Inmobiliaria Colonial SOCIMI SA

MAD:COL

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to Inmobiliaria Colonial First Quarter 2020 Results Presentation. The management will run you through the presentation, which will be followed by a Q&A session. [Operator Instructions]I'm now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial.

[Pedro Viñolas Serra, Vice]

Thank you. Good afternoon. This is Pere Viñolas speaking. As usual, Carmina Ganyet, Corporate Managing Director; and Carlos Krohmer, Chief Corporate Development Officer, who will be with me in this presentation of the results for the first quarter for Colonial.First of all, I have to say that this is a very unusual presentation, because usually, in a presentation, focus and the interest is in what actually happened in that particular quarter. But this time, I think that as important as the results that are presenting today is to provide some insights on comments on what has been happening later on during the month of April and May because of the COVID crisis. Therefore, I will be providing information on both and in the current results for the first quarter and also on the actual situation of Colonial regarding the COVID environment.On Page 6 on the presentation, where, in fact, I would like to start with a few words regarding the COVID crisis and where Colonial does stand regarding the impacts of this crisis in Colonial.First of all, our priority -- priority of any company is safety of health of our stakeholders, our employees, our clients. As of today, fortunately, this has been no relevant negative situation within our employees at Colonial Group in Spain and in France, so we're very happy about that. And the company remains fully operational at all levels. Remote working is the current status of our employees, and also our office buildings remain fully operational and available and have always been fully operational and available throughout this crisis, because regardless of the fact that protection was first priority and many companies decided to remain working from home for this period. Anyone who would like to work out of buildings can do too. And as I said, the buildings were fully available for that.How have things gone during this challenge? As a whole, I would say that we might distinguish in anything we say regarding the COVID crisis. We distinguished 2 different sets of comments. One is what is actually happening to us. And right now and here, we would like to just share EPRA, because I think that's the most [indiscernible] announcing is really about the future of this impact of crisis on the company, which is more uncertain at this time, which is more judgmental. And at that level, it's much more difficult for us to provide any comment.If we remain at the first level, which is dimension, even if we are talking about a very small data, what is it doing right now, I would say, first of all, we have released our invoices. These are invoicing for April, and there is no relevant defaults coming from the invoicing of April. So there's no part of this invoice from that has been not paid. And whatever you have to say of this rent is very, very marginal. So cash recollection is with no relevant default in April.A second level of comment is regarding the clients that we have that are -- have entered into discussions with us in how to address the current crisis and if this would merit any discount from the company or any restructuring of the rents that we are receiving from our clients. I would like to remind that the clients we have are usually very long term. So it's a very long-standing relationships and not, let's say, very short-term-oriented kind of relationships. The discussions that we are having with the clients as of today could mean -- will mean an impact that would be around just below 2% of our 2020 gross rental income. That's the amount equivalent to the discounts that we estimate that will be agreed regarding the process we are going through. I would like to emphasize that I'm talking about a one-off impact that we'll expect for 2020's gross rental income and I'm not talking about a regular kind of reduction in the rents that we are having from our clients. If we have to estimate in these ongoing discussions, what else could happen or to what extent this impact that we have as of today could raise, our current estimate based on the situation that we are going through is that the maximum impact that we may have in our P&L is around 6% of our gross rental income. Again, I'm talking about one-off kind of discount estimate as a maximum loss that we could experience during this year. So we are really talking about a factual number of 2% as of today that I think that has to do with the nature of our business with, as you know, has very low exposure at retail and very low exposure to small and medium companies.The other thing we'll discuss about current situation is that we have renewed our plans regarding CapEx. And we have postponed some of them and EUR 75 million are now pending for 2020. Also, another thing we've done is to review and enhance, if possible, the situation of our liquidity, which I think is outstanding in absolute terms or in relative terms, we currently are sitting on more than EUR 2 billion of liquidity that has been recently increased by EUR 200 million and which gives a level of comfort to everyone regarding our financial situation. That's regarding liquidity.And regarding LTV, our current LTV is 36%. The solvency of the operating company can be addressed in many different ways. One thing -- we think that one of the most simple ones is to look at the rating that we are being given by the agencies. We've just gone through a review of the rating by both Standard & Poor's and Moody's. And this review in, let's call it, a post-COVID world that missed just a few days ago ended into a confirmation of exactly the same level of rating that we had before, which, again, I think, which is very good in absolute terms and also in relative terms if we compare these with the evidence available for the rest of the sector or even the economy as a whole. That's our, let's say, initial comments regarding Colonial's experience to date regarding the COVID-19. Now we have to give some comments to our pre-COVID first quarter results. The main highlight we'd like to -- we cross now this Page 6 is you will see that our gross rental income is EUR 86 million for the first quarter. Maybe -- here the outstanding figure is -- this means a 6% like-for-like growth. The recurring earnings are EUR 36 million, which is a 10% year-on-year. This is reflected in a recurring EPS of EUR 0.072 per share, which is also growing at about 10%. If instead of moving the recurring earnings or the EPS we look at the group net profit, then we are talking about EUR 32 million, and that is 39% of increase compared to last year.What is behind these outstanding results? As you will see, occupancy has reached now 98%. The letting activity remains in ongoing group terms. The release spreads show very positive numbers, also the rental growth compared to year-end in 2019. And also, the -- our project pipeline is going through a very good progress, as I will discuss more in detail later. Finally, there's not many relevant disposal at this point, but those that have happened have happened at a very healthy premium compared to the year-end run rate.A final comment is on the dividend proposal to the AGM. This is a sensitive topic, because it -- the dividend proposal has to be, we think, consistent, first with the fundamentals of the company that are really in line with the KPIs, with the main reality that we are going through. At the same time, I think that the dividend proposal has to be prudent