MERLIN Properties SOCIMI, S.A.

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 document. Today, Ismael, Miguel and David will take you through this presentation and we will thereafter open the line for Q&A.

Thank you, Ines. 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 quite complicated market backdrop.

What has happened in 2020, page four of the presentation you have a quick snapshot of what has happen. Basically, in offices, we have lost 1.7 points of occupancy that can be split us around 40% space 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 accessories of our clients, 25% regrettably insolvency or distress situations, 5% lack of agreement on rental prices.

In terms of lease activity, leaving aside the renewals, 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, no -- 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 any other commercial real estate companies, we were trailing behind market rents during the upcycle.

And as a consequence, many of the contracts we renew, we increase 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 new product to the market including fall toward 237,000 square meters. We are being able to more or less maintain the occupancy of 97.5%, which is very close to full occupancy and we have transacted 137,000 square meters, minus 11% only year-on-year 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 steady market growth. In Shopping Centers, we have resisted relatively well in terms of occupancy, slightly increasing now that this is also because of the sale of the Mercury portfolio, I mean, without that effect, it will 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.

Thank you, Ismael. Good afternoon, everybody.

I’m going to go through the numbers which are reflected in the end what Ismael has been highlighted at the very beginning of the compensation that has been the big impact that the Coronavirus crisis have been taken in our portfolio. So as a starting point on gross rent bases, we reach €503 million of rents which compares to €526 million coming from 2019.

The main reason behind this as Ismael was commenting, we have been going through asset sales. We’re commanding close to €300 million of sales back in 2019 and we’ll have also been achieving the €200 million mark of asset sales in 2020.

That means that we were starting the year with minus €26 million of rents that is the main drivers of the difference between 2020 and 2019. In between you have the like-for-like evolution that Ismael already highlighted before.

That was overall a 0.4% like-for-like evolution of the rent, a split between office, retail, logistics and shopping centers. Second, we work to girlfriend after incentives were €441 million, which compares to €551 million and 11 million last year.

Here again is what there could be -- it is already taking this rent in the sense that on regular incentive we were taking in line with prior year €15 million versus €14 million. But in the end we have €46.7 million of additional incentives which are linked to our commercial policies that we’re putting in place especially for pre-let activity of the portfolio.

So this is in the end, the main driver of a big drop in the margins that we have been experiencing during 2020.

Thank you, Miguel. Well, on page 13, we discuss basically offices.

You will see the reconciliation the bridge between what we have done in 2019 and what we have done in 2020. Notable to see the effect of the general disposal that represented the sale of around 4% of our rents in offices but 11% of our RM more than 30% of our clients.

That was clearly an opportunity sale because most of the clients were SMEs and will have given us a headache during that convoluted year like 2020. Occupancy has remained -- has not been stable.

We have lost occupancy in Madrid and Barcelona. In Madrid we basically have piecemeal, in Barcelona has been mainly the effect of the exit of a digital trade or travel agency that was in distress situation with whom we made voluntary agreement to make sure they left their space before getting into what we call in Spain Capital of Income , in the U.S.

will 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%.

Okay. Let’s go then to valuation.

On page 31 the half year result on evaluation. So, in the end, before the valuation was slightly was flat, slight negative 0.6% down.

It was mainly driven by the fact that in shopping centers we were getting a fleet of 8% in valuation, sorry, 8% evaluation then we got something €206 million of valuation loss in this division that is the one that has taken a backseat this year, a little bit in hotels which are minor part of our portfolios, while there were some minor 6.2 like-for-like valuation in that as we will division, but to assess that we are reading the portfolio which are not relevant at all. The other side of the coin is logistic and logistic we were 20% like-for-like evaluation in valuation, which implies 40% medium up.

And in offices, which is our largest division, we have in fact increase in value 1% only meaning €60 million of our valuation up. So as Ismael said, it is a quite flat year in terms of valuation that you see the 46%.

If we move into page 32, we will see that in the end the BBVA of the company in that 0.5%, mainly driven by the CapEx that we have been putting in the portfolio. First of all, to highlight the intention of portion we’re exposing close to €200 million in assets, mainly driven by the disposal of three non-core shopping centers in the month of February last year, one year ago, and some BBVA branches, €25 million in BBVA branches.

As you know, we continue on our very selective basis selling down BBVA branches and then we look obviously this year and relocation which are the most remote locations with further in order to refine that the quality of the portfolio. This acquisition was acquired with their because in terms of asset acquisition was only €15 million coming from a position of a small office building in Barcelona which is going to be devoted to be a LOOM office building that will be more beneficial by the end of this year.

And also we’ve had this release to a state that is coming from the transaction that we build on the shopping centers. Finally and important remark, in CapEx with idea also despite the situation we’re living in and which CapEx was also part of our activity, €236 million of investment, mainly focus in office, shopping centers and logistics.

As in our case the investment was €800, sorry, €87 million, mainly focusing the refurbishment of monumental building lease from the Castellana 85 building in Madrid and Diagonal 605 in Barcelona. Then shopping centers €46 million investment, as Ismael was committing, we were allowed to finish our flagship program and for this purpose this year was mainly devoted to a will be finished in the first half of 2021.

Finally, logistic, logistic has been more than €100 million investment. It is the asset class that which we are investing largely at lease was goal or function of the portfolio is coming from was €100 million.

I should be highlighting that we have been able to deliver to Carrefour a 100% of committed warehouse in January of this year. Finally, the valuation as we were commenting €100 million down in real estate asset valuation in the 0.6% were commenting before.

We’ll move now to page 34 and looking at the debt position of the company. We have finished this year and you have seen we had in 2019.

So as you know, with the COVID coming last year, all the work that were require in that, so subsidies or rent discounts to the retailers. We put in also some of their activities in order to have financial position as strong as possible and has -- have been able to maintain in the same level.

