Inmobiliaria Colonial SOCIMI SA
MAD:COL

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Inmobiliaria Colonial SOCIMI SA
MAD:COL
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Price: 5.42 EUR 2.85% Market Closed
Market Cap: 3.4B EUR
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Earnings Call Transcript

Earnings Call Transcript
2021-Q1

from 0
Operator

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

P
Pedro Viñolas Serra
Vice

Hello. Good afternoon to everybody. It's a pleasure to be here again presenting our results, this time the first quarter results 2021. As usual, I will have with me Carmina Ganyet, Corporate General Manager of Colonial as well as Carlos Krohmer, Chief Corporate Development Officer.First of all, a general comment on the highlights of these results. I would say that these results have to be seen in a dual perspective. First of all, as you will see, our main numbers regarding the EPS turnover, show a year-on-year decrease. But on the other hand, it is mainly due to disposals and a renovation program acceleration. As you know, we've been selling aggressively in the last couple of years. And therefore, it is not correct not to look at our numbers without taking into account these events and without looking at the like-for-like nature of results. If we do so, if you look at the like-for-like nature of our results, you will see that our results are mainly characterized by its huge stability. So maybe you will see that our main KPIs are pretty flat, if not positive, in most of different numbers that we may look at.So starting with the highlights. Our EPS -- recurring EPS for this quarter is EUR 0.056 per share, as I said, lower than the previous year. And mainly due to these disposals and renovation program that we will comment on [ before ]. The comparable recurring earnings per share in that direction would be EUR 0.072 per share in line with the previous year. The gross rental income is of EUR 78 million and that is 0.6% growth in terms of like-for-like. This growth is higher if, instead of looking at the gross rental income, we look at the net rental income, which is EUR 68 million. That is a 4% -- 4.0% like-for-like growth, even higher in the case of Paris.What's behind this? Sorry, what -- what's behind this strong operation -- operating performance? Well, first of all, I would say, a good letting volume of almost 30,000 square meters. That is almost -- well, more than 100% -- 120% of what it was the previous year. So as you will see, our activity has been outstanding in this quarter. We have not had any particular, let's say, problem regarding collection rates, which are almost at 100% in offices. And our office operation levels, occupancy levels have been 95%, which is quite big. The rental price increases has been -- have been very important also, 20% release spread. And if instead of looking at release spread, we look at the comparison with December 2020 ERV, then the growth would be 3% in terms of like-for-like.Our capital recycling has remained important for us. We have completed our disposal program with double-digit premium on GAV. And our balance sheet remains strong with an LTV post disposals below 35%, with EUR 2.4 billion of liquidity. And our S&P rating of BBB+ remains confirmed at April '21.Instead of looking at our financial information, we look at our ESG activities, we've seen also an acceleration on portfolio decarbonization. Our reduction in carbon footprint has been 51% in terms of like-for-like 2020 compared to 2019. If we look at the bigger picture, the reduction in carbon footprint is 77%, which is a like-for-like -- a very outstanding number like-for-like since base year of 2015. We believe, therefore, that we're pretty in line for the fulfillment in 2020 of our 2030 target, which is the acceleration in net zero transition.Looking into the future, our strategy remains reloading growth, which is basically working through our project pipeline with significant value creation potential. That means a renovation program also with more than EUR 30 million in gross rental income reversion and considering always the alternative scenario of opportunistic acquisitions.Finally, for this starting introductory remarks, a word on outlook and guidance. We remain quite positive on the scarcity of supply of Grade A product in CBD. As you have seen these numbers basically are telling you that on a like-for-like basis, we'll remain flattish or positive. That means resilient comparing these after 12 months of pandemic crisis. Not only that means a good outlook for the rental market, but also it means a solid investment market for prime CBD assets. And therefore, we remain quite confident in the situation of our company.As we -- as I have said at the beginning, the recurring EPS 2021 shows a number that -- it's being lower for the first quarter as a result of the disposals that we've gone through. And we expect, as a guidance for 2021, this number to finish in a framework between EUR 0.22 and EUR 0.25 per share of recurring EPS. But at the same time, we would like to provide guidance on our 2022 recurring EPS numbers, which -- with the current information that we have on the ordinary course of business of Colonial, we see at between EUR 0.27 and EUR 0.30 per share. So it's a kind of U-curve kind of EPS estimate, that's what we see for this year and for next year.And finally, last but not least, concerning dividend proposal. We believe that with the healthy numbers that we've gone through in the last 12 months the most likely scenario is to propose to the General Shareholders Meeting a dividend of EUR 0.22 per share. So coming back to our natural growth path, in this case, of a 10% year-on-year. These would be the highlights for this year.The main numbers, you see them in this page in Page 8, where you can see the main numbers. The profit and loss for Colonial show a EUR 28 million of recurring net profit. That is EUR 8 million less than last year, same period of last year. In terms of earnings per share, that means EUR 0.056 per share, 22% more. And if we do the like-for-like analysis, if we go to a comparable recurring EPS, then this minus 22% will become a plus 1% growth.Behind these numbers, what you can see is stability in gross rental income and in net rental income. If we talk about gross rental income, 0.6% like-for-like year-on-year gross rental income growth, EUR 78 million there in the figure for the first quarter of this year. If we talk about net rental income, then the growth is higher. It's -- we would talk about 4% like-for-like. And if you look at the different markets, there's no particular, let's say, market to be highlighted, all of them remain more or less similar. This, let's say, flat behavior of the gross rental income can be broken down into different comments regarding vacancy rental growth.In terms of vacancy, vacancy is slightly up 4.8%, but still below 5%, as you can see. So pretty okay for us. This solid behavior can also be seen in our collection rates, which is 100% in offices and 98% in total. Can also be seen in the volume of square meters signed, which, as I said, it's almost 30,000 square meters signed, which is more than double the first quarter of last year.And at the same time, the rental price increases are also being resilient. Double-digit release spread is 20%. If instead of looking at release spread, we look at the sustainable rental growth. Sorry, if you look at the rental growth, meaning the comparison with the ERV of the end of 2020, then the growth would be 3%, which is still a very good number, positive across all markets, by the way.So the general outlook would be absolute numbers going down because of disposals and renovation program acceleration. On like-for-like terms, stability or a slight growth in main KPIs, maybe vacancy going just slightly higher, but this being offset by rents also going slightly higher. Therefore, the final numbers of the company look, as I said, pretty stable. That would be the end of my introduction.And now I will ask Carlos Krohmer to step in and talk about the market.