and has to be also in line with the kind of scenario we're going through right now. Therefore, the dividend that the Board is willing to propose to a general shareholders' meeting that will happen next month will be of EUR 0.20 per share. This is exactly the same figure that was paid last year.So if you want to look at from a prudent end, let's say that we are freezing our dividend and we are not increasing our dividend at our figure that we previously expected. If you want to look at it as the dividend reassuring the strength of Colonial, we are not cutting our dividend, we are paying EUR 0.20, which is exactly the same figure that we paid last year. So I think that we try to provide the right balance of prudency and sensitivity regarding the world we are now living in. At the same time that we want to be consistent with whatever the fundamentals of the company are in terms of P&L, in terms of balance sheet. Therefore, that's why this is a decision that we proposed to the general shareholders' meeting.I'm now skipping on to Page #7, and I will now discuss mainly about what is behind the reality that we are showing in our results for the first quarter. Page 7 remains with a little bit of view on the highlights. As you can see here, we are repeating the messages about the evolution of net profit, recurring net profit and EPS, which grew by 10%. Maybe more significant data that we want to provide here is that behind these numbers, what -- first of all, we have to highlight is an outstanding gross rental income growth in like-for-like terms. I mentioned already that it went up about 6%. You can see that this 6% is particularly strong for Madrid and Barcelona, and I will explain later on what is the main driver for that. But it's double-digit like-for-like rental growth in Madrid and Barcelona. If instead of talking about like-for-like we talk about release spreads, as you can see on the right hand, we are talking about a 21% double-digit release spread for this first quarter. Particularly strong in Spain and France. And if I would have to talk about rental growth in terms of rental prices signed compared to ERV as of December '19, then this 6% would be 7% in Barcelona, 5% in Madrid, 7% in Paris. That is across the board very, very healthy numbers.I would like to highlight that also this rental performance is a direct consequence of the kind of prime positioning that the company has that has been addressed to enhance resilience. It's not something that we now say because of the crisis right now. Those of you who have been following for several quarters or years, you know that this is a kind of everyday story that we've been insisting on for at least the last 2, 3 years. And we used the word flight to quality to describe what we were doing. So there we said, we want to be more in CBD. Now we are at 76%. Why? Because it not only gives the right level of returns, but the right level of risk protection, as we know very well from previous crisis. We've been driving the company's strategy into more and more kind of diversified AAA client portfolio. Here you can see the level of loyalty is that has remained well which is very long. This kind of prime positioning is not only to asset, it's also for our capital structure I already mentioned. And we will discuss more detail later on where we are regarding the rating agencies. And this flight to quality has meant that we've been divesting almost EUR 1.5 billion in recent years to have, let's say, an even more robust balance sheet.Because of this CBD prime positioning, you have an occupancy that has now achieved 98% across all markets, as you will see, with a very interesting maturity profile, and as I said, and we will discuss later on, with a very successful, strong financial ratio in terms of LTV and liquidity.Finally, when I presented this company as, let's say, a good performing company in very difficult times like the ones we are going through, I think that I have to highlight that we've gone through this before and the team of Colonial is representing not only good data regarding the company, but its own track record in the situation -- in the management of previous situations which are very, very similar.So going now more into details, I will skip to Page 10. My -- having gone through that -- the main highlights, I will go now into the details. And point 1 is about the first impacts and Colonial response on the COVID crisis. First of all, I have to say that it's obvious that we acknowledge and we understand that the coronavirus epidemic situation is relevant -- is very relevant and is significantly affecting our domestic and global markets. So it's -- that's obvious. At the same time, our view is that it's quite an uncertain scenario, the one that we will be going through, so very difficult to predict. And therefore, we have to wait to have a precise view on the impact that this may have within our business. Whatever -- however, in the short term, where Colonial's portfolio is and where we have been going in recent times is to enhance our current liquidity and the solvency position of the group in order to responsibly deal and manage the situation.As I said at the beginning, our management of this crisis has been addressed, first of all, to protect employees, to take care of our clients and assets and to deal with our pipeline, their base, therefore, the CapEx and the financial structure of the firm.Page 11, our employees are working in a flexible way remotely as of now. And our priority has been to preserve the health and to facilitate the operations and activity. And we are quite satisfied the way we have managed this and where Colonial is today with no relevant casualties at this point.Regarding our clients, to date, there is very limited spread of coronavirus among our clients. We have addressed the situation, I think, accordingly, with a right level of communication of Colonial protocol to guarantee a safe environment for them. And we've been in constant coordination in case any potential risk that has been detected with our clients.That meant that regarding our building, we have taken all preventative measures that have to be executed and have implemented COVID-19 protocol in our full portfolio. Bear in mind, we said at the beginning that our assets have been operating full time since the beginning of this crisis, fully available for our clients.We have said that I think the first thing to highlight is the exposure of Colonial to retail sector center is quite limited compared to average ECA. All assets, we have had, let's say, a limited exposure to the sector in this outbreak that we are going through.[indiscernible] that is quite small compared to [indiscernible] is quite marginal. Just to mention that also at this level, establishment of actions and prevention measures for all coworker centers, we are working through access cards, which is, let's say, the normal situation of employees being stationed at our centers. And we have also virtual events, additional virtual hands-on events for our clients.Page 12 in our pipeline, we have resuming our work. Although we expect certain delays, we have no relevant penalties as such. We have -- expect the CapEx of EUR 60 million related to Mendez-Alvaro more from 2020 and future. Regarding financial structure, we're increasing the strength of our financial -- we're increasing the liquidity situation, transaction that we made and our liquidity now [indiscernible]. I would like to highlight that long-term financial profile with 77% maturity beyond 2023 [indiscernible] rate. And regarding this -- the financial impacts, we believe the assets remain particularly resilient. Most of our tenants are large multinationals with 80% of our top tenants...

