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

Ladies and gentlemen, thank you for standing by, and welcome to the MERLIN 2020 Results Presentation. [Operator Instructions] I must advise you that this conference is being recorded today. And I would now like to turn the conference over to your speaker, Inés Arellano. Please go ahead.

Thank you. Dear ladies and gentlemen, welcome, and thank you for joining MERLIN's 2020 Results Presentation. First of all, we would like to highlight the importance of abiding by the disclaimer contained in the documents. Today, Ismael, Miguel and David will take you through the presentation, and we will thereafter open the line for Q&A. So with no further delay, I hand this over to Ismael. Thank you.

Thank you, Inés. Welcome to MERLIN's 2020 Full Year Results Presentation. As you all know, 2020 has been a quite challenging year. So the first thing I have to do is expressly thank the staff and the management team of MERLIN for their determination and performance against a quite complicated market backdrop. What happened in 2020? On Page 4 of the presentation, you have a quick snapshot of what has happened. Basically, in offices, we have lost 1.7 points of occupancy. It can be split as: around 40% state reductions; 15% one client that has moved to its own building in an industrial park; 10% voluntary cancellations of contracts because we needed them for the [ temporaries ] of other clients; 25% regrettable insolvencies or distressed situations; 5% lack of agreement on rental prices. In terms of lease activity, leaving aside the renewals, with which have scored 83% of the total negotiations, we have signed 44,000 square meters in the year, minus 45% as compared to last, but representing around 6.5% market share in both Spain and Portugal. The rents have grown 2.2% like-for-like despite the occupancy drop, mainly as a consequence of positive release spread of 3%, which is, as you can imagine, not a consequence of a strong market growth, but rather is attributable to the fact that we are trailing far behind estimated rental values. I mean as in many other commercial estate companies, we were trailing behind market rents during the upcycle. And as a consequence, many of the contracts we renewed, we increased the rent simply because it's far from market. The delta between us and market has shrunk from 13% in 19 to 12% in 2020, but it still provides a very interesting cushion in case the market continues to deteriorate. In logistics, while delivering the new products to the market, including Zal Port of 237,000 square meters, we have been able to more or less maintain the occupancy, 97.5%, which is very close to full occupancy. And we have transacted 137,000 square meters, minus 11% only year-on-year compared to '19 and representing around 9% of all the total square meterage transacted in Spain and Portugal. Rents have gone up 1.8% like-for-like, mainly owing to a 6% release spread. In this case, there is market growth. In shopping centers, we have reshifted relatively well in terms of occupancy, slightly increasing. But this is also because of the sale of the Mercury portfolio, and without that effect, it would have been flat. And have transacted 20,000 square meters during the year, which is not bad, minus 47% year-on-year, but certainly showing that there continues to be some activity in the shopping center market despite what people is writing and saying in conversations. In terms of rents, we recorded a minus 1.2% like-for-like growth, owing mainly to a 4.1% release spread that comes mainly from contractual step-ups. So it's not that this market has shown any signs of growth in 2020. There are not a lot of data available because, as you know, this market is now completely out of session. So it's now -- even it's complicated even for us to obtain reliable data from the major subsidiary [ agent valacao ], and we need to rely only on the Association Espanola, the Centros Comerciales, in order to obtain reliable data for activity in shopping centers. Net leases have proved once again to be a safe haven for the company, keeping relatively flat the occupancy, and increasing rents 1.2% like-for-like, mainly on CPI indexation. Overall, in the portfolio, we have lost 57 basis points of total occupancy, so less than 0.6%, which is a quite remarkable performance and a testimony of the resilience of our company, which is more solid than many people might think. In terms of gross rents, the drop in the year has been 4% to around EUR 503 million. Of course, after incentives, which is where we have taken the biggest hit owing to the shopping centers, the retail commercial policy that we have adopted, it's only EUR 441 million and the drop as compared to last year is 13.8%. Similarly, in EBITDA, EUR 365 million, the drop is EUR 14.1 million. And FFO, of course, the operating leverage played its role and it is EUR 262.4 million, representing a 16.8% drop compared to 2019. Net tangible assets, up 0.5% and LTV stable at 39.9%, including transfer costs. With the old method, 41.1%, which is also a very interesting milestone achieved during the year because most external observers were expecting a sudden drop in the valuations of our portfolio. Moving on to Page 5. This is simply, anecdotically, the drop in rents of shopping centers meant that logistics have now overtaken retail as a revenue contributor in the company. We think this is temporary, but it also reflects what the future trends in this company will be. So it's temporary for now, but it might not be temporary in 2 year's time because certainly, logistics at the pace where developing and delivering products may easily overtake shopping centers as a revenue contributor in the company, particularly if there is a new normal and good equilibrium in rent in the shopping center industry. We expect to continue the trend. We have close to 100,000 square meters in pretty advanced negotiations in terms of obtaining prelets in this year in 2021, which will represent additional rent for the future. We are significantly approaching our target composition of rental income in the company. But as you know, it's 50 offices, 20 logistics, 15 and 15 net leases and shopping centers. And we are very, very close to reaching that composition of income when attributing proportionally our cash flow obtaining in Zal Port in presale in Barcelona. On Pages 6 and 7, what we wanted to simply convey to you is that the company has not stopped. The crisis did not mean any sort of paralyzation of our activities. So we have continued working on the different initiatives that we have underway in the company with the idea basically to, through sustainability and technology, better serve the people in our portfolio. As you commented many times with you, we are now starting to look through our tenants and try to take care of the ultimate people that work for our tenants, which are the end users, the clients of our portfolio. David Brush will go deeper and expand into the initiatives in terms of sustainability and technology, which are simply -- simplified in Page 6 and 7. On Page 9, you can see how different magnitudes of 2020 compared to 2019. So I'll pass the word to Miguel Ollero, who will now give you an idea of how the different financial analyses looked in the year and how they compare with past years.

Thank you, Ismael. Good afternoon, everybody. I'm going to go to the numbers which are effective, in the end, what Ismael has been highlighted at the very beginning of the conversation, that has been the big impact that the coronavirus crisis have been taken in our portfolio. So as a starting point, on gross rent basis, we reached EUR 503 million of rents, which compares to EUR 526 million coming from 2019. The main reason behind this, as Ismael was commenting, regarding going through asset sales, who were commanding close to EUR 300 million of sales in -- back in 2019, and we have been also been achieving the EUR 200 million mark of asset sales during 2020. That means that we were starting the year with minus EUR 26 million of rents. That is the main driver of the difference between 2020 and 2019. In between, you have the like-for-like evolution that Ismael already had mentioned before. That was overall achieved 0.4% like-for-like evolution of the rents, split between office registration and [indiscernible] shopping centers. Second, we go to the gross rents after incentives. We are at EUR 441 million, which compares to 551 -- EUR 511 million last year. Here again is where the company is already taking its extent, in the sense that although the incentives were well bit in line with the prior year, EUR 15 million versus EUR 14 million, but in the end, we have EUR 46.7 million of additional incentives which are linked to our commercial policies that we were putting in place, especially for the [indiscernible] activity of the portfolio. So this is in the end the main driver of the big drop in the margins that we have been experiencing during 2020. So and the level of net rents, we have minus EUR 70 million. In the end, EUR 394 million against EUR 463 million. But on [indiscernible] basis, we were able to reduce this impact to EUR 60 million, EUR 365 million versus EUR 425 million. This is also driven by the fact that the management compensation was dropped down to 0 and has been able to compensate at the EBIT impact and the performance basis of the portfolio. So in the end, at [indiscernible] basis we were reaching EUR 262 million. Our guidance by mid-year, reaching significant EUR 0.56 per share, which means a reduction with regards to the prior year of EUR 0.11 per share, which are mainly driven by the coronavirus impact in the accounts. Finally, with regards to the net profit, [indiscernible] we have EUR 56 million of net income, which compares with EUR 563 million prior year. This is mainly driven by the differential in valuation in our asset base. So this year, we have been reporting EUR 400 million impact on valuation, where prior year was EUR 357 million positive. So as you can see, if you sum up the impact of the coronavirus plus valuation, it is the one that is fixing the difference between one year and the other. And finally, on the EPRA NTA, we are reporting it is quite flat. It is 0.5% up with regards to the prior year. I'm not going to retouch the dates on Page 10 on year-end because Ismael already covered with regard to like-for-like of rent and with regards to the occupancy [indiscernible] classes. So I will hand back to Ismael for a further and detailed analysis as happen in every single division in the company.