So in the end we have been set here with a loan-to-value of 39.9%. That is in that level, which we were closing the year before.

In terms of average cost also within line, during the year we were taking some debt, we were putting in place two bond issues. One on 15-year basis, other one on seven-year basis, which we have been financing partially our two debt expiries that kept in 2022 and ‘23, we’re buying back partially, the bonds are starting in those years and at the same time we were paying back two mortgage loans at €175 million, so being able to have that debt not only different portfolio but keeping assuming that was across with this type of a bit on a fixed rate basis, so close to 100% of the debt within the company is 100% fixed rate basis.

Also liquidity is nothing we are looking at and we have been able even to reinforce the liquidity of the company at €125 billion of liquidity within the company, which is remarkable and also should be as a solid liquidity looking forward, even though we don’t have any specific financing during this year. Finally, we are moving to page 35 and this is something Ismael has been highlighting but we’re very proud of that is in fact a collection of rent we will have been able to implement all across our different divisions.

This is probably quality of our tenant growth. As you can see, the main reason our real estate won’t have been able to collect in the fourth quarter all of their of the rent that was emerging.

In offices, it’s only 0.2% of the rent pending collection. To me this is business as usual.

So it’s not nothing different to what is happening in every single day of the COVID situation. And shopping center 2.4, it is also close.

The reason is we know that this is a asset class and which you should be expecting a higher bad debt within the portfolio keeping for, we should be looking after furthermore, but honestly speaking, it is close to business as usual. Now we’re moving to the next section and David Brush will take floor.

Thank you, Miguel. So on page 37, our 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 am going to focus on the E part of ESG over the next few pages. So page 37, it is really a summary of kind of encompasses all of what we’re doing.

If you look on the asset side, create more sustainable assets. So energy efficiency measures that centralization that smart building systems to reduce the use of energy to the extent that we can.

Photovoltaic tech projects that’s where we are actually producing our own power from photovoltaic and we put on the roof for self consumption. Then the others that not here specifically, as we rebid our energy supplier 2020 and now 100% of our energy is now provided from renewable sources.

So we are 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 over 2.5 million square meters certified and made significant progress. On the construction side, sustainable construction, so that’s promoting the use of sustainable materials.

We are coming a pilot program we’re using paints that is -- that actually remove Co2 from the atmosphere. And as we go forward when you look at I’ll talk about this later, but DCN and NASCA .

Those are all about how to use the most current and most sustainable building construction materials. While that is about re-energizing a space and make 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 the 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 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 of more than doubling the number of charges in place and including the beginning of start to install truck chargers for electric vehicles as well. So, all of that really showing how it is that we’re very focused on trying to improve the sustainability of our business.

If you look at page 38, beyond -- well, beyond the things we’re doing today, we’ve also started to look at how do we actually have a net zero emissions policy by 2030. So we’re well on our way to doing that.

But all of 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 a 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 that these actually are effective plans. So page 39 is getting into the specifics of the photovoltaic self-consumption installations.

Phase 1 will be cost 24 assets, it implies an investment of €26 million and 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 the flat roofs, but also in our shopping centers over parking facilities and using the office building roofs.

Highlight in this is that our policy has been regenerated return on that investment to the savings regenerate that 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, 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 at the, if we end up doing the maximum amount that we think possible while we’re studying it something between 100 megawatts 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 of just the Phase 1 has put in into pure environmental firms the amount of Co2 emissions that are saved per year and equivalent what that means in terms of 75% of the current trees that exist in the City of Madrid. And DCN on the following page, DCN or NASCA, DCN, as you know, Madrid starts with a very low level of Class A sustainable office.

It’s one of the lowest percentage of Class A sustainable in Europe. So when you look at DCN, here’s an 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 of -- the quality of supply of office that will exist. We’re not -- similarly 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, bleak and hard scape area. So we’ve created a consortium, which MERLIN were really the impetus behind, but it’s a consortium of all the owners within the Oscar area, creating what are referred to as a business investment district effectively where those owners will put up the capital, which is €25 million.

It’s not meaningful when you consider the amount of scales of value in that area. So the contribution is relatively small in comparison.

And in exchange for that, 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 and Renfro, who are probably best known for having done the Highline 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 on to that area. So that will create another green long 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’ve talked about before. 40,000 daily users and we’ve worked closely with the tenants of MERLIN Hub to create a fully encompassing urban mobility project.

So it’s not just try us do it on our own, but again, doing in conjunction with tenants, covering all matters of more sustainable mobility. Finally, if you look at page 42, this is our last-mile logistics project.

We’ve ran pilots with both -- 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 where we use the parking garages of our facilities that are not used during the night. So during the day, when they’re used for the occupants, once that you move to the nighttime, then you set up these last-mile logistics facilities using zero emission fleets, the trucks command drop the goods and the vans can 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 a double benefit of further solidifying the relationship we have with logistic providers and we generate incremental revenue from that space that was previously not been to us.

So early days 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 building certified, you could look into the offices, shopping centers, logistics, significant improvements in the certification rates from 2015 to 2020.

And if you look at the certifications we’re achieving, 98% are the good or very good from bringing 80% good, excuse me, gold or platinum in offices, in shopping center, 87% very good or good. And warehouse logistics which is more complicated because your tenants drag you down obviously in terms of your ability to achieve those high levels of certification.

We still have either 88% gold or platinum and the recent delivery of the warehouse and Azuqueca to Carrefour being the largest warehouse logistics facility, and also getting a platinum certification. On page 44, getting back to those certifications.