[Operator]

Ladies and gentlemen, please hold the line, while we try to reconnect the speaker line again. Thank you.

[Pedro Viñolas Serra, Vice]

Hello?

[Operator]

Yes, speakers, the floor is yours.

[Pedro Viñolas Serra, Vice]

Okay. Thank you. I've just been told that communication was not the right one in the last minute. So I will just go through what I was saying in this last minute.I was just talking about the way we are managing the COVID environment regarding our buildings and Utopicus. And basically, what I was saying now is that regarding our pipeline, we've been continuing with our works, although certain delay is expected, and it's part of our objective. And in particular, I'm reminded now that in Madrid, we expect certain delay of our CapEx program, and EUR 60 million will now be delayed from 2020 to 2021. Regarding the financial structure, I think we have gone through this before and will be discussed in detail later on. So I will not go into the details. But our liquidity has been increased and it's now above EUR 2 billion. The financing profile of our debt is quite long term, almost 80% matures beyond 2023. And credit agencies and Moody's have confirmed its credit ratings very, very recently.That's basically it. And last, but not least, again, I would be -- I would like to be very precise and factual. I'm on Page 13 now in the -- of the presentation in where do we stand today and even provide additional color. If we have to say what has happened to us in April and May until today, I will have to say the following. We have been invoicing as usual, and no relevant defaults have taken place in this invoicing, to the extent that we could not even mention a percentage. It's really marginal. So the invoice has been working smoothly and in the best terms.Second, if we talk about discussions with our current clients regarding the period results went through, we estimate that this may impact our gross rental income for 2020 in an equivalent of below 2% of our effective P&L for 2020. And just to be clear, that does not mean that we're going down 2% compared to last year. That means that is 2% less than we expected for 2020, number one.And number two, that is a one-off discount, because of the state of the alarm that has been in place in Spain and in France in the recent period. If we have to give an estimate of how far pending discussions may go, the estimate of the maximum impact that we may experience in this 2020 gross rental income, we estimate a maximum impact of 6%, although as I said, the factual number today is 2%.Besides what is being said in this slide, I would like also to highlight that between April and May, the ordinary business of the company has remained very much in line with previous quarters. So we did not have in our agenda many contracts that were maturing or were due for renewal. And so -- we are not talking about a big number. But the transactions that we've been doing in April and May are all of them in line with our budget, all of them above the ERV that we had at the end of last year. So as of today, we don't have any downside in the current transactions that we're going through in April and May. In the future, we'll see what is the evolution of the economy. But we like to be very factual for the current situation that we are going through.This is the first part of the presentation. Now we'll skip into the next section regarding the market and Carlos Krohmer will step in. Thank you.

[Carlos Krohmer, Chief Corporate Development Officer]

Thank you, Pere. We had the past 3 slides flashes of the market. I'm now on Page #15. Let me start with the middle of the page, Madrid. The most important thing about the first quarter 2020 is that vacancy in the CBD has gone down 200 basis points -- more than 200 basis points from 6.5% in the market, in the Madrid CBD market to 4.2%. As you know, the market is of this great product is even less, so quite significant decrease in available product. In the other 2 markets, the situation remains as it was at the end of 2019. So no product available, 2% vacancy in Barcelona, 1.6% vacancy in CBD Paris and high-quality product out of this quite low. So there is no supply at all in terms of assets that are compared to the characteristics of the Colonial portfolio.In the take up, we have slightly weaker figures than a year ago. I would say that the last weeks of March, there's vacancy impact of people and also an impact of -- but you cannot do -- envisage to the assets that obviously has, I would say, stopped at the moment a little bit the demand. But also, there is less and less product pay-through than a year ago. So it's a combination of very few product available, and obviously, it will be wait-and-see mood in a more difficult situation to make asset usage.Then on the next page on 16. We think that in a situation like this, the most important thing is to give a little bit of examples and evidence. What you can see here is the list of transactions, all of them done in the first quarter with relative levels, the blue ones are Colonial assets, the other ones are assets in the market. I think it speaks to both sides. So [indiscernible] there are active days activity. And you can see that the rental price levels remain high. So as a consequence also, the transactions remain at the high rent levels over the year-end 2019.On Page 17, what we show on the left-hand side is the Q1 KPIs of the investment market. Spain, all together if we take Madrid and Barcelona together, it's, in terms of investment volume, a little bit higher, 6% higher than the first quarter of last year. So pre-COVID, I would say, first quarter still has quite a lot of activity. And some of the transactions that you see on the right-hand side, they have been signed already post-COVID outbreak. So there were -- most of them negotiated in advance, but they have been crossed in any case. And the prime yields are remaining as of today -- at the end of the first quarter at the same level where they were a year ago -- where they were at year-end, sorry and where they were at the end of 2019. And Paris has had a significant increase of activity, doubling the volume that we saw 1 year ago in the first quarter with yields, you see them, prime yield, 2.75% here in terms of CBD transactions and also periphery transaction of 3.6% in Madrid.If we make a quick overview of the main operational highlights of the company, I'm on Page '19. Here on Page 19, you see the KPIs for the first quarter. I would like to highlight on the 3 columns on left-hand side of Page 19. First of all, what you can see, in every segment, we have signed rents that are higher, the rent market ERV as of December. So during the first quarter, we had an average ERV growth in our portfolio of 6%, 7% in Barcelona, 5% in Madrid and 7% in Paris. The things that we are signing, it's people that have a long-term commitment, and you see it here in the average maturity that people are signing, 8 years Barcelona, Madrid 4 years, Paris 9 years. And as Pere mentioned, we are at a 2% vacancy level -- 2% across every single market [indiscernible]. On Page 20, you can see a little bit of zoom on this, on the left-hand side, the release spreads. In Paris, there have been no renewals. So there is no release spread, because there were no contracts maturing in the first quarter. And in the ERV, you see what the figures are. Interesting, if we compare with the ERV growth last year, the levels are, at the moment in the first quarter, pre-COVID, we are maintaining the same levels.Page 21 is just to show, it's across the board. As always, it's not a big outlier in positive terms, in accompanying spreads.Page 22, we have added a new page that normally put to show that mix is quite healthy across different segments. Half of these renewals, half of it letting up empty space, so quite healthy letting activity.Page 23, you know this also from previous presentations. I think interesting to see that we have put Madrid in line with the other segments of our portfolio. It's now also at 2% vacancy. This is 760 basis points vacancy decrease in a year. It's quite high. So we are, as we can see now, on Page 24. On every market at the level around 2%, 2.2% Barcelona vacancy, 2.49% vacancy in Madrid, 1.8% in Paris. So total Colonial Group at 2.4%. If we only look at the office portfolio, it's 2.1%. And this would be the highlights in operational elements. Hello?

