from the last year EUR 12.5 million of rent as a result of the asset sales that we were put in place last year annually this year with the 3 noncore retail assets that we were selling in the month of February. So despite that, as I said, we are in a very good position and we continue improving our rents in the company. We are now moving on into discussing the performance of every single asset class. David Brush, our CIO, will be commenting on them. David?

Thank you, Miguel. So I'll start on Page 11, and as Miguel said, going to the detail of each of the individual categories. Starting with offices, the 4% growth -- like-for-like growth that Miguel mentioned. You can see here again the impact of the noncore sale in 2019, the EUR 8.5 million of rents lost through the sale of those assets. If you look at where it's coming from, all 3 markets produced like-for-like growth. Barcelona and Lisbon continued to be the 2 star performers with their growth of 9.2% and 5.1%, effectively. But again, all 3 markets showing like-for-like growth. In terms of occupancy, in Barcelona, you'll see that the one market that saw a drop in occupancy, that's the result, as we pointed out here, of the termination of the Travelperk lease. Travelperk is a start-up company in the travel space. So as you can imagine, companies suffering significantly. The transaction we agreed with them is to allow them out of their lease early. We will continue to be paid rent through the end of September. That was part of the indemnification, and so we were already in the process of reletting that space. The other thing to comment, I think, in terms of the occupancy is there on the BDBA lease, which we note in the report was a post-closing event. That's 8,000 square -- 8,000 shorted square meters of space that's now let that was not included in these occupancies. And as we talked earlier as well, lease largely is with public administration. The -- while that lease has now been agreed, they will be taking occupancy at a later date. So that's another 8,000 square meters that's not yet included in occupancy, although the lease has been secured. So again, good momentum there, and we've got a pretty meaningful backlog of leases that will ultimately be in production. Moving to Page 12. If you look at the really spread, again, by market, you'll see Barcelona and Lisbon significantly -- a significant release spread. And on -- certainly, in the case of Barcelona, a meaningful number of contracts. What you're seeing here now is, as we've been talking the last few years of growing rents. You're now having leases that were signed 2 to 3 years ago being renewed. And so all of that, that growth in rents that has been occurring in the market is now being incorporated into the portfolio as we renew leases or we have mark-to-market of existing leases. The one point, I think, if you look at Madrid, the 1.9% release spread, we'll cover on the following page. That relates specifically to the extension of Endesa. So if you turn to Page 13, I will cover that. So leasing activity, as you can see, meaningful new contracts signed and a significant amount of contracts renewed. So as Ismael pointed out initially, significant activity even in the period of time where we're far from normal and really spread, again, very, very meaningful. Endesa. The specifics of Endesa, that's a conversation we actually started pre-COVID. Because it's such a significant amount of space, they renewed their corporate planning, even though the lease did not mature for another 2.5 years, starting the conversation early. And obviously, for us, in the post-COVID world, getting 7 years extension for a significant amount of rent was something we felt was for prudence. As we mentioned earlier, about wanting to really secure a significant amount of income going forward. We felt like in a post-COVID world, the value of that extension was significant. And so in the end of the day, we felt the trade-off of a rent reduction in exchange for 7 years of term -- especially considering we knew that building was marginally over-rented and so we knew there was going to be a degree of reduction, that 7 years of additional term was -- we thought was very important to secure the income stream further. Moving to shopping centers. We -- again, not anything significant, performance quite good. A 2.8% like-for-like growth. Again, you see the impact of the sales that were from the first quarter of this year. And then when you look at footfall, just to remind people, because as you look at these footfall numbers, and we'll talk about some footfall numbers later, latest 12 months through Q1, our footfall was positive 2.4% and sales were 5.1%. So going into COVID, the market was performing quite well. And both of those numbers were, in fact, accelerating each LTM. We were seeing an increase in the footfall on sales. So what you're seeing is obviously the COVID impact. The LTM footfall dropping by 20% and the tenant sales dropping by 18.2% when you include the first 2 quarters of this year, and that's all the impact, obviously, of