So again, we saw the level of previous page, we also exceed our peers, the global average and the European average in terms of our Grasbee 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 goals EPRA reporting since 2017. On AEO, we were an early supporter of this new AEO standard, which brings more transparency and professionalism to the measurements of space in Spain, and 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 the 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 analogue world to the digital world. It’s probably one of the most analogue industries and that starts with centralization to again to allow us to measure our usage in space to be more efficient in our energy uses and allows us to manage our retail space.

But by knowing much, much more clearly, who shopping in our centers, where they’re shopping, where they’re from, what their needs are. On digitalization, we now up and running with our tenant engagement app in both our room 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. Phillips another company that we actually came through our propex team, which is digitizing the leasing of kiosks and temporary space, a much more efficient and much faster way to and if we think of a better way to improve occupancy in those spaces.

Mayordomo, which after we selected them as a winner of our propex challenge. Last year they were selected the global propex of the year by magnificence.

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. We’re in the early innings, whether you’re a baseball or cricketer, we’re in the early innings of the game.

There is a lot more to do, but we’ve made quite good progress in doing that. And I will say as well, we have footfall here.

That’s been a really very beneficial relationship with footfall as we develop these technology implementations. They’ve been a key part of us help helping us vetting and implementing thoseactivities.

So, with that, I’m going to pass it back to Ismael Orrego talking about value creation.

On page 48, you will see two buildings which are now in finishing stages should be delivered in the second quarter of ‘21. Castellana 85 in Madrid, which has - will become the headquarter of Accenture in Spain and Elecnor construction company from the Basque Country and Monumental in Plaza Saldanha in Lisbon which will become the headquarter in Portugal of BBI both with very interesting use of course.

On page 49, you will see the summary of the project known as Landmark I, after going through the filter of the reprioritization of CapEx, we carried out in March after the pandemic. So with the delivery of Castellana 85 and Monumental the only pending project that is in priority one will be Plaza Ruiz Picasso in Madrid, which is a 31.5 1000 square meters building, which upon redevelopment will reach 37,000 square meters.

This is a building that we have already emptied and will start construction very soon with a view to delivering it to clients towards the end of 2022. You can see that upon completion of Ruiz Picasso II the yield 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 what 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 plant Hanedal from the municipality of Madrid with the 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 to be done to 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 companion of interested tourists, which we have obtained, or we have achieved, what we believe is an important milestone, which is that the company interest is to the has now become a multilateral agreement. So, originally in this project, we the private developer, the private promoter of Madrid Nuevo Norte DCN, 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, we include the project architectural, technical, industrial engineering projects, which are needed in order to develop all 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 this was something we couldn’t even dream in our best scenarios, we have achieved the possibility of overlapping the different infrastructure works. So up until now, the way we have devised 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 trilateral 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 two years, two years and a half of advancement in the conclusion of all infrastructural works required in the area, which is very, very important. And once the convenient infrastructure is approved, which we estimate for the second quarter, we should now move into 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 €49 million together with our partners in the project because we only own 14.5% of the budget that we should proceed to a capital increase at DCN level in order for DCN to fund the €221 million that are owed to the National Railway Authority as per statement, as first installment of the acquisition of the of the land. On page 51, you ill -- you are seeing true pictures of how Pi Saler and Porto Pi are starting to look Saler’s and interior picture and Porto Pi’s and 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 a 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 have finished all the expenditure in the flagship one plan. As for Phase II and III on page 53, you see the deliveries that we have done in 2020 and 2021, San Fernando II to in 2020, Zaragoza-Plaza II in 2020, Sevilla Zal WIP which is ‘20 and ‘21 and Azuqueca II, which has happened around one month ago in 2020.

We have delivered that turnkey project to Carrefour in order to be the national distribution hub for non-perishable goods. On page 54 and 55 you have a summary of how Phase II and Phase III progressing after the reprioritization.

We will see that after the delivery of San Fernando II, which is now let at 95% and Azuqueca II which is let 100%. The next, there was one module of Cabanillas Park delivering 2020 and the rest will be delivered in 2021.

And Cabanillas Park II will be delivered -- has moved from priority three, four to priority one, because we are now in advanced negotiations with one potential pre-let. So as soon as those negotiations with potential pre-let are concluded, we will move 47,000 square meters of the 210,000 of Cabanillas II from priority three, four to priority one and develop it because we have our clients.

Likewise, in the case of Cabanillas G&A that will be developed speculatively. We are now in advance negotiations to leave them 100%.

So, very interesting, of course, the one that you know from other additions of this presentation. As for Phase III, Valencia-Ribarroja for Basque and Zaragoza-Plaza II for DSV were delivered and also have been delivered part of the different developments in Sevilla Zal, which have been led to cover the year our cold storage facility Anthon Quatro Gasa and rent .

So only the 2021 deliveries are pending for which the pre-let are now fully concluded. So very, very interesting project is one, one with a very high given cost.

As for Lisbon Park, as you know, we were developing 44,000 square meters back at the time COVID started. Thank God negotiations have moved significantly.

We are in under now very significant very advanced negotiations and two modules out of six will only be vacant once we deliver the fully concluded shed in this year. So, the other four have now been let.

So, very interesting news on Phase III. On page 56, you will see the effect of 2021 of the WIP, which is basically net €14.4 million in a normalized year it is 22.2.

But -- for the exercise in which we are now which is 2021 we will record more an additional €14.4 millions of rent that will help to overcome whichever hiccups we might have in the performance of other assets if the pandemic proves, you know, more long lasting than expected. On page 58, we have provided you with a -- it is what are our outlook through, I am frank impression of 2021 peaks.

We know we run a risk when conveying our own prudency and preoccupation to the market because many people get almost depressed and start saying that management has been downbeat in their expectations and all that and many other people falls into what I call wrong start extrapolation. So they basically try to extrapolate trends from what is simply the ordinary management of our commercial peak, 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, guessed by many people in reality is simply the result of market uncertainty.