[Operator]

Please go ahead, sir.

[Carlos Krohmer, Chief Corporate Development Officer]

Okay. So now I will hand over to Carmina for the financial performance session.

[Carmina Ganyet I. Cirera, Corporate Managing Director]

Okay. Thanks, Carlos. Well, in this session, as you know, we will look at the results as a consequence of [indiscernible] this strong decline. You've seen before in the past, there was rise in the gross rental income. The gross rental income shows a positive like-for-like growth of 6%. As you can see here on Page 26 and I would like to highlight the positive double-digit growth of like-for-like in Paris, in Madrid 14% and Barcelona 10%.Following next page, 27, you can see here the impact of this strong like-for-like growth, thanks to price and thanks to volume. Especially Madrid, you know that we have been -- improved the vacancy from 10% to 2%. And it means that 0.5%, more or less, more than 50% of this positive impact in like-for-like growth rental income in Madrid is driven by volumes. And the other 50% driven by price. And the rest of the market, you see here this positive impact of the prices, as you see before, with a positive double-digit release spread and positive rental growth in comparison to the ERV of -- as of December '19.In the next Page 28, thanks also to this improvement in the occupancy rate, being able to achieve this practical full occupancy of the chosen balance sheet. We have also improved our net rental income. Increasing this net rental income like-for-like growth of 7% in comparison to the last quarter from last year, a 2% improvement. And as you can see also, basically concentrated in Barcelona and Madrid because of the high level of occupancy in the [indiscernible].Now we have been able -- and also we have been managing this path to quality, divesting the nonstrategic assets. And in the quarter -- in Slide 29, we show the 2 small assets that have been sold. One is small hotel in the south of Spain and another is apartment [indiscernible] portfolio, all of them with a significant premium of more than 20% in comparison to the [indiscernible]. So we -- this is also why we show today this much higher quality of our portfolio. Because basically, you know that our -- one of the objectives we have in the recent years is to divest these nonstrategic assets, and this is part of this strategy.So Page 30, you can see the number sounds like. It means that our EPS increased 10% from EUR 0.065 per share to EUR 0.072 per share. The recovery results increase is 10%. And the total net results increased 39% from EUR 23 million to EUR 32 million. And you can see here, in comparable terms, we saw considering the disposals actually of the logistics unit, our first quarter results disposal, which show an improvement from EUR 33 million to EUR 40 million and divesting and uploading the nonstrategic assets, the like-for-like growth is 10%.And finally, you know that for us has been a very, very important objective to strengthen the capital structure. And you see in this page how we have been able to confirm our trends in the debt side and our capital structure as to highlight the decrease of the loan-to-value from 39% last year to 36% this year. Divesting these nonstrategic assets and portfolio maturity profile, which had debt maturity profile of more than 4.5 years. The first maturity is in 2023 -- and sorry in 2021. And the coverage ratio because of the strong position and sound liquidity position is 4x to the next 24-month maturities then.So as a consequence, you know that we have been updating -- the process of the updating of the rating. We can confirm the rating agency confirmed by S&P and Moody's our ratings of investment-grade on BBB+ from S&P and Baa2 from Moody's. Basically, the confirmation is based on the trends mainly supported by the strong fundamentals of the CBD assets and our leading positions in those markets and also in the solid track record of the good operational performance, as you see also in this quarter. And also, we update this confirmation of the rating because of the strong commitment by the shareholders and also by management, a very strong profile -- financial profile. So of course, we have a challenge to manage, subject to the environment and the economic contraction in future. But as you know, several companies have been revisited, and S&P and Mood's has been addressed some rating actions. But in the case of Colonial, we have confirmed our rating -- our credit rating as of today. Our financial policy remains committed, being focused both on the loan-to-value and ICR more than 2 5. And also, we have also been making the access to additional liquidity. You know that we have a very strong position of liquidity, more than EUR 2.1 billion considering cash and the credit line. But recently, we have signed a new ESG credit loan with the 4 entities, which shows the strength of Colonial having access additionally to the liquidity in the bond market.

[Pedro Viñolas Serra, Vice]