C
Carlos Krohmer
Chief Corporate Development Officer

Thank you very much, Pedro, let's do a very quick review on the market. On Page #10, what you see here is the current situation of the supply. What you can see that the supply in the CBD market is at 4.5% in Barcelona, 5.8% in Madrid, and 3.7% in Paris. These are a little bit higher than some quarters ago. But if we go into the more granular analysis and look at the high-quality product, the Grade A product, it's just 2% in Barcelona, Madrid and almost 0% in Paris. This means basically that the available stock of Grade A is 19,000 square meters in Barcelona and also 19,000 square meters in Paris, and it's just 65,000 square meters in Madrid. So there's a clear scarcity of Grade A product in the city center.If we do a quick overview of the investment markets. The investment markets remain with quite high spreads versus reference rate, more than 300 basis points in Spain, more than 250 basis points in Paris. We have seen recently a pickup of activity in Barcelona, basically the ratio of money from Middle East stepping into the Barcelona market with a big, huge transaction at quite good pricing levels. In Madrid, we are seeing not really that much activity, but basically because there's no supply in the market. A lot of money waiting for core CBD products at quite attractive pricing but there is no product in the market. And Paris is continuing to be one of the most liquid markets in Europe. What we see in general is an increased polarization in the investment market between prime and secondary products, prime and secondary values.And we announced that into the activity, the operating activity of Colonial. First, we have here the summary page on Page 13. Here, what you see is that we had quite good activity, as Pedro already said, 29,000 square meters, almost 30,000 square meters. This is quite a significant pickup versus the Q1 last year. That was pre-COVID, more than 120% and basically concentrated in Spain and the leasing terms, the KPIs of this activity is quite good.If we go first to the analysis of the take-up of the type of products that have been signed, you see here the profile of the square meters that we have signed. So it's everything, CVD or city center, it's everything with high energy certificates. And this explains why we had such a good first quarter in terms of letting activity. There is no Grade A product. We offer this Grade A product. When you have this product, you get the deals done.If we look at the price level of these deals, as Pedro mentioned, 20% release spread, driven by Madrid and Barcelona. This is a quite high release spread, high double digit. In Paris, a little bit lower because the contracts are also more longer term and come from more longer term periods. If we look at the ERVs, we have an extremely outstanding performance in Paris, 11% versus the December market rent and Madrid 3% and in Barcelona, flat.When we go to the next page, we see also what is on top of this, now we have delivered 1 of the projects of the 9 projects in our project pipeline, it's now finally working. It's operating. The new tenant is there in the Diagonal 525. So it's finished. This is an extremely good project, 10-year contract with our break option. And the rent we signed there compared to the pre-project rent has been 50% up now by doing this project. So -- and it's one of the highest ERVs signed ever in the Barcelona market. So Diagonal 525, delivered. So a significant source of future cash flow and value with the project pipeline and also the renovation program.You may remember that we have close to 6,000 square meters that we have been repositioning in Grenelle. As of today, we have signed close to 1,300 square meters and the rents that we have signed in this renovation program are 15% higher than the rents that had the surface before doing this renovation program. So projects and renovation program, an additional source of growth and value creation.On the vacancy, Pedro already mentioned, we have an increase in vacancy year-on-year. We were around 2% in every market at the quarter of last year. In Barcelona, this is basically that we had some increased vacancy on some of the residual, secondary asset that we have in this portfolio. In Madrid, it's almost the same, just a slight increase. In Paris, the increase is not really a like-for-like increase. It's the entry into operation of the Grenelle project that -- not during this year. So in terms of like-for-like terms, the vacancy is almost flat.If we go a further granular step in the analysis of where this 4.8% is located, you see that roughly out of this 4.8%, 1.2% is assets that are in more difficult, in more challenging areas. It's our residual secondary exposure that we have in our portfolio. Another 1%, around 1% is entering to operation of renovation programs. And the rest is 2.4% vacancy of our portfolio, of our core portfolio. So that is really -- this means that the CBD is almost fully let. But you also can see here in this long-term perspective that we are at a very stable, below 5% vacancy profile that is quite good to have some tension in activity.With this, I'll pass over to the financial performance part.