Thank you, Miguel. On Page 13, we discussed basically offices. You will see the reconciliation of the bridge between what we have done in 2019 and what we have done in 2020. Notable to see the effect of the June disposal that represented the sale of around 4% of our rents in offices, but 11% of our area and more than 30% of our clients. That was clearly an unfortunate sale because most of the clients were SMEs and will have given us a headache during -- comparable to the year like 2020. Occupancy has remained -- has not been stable. We have lost occupancy in Madrid and Barcelona. In Madrid, it's been basically piecemeal. In Barcelona, has been mainly the effect of the exit of a virtual trade travel agency that was in distressed situation with whom we made voluntary agreement to make sure they let their space before getting into what we call in Spain, capital [indiscernible], what would see in the U.S. would be Chapter 11. The like-for-like growth by area has been reasonable. I mean in Madrid, plus 1.3%; in Barcelona, plus 5.4%; and in Lisbon, plus 3.9%. But in terms of release spread on Page 14, the average release spread has been 3%. Madrid jumps to the high because it's a negative figure, minus 1.4%, but has been mainly the effect of a decision we took, which was the extension of the Endesa contract from 2022 to 2030, was coming from a sale and leaseback started in 2002, and the contract were completely out of market. So we waived the delta, the differential in rents for 2 years in exchange for 8 years more of contract. And as a consequence, we registered a 16% hit in terms of rent. So the release spread shows negative with that. But if you were to exclude that effect, it would have been a healthy 9.1%, which, as I say, is not a consequence of market growth. It's a consequence of the fact that we were significantly behind market in terms of passing rent versus ERV, both in Madrid, Barcelona and in Lisbon, as you can see also in the corresponding release spread of those 2 cities. If you move to Page 15, that addresses the question that we have been recurrently receiving during the year. So what happened after the COVID or the pandemic eruption in the month of March? Well, I may say that our fears were probably similar to yours, but as the time went by, we have to recognize that the market activity has more or less maintained. So we have had a healthy activity with more than 80,000 square meters of new contracts signed at a premium of 7.3% to in 2019 ERV. This is mainly owing to the premium quality of the buildings in those new contracts. I mean probably, for the generality of the market of the portfolio, that would have been impossible. But in the case of the buildings we contracted during the year, it was possible. We have renewed close to 143,000 contracts. Renewal rate has been 83%, especially high in a year like this because we average between 78% and 82%. This year has been high because in times of convolution, people normally is less prone to making changes. And we have obtained a lease spread post-COVID of 0.9%, which is not bad. That is more brilliant if you take out the effect of the investment renewal because it would have been close to 13% on a full portfolio basis, including Madrid, Barcelona and Lisbon. On Page 16, we simply want to express like 4 reminders of what is the current situation and why our portfolio has behaved in such a resilient way. The first one is we enjoy a very strong kind of growth in offices, but also in logistics and shopping centers. But in what refers to offices, 95% of our clients now, after the general disposal, are large corporates after S&P definition. Less than 8% of our clients are in vulnerable industries against as per S&P definition. And 70% of them are using our offices either at headquarters or main [ rep ] office Spain or Portugal. So we enjoy a very, very strong and very, very resilient by nature kind of base. We also have ratably phased maturity schedule in our portfolio. So in 2021, we only have 15% of our office contracts expiring. And as commented, we enjoy a 12% reversionary potential against ERV as a buffer against potential market declines if the situation doesn't improve in terms of vaccination or herd immunity after the summer. We have a very strong tenant diversification. Our top 10 clients only represent 31% of our rents. So pretty resistant portfolio. We have very dedicated team. And as commented at the beginning, and our collection rates are reflecting it, 99.8% collection rate in a very difficult year like 2020. And collection means collection. So if you go to our accounts, you go to our balance sheet, you will see that our trade receivables have not only not increased, but they have diminished by close to 5%. Where in the market, if you look you will see that our peers have expanded their trade receivables by not less than EUR 20 million in most cases. So we are -- our cash flow is cash. I don't know where it flows, but certainly, it's cash. We also enjoy a very interesting cushion for the year and for the future, additional rents. In offices, EUR 12.5 million net effect in the year of additional secured rents that will kick in during 2021 and will help us compensate whatever happens in the market in case it doesn't improve towards the second half of the year. On Page 17, we simply make reference to the fact that we have become a full one-stop shop in the Iberian Peninsula in offices because we offer conventional space that we now also offer flexible space, which in Spain is particularly important because the work-from-home law establishes a number of cash incentives to the people that decides to work at home which is not applicable when you work in a remote corporate center, which is the critical consideration when people is actually working from a flex office solution. We allow also corporate work to have their staff working from closer to home. Or particularly interesting, in the case of housing firms, now that they are no longer allowed to sit people in the corporate headquarters of their audited clients, we also allow the firms to have people working closer to where the client is. Currently, LOOM only represents 1.5% of our stock. But certainly, we believe if this figure will go up over the coming years. I mean in 2021, it will be easy that these figures increases by around 1%. I mean it will never represent a humongous part of our portfolio. But certainly, it will grow in the future because our clients are demanding it. And we have a number of clients now which are fully serviced by us, both in conventional lease and in flex solutions. On Page 18, you will see how our LOOM brand is currently spread in Madrid and Barcelona. In Madrid, we have 6 spaces operating with 1,100 desks, to which 700 desks should be added, of which 400 in the second quarter of '21 to reach, within '21, no less than 1,500 desks. In Barcelona, we have 2 spaces operating with 350 desks. And we expect to add another 625 desks, of which flex 100 in the third quarter of year '21. So we will finish year '21 with 500 desks operating in Barcelona. Occupancy, right now this is a data point that very few people relate to the market, but our occupancy is improving a little bit. In Madrid, we are now at 50%. In Barcelona, we are at 59%. Overall in the portfolio, we are now in the region of 52%. Our peak was close to 70% in 2019. And our trough, when the crisis erupted in the moment of April, we went down to as low as 37%, 38%. So we are recovering. We are quickly recovering. As you know, this is a type of service that requires a relatively low occupancy. And you can never be at 100% because if you are at 100%, you are no longer serving your client. So you have to remain always between 70% and 75%. But in exchange, you obtain rents which on average are between 1.4 and 1.7x of what the market normally commands. So this is how this works, and this is the way we operate. In logistics, Page 20. We saw performance with a like-for-like of 1.8%, EUR 4 million of additional rents owing to the new operation of 2 fully owned shares in 2020. Beyond the numbers you see here, there is Zal Port, which is consolidated as a participated company in which we don't have a majority. We only have 40% -- 48.5%, and which is what the majority of the deliveries have concentrated in 2020 this year. In terms of what has happened in the different cities, in Madrid, we scored a flat occupancy with a like-for-like growth of 6.2%. This is market growth. I mean this is pure market growth. In Barcelona, we lost 3-point-something points of occupancy owing to the closure of the Nissan factory. So those were mainly suppliers of Nissan that we lost in 2020. And also we experienced a relative weakness of rent in PLZF, not so much in Zal, but in PLZF as a consequence of the Nissan exit. In the rest of the Iberian Peninsula, we recorded a minus 2.5%, 4% like-for-like growth, but improved 0.9% in terms of occupancy to 100%. These spreads were good across the portfolio, although the sample of the year was particularly small. So very few examples of renewals, only 1 in Madrid, 3 in Barcelona and 1 in other locations. But the lease spreads was excellent. On Page 22, you will see what has happened in Zal Port, which is, of course, a very, very important part of our logistics portfolio. Currently, the operating stock is 632,000 square meters. We must remind that when we have right, when we took control of Zal Port, the operating stock was less than 250,000 square meters. So the rest has been developed by us. And we have work in progress of -- in excess of [ 100,000 million ] that will represent additional rent of [ EUR 8 million ]. Important to say that when we finish this, we will finish all projects and all land available in Zal Port. So Zal Port will become simply a rental user, but there will be no further development activity unless we can secure additional land in the close vicinity of Zal Port. The occupancy went up by 80 basis points in the year, and the risk spread was negative by 0.3%, so almost flat in the year with a good sample of 41 contracts signed in the year. The total rents of Zal Port jumped from EUR 46 million to EUR 56 million. And when the new deliveries are in place, we will be reaching around EUR 64 million total rent in Zal Port, which is very interesting, particularly when you compare our product share of that and you add that into our existing logistical footprint. On Page 23, we make a quick summary of the existing square meters we have in operation, 1.8 million square meters, of which close to 80% or more than 80% has been developed by us, not bought in the market, with a work in progress in excess of 1 million. We are building -- currently, we're invoicing gross rents of EUR 86 million, and we should derive another EUR 55 million from the work in progress with a very, very good gross to net because it's logistics, basically. Our locations are -- we are spread mainly in 7 locations which represent around 95% of the logistic traffic in Spain. We are only not present in the northwest corner of the Iberian Peninsula. For the rest, we are in all important [ halfs ] with a significant presence in Madrid and Barcelona, but also very significant in Valencia and Lisbon and Sevilla, where we have market leadership. On Page 24, you will see how our logistic footprint compares to the one of our competitors, which is no place -- a quite favorable comparison. I remember the questions we received when we started in 2014 about our ability to develop a significant and meaningful logistics platform in competition with the mammoths of this world. But I think this is now -- was under the range, but we have done a very good job in establishing ourselves as the leader in logistics in the Iberian Peninsula. And this is backed by a fantastic tenant roster, of which you are below both on the bottom page -- on the bottom part of the page. Very remarkable is the fact that as effective we are, at MERLIN, we have close to 30% of our portfolio is end users, so people that are clients in the weaker component of our portfolio. So as you might remember, we have been operating together logistics and shopping centers since 2014, since the inception, since we went public in the IPO. And the reason was that we always thought that one way or another, off-line and online would converge. And if they converge, shopping centers and logistics would need to understand each other. So this is something which we have been working for many, many years. And there's been a significant cross-reconciliation between the 2 portfolios. So we have lots of clients in logistics that come from shopping centers, but we're also using our shopping centers to provide logistic services to our logistic clients. So it will be commented in -- on the pages. So on the following page, you will see the main actions that we are experimenting in terms of the [ chronology ]. So we are working in [ love mine ] with GLS, with Royal Mail and [ Revolt ], in click-and-collect with Inditex and IKEA, in flexible logistics with logistic clients like [ Lucy Moist, Air Farm and Park ]. And then we have shopping centers and a number of clients who chart moving from digital to physical and now need holistic services. And we have also physical clients that are serving from our existing logistics facilities the digital world, like [ Larronda Land ], Carrefour, or MediaMarkt. So we have a number of clients in our portfolio which are what we call omni clients, clients that are with us in shopping centers and also in logistics. Shopping centers, Page 27. Of course, footfall and tenant sales significantly affected by the pandemic. Many people is trying to make sense of the drop in footfall and the drop in tenant sales. It is impossible to reconcile because it depends a lot on which exact city of Spain your shopping centers are located. So the overall closure during 2020 in Spain, the average in the country has been 27%. So all shopping centers in the country except retail parks have been closed more than 1/4 of the total year. Closed, meaning 0 footfall and 0 sales except for the first necessity goods. However, our portfolio has been especially affected because we have a strong presence in Catalonia, which has taken the lead in terms of shopping mall closures with more than 42% of the time of the year with malls completely closed, plus we are in relatively big municipalities. And again, another sign of good management by many measures have been to order the closing of shopping malls in their municipality. So we have been affected not only by autonomous community restrictions or national restrictions, but in many cases, also by the municipal restrictions, depending on the closure of what the government calls sanitary areas. So it's been a disaster, basically, the year. And we have been operating as we could. Even probably even worse than closures have been restrictions because there are different interpretations of restrictions. And there are autonomous communities, namely Catalonia, where when they say 30% maximum attendancy, they calculate 30%, and we don't know what. But because the maximum attendancy in a given shop normally is well beyond the normal attendancy, so it's calculated mainly for fire exit purposes. So it can be 100 people, but the normal people in the shop is between 10 and 20 on a normal day. But the calculations have not been done. The maximum attendance have not been done on the normal attendancy, between us, a Mongolian clusterf***. So it is impossible to compare or try to reconcile the different figures in this division. Well, notably, we disposed of 3 secondary shopping centers that represented minus EUR 11.5 million in rent in the period. But we are happy with it because, of course, in secondary areas, some of these centers have been suffering a little bit more than we would have liked. In terms of commercial activity, release spread, as commented, is 4.1%, but this is mainly owing to contractual step-ups. So no big merit in here, but 45,000 square meters contracted. And what is particularly notable is that when we started to do our first evictions towards the last quarter of the year, we have been able to evict and rotate by a new client close to 10,000 -- 9,934 square meters that have been retenanted, with only a net loss in the period of 1,364. So thanks to a very focused asset management initiative and a very good asset management team, we have been able to retenant most of our voids owing to the COVID crisis. And 2021 has also started strong, with more than 4,500 square meters we retenanted in the first 2 months of the year. On Page 29, you will see a reminder of how our commercial policy went during the year. Our total expenditure loss of income has been close to EUR 47 million. Of course, this is not the total toll we have taken as a consequence of COVID. Because if you want to incorporate that, you need to add the loss of more income, the loss of variable income. So there are many factors that you need to take into account if you want to calculate the total hit of COVID that we estimate in around EUR 64 million for the whole portfolio. But EUR 47 million were loss of income owing to commercial policies. That includes full protection on the closures of the third wave, which is a renewed commitment we reached with our tenants in mid-October. So in mid-October, we also put together what we call commercial policy 3, foreseeing that the first half of 2021 will continue to be war territory because we didn't think that it would be [indiscernible] the start of the year. We have taken -- as you might remember, we have taken all these straight into the year P&L. So we haven't linearized. We haven't done any kind of accounting trick. It is straight represented in our 2020 P&L. As we said, we think -- and the market is probably now agreeing to that, that it was a bold move, particularly taking into account that we took it on the 19th of March. So it was a bold move that tried to protect occupancy to reduce litigation. What we call in Spain, we try to take bull by the horns rather than simply go around it. We have avoided significant -- some [ litigation ] problems because all that tenants are now being evicted, and they were given the possibility to be protected by our measures. So if they couldn't, of course, we are replacing them by healthy tenants. And it has been able, our asset management teams, to focus on the eviction and rotation, on the retenanting, because all contracts were extended through 2022. So next year, it's going to be a problem because, of course, we have many contracts expiring and there will be an intense renewal activity. But at least in '21, our asset management teams are concentrated in eviction and rotation and retenanting of our schemes. It is having a positive impact, not only in terms of P&L, which, of course, has been significant. But also, we have a good facility profile. And we can probably say that most of our clients at present are credit worthy tenants because in Napoleonic legal systems, when you extend a contract of 2 years, you know you are assuming a personal responsibility for the amount you have signed. So all clients that extended their contracts 2 years were making some sort of prejudgment of their own ability to receipt the COVID and weather the storm and continue trading in 2022. It's not simply like I sign, I get protected by your policy, and then I do whatever I want because it is not that simple in Napoleonic or Continental European, Roman-based legal systems. The litigation is absolutely significant. We have had 49 evictions launched, of which 11 have been finished without problems. We are seeing best-in-class collection rates even in shopping centers, as you can see. And we are attracting new tenants because they believe that we are a partner that can be relied on. I mean basically, that we protect people when maintaining protection. And this is, of course, helping us in terms of commercialization of our spaces. On Page 31, I will pass the floor to Miguel, who will comment on valuation and deposition, and we'll come back at the end.