Thank you, Carmina. I will be starting now to the next section, which will be addressed to the strategic positioning of the firm, where obviously, it will not be great news, because one of our priorities is to be consistent in whatever we do.So I'm on Page 33, where basically, I would like to going through our strategy in terms of quality of the assets, then of quality of clients. Then I will talk a little bit about our pipeline, about our capital structure, and basically, our investment strategy. Page 34 is just to highlight the kind of strategy that we have, which is continued investing in a super-core CBD portfolio. Colonial is the largest office owner in city center of Madrid, Barcelona and Paris. We -- I said this in previous meetings, but I think I -- it's my duty to say it in -- under current circumstances, our choice of CBD is not only because we believe this is where to have the best returns, where the occupancy is the lowest one, and therefore, rental growth happens more easily, it's also because in terms of additional. If we talk about risk, it's where the downside is always more limited, and its performance, which is more resilient. And therefore, our strategy in recent years has consistently remaining in this level. I have to say that markets have gone through a very difficultly recently. And initially, market could not do anything, but react negatively to the current environment, then started to distinguish between asset classes, meaning retail, hotels, and the rest are the other. And that started to show in following weeks. Under our opinion, maybe we have not gone through the phase yet where to start to distinguish on which kind of assets own the company, which kind of assets owns another company. And that's why I would like to highlight this at this level.On Page 35, a word about our client profile. You can see here our limited exposure to retail and coworking, which is around 13%. You can see that the exposure is mainly in Paris in terms of tenant profile. And you can have a view about the profile of our clients. And basically, here, I'd like to highlight the loyalty of our clients and the average maturity that those clients have.In Page 36, I am basically highlighting the reversion potential that the contracts with these clients show as of today. Our estimate is that the price reversion -- the price potential reversion for our contracts is 19% in Barcelona, 8% in Madrid, 7% in Paris.Sorry, I'm receiving inputs about communication, today is hot topic. It's not going correctly. Sorry about that. I was saying that this potential reversion is important for us. That means that it is market rents compared to current passing rents show this differential regardless of any future rental growth transition. It's a very good starting point. In Page 37, what I said before, the loyalty of our clients age section is -- sorry, 76% is more than 5 years, 60% out of this is more than 10 years been with us. So now [indiscernible] that we're going through. I think that to go through this with this line of -- with this kind of breakdown of loyalty is very important. In this Page 37, also, you can see a view on the maturities of the company for this year. The maturities of the company for this year are EUR 72 million, which is 20% of our annualized share price. Out of this EUR 7 million has been signed or are in advanced stages of negotiation. EUR 4 million, which is would be 11%, we have high visibility on where these negotiations may end. So we expect retention with the information we have today. So the priority is mainly to manage maturities for a total amount of EUR 24 million, that's where our focus is. Out of this EUR 24 million, the impact in the P&L of 2020 is EUR 5.2 million. So that's a detail on the maturities and our view on these maturities. So having gone through a comment on the assets and on the clients, a comment on the developments. These developments are very well known. So I would only concentrate on what is new. We said in previous meetings that 25% of this development were already pre-let. As of now, I would say that our next objective is pre-letting of Marceau in Paris, which is currently under negotiation. And the current discussions are going very smoothly and very positively. And I think that we could expect a beautiful outcome sooner than later. That would be mainly where the situation is as of today. Page 39 is to mention that regarding this pipeline, the pending CapEx for this year is EUR 75 million since a significant part of Méndez Álvaro has been delayed and will be mainly happening next year. And therefore, we would like to highlight that only the cash that is within our balance sheet, talking about cash, it's like 7x the spending CapEx expected for this year. So we are very far away of being in any kind of tight situation. And this is because the kind of balance sheet that we have, that I will not go into details because it has been discussed at length by Carmina and basically, this situation of liquidity and the situation of covenants I think that reflects the kind of balance sheet that we have. This information that we are providing in this quarter, we are including this information about covenants, that we did not include before. Just to show the kind of buffer that we have in terms of where the covenant on LTV is and regarding our current number, 55% versus 32%. And where the cover of ICR is compared to actual numbers, which is 3.5x versus 2.0x.Finally, a view on our investment strategy. I would say that there's nothing new here. We started with a number of acquisitions in the period 2015, 2018, and then is to keep more the company into the direction of deleveraging. As you know, the main pending issue that we have as of today is the execution of the second part of the logistics portfolio. As of today, our central scenario is that this will be executed during the month of June, although mainly this hasn't been taken place yet, is because of the difficulties at the[Technical Difficulty]

[Operator]

Ladies and gentlemen, please hold the line while we try to reconnect the speaker's line. Thank you. Please go ahead, sir.

[Pedro Viñolas Serra, Vice]

Okay. So communication was cut again. And I think that I left you just when I was about to start the conclusion. So I was saying that it's a quite unique presentation of results because the particular quarter that we are presenting is really half of the story. The other half of the story is to explain where we are just in the month of April and May. And starting by this, let's say, more recent scenario, the post COVID environment, what we want to do is to be, on one hand, very factual about the -- what is probably happening to us. And on the other hand, very prudent regarding the future is quite uncertain at this point. But if you ask me the structure of current data, we have been reflecting that April cash collection has already happened with no default. Client negotiations regarding the extraordinary period that we have just gone through would mean as of today, an impact in the one-off 2020 of less than 2% of our gross rental income. Our expectations of what will be left for 2020 would be a maximum of 6% of the gross rental income. And as I just said, we have been enhancing our financial position by enhancing our liquidity profile and delaying a little bit part of the CapEx. While this is happening in April and May, the results of this quarter are outstanding. We've been presenting to you an outstanding like-for-like growth of 6%, which means 2% increase in recurring earnings and recurring EPS. And this is happening because the fundamentals have been performing great during this first quarter. And our occupancy achieved 92 -- 98%. Our Madrid exposure was 10% vacancy just a year ago. Now we just presented 2.5%. So it's great and we cannot go further than that in occupancy, it's 98% in all of our premises and with very positive risk spreads and rental growth. I also mentioned that in April, May situation remains about the same so far. And regarding project pipeline, we are having good progress in the preletting of our mix assets that are coming close to delivery. Finally, I mentioned at the beginning, our proposal on dividend. I will say that these days, you want to be, at the same time, very prudent and consistent with the kind of environment that you're going through. At the same time, you want to be also very consistent with the real fundamentals of the company is showing in terms of[Audio Gap]Well, that is all the presentation we want to share with you. Thank you very much. And now we are ready for any questions you may have if the communication is good enough.

[Operator]

[Operator Instructions] The first question comes from Peter Papadakos from Green Street Advisors.

[Peter Papadakos, Head of European Research]

Thanks for the additional disclosure as well. That's much appreciated. Just one question on your capital allocation going forward. I guess, given where your share price is today, certainly, I guess, the public market is telling you're going to be really, really careful with deploying any capital to the private market. So how are you thinking about capital allocation in general? Are we going to see Colonial potentially shrink its JV? And if not, why not? That's my question.