the centers being closed completely effectively for April and May and only starting to reopen in June. So -- and we have -- we'll update on that a little bit later on, you could see. Release spreads. Moving to Page 16, release spread of 4%. It's over 100 contracts. So again, that's a good underlying growth in the rents that we're able to achieve on new tenants or on renewals of existing tenants. Occupancy holding constant at 94.1%. Given that we -- as part of the commercial policy, that's been accepted by 92% of our tenants, with all of those leases being extended into 2022, we're pretty confident that occupancy number should hold quite well. And again, that was a strategic decision about extending contracts and securing an income stream, in this case, in exchange for the release that were given during the COVID period, both period of closure and as they ramp up, the incentives declined evenly over from June to the end of the year. We felt like that trade-off in exchange for longer maturity was a good one. If you look at evolution, we decided to look at footfall -- at least our footfall, because sales, we only have really 1 month of data. But to do it as evolution because I think it's important how things are changing. So in the first period of opening, because most of the openings -- there was nothing open until that first period of June. You can see the evolution footfall that it started off at 41%. And we excluded Porto Pi and Saler because those are basically construction sites, and so you would expect the footfall and sales to be impacted like it has been in our other projects. So if you look at the ex Porto Pi and Saler starting up at 41% and then steadily dropping to where in the last -- the most recent period, the middle of July, 29%. So people are coming back slowly to shopping centers, and the direction of that movement so far has been positive. On the other side, you see with sales for June that the evolution of sales is less impacted than footfall, which, again, is normal because those people who are going are going to buy, and there's some pent-up demand. So the impact on sales has been less significant than the impact on footfall. If you move now finally to logistics, always been a relatively steady performer. That has not changed, so 2.9% like-for-like growth. The EUR 1.9 million of rents through disposals. As Ismael said earlier, we took the opportunity in a very hot market to sell those assets that we felt were not really logistics assets but had more industrial component and includes the quality. And again, if you look at the like-for-like, I'll talk about Barcelona in a second, but very strong like-for-like in both Madrid and in the regions outside that of Madrid or Barcelona. If you look at Barcelona, that was really the effect of one major tenant that left in Q1. We obviously reported that. That was 16,750 square meters that went out. We re-let 4,170 of that in Q2, so that's why you see the occupancy go from 85.4% up to 88.7%. And we've -- post period, we signed another 4,000 square meters, and there's about 8,000 square meters that we're in advanced discussions on. So I'm not worried about that being a trend. It was just a -- when you have a significant lease single tenant, it takes time to relet that space. But in aggregate, I'm very, very confident on the movement of that. And again, if you go to the following Page 20, you can see that the release spread, again, is very healthy across markets. Barcelona, again, being the most significant space are getting just a very tight market and what is also growing. There's good tailwind behind this business and so that's pushing rents up in the aggregate, 6.7%. This also does not include the contracted rents for projects that will be coming into the portfolio, that'd be the Best II and III. And as Ismael said earlier, that's another EUR 6.3 million of rent on those contracts that have been executed that will be -- that has been delivered this year, and therefore, start producing rents in a meaningful way in 2021. In the last page, just gives you the overview of the ZAL Port, which we always do. Again, significant amount of stock delivered in 2020, 155,000 square meters build-to-suit for UPS, for Damm, for LIDL, Caprabo and Agility, mainly delivered in the second quarter. And so those will again generate meaningful uplift in rents in the years to come. One thing to point out, because if you look at the FFO, it looks unusual. The FFO is down when rents and everything else are up. That's really the impact of the fact that you start paying in the line tenant and you're paying the interest expense once you start construction. So we have the cost of the interest expense, but the rents have not yet been recorded because as I said, most of these were delivered in May. So once you start to get the rents, there's a mismatch between the costs you have to pay and the rest you're going to receive. Once those rents start coming in, then you'll see that obviously reverse itself. With that, I'm going to turn it back to Miguel to talk about valuation and debt.