Okay. Let's go then into valuation. On Page 31, you have here the outcome of the valuation. So in the end, as explained before, the valuation was slightly -- was flat at negative 0.6% down. This was mainly driven by the fact that in shopping centers, we were getting a fleet of 8% in valuation -- sorry, [ 8% ] in valuation. That means close something around EUR 206 million of valuation loss in this condition. That is the one that has taken the hit this year. A little bit in hotels, which are a minor part of our portfolio, but there was a minus 6.2% like-for-like valuation [indiscernible] in the [indiscernible] division, but to us [indiscernible] in the portfolio which are not relevant at all. The other side of the coin is logistics. And logistics, we got an 8% like-for-like evolution in valuation that implies 40% [ medium up ]. And in offices, which is our largest position [indiscernible] increasing value, 1% only, it means EUR 60 million of valuation up. So in the end, as we said, it is a quite flat year in terms of valuation, minus 0.6%. If we move into Page 32, which we see that in the end, the GAV of the company went up 0.5%, mainly driven by the CapEx that we have been putting in place in the portfolio. First of all, to highlight in terms of disposal, we were disposing close to EUR 200 million in assets, mainly driven by the disposal of 3 noncore shopping centers in the month of February last year, 1 year ago and some BBVA branches, EUR 25 million in BBVA branches, and that will continue on a very selective basis, selling down and being [indiscernible] the most remote locations [indiscernible] to refine up the quality of the portfolio. This acquisition was acquired new [indiscernible] because in terms of asset acquisition, it was EUR 15 million coming from the acquisition of a small office building in Barcelona. It's going to be in order to be a LOOM office building and will be in operation by the end of this year. And also, we have this [indiscernible] that is coming from the transaction that we closed on the shopping centers. Finally, coming to remark in CapEx, was a year also despite the situation were living in and which CapEx was also a part of our activity, EUR 236 million of investment, mainly focused in office, shopping centers and logistics. And actually, I think in office, the investment was 800 -- sorry, EUR 87 million, mainly focused in [ Monument Cloud ] building in [ Lisbon ], the Castellana 85 building in Madrid and the Diagonal 605 in Barcelona. Then shopping center recorded EUR 6 million investment. As Ismael was commenting, we were about to finish our flagship program. And so this CapEx this year was mainly rewarded to El Saler in Valencia and [indiscernible] in Majorca. The 2 of them will be finished in the first half of 2021. And finally, logistics. Logistics has been more than EUR 100 million investment. It is an asset class which we are investing in [ intensely ] This was growth of expansion of the portfolio is coming from was EUR 100 million. I should be highlighting that we have been able to deliver to Carrefour a 100,000 [ of committed ] warehouse in January this year. Finally, the valuation that we were commenting, EUR 100 million down in real estate asset valuation, the 0.6% we were commenting before. If we move now to Page 34 and looking at the debt position of the company. We have finished the year in a similar position to the one we have in 2019. So as you know, with the COVID measures that were required as of subsidies or rent discounts to the retailers, we're putting more -- some more -- so some other activities in order to have a financial position as strong as possible and has been able to maintain in the same level. So in the end, we have finished the year with a loan-to-value of 39.9%. That is similar to the one which we were closing the year before. In terms of average cost, also in line. During the year, we were replacing some debt. We were putting in place 2 bond issues, one on 15-year basis, another one on 7-year basis, with which we have been refinancing partially our full debt expiries that which are coming in 2022 and '23. We were buying back partially the bonds starting in those years. And at the same time, we were paying back 2 mortgage loans at EUR 175 million. So we continue with that, the average [ net read ] of the portfolio and keeping a similar [indiscernible] which is [indiscernible] on a fixed rate basis. So close to 100% of the debt in the company is now 100% fixed rate basis. Also liquidity is something we are looking at, and we have been able to reinforce the liquidity of the company at around EUR 1.25 billion of liquidity within the company, which is remarkable. And also it should be a solid liquidity looking forward in that we don't have any specific financing during this year. Finally, moving to Slide 35. I mean this is something MERLIN has been highlighting that recently we are very proud of. That is the collection rate we have been able to implement all across our divisions. This is a reflection of the experience and the quality of our tenant growth. As you can see, [indiscernible] we have been able to collect in the fourth quarter all of their off of the rents that we have been [ enforcing ]. In offices, it's only 0.2% of rent still in collection. To me, this is business as usual. So it's nothing different to what is happening in every single day of the complete situation. Shopping center, 2.4%. It is of course a growth business. We know this is an asset class at which we should be expecting a higher back rent within the portfolio. 2.4%, again, we should be looking active to reduce it furthermore. But honestly speaking, it is close to business as usual. Now we're moving to the next section, and David Brush will take the lead.