C
Carmina Ganyet I. Cirera
Corporate Managing Director

Thank you, Carlos. As usual, in this section, we are going to cover the main financial indicators. The first one is the gross rental income. And it has been mentioned, the rental income remains flat, slightly positive with 0.6% like-for-like growth. And as we mentioned, due to the projects and renovation program and the disposals that we were leaving last year with EUR 600 million disposal program of nonstrategic assets. In absolute terms, the gross rental income remained in the period of EUR 78 million.As you can see here, the office rental growth remains flat, slightly negative and well impacted and well positively impacted this first quarter, thanks to the Hotel Indigo in Paris, which results as of today, during first quarter, with an increase, slightly positive of 0.6% rental growth.If we look at the main sources of this rental growth, mainly it's driven by price in every single market, highlighting Barcelona with 2.6% price growth in the first quarter. And the volume has been impacted slightly negative in different markets. And basically, remarking in Paris, the work center, which has been impacted negatively this first quarter and now has been reopened. And in the rest of the market, basically, the volume has been impacted by secondary locations and not prime location as you have seen before in the occupancy rate. So very important message about pricing, which has been the main source of this rental growth for this first quarter.[ Incidentally ] if we look at net rental income, the first message I would pass is the efficiency. The rental income shows a very out standing like-for-like growth of 4%, significantly in Paris with 6%, thanks to Hotel Indigo. So we have improved efficiency basically because we sold last year nonstrategic asset, mature asset, less efficient than the core ones we have today in our portfolio under operation. The second message due -- the impact of this outstanding rental income of 4% is Hotel Indigo with a significant impact, as you can see in the Paris market of 6% including all the uses. And third message, as we disclosed last year, we booked a provision to -- for the COVID wave 4, which has not been used because basically, we have collected 100% of the rents. So we have achieved a very significant improvement in the collection and has been impacted positively also in the net rental income in the first quarter of this year. So very important figure about this 4% like-for-like growth.And on the capital structure side, as you know, last year, we were through this big amount of disposing nonstrategic assets. We have reduced significantly our debt and the leverage with less than 35% at the end of first quarter 2021, with a significant debt reduction of more than EUR 400 million. Due to that, S&P has confirmed our rating of BBB+ with a stable outlook. And today, given the significant disposals process and given the performance that we -- you've seen in the letting activity and due to the solid capital structure we have today, we have a very, I would say, solid and significant undrawn balance capacity, a huge liquidity of EUR 2.4 billion, which permits Colonial to face and to take advantage of good opportunities in the investment field in the future.So as a result of all of that, EPS. EPS, as Pedro mentioned before, shows a slight improvement in comparable terms. So in comparable terms, we have improved the EBITDA in our operational side with close to EUR 2 billion. We have also improved our financial expenses. So the EPS comparable terms remained flat, slightly positive. As we've mentioned, in absolute terms, this first quarter, we have the impact of loading secondary assets, disposing assets that last year were yielding assets and what has been disposed, as you know, with a significant premium during 2020 and beginning 2021.And the second impact that is impacted in absolute terms and net recurring profile this first quarter is the program of acceleration of the renovation of the assets. I want to highlight that the assets that are today under renovation program. All of them are in CBD and city center with a significant or a very, I would say, a very busy -- a high visibility of potential value creation and a potential cash flow as you will see later on, how is the potentiality of cash flow coming from this renovation program. Some of them will be ended at the end of this year, some of them at the -- during next year. And this is the main reason that you could see the EPS recurring reduction. But again, in absolute terms, a very solid results with a highly increased on EPS comparable for this first quarter results.In the following section, some remarks about the ESG strategy. As you know, for us, ESG strategy is a very strong commitment from Colonial since 2015 that we started a very strong work in certifying all the assets and targeting how can be Colonial in 2050 a zero-emission company. In these pages, you would see a lot of numbers, especially how we measure this reduction of CO2 emissions. We have also invested a lot of technology across our portfolio in IoT technology that provides, in a very careful detail, what is the energy consumption and the emissions of CO2 on the footprint -- carbon footprint.And as you can see here in Page 26, the like-for-like variation of tonnes of CO2 emissions and with the Scope 1 to 3 and also the Scope 1 and 2, highlighting that we have decreased since 2019 more than 50% in Scope 1 and 2 and 2 CO2 emissions.If we look at also about intensity, again, a significant improvement, reducing the intensity carbon emission in terms of kilogram CO2 per square meters of 50% like-for-like. And if we compare this improvement and this achievement since 2015 when we start this commitment about decarbonization, the figures, as you can see here, are quite significant. The reduction of 76% like-for-like since 2015 in absolute carbon emissions and a reduction of 77% in intensity carbon measured with kilograms of CO2 per square meter. That means that we have achieved the target, the target that we forecasted for 2030.We target a reduction of 75%, and this has been achieved at the end of 2020, with which we are very proud to share with you these achievements. So we are accelerating the path towards net zero emissions in 2050, subscribing the Paris Agreement, as you know very well. Also, we have announced the adherence of Colonial to the Science Based Target Initiative. You know very well that we have a lot of ratings that the Score Colonial on this field, achieving the highest standards and highlighting now the CDP with the score of A minus with a significant improvement achieved since we were in the previous scores.I invite -- we invite you to read very soon in the following months on our website, the integrated report. You will see a lot of information about our ESG, not only in the environmental side, also in the social and governance, fully committed in trying to achieve the excellence in all this field. And hopefully, soon, we can share with you more achievement on that field.