Thank you, David. In terms of valuation, as we were commenting at every beginning, our evaluation for the first half of the year is quite flat, 0.2% only, up. This is commanded by the fact that in office, we have had on a 2% basis, with an adjustment down at 4.7% on shopping centers and 2% up in office space. In terms of net leases, we were flat, 0% evolution. So in the end, the company, in terms of GAV valuation is, in the office business, they are already capturing first -- the fact that we are capturing higher rents. I mean at any renewal, our booking base has been growing so far. And on top of it, we have different landmark projects, which are now in a final phase. We have been able to secure, as we were commenting before, in Castellana 85 full occupancy on a pre-let basis at very high -- at top rent in the market, in the Madrid market. Also the fact that in the Monumental building, refurbishment in this one we have in order to secure BPI as main tenant for the last leased portion of the building in a transaction that is at top rent also in that special Lisbon market is proving that. It has some reflection also on valuation of the assets in offices. The lease space continued evolving in the right direction, mainly because we are bringing new products into production, as we have been commenting, and will follow on in the following quarters due to the pipeline we have in place. So on this basis, we have the expansion of 5 bps in shopping centers and 1 bps in leasing and logistics compression. Moving now to the debt profile of the company. We have been also acting on this front, mainly right after the end of the first half of the year. So in July, we put in place a liability management action within the company that implied the issue of EUR 500 million second year maturity bond, was raised to put in place in liability management. As a result of this issue, we have been reducing EUR 250 million on the 2 bonds approaching maturity in 2022, 2023, which is advancing and expanding our maturity profile of the company in terms of debt. And at the same time, we are devoting another portion of those proceeds to pay back in full 2 mortgage loans we have in place which are maturing in 2025. So in the end, we are expanding the maturity profile of the company while reducing the first financing milestones we have ahead. In relation to that, we decided to fully repay back the RCF of EUR 700 million that we withdrawn at the very beginning at the time -- in the month of March, when the pandemic came into place as a measure of conservative approach into the situation, given the uncertainty. By now, we have already paid it back. So it just stays now fully available if needed in the future. So as a consequence of that, we have right now a company with 40.4% loan-to-value, well in line with the loan-to-value we had at the end of last year. But the company was in expanding the maturity profile from CGAR on average to 6.5%, which actually I was commenting before. Also on fixed rate, we have almost 100% of all the debt on a fixed-rate basis. So we don't have all our issues with interest rate hike. Although, so far, we can say that with the current monetary policy in place, this is not the case. But it's important to have covered these and potential risks for the future. So again, a lot of actions on the line to sight that have been helping also the company to be set for any problem in the future. Finally, on Page 27, we have here the covenants attached to our debt position. So we are -- we have a lot of room of maneuver and lot of headroom with regards to the different covenants on loan-to-value, ICR and encumbered assets. So all in all, the balance sheet is well set. For sure, we will continue improving, taking advantage of the financial system as well. Now I pass the word to David -- or to Ismael, sorry. I will ask -- Ismael is going to be covering the value creation section that is coming out here.