I mean, there are moments in the market in which there’s more activity, less activity, but we try to explain to you the way we say 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 you point to a slight decline in occupancy, because this is what I’m seeing right now. So when I get my forward our occupancy report as of today, of course, Spain is still in a very delicate moment of the pandemic.

I mean, 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 is not seeing the light at the end of the tunnel.

As a consequence, the tone of the economy today is quite negative, which is held in a way by not super brilliant initiatives from an economic management standpoint, in the last month. So, with this in hand when we look at our forward occupancy report, we are seeing a void of between 1.5 and 2.0 of occupancy in 2021.

Is this not recoverable? 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 A1 corridor, which is now empty, eventually we could revert completely all the strength that 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 our clients in some sort of distressed 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, but it’s 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 assets which can only be caused by people who is down to earth in the day-to-day management of a given building.

So, those clients eventually and all weather 30% of them, 50% of them or three quarters 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 letting in that space and many people say this is because of work from home. I wouldn’t say so, a person I mean, maybe in the future, but not at present is simply the result of our lower need of space on the basis of green economic perspective for many of our clients.

It’s 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, if not more grave than that, simply we will experience a little bit of probability that we will need to return it as we are doing in shopping centres in a much better market, because offices of course is not under significant pressure like shopping centres. The flex space will help, because we forecast that they will be regained relative share from its current small ways 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. They fear, we have about the potential for an oversupply in certain areas of the A2, now with the sheer evolution of the ecommerce are probably those fears are allayed.

So we shouldn’t be now fearing 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 thought, because if there was no problem, there will be more activity.

So the market will continue to be good. However, don’t be surprised and also don’t be misled, if in the third quarter and particularly in the second quarter, you need a drop in -- you see a drop in occupancy logistics, because we need to do a little bit of portfolio clean up.

Why? Because during 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 shades.

So now in 2029 -- in 2021, sorry, we need to make sense of all that and we need to convert those contracts into olden days law, long-term contracts. If the clients want, if they don’t want of course, they will need to vacate the premises and the premises need to be re-tenanted with somebody who can commit for a long-term contract.

It’s important to have provided them with health in a difficult year. But we are not a charity organization.

So we cannot continue providing them with health indefinitely. In terms of retail, the tone I believe is going to be relatively flat.

We might see some declining occupancy, if we cannot cope the rhythm of re-tenanting with a rhythm of eviction. So if we go faster in eviction then in re-tenanting eventually we may affect the occupancy.

Frankly speaking, I don’t know, maybe we go slower in eviction than we go in re-tenanting. 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, 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 that in past years, we have normally tried to be prudent in our guidance’s and then we have tried to beat them towards the end of the year. As for the 2020 pay out, which determines our DPS, we have recommended to the Board €0.25, whoever the Board is sovereign, and there are voices in the Board that want more dividends.

So, openly I can tell you and I have I have told you privately to many of you that when doing your model, you should calculate €0.25 because that’s a minimum it will be €0.25 if we can then go to €0.30 or €0.35 my surprise that I will be betting on €0.25 as a base 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 non-core disposals is not that we are going to go out of our way, we will continue doing our normal form of disposals in the year should be €150 million to €400 million of which we have already made €50 million.

So it’s not that you should expect tremendous amounts, because non-core disposal the following year weighing 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 wild in terms of this process, because we need this company to be lower, but also cash flowing as it has traditionally been.

Many of you are also asking, why not a better guidance on FFO is we are in the middle of a 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 main European office contracts and in many of the 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 index to a different date, but normally they tend to be indexed to 31st December.

So reflation trade, yes, do we say it, of course, yes. Do we say it for the future.

It is visible already in January and March, in January and February in the in the underlying CPI in Spain and in the European Union, but not that we see not that quick, not in the coming months is not immediate. If we move moving to closing remarks on page 60, I simply want to bring your attention to the fact that, although criticised 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 categorised as stable, I mean, no matter the fact that you may lose a little bit of occupancy, it is globally stable.

We also operate around 18% of our rents in logistics clearly grown. 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 done better than many people think.

So, this is the picture for the year and in fact for the future and we will continue suffering this year we will continue adjusting the valuations of shopping centres, but other than in the investment market, other than evaluations shopping centres, whenever they are allowed by the public authorities to open they open unperformed. Our portfolio a super high quality one, 92% of our offices are in prime CBD and new leases area, 90% of all logistics are suitable for e-commerce and 95% of our shopping centres are either overweight or dominant.

And on page 61, you have a reflection why the cash flow stream of this company is stable and predictable. Many of you call it resilient.

The reason is that we have €2.9 billion in contracted rents to first break. So if we were an infrastructure company that will be the backlog that if you take into account the full duration of the lease contract that will be €5 billion.

Only 9.9% of our rents mature before the end of 2021. Our incentives have been fully booked in 2020.

So it’s not that you can expect any effects of linearization in future years. We have secured annual rents from our growth plans amounting to €22 million extra income per year.

So as you know will kick in full from 2022 onwards in 2021, it will only be €14 million. And we have now a fully funded CapEx program.

Our debt profile is healthy with 39.9% LTV with the traffic transfer costs 41% is not considered. Our covenants are at 60%.

We have no debt significant debt repayments till May ‘22. And we are accumulating cash to make sure that we can pay it with internally generated resources.

Our liquidity position is €1.25 billion. We have best-in-class collection rates and very low risk of bad debt in the future and we have our BBB stable rating by S&P.

And on page 62, as a final reflection, simply to say that between 2014 and 2016, we built our portfolio of super high quality in a record time, that allowed us to reach our leadership position in all the segments in which we operate offices, net leases, logistics, and also in retail in the Iberian Peninsula. Let’s know probably by the general public, we dispose of hotels, residential and out of non-core offices and retail €4.2 billion sold since 2016, of which €2.2 attributable only to MERLIN.