Thank you, Miguel. So on Page 37, ESG is obviously a topic that has become more and more important. And we really do put ESG at the core of our business. I'm going to focus on the E part of ESG over the next few pages. So Page 37 is really a summary and encompasses all of what we're doing. If you look on the asset side, create more sustainable assets. So energy efficiency measures, that sensorization, that smart building systems to reduce the use of energy to the extent that we can. Photovoltaic projects, that's where we're actually producing our own power from the photovoltaic we put on the roof for self-consumption. Then the other that's not here specifically is we rebid our energy supplier in 2020, and now 100% of our energy is now provided from renewable sources. So we're very much on the energy side, making sure that we are as sustainable as possible. Certifications, which is, again, very much about the things you do, you have to do to obtain certifications as much around energy efficiency. And we now have 2.5 million square meters certified and made significant progress. On the construction side, sustainable construction. So that's promoting use of sustainable materials. We're covering a pilot program where we're using paints that is better to remove CO2 from the atmosphere. And as we go forward, we look at -- I'll talk about this later, but DCN and RENAZCA, those are all about how to use the most current and most sustainable building construction materials. RENAZCA is about reenergizing the space and making it greener and making it more sustainable from water use and recycled materials. And on the mobility side, again, in MERLIN Hub, we've developed a full cluster of mobility, working in conjunction with our tenants, last mile logistics, running pilot programs, which are now expanding about using the parking facilities of our offices and our shopping centers as last-mile logistics with fully green vans and vehicles -- emission-free vehicles. And on the electric charging front, expanding our already existing portfolio of electric vehicle chargers, all more than doubling the number of charges in place and including the beginning of starting to install truck chargers for electric vehicles as well. So all of that really showing how it is that we are very focused on trying to improve the sustainability of the business. If you look at Page 38, beyond -- well, kind of mixed beyond the things we're doing today, we've also started to look at how do we actually have a net zero-emission policy by 2030. So we're well on our way to doing that. But all those projects initially were done with an aim to create more sustainability. Now the idea is, let's look at all those projects and how do we advance those with the goal, a specific goal of being net-zero emissions by 2030. And as I highlighted earlier, a lot of those initiatives are not simply us, but they're us working in conjunction with our tenants and with the employees of those tenants. Because the more buy-in you get on these types of initiatives, the higher the adoption rate. So we're really making sure that we try to do everything we can to -- but these actually are effective formats. So Page 39 is getting into the specifics of the photovoltaic self-consumption installations. Phase 1 will be across 24 assets. It implies an investment of EUR 26 million and it will end up with 37 million megawatts installed. And it's across both logistics facilities, which are really the biggest, that's where you get the most scale because of the flat roofs, but also in our shopping centers over parking facilities and using the office building roofs. Highlighting this is that our policy has been we're generating a return on that investment due to savings we're generating back. The higher the return that we're achieving on any of our actual real estate developments, while at the same time, providing some of that savings to our tenants to lower their occupancy costs, so it makes us more competitive in terms of attracting tenants and, at the same time, generating a very significant return on the capital investment. Beyond Phase 1, which is 37 megawatts, we're looking at then all of our other facilities where we could -- if we end up doing the maximum amount that we think possible while we're studying it, something between 100 and 125 megawatts in total across the entire facility, which would end up being a little in excess of 10% of our total energy consumption for the company. And you can see at the bottom, the impact that just Phase 1 has, putting it into pure environment terms the amount of CO2 emissions that are saved per year and the equivalent to what that means in terms of over 75% of the current trees that exist in the city of Madrid. DCN, the following in page, DCN RENAZCA, as you know, Madrid starts at a very low level of Class A sustainable office. It's one of the lowest percentages of Class A sustainable in Europe. So when you look at DCN, here's enough opportunity with green space to create the new standard for sustainable buildings in Madrid. So it's a sea change, if you will, in terms of the supply -- the quality of the supply of offices that will exist. At RENAZCA, some of you, those who know, it's the Rockefeller Center of Madrid. In fact, it was designed after Rockefeller Center. And today, it is a very, to be honest, weak and hardscaped area. So we've created a consortium which MERLIN will really be impetus behind, but it's a consortium of all the owners within the AZCA area. Creating what I'll refer to as a business investment district effectively, where those owners will put up the capital, which is EUR 25 million. It's not meaningful when you consider the amount of scale and value in that area, so the contribution is relatively small in comparison. And in exchange for that, we get the opportunity to manage the ongoing space on behalf of the city going forward. We've already retained -- we ran a competition for that. The winner of that competition was Diller Scofidio + Renfro, who are probably best known for having done The High Line in New York City, which has been a hugely successful urban redevelopment scheme. And the whole idea was to create more biodiversity, create more sustainability, improve the water resources and actually recapture some of the original water resources that a river that used to run under that area. So that will create another green lung for the city of Madrid. Page 41, getting back to mobility, and we really started this idea of trying to create mobility services within the MERLIN Hub, which we talked about before, 40,000 daily users, and we worked closely with the tenants of MERLIN Hub to create a fully-encompassing urban mobility project. So it's not just us do it on our own, but again doing it in conjunction with tenants, covering all matters of more sustainable mobilities. Finally, if you look at Page 42, this is our last-mile logistics project. We ran pilots with both -- well, pilots about to start with GLS that will start in April of this year. And we've been running a pilot with [ Revolt ] down in Barcelona. The [ Revolt ] pilot has been so successful they're now expanding that out into other areas. And the idea here is that we use the parking garages of our facilities that are not used during the night. So during the day, when they're -- they're used for the occupants. Once that you move to the nighttime that we set up these last-mile logistics facilities using zero-emission fleets, The trucks come in, drop the goods and the vans can then pick it up and deliver it. So it's a very efficient way for those logistics tenants to run a last-mile service. We get the double benefit of further solidifying the relationship we have with logistics providers, and we generate incremental revenue from that space that was previously not being used. So we're really [ getting up ] on that. But I think the early response has been quite good, and we're very bullish about the adoption for that going forward. Page 43, simply to highlight our efforts in getting our buildings certified. You can look in the offices, shopping centers, logistics, significant improvement in the certification rates from 2015 to 2020. And if you look at the certifications we're achieving, 98% are either good or very good, from green, 80% good, or, excuse me, gold or platinum in offices; in shopping centers, 87%, very good or good. And warehouse logistics, which more complicated because your tenants drag you down, obviously, in terms of your ability to achieve those high levels of certification, we saw about an 88% gold or platinum. And the recent delivery of the warehouse at Azuqueca and that for Carrefour being the largest warehouse logistics facility and also getting a platinum certification. On Page 44, getting back to those certifications. So again, we show the level on the previous page. We also exceed our peers' global average and the European average in terms of our GRESB score. We've also now adopted the carbon disclosure project, and again, exceeding the average performance of our peers, both globally, Europe and Europe. We've had gold [ EFRO ] reporting since 2017. On AEO, we were an early supporter of this new AEO standard, which brings more transparency and professionals into the measurement of space in Spain. Historically, there was no real standard for how space was measured, making it difficult for tenants to compare across buildings. And we are well advanced in certifying our buildings. And that's a standard that we think more and more will be embraced and adopted by the market. And then finally, on Page 45, technology, so sustainability and technology being really important things going forward. We have really been making a very strong effort to try to bring real estate from the analog world to the digital world. It's probably one of the most analog industries. And that starts with sensorization, so again, to allow us to measure usage in space to be more efficient in our energy uses. It allows us to manage our retail space further by knowing much, much more clearly who's shopping in our centers, where they're shopping, where they're from, what their needs are. On digitalization, we now have up and running with our tenant engagement app in both our LOOM facilities and in MERLIN Hub, so much closer tenant engagement. A lot of those mobility services we talked about are provided through that app. We've implemented Salesforce with our CRM app. [ Philips ], another company that we actually came through our prospect scheme, which is digitizing the leasing of kiosks and temporary space, a much more efficient and much faster way to, and we think, a better way to improve occupancy in those spaces. Mayordomo, which after we selected them as a winner of our prospect challenge, last year, they were selected the global prop check of the year by [indiscernible]. So they've really made great strides. We actually own a 7% interest in that company. And they're moving in a way where they're actually going to be, I think, part of the last-mile logistics solution with their smart locker solution. So again, you can see how we've really been trying to employ technology across the portfolio. It's still we're still in the early innings. Whether you're a baseball or cricketer, we're in the early innings of the game. There's a lot more to do, but we've made quite good progress in doing that. And I will say as well, if we get Fifth Wall here, that's been a really very beneficial relationship with Fifth Wall. As we develop these technology implementations, they've been a key part of us helping us vetting and implementing those activities. So with that, I'm going to pass it back to Ismael to talk about value creation.