Thank you, Miguel. In terms of value creation, the period has been marked on the landmark plan by the advance in the works of Castellana 85. We are fully refurbishing the asset which is located in Azca, which is the best business area in Madrid Prime CBD. At the same time, we are advancing on our public-to-private partnership with the municipality of Madrid, together with the main owners in the area, which should result in the possibility to refurbish and, in the future, take care of the maintenance and security of the whole area by the owners who have the biggest percentages of ownership on it in the region of 85%, the top 10 owners of the area. It's a big building. We have signed close to 13,000 square meters post-COVID. Plus, we have an option for another 1,842 square meters. Castellana 85 will become the headquarters of both companies, one of them being a top-tier international consulting firm, and the other a Spanish construction and engineering company. The delivery is set for the beginning of 2021, and the yield on cost is quite meaningful at 8.3%. This building will clearly be an engine of value for the company in the next year. In Lisbon, in Monumental, we are also completing the full refurbishment of the building which is located in best in best, in Duque de Saldana, with Fontes Pereira de Melo, one of the most emblematic squares in the city, in the core of Lisbon's CBD. And during COVID, we signed a 10-year lease agreement with BPI, the leading Portuguese bank, comprising close to 20,000 square meters of the building to become their headquarter in Lisbon, where they will be gathering the people they have in 6 scattered buildings across the city. Again, a very significant construction yard. We have to also thank the construction company, [ Solmaje, ] because they have endured during COVID with a number of positives recorded in this construction yard. But they have continued performing, and the building is running on track in terms of delivery date. We expected for the beginning of 2021 and will mean an additional significant rent for the landmark program with a yield on cost of 9.4%. On Page 30, you have renders of the works we are developing in El Saler, which will lead to the consolidation of this center, which is located in a unique location in the new area of the city, what is called in Valencia, the City of Arts and Sciences, right next to the Port of Valencia. We will convert this in the leading urban mall in Valencia. All anchors are now upsizing and upscaling the units. And the center will be now much more open with a very significant roof space, which in Valencia, will help and will have helped a lot, particularly had it being opened during the COVID period, but it's not been the case disgracefully. Yield on cost is much humbler, 5.2%, simply because there is an offensive component into this CapEx, but there's also a defensive component into it. In Porto Pi, which is right in front of the cruise terminal of the Port of Palma de Mallorca, which these days probably is not involved, talking about cruises. But clearly, the Port of Palma Mallorca is one of the main hubs in the Mediterranean, if not the biggest, in terms of cruise traffic. So we are now proceeding to a full refurbishment of the shopping center, again, converting it into a much more open shopping center with lots of terraces overlooking the sea. We have bought space and all future additional space is now fully let in this shopping center as it is in El Saler. The yield on cost is 4.2% because the acquisition of some of the additional units was really expensive, but we wanted to keep as much control of our destiny as possible in terms of the operation post refurbishment of the shopping center. In Page 31, you have renders and pictures of the construction activity in logistics. San Fernando II will be delivered in September, say thereof, is 2/3 let to the beer-maker, Grupo Damm in Spain, with a yield on cost of 8.9%. Zaragoza-Plaza II is fully let to DSV with a yield on cost of 7.1%. And in Sevilla ZAL, we have already delivered 3 warehouses totaling 27,000 square meters, which have been let to Amazon, Carbo Collbatalle, which is a cold storage, and Cuatrogasa with a yield on cost of 8.4%. And activity will continue in the first quarter of next year with the delivery of the national hub -- logistic hub of Carrefour, [indiscernible]. On Page 33, we wanted to inform of our commercial policy in shopping centers, which is the most visible hit we have suffered during the COVID pandemic. The phase 1 of the commercial policy was enacted on March 15. So we were really early to react and pioneering the market as in many other occasions. And we decided to basically forgive the rent to all tenants affected by compulsory shutdown. In the ground floor of our offices, which is -- was a relatively small eligible universe, 100% accepted in shopping centers. From the eligible universe, which was only the people compulsory obliged to close, which was 89% of our population, more than 85% accepted. Some other were still expecting to get a better treatment from the law, and they didn't get it. And as such, you will see a much higher acceptance rate in policy 2. Policy 2 was put in place to help not only the tenants affected by the compulsory shutdown, but also the ones in which we have observed a severe operational limitation during the pandemic. So we granted partial rent release, starting at 60% in the month of June, going to 50% July and August and then diminishing till 0% on the 31st of December, with a specific policy for food and beverage retailers, which normally operates with higher OCRs. In offices, the eligible universe was 4%, with 93% embracing the policy. And in shopping centers, the eligible universe went up to 94%, with more than 92% embracing the policy. In terms of collection rates, in offices, for the office component, there was 0% applicability. We have collected 99.2% of our rents in the quarter with 0.8% that remain uncollected. In shopping centers, 59.7% was affected by the commercial policies, therefore, waived. 