P
Pedro Viñolas Serra
Vice

Carmina, before skipping into the final section, just a couple of words on ESG, just to say, number one, that this is, of course, a super priority for us. It has always been because once you are positioned in the -- in our business, in the niche where we are, which is super prime kind of assets. This has to be a priority for you, too, and it has been the priority for many years. And this has been taken even more seriously now. There is a commission that has been created out of Board of Directors and also an Executive Commission that I directly chair. So this is certainly a priority. That would be remark number one.Remark number 2 would be the results are outstanding. When I look at this number of 6 kilos of CO2 per square meter. This is really outstanding in comparable terms. So we feel pretty proud about our achievements.So last section will be more about how do we reload growth and value creation looking ahead into the future. As you know, our drivers are well known. So we basically try to enhance our returns with additional value coming from our project pipeline. This sometimes hides another layer of value creation, which is the renovation program that we do in our, let's say, stabilized assets, which also come with a good strong reversion. Our stabilized assets still show a lot of potential to capture rental growth.We will go into this in a minute. And this is also -- this is only talking about rents. If we should talk about the investment market, we believe that we still have quite a lot of potential to deliver. In steady form or in a more dynamic form going through capital rotation, through capital recycling. These are the drivers. So let's go more in detail and provide additional color into these different drivers, providing even more details than in previous presentations.In this Slide 31, you can see our well-known pipeline of EUR 1.2 billion, with a projected yield on cost of between 6% and 7%. Well, basically, here 2 numbers. This pipeline have a path to reversion potential gross rental income of EUR 79 million. Out of this, EUR 27 million is already secured, EUR 52 million still have to come. But as you can see, almost EUR 80 million of static potential in this gross rental income.And the other number would be the pending CapEx. How much is the pending CapEx that we expect? The total pending CapEx would be between EUR 367 million and EUR 385 million. And here, you can see the breakdown from 2021 to 2023. So this is an obvious source of value for us. We don't have to do anything else, that to deliver these projects. Some of them have already been pre-let. So that gives us comfort on the first layer of value that we should provide to our shareholders.In this Page 32, there's an estimate of valuation. You can see the initial number, which is a total cost of EUR 1.3 billion on top of that, here, we provide a couple of estimates. One would be the -- evaluate the current value estimating this value with diverse value at December '20 plus the pending CapEx. In the third column, you can see an estimate, which is -- I emphasize, an estimate of the stabilized value-based on the expected market yield for the assets and on the market rents. So that may provide additional color on the first value driver that we are working on.As I said, sometimes that the big pipeline hides a more, let's say, ordinary kind of growth in our, let's say, value strategies that we have, and that is the renovation program that we do in our assets. Here, you can see some examples of these renovation program strategies that are affecting more than 100,000 square meters, almostEUR 1 billion of assets. And also here, an important reversionary potential of more than EUR 30 million, which is quite important compared to the current passing rent.The third value driver would be, let's forget about the pipeline and let's forget about the renovation program. What's going on with your stabilized assets anyway, which is the huge, the biggest part of our assets under management? You've seen that, again, in this presentation of results, we've shown a remarkable release spread numbers of around 20% for quarter -- for first quarter of 2021. What does this mean?Well, this means that the potential reversion in rent remains important. If you compare the market rents versus actual rents, you can see that the upside remains relevant in Paris, in Madrid and especially in Barcelona with current numbers. All of these comments have to do with rents. If we had to talk about values, meaning investment market, well, that's the typical number, the one you see in Page 35, that we usually share, which is here, you can see what you're doing when you're buying Colonial. Here you can see the kind of valuation yields that you are buying into, 4.37% in Barcelona, 4.24% in Madrid, a little bit below 3% in Paris. And you can compare this with where the market currently is today. On top of that, you can have a look at the spread valuation yields that this may mean. And/or if you prefer, instead of looking at yields, you can look at capital values. And you can see when you buy Colonial at the valuation levels, at our appraisal values, what's the average capital value per square meter that you're buying into? 5,000, a little bit in excess of 5,000 in Barcelona, a little bit more than 6,000 in Madrid, 18,000 in the case of Paris.What else we can do to provide value. I think we've done a pretty good job in everything we bought and sold in recent years. Starting 2015, we've gone through a long-term strategy of first buying then buying and selling, then mainly selling, but always with, let's say, a common, let's say, a fundamental point of view, which is what we call the flight to quality. The flight to quality basically means that we are a company that we believe in the superior risk-adjusted returns of prime CBD. That's our experience after many years of having gone through different market situations.And therefore, when we see that something it's really not consistent with this view because it's noncore because it's too mature, because it's in a secondary kind of location, we try to rotate that and always be more close to prime. And here, you can see that basically what we have been selling in recent years is basically either noncore, secondary or mature assets. And if we spot anything, that has been mainly prime. This for us is important because, basically, the conclusion of