[Pedro Viñolas Serra, Vice]

Look, thank you, Peter. No, currently, first of all, I think that we wanted to be prudent in the sense of not going into, let's say, a quick action in any direction. I think that we've always been a very, let's say, sensible in any direction we can play. And we have taken our time to assess where our market strengths and weaknesses, where the opportunities and the threats are. So we are not reacting, let's say, emotionally to any scenario by definition. We are very much long-term oriented. And we don't want to be, let's say, impressed by any short-term kind of scenario. So therefore, our first reaction has been simply to be much more strict about our investment policy. To understand that our cost of capital is higher now. So any investment and acquisition that would be out there would not be considered unless the returns were much higher. And at the same time that our current assets that we have within our balance sheet, they are expected to [ run at ] a higher cost of capital. And if not, they would be considered for sale. As of now, it's very difficult for me to be more precise. We're going through a period of a strategic review. As of today, we do not identify relevant parts of our balance sheet that we should be putting for sale. And at the same time, that we will not be involved in significant acquisitions. That's more close I can be to assess on our investment policy. But as I said, most of all, we want to be prudent within our environment.

[Operator]

The next question comes from Oliver Carruthers from Goldman Sachs.

[Oliver Carruthers, Research Analyst]

I think you're answering it, but the line just got cut off. Could we possibly have an update on the remainder of the logistics portfolio? And just any relevant details around the call option there?

[Pedro Viñolas Serra, Vice]

Yes. I'm sorry about the communication again. Current situation about the Prologis transaction is follows. First of all, just to remind the portfolio was breakdown into 2 parts. The first part was executed last year, September, I think it was and the second is due for the first half of this year. The reason for this to happen was optimization of the terms of the transaction. Of course, this is partially fully executed. The second part was a structure as a call option for Prologis. We were comfortable with that situation because to put it in broad terms, and sorry to be, let's say, so direct about this. Looking at this portfolio, it was for sale. The most beautiful assets were those that were left for the second part of the transaction, the less beautiful assets were those executed in the first part of the transaction. That's why we could live with this kind of a structure, our opinion on this. And second, this collect that was structured as an option therefore, as a call, had a premium that is double-digit in terms of million euros. So I'd say very much in the direction of -- to motivate the acquire to the transaction. And this was done not now, but as you can imagine, many months ago when discussions were in. That is the structure. So based on that, current situation is that Prologis has to execute this call. And I think that all of the information we've got until today and all the actions that have been taken place by Prologis and by Colonial are going into the direction of finding and executing this transaction. Although this has -- could not happen before because of the current situation we are going through. So both parts have agreed in going through this as soon as the strict lockdown is over, and this can be executed immediately after. So our central scenario is to sell the remaining assets. And depending on the current regulation that applies to the Spanish market, our central scenario would be June, maybe second half of June, but that would be secondary scenario as of today. Hope that the communication was good now.

[Oliver Carruthers, Research Analyst]

And on just -- I presume you can't give the strike of the option, but this is a book value of around EUR 265 million, is that correct for this part of the portfolio?

[Pedro Viñolas Serra, Vice]

No. I think that in very broad terms because we cannot be very precise. We are talking about EUR 150 million in excess of that figure. And the premium attached to that it would be, let's say, double-digit and certainly in excess of 10% of the market value. The value that is left for the execution.

[Operator]

The next question comes from Alvaro Soriano from Bank of America.

[Alvaro Soriano-De-Miguel]

Yes. Two questions, if I may. The first one on the renewals. I think Colonial needs to renew around 18% of their leases this year in 2020, and most of them are well on track. But I just wonder if we should expect any client scaling down the footprint. And therefore, leaving some vacancy on your assets? And also, how achievable is the reversion you showed in the presentation under current market conditions?

[Pedro Viñolas Serra, Vice]

Carlos?

[Carlos Krohmer, Chief Corporate Development Officer]

Yes, let me start with the end of your question. But we have some as so far in the first quarter, we have shown and it is quite high reversion, high double digit and especially in Spain, because there was no maturity due in the first quarter regarding France. As Pere already mentioned, the trading trends that we have as of now, exactly today, that is the month of March, plus a little bit of activity in May, continue in terms of reversion, as Pere already mentioned, with the same dynamics. So with the same kind of figures, then how much is the exact figure depends a little bit on each individual asset. So as of today, the future nobody knows, the reversion remains fully in line, it is quite high. And what you also have seen, we have signed above ERV of December and also and the April activity also has been above ERV of December. And regarding what could be future vacancy, this is basically what we tried to highlight on Page 37. More than vacancy if we don't manage to retain the last -- the last column that is called maturities to be managed, that would have -- this would mean 1.5% impact in terms of GRI for 2019. This is what we can say about this. And also what we have seen is that we have been closing vacancy. And also the mix in April was also not just renewals was also vacancy. So this is what we can say today. So as of today's spot, the activity is in line with what you see for the first quarter for the [indiscernible] and that's what we -- why we did the Page 37 analysis.

[Operator]

The next question comes from Celine Huynh from Barclays.

[Celine Huynh, Research Analyst]

My first question is specifically for you, Pere. It is about market rental growth. During the latest conference call that we had, I asked you specifically about your view on market rental growth, and you were quite confident about market rents still having some room for improvement before reaching historical peak. So I was just wondering if in the post COVID world, your confidence was still intact? And my second question would be on the dividend per share growth going forward. You used to guide us to 10% growth per annum. Are you withdrawing this guidance today?