37.7% have been collected, including all common expenses, and 2.6% remain uncollected, which is a remarkable achievement of our shopping center team. In net leases, of course, no commercial policy applicable, 100% collected. In logistics, no commercial policy applicable, 96.4% collected, 2.7% in process, mainly public administrations, Catalonia and Barcelona; and 0.9%, which remains uncollected. In Page 35, we repeat what we expect to be the impact for 2020 of the COVID-19 pandemic in our accounts. We expect to record EUR 66 million of incentives and half in mind in the region of EUR 4 million of collection loss. About EUR 29 million have already been booked in the first half, and EUR 41 million is expected for the second half. That will result in around EUR 250 million of cash flow, which will result in EUR 0.53 per share. I know many of you will call this conservative, but probably it's better to be safe than sorry. The 2021 impact, which again is -- has been the object of many questions by all analysts and investors, we believe will be significantly mitigated by a very low level of maturities in the year and the delivery of the buildings from the landmark, flagship and Best II and III plans, which will result in some additional rental stream, which will help offset the loss of rent deriving from further affection of our activity by COVID in the coming year. Only 12% of our rents mature in 2021. The incentives have been expensed in 2020. We haven't straight-lined them and, therefore, there is no impact in '21 or in '22, '23 or '24. So we are taking the hit. We are biting the bullet in 2020. As commented, we expect EUR 20 million of extra income to enter into operation next year. The retail occupancy is supported by our commercial policy. At the very least -- even assuming that some of our tenants might be wrong in their possibility to survive, at the very least, this will help our asset managers because it will give them the possibility to focus in 2021 in the re-tenanting of vacant units while retaking their normal activity from 2022 onwards, including renewals. But at least, they will not be looking at renewals and re-tenanting in 2021. They will be just focused on their re-tenanting of irrecoverable clients. In offices, we have said many times that as any other company in an upcycle, we were lagging behind the cycle. So our reversionary potential today, after having renewed Endesa, which was negatively affecting the reversionary potential that now has been adjusted, is 13%. So we are lagging the market ERV by 13%. So this will act as a buffer, if the market turns down, as many of you are expecting, we will see. Our net leases will continue playing the role of safe harbor. I mean, they clearly help us to serve our debt and to stabilize cash flow profile of the company. And the logistics will continue to grow, and we will try to accelerate their incidence in the numbers of the company as a future vector for growth because we know part of the future of the company lies in the logistics activity. On Page 37, as closing remarks, just to say that the financial performance has been heavily hit by the COVID impact, with lower net rents by about EUR 70 million and lower FFO of about EUR 60 million, approximately. The FFO guidance for 2020 is now EUR 250 million, EUR 0.53 per share. These are all approximate magnitudes. And very importantly, I will stress that this is ceteris paribus. I mean, all things being equal. Of course, if we start having new outbreaks of COVID in September, October, November, December, we will need to recalculate completely the whole thing. But in principle, if we can dance with the pandemic -- having already hammered it, if we can now dance with the pandemic as an epidemiologist phase, this is the numbers that we expect to show you by end of the year. The valuations have remained flat in the first half, and we don't expect very significant hit also for year-end. We expect some further impact in shopping centers, eventually, depending on where the situation -- of how the situation evolves. But we don't expect significant hit in logistics and offices because we are generating more and more rents through the market situation at present. If it varies in the future, no one knows. We have a strong balance sheet with EUR 1.2 billion of liquidity, no maturities till 2022, and very safe headroom with covenants. And what is important, the capacity to generate enough cash flow to serve debt, including the bond maturities through very late in the cycle. In terms of business performance, it is true that the leasing activity post COVID is revealing much higher retention rates with clients because simply people doesn't want to bother to do moving in the middle of the pandemic, with new deals signed above ERV and renewals with positive release spread. Occupancy is on par with financial year 2019 and set up for a resilient performance in the future because only 15% of tenants have expiries between the second half and all 2021. Collection rates, even in the hardest part of the crisis, have maintained very healthy levels, which marks or simply reflects the quality of our tenant base, which has been also significantly refined over the past years. And in terms of value creation, landmark is evolving very satisfactorily with leases signed in Castellana 85 and Monumental with very healthy yield on costs and secured rents of EUR 13.3 million entering into operation next year. In flagship, works are advancing very well in El Saler and Larios, with leasing activity clearly growing on the back of the reforms. And in Best II and III, 2 warehouses have been delivered in Sevilla. Leases in Madrid, San Fernando II and Zaragoza, plus 2 have been signed, which means rent of EUR 6.3 million starting next year, where the first quarter will also be marked by the delivery of the national logistics hub of Carrefour expected for February. In Cabanillas Park II, the extension of our successful Cabanillas Park I, we have moved now the project to priority 1 because we are closer to securing a big logistic operator as a launching client for the park. And that's basically all. And we are already now for your questions at your disposal.