Thank you, David. Well, on Page 47, we simply explain as a reminder that we continue trying to efficiently repay capital. That during 2020, we rotated 3 shopping centers and 19 BBVA branches, that this continued in early 2021 with the rotation of 3 logistic warehouses, 2 of which in Madrid, 1 in Zaragoza. The average age of the biggest of all them, beyond 20 years, a very interesting yield. And as depicted in the following pages, we are really drawing that capital into continued fueling of our landmark flagship and best 2 and 3 projects. On Page 48, you will see 2 buildings which are now in finishing stages should be delivered in the second quarter the '21. Castellana 85 in Madrid, which has -- will become the headquarter of Accenture in Spain, and [ LF Noll ], a construction company from the [ vast country ]. And Monumental in Plaza Saldana in Lisbon which will become the headquarter in Portugal of BPI, all with very interesting views on cost. On Page 49, you will see the summary of the project known as Landmark 1 after going through the filter of the reprioritization of CapEx we carried out in March after the pandemic. So with the delivery of Castellana and Monumental, the only pending project that is in Priority 1 will be Plaza Ruiz Picasso in Madrid, which is a 31,500 square meters building which upon the development will reach 37,000 square meters. This is a building that we have already emptied and we'll start construction very soon. We have view to delivering it to clients towards the end of 2022. You can see that upon completion of Ruiz Picasso II, the yield on cost of the program has been very successful and very interesting from a capital recycling perspective. On Page 50, we simply wanted to give you an update of is happening in Madrid Nuevo Norte. The most significant highlight of the year and one that creates a very significant value enhancement for the project is that we have obtained definitive approval of the [ modification de plan general ] from the municipality of Madrid, with a green light also from the autonomous community of Madrid. This means that from a legal standpoint, the project is now 100% cleared. So there are other things that need be done till completion. But from a legal standpoint, the land is now land ready to build, I mean upon receiving it from the National Railway Authority towards the end of the year. What are we doing now in this project? Basically, we are now negotiating in final stages,the Compania Infrastructura, which we have obtained or we have achieved what we believe is an important milestone, which is that the Compania Infrastructura has now become a multilateral agreement. So originally, in this project, we, the private developer, the private promoter of Madrid Nuevo Norte, PCN, we were obliged to reach bilateral agreements with the different public authorities involved in the development of the project. We have now put together all those bilateral agreements into one single multilateral agreements in which every party expresses its obligations and rights. The funding and as an annex will include the projects, architectural, technical, industrial, engineering projects which are needed in order to develop all the infrastructure in the area. That is a very, very, very important achievement, very important achievement because it has allowed us for the first time, and it was something we couldn't even dream in our best scenarios, we have achieved the possibility of overlapping the different infrastructure works. So until now, the way we have divided the infrastructure schedule for the area was basically one in which the different administration were intervening one after the other because they normally do not coordinate one with each other. But with the new multilateral agreement, they will coordinate and there will be a significant overlapping that, of course, needs to be determined in the future. That will mean no less than 2 years, 2.5 years of advancement in the conclusion of all infrastructure works required in the area, which is very, very important. And once the Compania Infrastructura is approved, which we estimate for the second quarter, we should now move into the -- or should proceed to the acquisition of the land from the National Railway Infrastructure Authority. So towards the very end of the year, we should proceed to our disbursement of at least EUR 49 million, together with our partners in the project because we only own 14.5% of the project, but we should proceed to a capital increase at DCN level in order for DCN to fund the EUR 221 million that are hold to the National Railway Authority as first segment, as first installment of the acquisition of the land. On Page 51, you are seeing true picture of how Saler and Porto Pi are starting to look. Saler is an interior picture and Porto Pi is an exterior picture of the works. Both are approaching completion. I mean they should both be ready towards second quarter of '21, very, very nice looking and very successful in terms of commercialization. On Page 52, you see summary of the flagship plan after the reprioritization of CapEx following the COVID. So with the delivery of Saler and Porto Pi, we are basically done. So we are finished all the expenditure in the Flagship 1 plan. As for Best II and III on Page 53, you see deliveries that we have done in 2020 and 2021. On Fernando II in 2020, Zaragoza Plaza II in 2020. Sevilla ZAL WIP which is '20 and '21, and Azuqueca II which has happened around 1 month ago in 2020. We have delivered that turnkey project to Carrefour in order to be the national distribution hub for nonperishable goods. On Page 54 and 55, you have a summary of how Phase II and Phase III are progressing after the reprioritization. And we'll see that after the delivery of San Fernando II, which is now a let at 95% and Azuqueca II which is let 100%. The next -- there was 1 volume of Cabanillas Park delivery in '20 and the rest will be delivered in '21. And Cabanillas Park II will be delivered -- has moved from priority 3, 4 to priority 1 because we are now in advanced negotiations with 1 potential pre-let. So as soon as those negotiations with potential the pre-let are concluded, we will move 47,000 square meters of the 210,000 of Cabanillas II from priority 3, 4 to priority 1 and develop it because we have a client. Likewise, in the case of Cabanillas G&H that were being developed speculatively, we are now in advanced negotiations to lease them 100%. So a very interesting deal on cost. The one that you know from other additions of this presentation. As for Best III, Valencia Ribarroja for Dachser and Zaragoza Plaza II for DSV were delivered. And as also have been delivered part of different developments in Sevilla ZAL, which has been let to Carbó Collbatallé, a cold storage facility; Amazon; Cuatrogasa so only the [ 2% ] 2021 deliveries are pending for which the pre-lets are now fully concluded. So very interesting project, one with a very high-yield on cost. As for Lisbon Park, as you know, we were developing 44,000 square meters spec at the time COVID started. Thank God, negotiations have moved significantly. We are under now very significant, very advance negotiations. And 2 volumes out of 6 will only be vacant, 1 be delivered, the fully concluded share in this year. So the other 4 have now been let. So very interesting news on Best III. On Page 56, you will see the effect of, in 2021, of the [ rent ], which is basically net EUR 14.4 million. In a normalized year, it is EUR 22.2 million. But for the exercise in which we are now, which is 2021, we will record an additional EUR 14.4 million of rent that we'll help to overcome whichever hiccups we might have in the performance of other assets if the pandemic proves more long lasting than expected. On Page 58, we have provided you with our outlook or our true and frank impression of 2021 peaks. We know we run a risk when conveying our own prudency and [ trepidation ] to the market because many people would get almost depressed and start saying that management has been downbeat in their expectations and all that. And many other people fall into what I call wrong extrapolation. So they basically try to extrapolate the trend from what is simply the ordinary management of a commercial real estate portfolio. When we see trends, we advise you that we are seeing trends. When we only manage assets, we try to explain to you that we are only managing assets. So in many cases, those trends that are supposedly get by many people in reality is simply the result of market uncertainty. There are moments in the market in which there's more activity, less activity, but we try to explain to you the way we see it. And we try to do it with a criteria of prudency. We have to be prudent managers. We are managing a lot of money from a lot of people in the world, and we are trying to do our things as best as we can. So in offices, we have -- this morning, we have been receiving many calls. How can we point to a slight decline in occupancy? Because this is what I'm seeing right now. So when I get my forward occupancy report, as of today, of course, Spain is still in a very delicate moment of the pandemic. I mean the -- I would say, the national feeling is one of desperation. I mean we are very far below other countries in terms of vaccination rhythm and people are not seeing the light at the end of the tunnel. As a consequence, the tone of the economy today is quite negative, which is helped in a way by not super brilliant initiatives from an economic management standpoint in the last months. So with this in hand, when we look at our forward occupancy report, we are seeing a WAULT of between 1.5 and 2 points of occupancy in 2021. Is this nonrecoverable? No, of course, not. I mean if the second part of the year is a good one, eventually with one lease-up of one of our buildings in the A1 corridor, which is now empty, eventually we could reverse completely all these trends, but we need to inform to the market what we are seeing in our numbers, and this is what we are doing as we speak. Out of this, 1.5% to 2% potential additional vacancy that we might see during the year in the portfolio, approximately half, 0.7% to 0.9%, may come to -- from what we believe are clients in some sort of distress situation and with risk of insolvency. Of course, this is a completely subjective assessment. And this is one that we are asking our asset managers to do. It is not based on any scientific criteria, that is based on the behavior of the client, how we see them, what is the physical occupancy of the office, what is the motivation of the people we see in the office -- many aspects which can only be caused by people who are down to earth in the day-to-day management of a given building. So those clients eventually and over 30% of them, 50% of them or 75% of them may eventually stop paying during the year. And this, of course, will move sooner or later into vacancy. The remainder of the decline in occupancy we expect should come from less need of space. And many people say, this is because of work from home. I wouldn't say so. At present, I mean, maybe in the future, but not at present. It's simply the result of a lower need of space on the basis of green economic perspective for many of our clients. It as simple as that. However, we have very little maturities in the year, 15%. And the quality of our clients is good as we were commenting at the beginning. So it's not great. Simply, we will experience a little bit of occupancy that we will need to retenant. And we are doing shopping centers in a much better market because offices, of course, is not under significant pressure like shopping centers. The flex space we had because we forecast that it will gain relative share from its current small base of around 1.5% of our portfolio. What will happen in logistics? In logistics, we believe the year will continue to be good. I mean the performance of the market is good enough. The fear we had about the potential of an oversupply in certain areas of the A2. Now with a sheer evolution of the e-commerce are probably -- those fears are allayed. So we shouldn't be now in fear in any sort of -- in the short term, at least of any sort of oversupply in the A2 corridor. A4 corridor is absolutely healthy. And Catalonia, the problem there is lack of product because if there was more product, there would be more activity. So the market will continue to recover. However, don't be surprised, but also don't be misled if in the first quarter and eventually in the second quarter, you see a drop in occupancy and logistics because we need to do a little bit of portfolio cleanup. Why? Because in 2020, given how wrong our clients were in their calculations of space needs, we have been providing them with every corner of empty space we have in the different shares. So now in 2029 -- in 2021, sorry, we need to make sense of all that, and we need to convert those contracts into long-term contract if the clients now want. If they don't want, of course, they will need to vacate the premises and the premises need to be retenanted with somebody who can commit for a long-term contract. It's important to have provided them with help in a difficult year, but we cannot -- we are not a charity organization. So we cannot continue providing them with help indefinitely. In terms of retail, the tone I believe is going to be rapidly flat. We might see some decline in occupancy if we cannot cope the reason of retenanting with the reason of eviction. So if we go fast in eviction than in retenanting, eventually, we may affect the occupancy. But frankly speaking, I don't know, maybe it will go slower in eviction, than it will go in retenanting. So it needs to be seen how the year will evolve in terms of retail. But what I am sure of is that the commercial policy will continue to protect our occupancy levels overall because the partnership that we have developed with a number of tenants will be a long lasting one. With all that in mind, with all that in mind, we have put together a guidance for the year. The guidance is basically to repeat the FFO of 2020. Many of you say this is poor, should be more. I -- frankly, I am not in a position to make a different statement for the full year because it will be a bet rather than my own impression. I mean I would be happy if we can do slightly better cash flow than last year given the circumstances. Of course, if the second part of the year is better than expected, eventually, we could beat the numbers. And you know that in past years, we have normally tried to be prudent in our guidances and then we have tried to beat them towards the end of the year. As for the 2020 payout, which determines our DPS, we have recommended to the Board EUR 0.25. However, the Board is sovereign and there are voices in the Board that want more dividend. So hopefully, I can tell you, and I have told you privately to many of you, that when doing your model, you should calculate EUR 0.25 because as a minimum it would be EUR 0.25. If we can then go to EUR 0.30 or EUR 0.35, nice surprise, but I will be betting on EUR 0.25 as a best case because we want to make clear that in a year like this, we should be prudently retaining a little bit of our cash flow in order to make sure that the CapEx actions do not mean an excessive LTV. So this is what we are doing. Of course, we will continue doing. And at some noncore disposals, it's not that we are going to go out of our way. We will continue doing a normal program of disposals. In the year, it should be EUR 150 million to EUR 400 million, of which we have already made EUR 50 million. So it's not that you should expect tremendous amounts because number of disposals in the following year weighs on cash flow. So while we keep an eye on the LTV and, of course, on the coordination of sources and uses in terms of CapEx, we are not going to go wide in terms of disposals because we need this company to be lower LTV, but also cash flowing as it has traditionally been. Many of you are also asking why not a better guidance from FFO in the middle of our reflation trade. The reflation trade is a conceptual thing, and we fully agree with it for the future. But for 2021, you need to know that most lease contracts in Spain are indexed to the CPI as of 31st December. So the CPI as of 31st December 2020 was negative. So we are going to have an impact in our -- mainly in office contracts, I mean, many other contracts of around minus 0.6% owing to CPI. And this is a given. This is something we know. There are some contracts, which are not indexed to 31st December, indexed to a different date. But normally, they tend to be indexed to 31st December. So reflation trade, yes, do we see it? Of course, yes. Do we see it for the future? Is it visible already in January and March -- in January and February in the underlying CPI in Spain and in the European Union? But not that we see, not that quick, not in the coming months. It's not immediate. If we move into closing remarks on Page 60, I think you want to bring your attention to the fact that although criticized in many occasions by the market, we are running a company with a diversified business model where we want around 50%, 47% of our rental income to come from offices. That income can be categorized as stable. I mean no matter the fact that you may lose a little bit of occupancy, it is probably stable. We also operate around 18% of our rents in logistics, clearly growing. We derive some 18% from net leases. I would call it rock solid. And then we have 15% in retail, which is weak, that people do better than many people think. So this is the picture for the year and perhaps for the future. And we will continue suffering this year. We will continue adjusting the evolutions of shopping centers. But other than in the investment market, other than evaluations, shopping centers, whenever they are allowed by the public authorities to open, they open and perform. Our portfolio is a super high-quality one. 92% of our offices are in prime CBD and new business areas. 90% of our logistics are suitable for e-commerce. And 95% of our shopping centers are either urban or dominant. And Page 61, you have a reflection on why the cash flow stream of this company is stable and predictable. Many of you call it resilient. The reason is that we have EUR 2.9 billion in contracted rents to first break. So if we were an infrastructure company, that would be the backlog. If you take into account the full duration of the lease contract, that will be EUR 5 billion. Only 9.9% of our rents mature before the of 2021. Our incentives have been fully booked in 2020. So it's not that you can expect any effects of [ unitization ] in future years. We have secured annual rents from our growth plans amounting to EUR 22 million extra income per year. So we're kicking in full from '22 onwards. In 2021, it will only be EUR 14 million. And we have now a fully funded CapEx program. Our debt profile is healthy with 39.9% LTV with the transfer cost. 41% is not considered. Our covenants are at 60%. We have no debt significant repayment until May '22. And we are accumulating cash to make sure that we can pay with internally generated resources. Our liquidity position is EUR 1.25 billion. We have best-in-class collection rates and very low risk of bad debt in the future. And we have a BBB stable rating by S&P. And on Page 62, and as a final reflection, simply to say that between 2014 and 2016, we built a portfolio of super high quality in a record time that allowed us to reach a leadership position in all the segments in which we operate, offices, net leases, logistics and also in the Iberian Peninsula. Less known probably by the general public, we dispose of hotels, residential and other noncore offices and retail, EUR 4.2 billion sold since 2016, of which EUR 2.2 billion attributable only to MERLIN. So for the people that called us a proxy to the Spanish market, we'll add a little bit of deeper reflection on what our company has become. In 2018 to 2023, we have been optimizing the quality of our portfolio through the Landmark and Flagship plans, which are now approaching completion, and through Best II and III, which is the greenfield development of a lot of logistics where a lot of assets has been added because we have since developed around 80% of our current product, which is a lot. And in 2020 to 2025, simultaneously with the extension of the Best II and III plans and all the initiatives arising from Landmark, Flagship and eventually Landmark II and Flagship II, we are committed to offer the best customer experience and to become the most technologically advanced REIT in our Iberian market. And this is done through putting an accent in sustainability, in innovation, in technology, but also flexibilizing our services and enriching our user experience. The father or paternity of this strategy has been shared by the old management team of this company, and I believe they will deserve a lot of credit for it, but has also been led by the wisdom of David Brush, who have been our colleague for now 6 to 7 incredible years. So now I will pass the floor to David so that he can address you in what will actually become the last yearly results presentation and conference call he will be participating in MERLIN.