So, for the people that called us a proxy to the Spanish market we’ll ask 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 Phase II and III, which is the greenfield development of a lot of logistics, where a lot of source have been added, because we have self developed around 80% of our current product, which is out. And in 2020 to 2025, simultaneously with the extension of the rest two and three plans and all initiatives deriving 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 rate in our Iberian market.

And this is done through, putting an action in sustainability, in innovation, in technology, but also flexilizing our services and enriching our user experience. The fatherhood, the paternity of this strategy has been shared by all the management team of this company and I believe they deserve a lot of credit for it, but has also been led by the wisdom of David Brush, who has been our, colleague, for now, six to seven 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 conference call, he will be participating in MERLIN.

Thank you, Ismael. 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 Ines, Fernando, Ismael subsequently about the decision that I’ve taken.

I want to give a 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 four children for -- to globalize the opportunistic investment -- investing business of Bankers Trust.

So it was meant to be a three years. So I like to say I’m on the 22nd year of a three year assignment.

And in fact, when I came to Madrid in 2014, when I took the decision to leave Brookfield and join this fabulous project. I said to my wife, I think, it probably about five years, who knew at that time what MERLIN would become, and how this would take off and become so successful.

And in April it will be seven 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, now two of them are married. So the gravitational 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 further.

So the time I think now is really right for me to move back to the states mainly for personal reasons. And so that’s really the genesis of the decision.

That said, it’s not going to be immediate, I signed a one 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 first of March, I’ll be back at my desk doing largely the same thing I was doing previously.

But my focus will be narrowed more as I as we go forward. And there are three things I’m going to really concentrate on during this next year.

And if I say minimum year two by the way, because it’s going well and everything’s happy at the end of one 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 businesses.

The passion of mine is something that is very interested in and something I feel like I’ve played a major role in. And I will continue to do that because as I said earlier, we’re in the early innings of digitizing a very analogue 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 help -- and I can help as much as I can in furthering the growth of that business.

And then the third I would basically say is any new projects, working with both the Board and management, that represents the convergence of technology and real estate. Because there will be new opportunities, I think that emerged and present themselves.

And again, that’s something I feel very strongly about and passionate about. So I will continue to focus on that.

So, no goodbyes, no testimonials, none of that, there’ll be no retirement dinner, because I’m not going anywhere for a while.

Thank you, David.

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

Thank you.

Yeah. Thank you.

Good afternoon, gentlemen. I have two questions, if that’s the right.

The first question is on the payout ratio and the second question is on the office valuation. On the payout ratio first look, I appreciate this as 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 I think 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?

Thank you

Okay. Okay.

Mark, look I would say it owing to the pandemic because as the consequence of the pandemic it is even important to lower our loan-to-value ratio. As you know, our long-term ambition was to go from 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 us 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 really leveraging the company on the basis of the growth in value of the assets and normally that will have surfaced, in a normal market to be a 35, 36 in 2023, ‘24.

As a consequence of a pandemic, we see ourselves in a situation in which it is even more important to make sure that, although it is hard to believe that in the short-term, unless we sell one big non-core 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 rating agencies. So it is pandemic related, I would say, and the idea if we go back to a normalized market in sane, fully normalized in ‘23, would be to go back to the 80% AFFO payout ratio that we have usually had in the company.

As a reminder, all people who 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, that 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 non-core or delivering on the way you do it, 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 yield. Now, the extranet initial yield on the office portfolio hasn’t really changed, it’s still 3.6%.

But you disclose a significant drop in the exit yield that the values have assumed any 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 slower disk exit yields, but actually higher discount rate in the meantime? Thank you.

Yeah. Mark, look, the reason why we put the discount rate in these results presentation was precisely to bring your attention to the fact that this year that we are not changing criterion because we change the value, so the usual value of the portfolio has been saddled, the year we have moved to Juan La Saler and they have a different way to reach basically the same figure.

So Ines, can explain to you what has been the approach of Juan La Saler but is exactly what I just committed to you.

Yeah. So, as you know, Mark, we have a policy of rotating the appraiser.

So we navigate about around three years. But we don’t do it all at one.

We actually do it in a static basis. And this time, it’s been in the office mainly.

And exactly for the reasons I’d say Ismael mentioned, we thought it was important to show you that this was not only a 10th on the equity deal, because otherwise you would have expected a much higher JV like-to-like increase rates. But he was just a difference in both assumptions.

So that was it.

Great. Thank you very much.

You’re welcome.

Hi. Good afternoon.

I have also two questions. Just one on your office occupancy performance going forward is mild.

So 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 high quality portfolio, a lot of it is in CBD or prime areas?

How come then you’re not outperforming the overall market? I would have expected that, given what you say about your portfolio?

And 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, you get to manage the company for cash flow?

Isn’t it better just to manage the company for total shareholder returns? And I say that because I guess in terms of where you’re trading wouldn’t it be a smarter capital allocation to actually sell a lot of assets and you can either be leverage or return that extra cash to shareholders but basically shrink the company that would have been what I would have expected the Board to think is a smarter capital allocation?

Okay. Well, question number one office performance, the reason why we go with the market is very simple, I mean, it’s six 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 of the essential marking. 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 one month ago and they should be ready to work the end of 2022. So, I know it’s a long period, but it is what it is.

So, if you were to perform on our portfolio for the buildings, which are endemically empty in that area, the occupancy will be significantly high. Anyway, you can also see that our peers are lowering a coupon significantly.

So, it’s not only being asked. 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 have rent signed up 27.5 in the past cycle.