Operator, please, could you open the line for Q&A? Thank you.

[Operator Instructions] So our first question is from the line of Pedro Albesh (sic) [ Pedro Alves ].

Three questions, please. The first one on your portfolio valuation. Can you share with us what was the like-for-like revaluation inside the project pipeline and the like-for-like of the portfolio already in operation, if this is meaningful, the difference? And the second one, on your lease maturities. I guess you mentioned 15% of rents expiring until 2021. And I guess this excludes the shopping centers portfolio. Out of this 15%, how much is related to secondary offices? And thirdly, on your strategy for the crisis period, the latest state in Spain shows naturally rising unemployment. So what kind of contingency plan do you have for an extended period of low job creation or even job destruction? Would you try to be more aggressive on pricing to have a minimum level of occupancy or start offering more flexible leases conditions? Just some color on that would be helpful.

The first thing, the 15%, 3% plus 12%, includes shopping centers because as you know, at the expense of a very significant loss, we have extended all contracts to 2022 and beyond. So in principle, it includes everything in -- under operation in the company. Logistics offices, of course, net leases, which there's nothing, and shopping centers. And as to your last question, what will we do? Freight simply. I mean what do you want me to say? And of course, any indication of whether we are going to maximize yield by occupancy or by rent will be information that we don't want to share with the market because we would have our policies, and we want to keep our cards with us. It will depend very much on the type of client. And on the freight, we have on their survival and the capacity to stay within our portfolio for the coming years. This will mark what we will do. But in principle, we haven't created any contingency plan based on the somber panorama that we are facing for next year because we have the confidence that the different asset managers of the company are well trained to react depending on the situation and to inform upwards of why they are doing what they are doing.

Yes. Let me just amplify on the question of flexibility. As you all know, we started first through acquisition and now investment through acquisition. We now have internally the LOOM brand, which allows us to have the ability to provide flexibility to the extent that that's what tenants want. And so we're prepared for that because if the market does look for more flexibility, we're prepared for that. Second thing I think we've prepared for is if the idea of this diffused workforce, you hear a lot about the diffused workforce, that's not going to be CBD only, but people are going to have multiple opportunities where people can work closer to home. I wouldn't say at home but closer to home. So we have a portfolio that we think allows us to accommodate that as well. And the last point a little bit on what Ismael said, we are responsive to the market. That's so if -- right now, we've seen the market has not been that effective. But it's early. I think the true effects of COVID will come after the fiscal stimulus wears of. It will come when the economy is then to pick up more stimulus that has come into play. And we will react to the market and be flexible in doing so. So we think we've created a portfolio that allows us to accommodate that. We've created the ability internally to meet flexibility demand. That's what tenants want. And so we'll be focused on making sure we're generating as much cash flow out of the portfolio as possible. And the last thing I'll say is we've already -- if you think about how we respond, we've already started to do that. These decisions to extend maturity, both in the Endesa portfolio and the retail portfolio, was to make sure we had more resilience to the extent the situation deteriorates. So with only 12% of our portfolio coming up against maturities within the next 18 months or to reach 15% for the next 18 months, we don't have to deal meaningfully with a lot of these rollovers. So we've taken a view that extending the wallet and making sure we don't have a lot of near-term maturities was part of that strategy. And the same thing with Miguel in the finance side. We took the decision to extend maturities earlier this year as a way of being sure that we don't have -- we have a minimal amount of capital market exposure as well. So creating this resiliency in the portfolio is the way we've reacted now. And if the situation changes, then we'll react to the -- in response to the market if that's what presents itself.