our numbers today that we see is that after 12 months of COVID crisis, basically, the like-for-likes, the rental growth, the vacancy in rough terms remain the same.And we believe that a very important part of why this is happening is because of our exposure to prime CBD, where the balance between supply and demand provides our assets with a much higher resilience and therefore, that's why we're having this kind of KPIs. And it's not only about supply and demand. It's also about which kind of clients do we have, to what extent they are long-term oriented, to what extent they are value-added oriented, meaning now that they are in the high-value range of company profile, and therefore, what kind of loyalty they have for the long term. Our rotation in this sense tells a lot about the kind of assets that we have.So everything together, now looking ahead about our development pipeline, our renovation program, everything else, what it's telling us is that we are on the right track to deliver additional growth in our rents. In other words, without expecting nothing, in particular, in terms of rental growth, looking only about the static potential of our current portfolio, it is Slide 37. What you can see is that where today, we are at a level of EUR 327 million per year. We see a potential to grow as much as almost EUR 500 million, EUR 483 million to be precise.So these remain the main value drivers that, as I said, have to do not only with numbers, but with the quality and the strategy that we follow, relying a lot in the what we believe is the superior risk-adjusted returns coming from prime CBD assets.The conclusion and the outlook. I insisted at the beginning that these results are, in a way, more complicated than usual to share because of this dual nature. What we are sharing with you today is our results that they do go down in terms of gross rental income, in terms of EPS. So that's unreliable. That's a fact. It's an expected fact because we all know and people -- the investors, friends and analysts that follow us, you very well know to what extent we've been divesting in recent months and years. And therefore, it's the mathematical logical consequence.So in order to say -- in order to state, in order to have an opinion on how the company looks like, it's fundamental, now more than ever, to look at the like-for-like comparisons for gross rental income, for net rental income, for letting volume, for occupancy, for EPS, for everything. And basically, if there is one word that can describe our trend in this year and in this quarter, is resilience.And you see this in the net rental income growing 4% up like-for-like. You see this in the letting volume growing 1.2x higher than the same quarter a year ago. The occupancy levels remaining above 95%, which means that the vacancy remains pretty stable even if shows a slight higher numbers than a year ago. And you can see also this in the rental price increases. Either you look at the release spread or you look at the growth on December ERV, you can see this resilience and growth profile remaining in place.The second comment in these final remarks would be that this is done in a framework of a healthy balance sheet. We have completed a disposal program with double-digit premium. As I usually say, in the typical discussion if who's right, our stock price or NAV, we said, "Well, I don't know what I sold, probably not the best, but the worst that I have and I sold it at a double-digit premium." So that's a good signal.As another consequence of doing this, I have a balance sheet with an LTV below 35%. On top of that, in excess of EUR 2.4 billion of liquidity. That's a healthy capital structure and a healthy capital recycling, which allow me to cope without any particular concern with a very good project pipeline and a renovation program, which is the one that should fuel future growth. And that's the other main comment note for this presentation.We are at the particular moment where it's important to have the right visibility of our trends. Basically, what we believe is the scarcity of the product we have, which is Grade A in CBD zones, provides for quite good resilience and higher predictability of our numbers. And therefore, we are happy to provide guidance into 2021 and moreover in 2022.Why do we do this? Because we acknowledge that now we are in a particular moment where we just are having the impact of the assets we sold. And we don't have -- still there are the rents coming from the deliveries of the pipeline projects that we are going through. And therefore, it's important to have this visibility on where our EPS is today and where it will be in the future. So if today, our EPS would look more at EUR 0.22 kind of number. With our current visibility, we see EPS 2021 going more into EUR 0.22 to EUR 0.25 per share, and with what we know today of our portfolio, we see kind of EUR 0.27 to EUR 0.30 per share in 2022.Of course, we've always said that we have to be prudent in the kind of environment that we are going through. And therefore, no, we will review all of this vision downwards or upwards as we have more visibility and information. But as of today, this is a centrist scenario where we remain comfortable. And partly as a consequence of that, the idea is to propose in the coming General Shareholders Meeting a dividend of EUR 0.22 per share. That is 10% year-on-year growth. So that would be it.Our summary, a reasonable first quarter. The main characteristic, stability, resilience, strength of our KPIs, particularly after a year of COVID pandemic situation, of course, having the impact of divestments and acceleration in our renovation programs. But in terms of like-for-like, quite, let's say, satisfied of the nature of the numbers at the end of the first quarter. That would be the summary of the presentation.Now as usual, we will be available for any questions you may have. Thank you.

Operator

[Operator Instructions]. The first question from Celine Huynh from Barclays.

C
Celine Huynh
Research Analyst

I just had a question on your guidance for '21. Your recurring EPS for Q1 was already [ EUR 0.56 ]. If I was to analyze this number, I get to around EUR 0.22 for the full year, which is the lower end of your guidance. And because the pipeline has now contributed so much rental income this year, I'm just wondering if EUR 0.22 is a more probable guidance than EUR 0.25. If you could please comment on it.