Now, for the back buildings are LEED Platinum, you are lucky if you get 18.5 and for the buildings which are farther from Paseo de la Castellana or lower quality from let’s say, physical setup standpoint, you get in the original €15. So, since the market has not recovered from the past crisis, there has been no new construction in the area.

I mean, there is one other big development being done by business player and we have also some land available in the future in case we want to develop some extra property in the area. However, the catalyst for the change in that area will only be reached when the new area of training is ready, that will be four years to five years from now.

And when the new subway is up and running, which should be five years, maybe five years to six years from now. Only those two infrastructures will really may need a big change in the area, because they will -- those will include that area into, I would say, old Madrid.

It will no longer be a highway, an exit, it will become part of the Chamartin 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 external dividends, et cetera. Of course, we sell assets and we keep our asset rotation program alive every year.

But we don’t sell assets like crazy because if we sell assets like crazy the following year with nice the cash flow and we have that has happened to us in a number of years now, including this. I mean, you sell assets then you don’t have the cash flow and this company is a mix between -- yes, keeping a big LTV.

It also trying to retain some cash flow. So, this is what we are trying to do.

Manage the company on a going concern basis. It is not -- we cannot manage the company as if it was a private equity firm, which of course, we could do it, because it has been our traditional past that selling things and realizing the capital gain and distributing that capital gain to shareholders.

This is not what we did, I would say, the orders or the mission we are getting from our current Board of Directors.

Excellent. Thanks very much.

You are welcome.

Hi. Good afternoon, everyone.

Just two questions please. The first one somewhat related to this topic of disposal in terms of the rebalancing of segments and in the long-term, your target still assumes 15% in shopping centers.

And 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 valuations, because that’s where you would reduce your LTV and potentially raise firepower to scale logistics, just difficult epilators 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 last? Okay.

Thank you very much.

You’re welcome, Pedro. Look in terms of selling shopping centers.

I have to give you my honest response. There are three shopping centers that we consider non-core they represent only 0.9% of our total portfolio.

But I guess they are three shopping centers that we consider non-core only because they are located in cities with less than 500,000 inhabitants of primary catchment. So, one of those is clear dumb performer.

But the other two are very good performers. One of them are newly discovered performer because it is an outlet and has started performing very 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 three, yes, I mean, they are non-core to us, and eventually, if we have the opportunity, we will divert.

The other 12, I am not that sure, maybe there is one that can be -- could be doubtful, but the other 12 know, because the other 12 will end up, will end up representing between 12% and 14% of our portfolio and they are extremely complimentary of our logistic support. So, as 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 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 pop up like mine logistics. Because pop up plus my logistics, doing them in a ordinary office building with no cargo dock is much more complicated, because the breakage of the cargo needs to be long with palletizers and this is much more complicated than doing it through an automated cargo dock.

So, of course, if you ask me if they pay me a good price or a premium, of course, eventually we might consider repeating them. But in the current circumstances the market has disappeared, liquidity is very low and selling them at any discount simply for the pleasure of selling them.

I am pleasing all of you because we no longer have retail. I believe it makes little sense in terms of protecting the ROI 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 disability 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 plants that have not extended and have been excluded from the protection measures and are being evicted and rotated out of our shopping centers. So whoever took the decision to extend the lease are committed before made a prejudgment of the future feasibility of its own business and considered a 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 rent. And yes, that could be significantly harsh negotiations in rent, but they 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, I mean, we are not playing for a loser in this occasion, because we have already taken the heat in our cash flow and whatever the final real equilibrium of rent is it will be better than what we have now. So, this is the way we see 2022 in shopping centers.

Very clear. Thank you very much.

Hello. Hello all.

Thank you very much for the presentation. I have three questions if I may.

First on the occupancy impacted that you said Ismael about 1.5% to 2%. Is it possible to say how much of this come -- would come from offices and shopping centers and logistics?

Then second question would be on the -- is on the CapEx, so you’ve invested over €200 million in 2020 and you have given details on which projects you’ve invested in. 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 question here is, would you considering selling a big proportion of this branches and what would be the maximum that you would consider to sell and also what would be the minimum first hold or premium you would ask for you to sell them?

Thank you,

Okay. All right, Fernando, look in terms of the occupancy drop of 1.5% to 2% that is offices only.

So in -- 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 missing one former top level supermarket in Castellana.

The rest is fully occupied. So…

Okay.

So, no, no, so, I haven’t extrapolated these to the full portfolio.

Okay. Okay.

Okay.

But much less than that. This is only for offices.

Okay. Thank you.

Then…

Okay.

… for the CapEx 2021, I don’t have it handy and by heart. But Ines will give you with any numbers of reconciliation, you might need.

We will continue with the CapEx plan in 2021. The lion’s share in fact, of the remainder of landmark one flagship and our best one three was in 2020 and 2021, sorry.

So 2022 is much more moderated. So 2021 will still be relatively intensive in CapEx.

But I don’t have the finger now handy with me. And as for the BBVA disposals, look, I cannot give you an idea of price, et cetera.

What I can tell you is that conceptually this is a non-core portfolio for us, because we are not vocational operators of bank branches. So, these are inherited portfolio, which is our heritage of the company.

It’s a wonderful one, it is providing us with much needed much needed cash flow particularly in these difficult times, but it should also be taking into account that performance of our disposal of BBVA at book, simply at book. The leverage of the company will go around to 34 with the old measurements 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 sheets, allowing you to play for new opportunities. Although, frankly speaking, we are not seeing that many -- lot of opportunities in the market.

I mean, it is not that there will be plenty of Castellana ready to be bought over the coming 10 years, because the first 10 holders of Castellana assets are either completely unlevered or lowly delivered, it is not like in 2008 where people was 72% leverage on average. And there was a lot of activity in 2014.