Okay. Our next question is from the line of Celine Huynh.

And there's a 13% revisionary potential in offices. But if I look at Slide 13, the re-lease spread has been minus 7.5% in Q2. So first of all, how do you reconcile the 2 numbers? And then secondly, do you think that we are likely to see more rent negotiation like the Endesa deal going forward? And my second question would be, what is the percentage of the portfolio to renew in 2022, please?

Well, the answer on the first question, Celine, I think, is why we tried to say if you took -- the investment lease is what's driving that negative re-lease spread. So if you take the investment lease out, the LTM re-lease spread would have been 13.2%. And the re-lease spread for the quarter in Madrid would have been 17.2%. So that individual negotiation had all of the impact. So the underlying in the broader portfolio was actually quite -- was quite strong, in fact, continue that same progression. As we've been reporting re-lease spreads each quarter to all of you, you've seen that in each quarter, the re-lease spread has actually been increasing. So even in this quarter, it would -- if you take out that strategic decision we took about the Endesa lease. So I don't think the numbers -- when you look at them, really, they show underlying strength. As to your second question, we have pretty good visibility between now and the end of the year, which is why we felt like a lot of companies are not giving guidance. We felt like we can give guidance on the FFO because we're 6 months through the year. We've already agreed the commercial policy with the retail tenants. They signed on to it. So we're pretty sure we know what's going happen on the retail side. Logistics and net lease are like money in the bank. So the only question really then about future income or future FFO comes from offices. And again, given we only have a small amount of renewals in Q3 and Q4, that gave us the confidence to be able to say, "Okay. Let's put a number. We'll be brave. We'll put a guidance in the market of FFO this year because we're pretty confident in that number." As to 2021, it's like I said earlier, I don't think anybody has visibility on 2021 because it is so dependent upon what happens with the economy, and the economy is, frankly, dependent upon what happens with the virus. So now not only do we have to be real estate managers, but we have to be epidemiologists as well. And I didn't study epidemiology at all in college. So I know nothing about it. But how that virus impacts the recovery, the early numbers have been pretty good. The recovery through July, when you look at different markets around the world, the market was recovering as people expected it to do and, in some cases, even better. The last 3 weeks, with all of these -- in the U.S., you've got California, Florida, Texas and Arizona showing increases. That's had an impact on the U.S. economy. You've got Hong Kong. You've got India. So people have the view about what's going to happen now going forward is much, much murkier. So anything about what might happen in 2021 that I told you would be purely speculative. So we can give guidance on what we have visibility on, which is the end of 2020. And I think what's going to happen in 2021, we'll have to take a look at when we give guidance at the end of the fourth quarter. The positive, I will say, though, is, as Ismael pointed out earlier, we already know that we've signed leases that will be in place in 2021 that were not in place today, that will be 20 million more in rent. So whatever happens in the rest of the portfolio, we know that we're going to have 20 million more in rents coming in, in 2021. So if there is deterioration in the rest of the portfolio because of the economic performance, that's a good buffer to -- against that deterioration.

Just making sure, what is the percentage of rents to renew in 2022? What is the number?

I'm going to have to ask Inés to get back to you on that because that's not a number I have on the top of my head. But we will give those...

I'll come back to you.

The next question is from the line of Alvaro Soriano.