P
Pedro Viñolas Serra
Vice

No. I think that if it was, no, we wouldn't have given the number EUR 0.25. So we would give equal probability today at the EUR 0.22 than at the EUR 0.25. So you know that traditionally, we've been quite reluctant not to be too specific about guidances. I always do more close to prudent approaches to these than anything else. But we thought that this time, because of this particular moment in the life of Colonial was important to give a little bit of guidance on our EPS numbers. And we're pretty confident that the EUR 0.22 should go higher. And I would give equal probability to the EUR 0.22 and/or EUR 0.25 as of today.

Operator

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

F
Florent Laroche-Joubert

So I would ask 3 questions, if I may. So first question on the pipeline. Would it be possible to have an update on your pre-letting activity for the buildings that will be delivered in 2021 and that are not yet totally pre-let? For my second question and for your guidance in 2022. How can we say that this guidance can change, let's say, before mid-2022? And maybe also with the guidance, could you please tell us if there is any risk of bankruptcy among your tenants? And for my third question, it would be on ESG, and you have spoken a lot of Scope 1 and 2. And could you please tell us if you work also on Scope 3 and, in particular, in Spain?

P
Pedro Viñolas Serra
Vice

Thank you. Maybe, Carlos, you can cover these questions because of their nature.

C
Carlos Krohmer
Chief Corporate Development Officer

Okay. Maybe just starting with the last question. We focus at the moment that -- this is what is the business plan in ESG on Scope 1 and 2. These are the areas of carbon footprint, where we can directly have influence. And Scope 3, as you know, is outside of our influential area. But we will try to do some efforts also there. But when we do a business plan and guide on targets, it's basically Scope 1 and 2.Pere, should I also answer on the other questions?

P
Pedro Viñolas Serra
Vice

Yes, please.

C
Carlos Krohmer
Chief Corporate Development Officer

I think on the project pipeline, it would be not prudent to -- today to say that much about it, that much specific. We are having momentum at the moment. There's being quite important momentum in the Madrid market for core CBD assets. So we are having conversations on both of the projects that are being delivered this year, Miguel Ángel and Velazquez, but it would be not prudent to be now too specific.And on the last question, Carmina, if you can, on the tenants' bankruptcy, not so much to mention.

C
Carmina Ganyet I. Cirera
Corporate Managing Director

No. No. There is no bankruptcy in our tenants. So the impact from the COVID on the collection of rent, it was, as we disclosed last year. Basically was the main impact on the gross result of '20. No material impact this year. And this is why the collection rent remains in the levels of 100 in this year and some immaterial impact, but not significant, which has been solvent to operate, not any bankruptcy.

P
Pedro Viñolas Serra
Vice

Yes. In fact, I was looking if we had a particular slide in the presentation, I didn't find it, but in the past, when we've been doing presentations described the nature of our clients, what you usually can see is that a very big percentage of clients with a high kind of rating themselves, mainly in multinationals and mainly companies which may be listed. So normally, we are in the high end in terms of the profile of our clients. And that leads to also very outstanding numbers in terms of long-term commitment to the company, in terms of how many years they've been with us. So let's say that we are very comfortable.And on top of that, there's another thing that is particularly relevant in our case, which is the multi-tenant kind of strategy. We've always handled also risk management, growing through exposure to a high number of multi-tenant clients. So there's no concentration of risk in our company to a specific client. That would be on an ordinary basis. On a non-ordinary basis, taking about projects, well then the numbers speak for themselves. As of now, collection rates are 100%. So we are far away of having any particular concern about our clients as of today.

Operator

The next question comes from Jonathan Kownator from Goldman Sachs.

J
Jonathan Sacha Kownator
Financial Analyst

I have 3 questions, if I may. First question, if you can come back to the guidance and just help us understand what are exactly the additions that you've made in that guidance in terms of any disposals that you've factored in? Any lettings on these projects that you factored in or not. Or is it just based on what you know, i.e. existing leases, existing portfolios, et cetera. That's the first question.Second question is are there -- I noticed here you highlighted that there are buildings that you've put into refurbishments and you wanted to accelerate that. Are there other buildings that you think that will be part of this accelerated refurbishment plan over the next few quarters? And if you can be as specific as possible that would be great.And the third point, perhaps going back to your LTV and current opportunities means you see acquisition opportunities in the current market, which you think are attractive.