Now it’s a little bit different. So, the base, of course, any negotiation will be of 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 looming in the horizon and we are now being approached by what people, but David Brush 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 the BBVA in their wild dreams at the BBVA discount of flow. So, they go from -- the numbers that come up are absolutely stupid in our opinion, because they do not reflect the pure real estate value of the portfolio, but they simply discount all the pending cash flows at BBVA discount rate, which is probably nonsense, but this is what they do.

But it is true that this portfolio with a 1.5 times European inflation multiplier, it 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.

Okay. Thank you very much.

Just a follow-up on the last one. So -- and if you in the event of sell, a big proportion of it, because they price they pay is crazy.

What would be the priority for you, I just said that there is a low limited opportunities right now in the market, but I don’t know, maybe this year increase the stake from BBVA or doing some greenfield logistics or offices, I don’t know. What would be the priority or only delivery and return to shareholders, what would be the priority for you?

In principle, Fernando, LTV control, first, and second, money was to shareholders, whether through the form of our limited share buyback program or eventually through extraordinary dividend then we will need to check it. But primarily and significantly, I mean the lion share of the amount LTV control and part of it money back.

This year, if it is a condition by BBVA, of course, we might think about it, but if it is not currently our top priority, because of the time span between now and the attention of cash flow, which the first cash flows in this period -- in this project will come in year ‘25 ‘26. So it is not a super high priority of ours to invest now in something that will only mature in 2025, ‘26.

Because it will leave too much of our money, let’s say, rendering no fruits or bearing fruit in the balance sheet of the company, so, we need to make sure that if we do something that is balanced. And greenfield developments in logistics complicated, because the land now in any of the big logistic corridors in Spain is sold at prices of and eventually the data center program of which we cannot provide details today, but eventually that could be another possibility.

Okay. Thank you very much and very clear.

Okay.

I agree. I think I’ve done up until my question already, but if you can add a bit of color around me that will be great.

It’s regarding your FFO guidance. Can you comment on the assumption of factoring there, especially regarding occupancy losses and disposal?

And I remember you talked about 5% of your retailers being at risk of insolvency, how would construct guiding to occupancy losses for this year? Thank you.

Sorry, Céline, that we are -- I mean, the line is cutting off somehow we can hear you well, you mentioned ethical guidance and...

Yes. And the assumptions you put in there…

… especially on occupancy losses for retail and on disposals?

Well, of course, you will correctly spotted, I think, we have 14 million of extra rent and we are guiding to a flat FFO is because we are considering like 14 million of performance erosion. This is true we are clearly estimating the maximum occupancy erosion in offices in shopping centers and but it is very difficult to give you an upside case.

I mean, I prefer to refrain from creating now, out of my heart and upside case. I mean the base case is a relatively flat FFO, because the WIP that comes into production is somehow offset by erosion in performance of the different business lines.

You can -- if you want to go in greater detail you can discuss with Ines. But -- I mean, out of the blue to provide you with an upside scenario.

Of course, we have shown to the Board a number of different scenarios, but I prefer not to disclose them in a resource goal.

Okay. That’s great.

And just to be sure, I’m just going to slightly push on that. I think the big picture for retail is pretty clear for this year.

But it can come out a bit more about offices, if your expiration date of underperformance?

Well, in offices, the situation is as follows. The fundamental equilibrium between offer and demand between supply and demand remains.

I mean, prior to the pandemic, that equilibrium between supply and demand was slightly skewed towards demand. And that was causing both occupancy and rent to be going up at the same time, which as you know, is not typical in real estate.

Sometimes you fight for occupancy at the expense of rent, sometimes you fight for renting at the expense of occupants who were more or less simultaneously, we were racing, both occupancy and rent. That’s a mental equilibrium remains and what is more important is not broken by an oversupply situation, what is happening is that the market second sequence of uncertainty is having a blunder demand.

So the demand is clearly now hesitant, is reluctant to trade, is reluctant to engage in long-term contracts, people is simply waiting to see what happens. This is why I say sometimes that, what the future will bring will depend more on the whatever happens with a pandemic than out of pure real estate or economic equilibrium.

If Spain can speed up the vaccination rhythm and can have a significant chunk of its population ready by the end of the summer, we expect a good fall and winter. I mean, very simply, I mean, deposits in Spanish banks have grown in one year in 2020 by 14%.

Spanish saving rate is now in the region of 25%. Never since I have short trousers, did I see savings rate like that in Spain, not even in the worst years of the end of the Gonzales era.

So there has been no economic destruction, no destruction from of infrastructures, no destruction of manufacturing facilities. There has been no erosion of the population pyramid in the most productive segments of it.

Of course, we have lost a lot of lives be gratefully on the top of the pyramid, but not different to a war of different to a natural disaster, we haven’t lost lives in the mid-part of the pyramid. So, the monetary authorities have reacted very quickly and very swiftly and very abundant, liquidity out there in the market.

So in principle, the scenario looks set for -- I don’t know whether quick, but at least intense recovery, if the pandemic gives place to a more normalized way of life. If that happens, of course, we believe offices, because there is no fundamental imbalance because in terms of office price per square meter.

If you take the CB Richard Ellis Index of most expensive cities in the world, Madrid is like 56th place together with Bristol. So because real estate represents 4% of the salary cost of an employee in Spain, because commuting time to the office in Madrid is between 20 minutes and at the maximum 40 minutes for 90% of the workers.

So the hike in productivity of work from home owing to the commuting time is not applicable here to Spain, because the government in Spain has put together a legislation to protect the work from homers that oblige the companies to pay them a premium that can be within €120 per month to work-from-home, which you know is probably mind boggling for most companies and eventually not promoting significantly WFH in Spain. So, there are a number of reasons that led us to believe that in a normalized environment offices should I don’t know whether shine, but certainly recovery faith, and continue performing as well as they performed in the past.