[Pedro Viñolas Serra, Vice]

Yes. Yes. First of all, regarding rentals, I think that we -- our view on this topic has 3 levels. The first one, is if we talk about the pre-COVID world today, so thinking of rental growth that we've gone through the release spreads that we've seen are simply outstanding and strong, and there's no like-for-like growth extending through the first quarter, it's outstanding. If we go to the next stage, it is talking about where we are today has been very structural in April and May. There's little activity, but not because of [ coronavirus ] sometimes the breakdown of negotiations that we have mid-months are more busy than others [indiscernible] but the kind of rental profile remains. So the kind of contracts that remaining are in line with what we've seen in the first quarter. I would be very [indiscernible] I'd say that previous contracts that are under negotiation right now in Spain and France also remain in healthy terms. So I'd say that we do not have doubt on fundamentals that [indiscernible]. Having said that, we had a long-term pre-COVID period where we are -- according to the market scenario of supply and demand, we can look for [indiscernible] centers of additional rental growth and what you have to do is simply be prudent. As I was saying, we still have no evidence available to say the kind of rental growth that we may see in the next 18 months. So we cannot provide any specific guidance for rental growth for the future. And a little bit in the same direction goes our comment with dividend profile, the dividend policy. Our dividend policy has always been to provide a dividend with a stable growth path that is consistent with the profile of our fundamentals. And I think that this remains our priority. Now having said that, there are 2 things that we have to deal with. One is in the current environment, I think that the expectation from, let's say, our environment is to show that we are not only strong, but prudent at the same time. And I think that to remain with the same dividend that last year was the right answer to the kind of extraordinary situation that we are going through. So we see this as an extraordinary answer to an extraordinary period that cannot be seen in our dividend policy from now on. And moreover, our dividend policy from now on, I'd say that also will have to be clarified depending on the environment that we see in the next months and years. Our expected policy and strategy remains the same. We'd like to provide healthy growth for our dividend policy. But I think that as of today, we have to say 2 things, one is we have to be prudent in the figure for last year, and we don't have -- we cannot be specific about the future at this stage would not be prudent.

[Celine Huynh, Research Analyst]

Okay. So just to be clear, the dividend we expect at the end of the year should not grow by 10%.

[Pedro Viñolas Serra, Vice]

Well, I -- when I'm saying that I cannot highlight any number that excludes any definition of our dividend policy for the future, including the ones you just mentioned, I cannot commit to any dividend policy in the future. And just to highlight one another thing, to state the obvious, is that our current legal status of REIT, gives us, let's say, a way forward that cannot be -- cannot change a lot because of our [ majeure ]. So we have to distribute anything to reduce.

[Operator]

The next question comes from José Cravo from Banco Santander.

[José Francisco Cravo, Equity Analyst]

3 questions, if I may. The 3 of them on Capex. The first question is well, I think, I didn't see it on the presentation. Can you give us any update on your renovation program? If I recall correctly, your strategy was to transform EUR 18 million of revenues into EUR 33 million. And I just would like to know if there is any change on these targets. If you don't mind, we'll go one by one, please.

[Pedro Viñolas Serra, Vice]

I think on the renovation program, not many news. We have -- we are progressing quite well on Torre Marenostrum. That is one of the pipeline for the renovation program, what you have seen that we have already led quite a lot of square meters and in very good terms. Regarding the other program -- renovation program that is progressing quite well and is almost finished is Grenelle. Grenelle we are in negotiation with a bigger -- a bunch of square meters with a sizable deal. And the others are in the middle of the restoring, Avenida Diagonal 532, that is the prime storey, that is our headquarter is -- yes, is going on. And so nothing specific, nothing new about this. It's everything business as usual.

[José Francisco Cravo, Equity Analyst]

Okay. Second question on CapEx is whether -- I mean, as a consequence of COVID, have you made any estimates or any study about potential changes that you need to make your buildings, namely on the entrance or in the existing spaces, et cetera. Is there -- or there could be any relevant CapEx that you need to deploy on top of what was previously expected?

[Pedro Viñolas Serra, Vice]

Yes, we have developed a very specific protocol for our clients, and we are in very good contact with all of them in order to address how they are using the buildings, and they will be using the buildings. But it's everything about putting the right service for them but in any case, this will mean a irrelevant CapEx for us. We don't have any relevant CapEx estimate attached to this topic.

[José Francisco Cravo, Equity Analyst]

Okay. And then last question, if you can give us some more visibility on your annual target Capex? I mean, you said that it is EUR 75 million for this year. Can you give us an idea for '21 and in '22, please?

[Carlos Krohmer, Chief Corporate Development Officer]

So basically, on the project pipeline, as you said, EUR 75 million are left for 2020. And then for the rest of the project pipeline or to finish a project pipeline, we're talking of spending, let me just see, spending an amount of EUR 345 million. So all in all, spending construction Capex, EUR 420 million, including the EUR 75 million that are pending for the 3 quarters left in 2020.

[Operator]

Next question comes from Pedro Alves from CaixaBank BPI.

[Pedro Jorge Gouveia Alves, Non]

2, if I may, the first one. On the office market dynamics, how do you expect the market to evolve with the potential rise of remote working, and both in terms of office space volumes and rental prices. And the second question is related to your tenant base. How much of your buildings are led to corporate headquarters?

[Pedro Viñolas Serra, Vice]

Look, on the first question about remote working the future of this. It's a question which is difficult to address at this point. And let me be a little bit, I would say, more vocal of that, in current situations, people being confined at home, mainly if you ask people, you will find 2 kind of population. Those who want to come to work because they cannot spend anymore to remain at home. And those who do not want to come to work because they are scared about the current situation. So there are people at both ends, but both of them share the same underlying driver, which they are being emotional in the short-term about why they want or they do not want to go to the office. So I think that it is too soon to address the appeal of remote working. What I do think is that flexibility is a long-term trend. And this is an umbrella that allows so many things to happen within the existing office within the new formats of working or even at home. I think that is here is to stay and in respect that our bet was in Utopicus. And I think that this will play a role. In the short term, a lot of emotional noise about remote working, in the long term a lot of reality about flexibility. That would be our view. And second, also about content. I mean, what exactly are you delivering? I mean we believe that we are far away from delivering just a box to our clients. We are delivering a location, an access profile, a way of life if you allow me for that. But this will also be enhanced exactly when you're giving market space to a client, what exactly -- what exactly you are providing to them. It's something that have to make them happier than anything else. So I think that content and flexibility are long-term drivers that will become even more important, although were already important before the crisis. Remote working as of now to me, it's still more a short-term emotional issue than anything else. Sorry, the second question, I forgot about it. If you could repeat it, please?