Thank you. It's my honor. I promise to keep this short. I know it's been a long call already, but I think many of you already know, you either saw the announcement in December or you have spoken with Inés and/or Ismael subsequently about the decision that I've taken. I want to give a little color on that and more importantly, talk about the relationship I am going to continue to have with MERLIN for the next year. So just on the first point, I moved to London in 1998 with my wife and 4 children for -- to mobilize the opportunistic investing business of Bankers Trust. So it was meant to be 3 years. So I'd like to say I'm in the 22nd year of a 3-year assignment. And in fact, when I came to Madrid in 2014, when I took the decision to lead Brookfield and joined this fabulous project, I said to my wife, "I think it'll probably be about 5 years." I knew at that time what MERLIN would become and how this would take off and become so successful. And in April, it will be 7 years. So you can see where I'm going with this thing. And during that time, my children have all moved back to the States, went to university there, settled there and now 2 of them are married. So the gravitation pull of the States got stronger and stronger. And like with many other things, COVID has accelerated trends that were already in place prior to COVID and taken them further. So the time, I think, now is really right for me to move back to the States mainly for the personal reasons. So that's really the genesis of the decision. That said, it's not going to be immediate. I signed a 1-year agreement. That's not window dressing. I know some -- many times, these are just a way to kind of make someone feel good about their departure. But I'm not leaving Spain. Monday morning, the 1st of March, I'll be back at my desk doing largely the thing I was doing previously. But my focus will be narrowed more as we go forward. And there are 3 things I'm going to really concentrate on during this next year. And I say minimum year or 2, by the way, because if it's going well, and everyone is happy at the end of 1 year, then there's nothing that, that says that I can't do it longer. But the first is, I'm going to continue to focus on the application of technology to our business. It's a passion of mine. It's something I've been very interested in. It's something I feel like I played a major role in. And I'll continue to do that because, as I said earlier, we're in the early innings of digitizing a very analog business. The second is I'll continue to be very involved in LOOM. Again, I was there at the inception. I think it's a, I'll call it a product, if you will, or service because I don't think it's an industry in its own right. We've talked about that before. But it's another arrow in the quiver of a property company to be able to provide service to its clients. And I think that is only going to be accelerating in the post-COVID world. Flexibility is going to be a key element, and so I'm going to continue to pay close attention to that and help as much as I can in furthering the growth of that business. And then the third I would like to say is any new projects working to help support in management that represents the convergence of technology and real estate. Because there will be new opportunities, I think, that emerge or present themselves. And again, that's something I feel very strongly about, passionate about, so I'll continue to focus on that. So no goodbye, no testimonials, none of that. There will be no retirement dinner because I'm not going anywhere for a while.