Sorry now there said, which doesn’t sound overly bearish to me. Is that crazy to say your guidance is a bit conservative?

Yes. It can be construed as conservative Céline.

but better play safe. I mean, we read the play safe.

I mean, we are, this is a big company we are in uncertain times. And we don’t want to look cool in front of the market and guide to fantastic results.

Because, frankly, speaking, we don’t know, how long will the pandemic be and whether the South African, the Manaus strains are going to jump over the different vaccination campaigns, and the herd immunity will never be reached. So this is why we prefer to be a little bit prudent.

Thank you, Ismael.

You’re welcome.

Hi. I’m recognized along the Corus cons hopefully quick, but just a question on officers one on like-for-like as well, shopping centers.

So officers, can I just check are you talking about a healthy level of activity versus leasing volume that was down I think 45% in the year, if I’m not mistaken. Can you just square those two and second on officers what’s happening on tenant incentives or net effective rents at the moment?

Are we seeing a downward trend there? The second question on shopping centers is if I missed something on the like-for-like, down 1.2%, when it’s down by over 20% in Spain for like unit buy?

I must have missed something, but perhaps you can just help me with that why is it not worth? And then the valuer’s rental assumptions on shopping centers?

What are they putting into their cash flows for the next couple of years directionally?

Okay. As for us for offices, when we said that the post pandemic activity was healthy.

Of course, it was healthy, but it was lower than last year. So healthy mean healthy means that we received many, many calls by people, implying like the market was completely stopped, there was no activity, nobody was moving.

Nobody was -- there were no leads, no people visiting offices, and we tried to demonstrate at all times to people that life continues. And there continues to be people visiting offices, of course, less activity than the prior year, because the prior year have been a normal one, but still relatively healthy.

As for net effective rent in offices, if you know our trajectory, we are not big fans of playing games with facial rents. So yet this year of course, owing to shopping centers we have taken a very significant hit and hence a big delta between gross and net rents.

That on average, this company pride itself for having been always within 4%. Normally, our total incentives were in the region of 4% and, that can be proven.

If you look at the historical numbers, I mean, there is always been very little difference. I mean, we haven’t played what we called in private equity, they teach the German strategy.

The shinning very high special rent, with lots of concessions, lots of rent and concessions, so that when the buffing valuer will come, we will only show the main paper, but not the site papers that were kept in our drawer. So we try to be a little bit concern here, because this is our listed company.

And our incentives other than the ones that we have given for shopping centers, if or in other words, if there is a normal year 2021 you will see our incentives going back to around 4%, because given that we are not a straight lining or we are not carrying incentives from one year to another. As soon as the pandemic effects go out, you will see our incentives going back to normality.

In offices, the market has increased a little bit. The market practice in terms of incentives, prior to pandemic, it was in the region of three months of free rent for an average five year contract, 60 months that was like a 5%.

And today, it has moved more to six months that will be kind of the new normal in the market. So it has almost doubled, but that is all this is what we are seeing in the market as we speak.

In Spain, not a lot of folks freak out contributions are not that typical in the market. I mean, you see some but not allowed.

And that is basically how the office market is behaving, which is, I would say, relatively healthy, but particularly having worked in other countries in my Park Life. The new norm in Spain is quite healthy in terms of how credible the indication of rent is.

Ben, regarding the like-for-like growth in shopping centers, the 1.2% -- minus 1.2% that you see there is basically due to the loss of variable components. And it’s been netted out somehow probably some step up plan and obviously, the leasing activity that we’ve had, which is not bigger, because we always report on a gross level.

And as you know, all the COVID incentives have been given as peer incentives in the P&L. So that’s probably why you cannot reconcile old number with some others.

Okay. Thank you.

And there was just one final question there on the like on the…

Yeah.

… shopping centers just in terms of what the value is of assume, what is the trajectory of rents from here I guess it was like-for-like into 2021 and 2022 for example?

Look, the models of the valuers are relatively flat in rent. And you know they have put the accent mainly in increasing the discount rates and widening a little bit the exit yields.

My impression is a little bit different. I believe there will be a new normal of rents nobody knows what the new normal of rents will be.

There have been a number of research efforts in this matter, for example, Bud Gaisen have written on that and he says that the new normal will be in the region of minus 20% for Prime, super prime shopping centers. We might agree with them.

I mean, we believe that part of the incentives we are given today, if we consider as we consider that most of the e-commerce additional penetration reached very quickly within the pandemic will become structural. These will provoke tenants to go slightly down sets per square meter.

And in order to compensate this, you will need to lower the rent. So long-term, I don’t know whether in 2025 or 2026.

I don’t but the new normal could be in the region of what Bud Gaisen guided to.

Is that a 20% from here or, or from a pre pandemic level?

From pre-pandemic level.

And so, how much could have we taken in so far?

Look, on average in ‘19, we have taken more than 40% in 2020. In 2020, we have taken more than 40% hit in ordinary rents.

This year, we expect to lower it to below 30. And, as you know if you go to something in the region of 20 -- you have further room to improve over the coming years.

Okay, so we’ve dropped 40% recovered 10% and there’s another 10% to come potentially?

Yes, and that would be a fair assumption. A little bit crystal ball, of course, because it will be 10%, if there is a very revanchist pending kind of wave eventually, I don’t know shopping center will shine again.

I don’t know.

Okay. Look I accept that.

So, appreciate the answers. Thank you very much.

And I’ll leave it there.

Thank you. So I believe there are no more questions.

So we’d like to thank you. We’ve already taken enough of your time.

Thank you very much for attending this is very long call. And as always we remain at your disposal for any further questions or clarifications that you may have.

Have a nice weekend and thank you. Bye-bye.