[Pedro Jorge Gouveia Alves, Non]

Yes. So it's relative to our tenant wise and how much of your buildings are led to corporate headquarters. If you could provide a breakdown?

[Pedro Viñolas Serra, Vice]

No. No, I think that I don't have a figure for that. If I can skip maybe to another kind of definition, many, many of our buildings are mainly in multitenant. So one of the strategy that the company has had is not to be dependent on a very few number of companies taking a few -- a very few big decisions that create a risk profile for us. So in France and Spain, and particularly in Spain, we have been favoring for many years multitenant strategy that usually puts us a little bit away from depending on corporate [ quarter ] dynamics of companies. Having said that, I would not have any specific number. I'm happy to be more specific later on, if you wish.

[Operator]

The next question comes from Florent Laroche-Joubert from ODDO BHF.

[Florent Laroche-Joubert]

Thank you for your presentation. Yes, I would have 2 questions, if I may. So first question, a follow-up question on the dividend. For 2019, what would have been your minimum required dividend due to your wait status? And my second question is about your discussion with appraisal. So maybe this discussion have started for the valuation of actual results? And would it be possible to have any first feedback in Spain and France after this first discussion?

[Pedro Viñolas Serra, Vice]

Yes. Regarding the dividend, so let's say the playground is as follows. The minimum little dividend that we would be forced to require would be around EUR 0.12 or EUR 0.13 per share. This year, I'm talking -- always talk about 2019. So this distribution now is for the 2019 profit. As you know, initial guidance was EUR 0.22, that was an increase on last year of EUR 0.10. So within this range of the minimum and the maximum of what was already achieved, what our final approach has been to propose to the shareholders within EUR 0.20, which as I said, this happens to be the same from last year. And I think that we want to show that we are not cutting our dividend compared to last year because this is not consistent with our fundamentals. At the same time, we don't want to, let's say, not be consistent with the current environment. Regarding the second point, which is valuation, we don't have anything that we could share as of today. So I think that we have to wait until a presentation of second quarter to see where valuations are. So I have a few written questions. Some of them have already been answered. I think [ Elena Martinez ] from [ EFG ] was asking regarding the agreement with Prologis for the sale of '18 logistic assets. When does Colonial expect to sell the remaining assets not sold in 2019 are expected to be sold in first half '20. We remain with a central scenario of doing this either before the end of first half or as soon as the State of Alarm is finished, the sooner of these 2 conditions, that would be our central scenario. Ignacio Martinez of Fidentiis is asking what do you expect in terms of the post revaluation for the first quarter and year-end of 2020? We have no views on this, and we cannot have views on this as of today. [ Niel Medina ] is asking, if you could comment on how Utopicus is handling the COVID outbreak, any change in the strategy to grow this business. How you're handling the focus and exposure to work? First of all, where does Utopicus stand up today, of course, there's been an impact because of the coronavirus and therefore, the use of the facilities. Currently, the same happened with Colonial and with the sector. In terms of clients that may ask a sort of a discount of sort of compensation because of the lack of possibility of using the premises and the discussions that this may mean. We -- our current estimate is that this today could be equivalent to a maximum 10% of the annual turnover of that company. So I think it's a little bit limited because a part of -- as part of client of Utopicus are already corporate clients that are not using this on a daily basis for very short-term periods. So that's the kind of situation. Any change in the strategy? We'll have to distinguish here short-term and longer term, it's obvious that short term, it's impacted by coronavirus. Because of the distancing requirements, because of the current environment, we expect a weaker performance of flexible space in this year. And therefore, we, of course, are reacting being, let's say, much more prudent in any kind of expansion policies. And we do not plan to increase substantially the Utopicus footprint in the short term. Having said that, I'd like to highlight that our view on the current situation. As I said before, is that although it's critical, I think that our focus is to distinguish short-term impact from long-term impact, short-term practical decisions from long-term strategic decisions. Short-term impact in co-working facilities will be negative because of distancing requirements and coronavirus direct consequences. Long-term impact, I think that we will be enhancing flexibility policies among our clients. And therefore, we remain very fond of Utopicus and very much committed to this business unit in the long term. But having said that, as you know, it's very small, and as we showed in our presentation, the kind of exposure that this means. I think it totals between 30,000 and 40,000 square meter, which is really a small, it's like almost one building as of today. Regarding the WeWork exposure, I think that our comments are at 3 levels. First of all, the -- where this WeWork facilities are in both Spain and France cannot be more prime, cannot be more super prime CBD kind of location. What we mean by this is that we -- the lack is not the word, but at the very least, we are quite, let's say, confident that we don't have very relevant downsides regarding this exposure just because the building that it's -- we are talking about, the buildings that we're talking about are among the top ones that our market appreciates for our potential tenants. And in fact, in those buildings, WeWork remain the tenant after outbidding a substantial number of tenants interested in these buildings. So we don't have a particular concern because of this extraordinary location. The second comment would be that current performance of WeWork in these particular buildings is very much biased towards the corporate client. So it's not a -- according to our information, it's not particularly weak. And the third thing is that, in any case, when we established initial negotiations with WeWork about them becoming our tenants, we were careful, and we asked for bank guarantees, in order to provide comfort for these contracts. Bank guarantees that are in excess of a year of rent, if I recall correctly, so I think that with this kind of bank guarantees profile, plus the location, plus the performance, as of today, we are, let's say, confident about the impact that this may have in our business. And our final question from Fernando Sánchez from Soltec is, considering the solidity of the company and the large drop in share prices, it will be a good time to launch a plan to buy shares, he says. What is your opinion? I would say we have no immediate specific plans to do share buyback. We've done it in the past, sometimes for very specific purposes, I have to say, according to the legal framework. We don't have any immediate specific plans for that. And I think these are all questions we have. Thank you for such a long meeting today. Sorry about the communication difficulties. And I hope we can meet in better circumstances soon again. So thank you, and have a good evening. Goodbye.