P
Pedro Viñolas Serra
Vice

Yes, I will start with the last one and maybe Carlos can step in or Carmina to come with more details or the assumptions regarding our guidance and the future of our renovation programs.Look the way, we see ourselves today is that we've been net sellers in the last couple of years and we've been net sellers because of 3 reasons that we shared before. Number one, maybe I know it is a most important one because of the individual characteristics of these assets that are being sold. Number two, because we wanted LTV to be stronger. Number three, because we wanted to how the gap between market values for assets and appraisal values, even more stock values.Where are we today? We feel that if it is not over, it's not far away from being over, this strategy. Because as of today, I think that things that are noncore or that are, let's say, of lower quality, we may have like 2% maximum, I would say even more 1% or 2%. So there may be additional disposals happening, but -- and we are working in some of them, but would have non relevant or not very isolated kind of nature.Then we see this year as a year of discovery of opportunities, whereby the way it may happen on the selling side but maybe we feel more inclined to say that could happen more on the buying side. With that said, so maybe what -- where our efforts are more concentrated as of today. But you know the way we work. We basically, usually look for kind of beautiful off-market opportunities that are individually quite attractive with no particular urgency. So I don't know if this may happen during the course of this year or first half of the year, second half or later on. In that way maybe -- we may be going through a more kind of a transition year, but we see this as more of a year of discovering opportunities, 2022, 2023, that vision could become more clearly optimistic.Having said that none of this is factored into our guidances and our business plan that are fully relying on what we have and own and see for the assets we own today. Maybe Carlos, if you can comment further on the assumptions for our guidance.

C
Carlos Krohmer
Chief Corporate Development Officer

Yes. On the renovation program, basically, what we have in place for the immediate next 12 months is the 9 assets that we highlight on Page 33. So we're talking about 100,000 square meters, and we're talking about these assets as of today, the annualized passing rent is just EUR 8 million. And once they are fully let, we would reach the levels of EUR 38 million to EUR 44 million with an average investment of EUR 60 million of CapEx. And we also showed you on this page how is the phasing of this. We have 6 of these assets that will be delivered towards the mid end of this year. 2 other assets in Paris that will be the mid of next year. And then one asset, therefore, the longer term in Barcelona, it was our last acquisition, pre-COVID for 2023.So this is basically what we have in terms of renovation program. In the next 12 months, we do not foresee any major addition to this renovation program. And so this also means that in terms of guidance, and you see this in the page of the passing rents in the Page 37, both the disposals and disreputation of the renovation program has resulted in an annualized impact of EUR 18 million of rents that is temporary, that is, in terms of the renovation program is temporary. That explains part of this construction of the EPS guidance. I don't know, Carmina, if you want to add. It's nothing on the guidance.

C
Carmina Ganyet I. Cirera
Corporate Managing Director

No, I think -- I'll explain.

P
Pedro Viñolas Serra
Vice

Maybe on my side.

J
Jonathan Sacha Kownator
Financial Analyst

So have you included -- Sorry, can you hear me?

P
Pedro Viñolas Serra
Vice

Yes, yes, go ahead.

J
Jonathan Sacha Kownator
Financial Analyst

Sorry, I just wanted to understand if you have assumed any reletting of that base being currently in refurbishment, and if you have assumed any lettings not concluded yet in the pipeline assets that will be delivered during that 2021, 2022 period?

C
Carlos Krohmer
Chief Corporate Development Officer

The relettings are loaded more towards the back end of the year, the lettings of the project pipeline. So it's a prudent assumption on the Spanish product pipeline.

P
Pedro Viñolas Serra
Vice

The comment that I was going to make is just a qualitative one. I mean I think that for many years, we had a reputation more to be closer to being prudent and to be aggressive. Also, in this sense, in the current scenario, where we are we don't want to be or look like naive, meaning that now that we are in a complex scenario, we just see everything so rosy. So it's clear that we are pretty conscious about the current economic scenario, that it's complex.So trying to be prudent and at the same time, not misleading, what we've done is just take what we have and project the EPS with what we own and what, let's say, has clear visibility in our assets. And we thought that we had to do that, but because if not, in the moment that we are just selling and we are not still delivering the cash flow, maybe the outlook would not have the right visibility. But we feel, let's say, prudent and at the same time, conscious of where we are in raising -- providing this guidance.

Operator

[Operator Instructions] The next question comes from Fernando Abril from Alantra.

F
Fernando Abril-Martorell

I have a couple of questions. First can you remind us what is the percentage of rentals expiring in 2021? And how much of this has already come in Q1? And then second question is with regards to occupancy. So you've stabilized occupancy in Q1 at this point, based on the conversation you're having with your tenants. Where do you see occupancy by the end of the year, a bit slightly above, flat or slightly down?

P
Pedro Viñolas Serra
Vice

Carlos?

C
Carlos Krohmer
Chief Corporate Development Officer

Yes, thank you, Pere. We actually on the page, I'm just moving there, just a second. Page 47 of our presentation in the appendix, we show here what is the rental risk as of December '20. As of December '20, we had EUR 50 million of gross rental income, annualized gross rental income. This was expiring. 2% of this has been already signed or break options have not been executed. 5%, another EUR 20 million are under negotiation or we know already that the clients want to stay or we have high visibility that the clients want to stay. And the remaining 6%, half of this is a part of the renovation program we just mentioned, to reload cash flow and reposition the assets. And so the remaining risk would be 3% on an annual basis in terms of how much is this, if we would not get anything done of this 3% remaining, it would be a 1% impact on our annual gross rental income in 2021. This is our best estimate at the moment, but obviously, we are going to update every quarter and see how this moves.And what was the second question?

F
Fernando Abril-Martorell

There wasn't.

C
Carlos Krohmer
Chief Corporate Development Officer

Okay.

P
Pedro Viñolas Serra
Vice

I'm seeing a note that is saying that there's still 2 additional questions. That's why we are waiting for.