Okay. So operator, could you open the line for Q&A?

[Operator Instructions] And your first question comes from the line of Bart Gysens from Morgan Stanley.

I have 2 questions, if that's all right. The first question on the payout ratio. And the second question is on the office valuation. On the payout ratio, first, look, I appreciate this is a suggestion to lower it to the Board. You've been flagging this. I just wanted to understand, is this linked to the pandemic? Or is this linked to the fact that you want to lower your loan-to-value ratio? We just want to understand and it would be helpful to understand the potential duration of running with a lower payout ratio. Once the pandemic is out of the way, will we go back to 80%? Or do you want to run with a lower, say, 50% payout ratio as long as your LTV or your net debt-to-EBITDA hasn't come down to a different level?

Okay, okay. Mark, look, I would say it is owing to the pandemic because as a consequence of the pandemic, it is even more important to lower our loan-to-value ratio. As you know, our long-term ambition was to go from the 40% we were to around 35%, 36% in the old measurement. In the new measurement, it will be 35% -- 34%, 35%. That was our idea. However, the crisis found that, owing to the pandemic, in 2021 rather than a flattening market in 2023, '24, which was what we would not have normally expected. We were not releveraging the company on the basis of the growth in value of the assets. And normally, that will have sufficed in the normal market to be at 35%, 36% in 2023, '24. As a consequence of the pandemic, we see ourselves in a situation in which it is even more important to make sure that although it is hard to really -- that in the short term, unless we sell one big noncore package, we are not going to go to 35%, 36% anytime soon. But at least, it is important to make sure that we don't exceed 45%, which is normally where problems normally start with the operating agencies. So it is pandemic related, I would say. And the idea is we go back to a normalized market in, say, fully normalized in '23 would be to go back to the 80% AFFO payout ratio that we have usually -- have in the company. As a reminder, all people, we are here in this room, we are all significant shareholders of the company. And in many cases, we are levered and, of course, we love dividend. But we believe that it was in the best interest of the company to retain a little bit of cash out of prudency to make sure that in case you cannot sell noncore or delevering other way you do it for retention of cash flow.

Great. And then my other question is on the office valuation. On Slide 33, you talk about the movements in the yields. Now the evolution of yields on the office portfolio haven't really changed. It's still at 3.6%. But you disclosed a significant drop in the exit yield that the valuers have assumed and a significant increase in the discount rate. Can you just understand us in maybe why you disclose it in this way? And secondly, what the rationale was of the values to assume almost 50 bps lower this exit yield but actually higher discount rate in the meantime?

Yes. Bart, look, the reason why we put the discount rate in these -- the results presentation was precisely to bring your attention to the fact that this year, there's been a change in criteria because we changed the valuer. So the usual valuer of the portfolio has been [indiscernible] This year, we have moved to Jones Lang LaSalle, and they have a different way to reach basically the same figure. So [indiscernible] can explain to you what have been the approach of Jones Lang that is exactly what I just commented to you.

Yes. So as you know, Bart, we have a policy of rotating the appraisers. We have them around 3 years, but we don't do it all at once. We actually do it in staggered phases. And this time, it's been the office mainly. And exactly for the reasons that Ismael mentioned, we thought it was important to show you that it was not only a change on the exit deal because, otherwise, you would have expected a much higher like-for-like increase, right? But it was just a difference in those assumptions. So that was it.

Our next question comes from the line of Peter Papadakos from Green Street.

I have also 2 questions. Just one on your office occupancy performance going forward is now sort of -- what you described to me sounds very much like what I expect for the overall say Madrid office market. So you say that you have a high-quality portfolio, a lot of it is in CBD or prime areas. How come then you're not outperforming the market? I would expect that given what you say about your portfolio. That's the first question. And then the second question is, you made a comment about the Board obviously has to take a lot of things into account, including manage the company for cash flow. Isn't it better to manage the company for driving shareholder returns? And I say that because I guess the way you're trading, wouldn't it be a smarter capital allocation to actually sell a lot of assets? And you can either deleverage or return back extra cash to shareholders, basically shrink the company. That would've been what I would have expected the Board to think is a smarter capital allocation.

Okay. Well, question #1 office performance, the reason why we go with the market is very simple. I mean it's 6 buildings in the A1 corridor. We have an endemic problem of occupancy in that area, which in turn, stems from the fact that that area of Madrid has been densified with a lot of residential construction while the corresponding infrastructures have never been executed as a consequence of the delay of the so-called Operación Chamartín. The only caveat to that is that, as we speak, the works have started. So the new works for the so-called Nuevo Norte have started about 1 month ago. And they should be ready towards the end of 2022. So I know it's a long period, but it is what it is. So if you were to perform our portfolio for the buildings which are pandemically empty in that area, the occupancy will be significantly higher. Anyway, you can also see that our peers are lowering occupancy significantly. So it's not only being us. I mean the market is, of course, weaker. It is not a consequence of oversupply because there is no problem with oversupply in Madrid, again, for a mathematical reason because we have not yet fully recovered from the past crisis. So in the A1 corridor, we had rent signed at EUR 27.5 in the past cycle. Now for the best buildings, [ at least platinum], you are lucky if you get EUR 18.5. And for the buildings which are farther from Plaza de Castilla or lower quality from a, let's say, physical setup standpoint, you get in the region of EUR 15. So since the market has not recovered from the past crisis, there's been no new construction in the area. I mean there's one other big development being done by [indiscernible] And we have also some land available in the future in case we want to develop some extra product in the area. However, the catalyst for the change in that area will only be reached when the new area trend is ready, that will be 4 to 5 years from now. And when the new subway is up and running, we should be 5, maybe 5 to 6 years from now. Only those 2 infrastructures will really mean a big change in the area because they will -- those will include that area into our, say, urban Madrid. It will no longer be a highway, an exit. It will become part of the Chamartín area. So this is what I can tell you in terms of performance of the occupancy of offices. Regarding the sale of assets and distribution of extraordinary dividends, et cetera. Of course, we sell assets and we keep our market rotation program alive every year. But we don't sell assets like crazy. Because if we sell assets like crazy, the following year, we need the cash flow. And we have -- that has happened to us in a number of years now, including this. I mean when you sell assets, then you don't have the cash flow. And this company is a mix between, yes, keeping a healthy LTV but also trying to retain some cash flow. So it is what we are trying to do, manage the company on a going concern basis. We cannot manage the company as if it was a private equity firm, which, of course, we could do because that has been our traditional past. But selling things, realizing the capital gains and distributing that capital gain to shareholders, this is not, what I would say, the orders or the mission we are getting from our current Board of Directors.

Your next question comes from the line of Pedro Alves from CaixaBank.

First 2 questions, please. The first one, somewhat related to this topic of disposal. In terms of the rebalancing of segments, in the long term, your target still assumes 15% in shopping centers. If you eventually have the opportunity to sell, would you do it? Or you are still committed structurally to have this exposure to shopping malls? Or would you consider the exit even at some discounts to appraisal values which the stock market already assumes for the devaluations? Because that's where you would reduce your LTV and potentially raise firepower to scale logistics. Just if you could update us on your thoughts here would be helpful. And then the second one is on shopping malls. Moving to 2022, what would be the percentage of leases potentially up for renewal? And based on the tenant profile, what is your estimate of occupancy that you can reasonably close?

Look, in terms of selling shopping centers, I have to give my comment or response. There are 3 shopping centers that we consider noncore. It represent only 0.9% of our total portfolio. But yes, there are 3 shopping centers that we consider noncore, only because they are located in cities with less than 500,000 inhabitants of primary catchment. So one of those is a clear nonperformer. But the other 2 are very good performers. One of them, a newly discovered performer because it is an outlet and has started performing well during the pandemic. Because as you know, the average ticket of spending normally goes down during times of uncertainty, and it has started to perform very, very well. But it never was in the past. So those 3, yes. I mean they are noncore to us. And eventually, if we have the opportunity, we will divest. The other 12, I am not that sure. Maybe there is one that can be -- could be doubtful. But the other 12, no, because the other EUR 12 million will end representing between 12% and 14% of our portfolio, and they are extremely complementary of our logistics effort. So I commented before, we are engaged in a cross-fertilization exercise between logistics and shopping centers. And those shopping centers, particularly the ones which are more urban and centrally located, are essential for that strategy. I mean it is important to have a building with a cargo dock in a central location in a city if you want to do [indiscernible] last mile logistics. Because [indiscernible] last mile logistics, doing them in an ordinary office building with no kind of dock is much more complicated because the breakage of the cargo needs to be done with qualitizers, and this is much more complicated than doing it through an automated cargo dock. So if -- of course, if you are me, if they pay me a good price or a premium, of course, eventually, we might consider rotating them. But in the current circumstances, the market has disappeared, liquidity is very low. And selling them at any discount, typically for the pleasure of selling them and pleasing all of you because we no longer have retail, I believe it makes little sense in terms of protecting the ROE of our investors. As for leases next year, more than 40%. I believe the number is 42%. So 42% of our leases mature next year. And regarding what is our visibility on how many of those will be renewed? In principle, I believe the vast majority of them will be renewed because they have the opportunity not to extend. So we have had a number of clients that have not extended and have been excluded from the protection measures and are being exited and rotated out of our shopping centers. So whoever took the decision to extend the lease, as commented before, made a prejudgment of the future feasibility of its own business and considered the business, his or her business, was feasible, was going to survive the pandemic. So I don't see many of those people not renewing. A very different thing is what is the real equilibrium of rents. And yes, that could be significantly harsh negotiations in rents. But we are going to be much better than our current level of cash flow. So we are playing -- in this case, we are playing for a winner. We are not playing for a loser in this occasion because we have already taken the hit in our cash flows. And whatever the final reacquisition of rent is, it will be better than what we have now. So this is the way we see 2022 in shopping centers.

Our next question comes from the line of Fernando Abril from Alantra.

I have 3 questions, if I may. First, on the occupancy impacted that you -- that Ismael about 1.5% to 2%. Is it possible to say how much of this would come from offices and shopping centers and logistics? Then the second question would be on the -- based on the CapEx. So you have invested over EUR 200 million in 2020. And you have given details on which projects you've mostly invested in. And my question is any outlook for 2021 and for the every single type of assets you have? And then the third question is on disposals again, but on the BBVA branches. So my question here is, would you consider in selling a big portion of these branches? And what would be the maximum that you would consider to sell? And also what would be the minimum threshold of premium you would ask for you to sell them?

Okay. All right. Now look, in terms of the occupancy drop of 1.5% to 2%, that is offices only. So for the portfolio as a whole, it will be much less because this will be compensated by whatever we do in logistics, eventually what we might do in shopping centers and the net leases, which is 100%. Almost by definition, I think we are now leasing one -- former supermarket in Catalonia that the rest is fully occupied. So no, no, I haven't extrapolated this to the full portfolio, but much less than that, which is only to be talking about offices. Then for the CapEx 2021. I don't have it handy and by heart. But Inés will feed you with any numbers or reconciliation you might need. We will continue with the CapEx plan in 2021. The lion's share, in fact, of the remainder of Landmark I, Flagship and Best II and III was in 2022 -- '21, sorry. So '22 is much more moderated. So 2021 will still be relatively intensive in CapEx. But I don't have the figures now handy with me. As for the [ new year ] disposals, look, I cannot give you an idea of price, et cetera. What I can tell you is that conceptually, this is a noncore portfolio for us because we are not vocational operators of those branches. So this is not inherent in the portfolio, this is a heritage of the company. It's one that it is providing us with much needed, much needed cash flow, particularly in these difficult times. But it should also be taken into account that pro forma of a disposal of BBVA at book, simply at book, the leverage of the company will go down to 34 with the old measurement and around 32, 33 with a new measurement. So of course, the quality of income we lose would result in a much higher quality of balance sheet allowing you to play for new opportunities. Although, frankly, speaking, we are not seeing that many or a lot of opportunities in the market. I mean it is not that there will be plenty of Castellanas ready to be bought over the coming 10 years. Because the first 10 holders of Castellana assets are either completely unlevered or low delevered. It is not like in 2008 where people was 72% leveraged on average. And there was a lot of activity in 2014. Now it's a little bit different. So the debate for, of course, any negotiation will be our book value. But it is true that in recent times, and as a consequence of the famous reflation trade, everybody is now seeing a lot of inflation moving in the horizon. And we are now being approached by what people -- by what David Brush calls geographical accidents. So deep river, shallow ocean, high mountain, so you name it, all the hedge funds and the like that are coming to see us regarding the BBVA portfolio. Why? Because they are seeing a tremendous inflation trade in there. And in many cases, they are thinking about enjoying inflation and then selling to BBVA in their wide dreams at the BBVA discount of flow. So they go from -- the numbers they count are absolutely stupid in our opinion because they do not reflect the pure real estate value of the portfolio, but basically discount all the pending cash flows at EBITDA discount rate, which is probably nonsense, but this is what they do. But it is true that this portfolio, we have 1.5x European inflation multiplier is now cold. So a lot of people want it. And eventually, we need to end up arguing about its value with somebody. We will significantly defend the premium because we believe that premium is more than warranted in the current inflation circumstances.