Operator

[indiscernible]Yes, please.

U
Unknown Analyst

Can you hear me?

P
Pedro Viñolas Serra
Vice

Yes.

U
Unknown Analyst

Sorry. So just 2 questions. It's with regard to renovation program. This EUR 60 million, I think, is it fair to say that it's increased quite significantly? I had more like of EUR 30 million in mind. And then the other question is with regard to the investments into ESG. Would you be able to give us a sense of how much you spend mainly on Europe per square meter? And how does it impact your releasing spreads?

P
Pedro Viñolas Serra
Vice

Yes. Carlos, please.

C
Carlos Krohmer
Chief Corporate Development Officer

Sorry, but I did not guess a very clear the first question.

P
Pedro Viñolas Serra
Vice

The first question, if I understood, they were talking about the CapEx of EUR 60 million being materially different than previous estimates that you have provided? If I understood correctly?

C
Carmina Ganyet I. Cirera
Corporate Managing Director

The CapEx on the renovation program.

C
Carlos Krohmer
Chief Corporate Development Officer

The renovation program, as we stated, has accelerated. So it has been reloaded. So it's not comparable with the previous renovation program figure. The phasing of this CapEx is that basically, we'd expect around EUR 30 million this year, around EUR 7 million in 2022. And then for the more longer term project in Barcelona, the rest in 2023. So this would be on the renovation program. But in exchange, as I said, we expect between EUR 30 million and EUR 40 million of additional annualized rents.On the ESG CapEx figure, I don't have it now here specifically, but it's not a very relevant amount on the total CapEx figure, basically because it's about electrifying the portfolio, substituting some things here and there. And also, we have, as Carmina explained, a technological solution already some years ago that is monitoring the consumption and the behavior of the tenants. So it's not really a very relevant figure in itself. What we think we're going to observe in the market is that we will see some better prospects for high standards in ESG assets, in terms of rental pricing and investment prices. This is what we can say at the moment. I don't have the specific figure with me now.

Operator

The next question comes from Ben Richford from Societe Generale.

B
Benjamin Paul Richford
Equity Analyst

Just a few additional questions, which I'll give all at once, please. The first one is, could you give us any indication of whether you're seeing gray space, so tenants have left space coming through to the market, i.e. corporates realize they've got surplus space because of their changing work patterns? Second question, any indication of where valuations might move towards the half year from conversations with your valuers? And number three, what's the pace of conversion from tenant inquiries to signing leases? Has that slowed down at all given greater, I guess, uncertainty over future needs and economic directions? So 3 questions.

P
Pedro Viñolas Serra
Vice

I may provide a little bit of insight in some of them and Carmina and Carlos may let you know. Starting with this last one, the pace of conversion. It's difficult to assess because we come from a period where inquiries were not statistically significant, let's put it this way, in the third and fourth quarter of next year. And we've seen, let's say, a much, let's say, accelerated volume of letting activity this quarter. But I think it was difficult for me to say in a specific number about that. But if anything, I think that for us, it's been kind of a surprise. Honestly, that when we look at Spain, in particular, the numbers for the first quarter, we're accelerating so much compared to any quarter of last year. So I wouldn't have a number for that, but I would say that if anything, we have seen an acceleration in the first quarter.Concerning the valuation question that we don't have, of course, any particular hint now, about what June may come like, maybe look like. Generally speaking, now we feel that the market for our assets has proven to be very resilient. Again, being honest, when things started March of last year, with expectations of a huge decrease in GDP, we knew about the resilient nature of our assets. But of course, we had much more of kind of an uncertain approach to what things may look like. At 12 months later, the main characteristic of our rental activity is resilience. And when you look about the yield component, it's -- in the market, having pretty remarkable dynamics. In France, it's obviously, we've gone through a yield compression in the second half of last year.I would say that in Spain, today, if you don't see activity in prime CBD assets, it's more because of a lack of offer than anything else. So generally speaking, we feel, let's say, satisfied with the resilient nature of the assets. And the last hint that I may give on this is that the main thing that has changed downwards, but that happened mainly last year, is that at the beginning of 2020, valuations from appraisal companies included growth expectations for rents that had to be adjusted. That explained most of the downside in June last year, to give you a figure. But we don't see more of this coming at this moment. So I am not able -- not to be more specific, but only providing this message of resilience.And finally, on the gray space, maybe Carlos or Carmina may step in. I am not aware of any relevant gray space kind of activity. Also because maybe in the culture of the markets where we are in, in Paris, Madrid and Barcelona, this is something that it's more, let's say, rare or exceptional than in London, to put an example. So I'm not familiar with this. At the very least, I would say that I don't remember any relevant kind of activity happening in the assets we own. I don't know if Carlos, you can say anything else or just confirm that this is the right view.

C
Carlos Krohmer
Chief Corporate Development Officer

That is right, yes.

P
Pedro Viñolas Serra
Vice

Here, I'm being told that this is the end of the Q&A. I don't know to do this or not, but I would follow instructions, as I usually do. So thank you very much to all of you for your attention and for being with us today. And we are looking forward to being in touch with you soon, and hopefully, with good news. Thank you. Bye-bye.