Inmobiliaria Colonial SOCIMI SA

MAD:COL

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to Inmobiliaria Colonial Third 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 very much. Good afternoon. This is Pere Viñolas speaking. Carmina Ganyet and Carlos Krohmer, as usual, will be joining me in the presentation of these Q3 results.I will be following the presentation. I am now on Page 3 with the highlights of what we would like to share with you today. First of all, our gross rental income for this quarter held at a level at EUR 260 million, which means a 0.4% like-for-like growth. Due to increased efficiency, this is translated into a higher growth of the earnings, 8%, EUR 112 million, and that means a recurring EPS of EUR 0.22 per share, 8% increase year-on-year.The net rental income is 3% like-for-like. The net rental income of offices is slightly higher at 4% like-for-like. Therefore, what we are sharing with you today, the set of results, which we believe are quite satisfactory, because despite the current environment we're going through, all of our KPIs remain in a solid trend upwards.These results are due to solid fundamentals of the company, also due to correct and satisfactory outcome from the extraordinary process we are going through. As we will share with you later, we are obtaining, as of today, a collection rate of 98% of what we get in offices. Our occupancy remains at 96%.The letting activity, as we will see, is remaining in very good terms. Also the rents, either if you talk about release spreads, our rental growth remains positive. On our projects pipeline it is having progress as expected with 34% pre-lets.This is part of our overall strategy that we've always call flight to quality, not only now for the last years. In this strategy, we would like to highlight also a successful results in the management of our capital structure with EUR 2 billion of new debt issuance, EUR 1 billion out of this in bonds and there's a successful liability management, different processes.Regarding the investment market, we've reached a satisfactory conclusion of a process of disposal of more than EUR 240 million of non-core assets in the last 2 quarters, inline or confirming our June 22 appraisals. And this is part of our ongoing strategy where we estimate further disposals for the next few quarters.I'm on Page 7 now, which basically allows us to go more into detail. As I said, profit EUR 112 million, EUR 0.2210 per share, 8% year-on-year growth. That comes from a top line of EUR 260 million, 0.4% year-on-year variation. Let's not forget, we will see this in detail that after the disposal strategy we've gone through, the fact that the GRI remains stable, it's quite satisfactory.Also, let's not forget that we have marginal impact of certain kind of assets that are impacting negatively our activity. If we deduct this impact, and we already talk about offices, you can see that our rent -- rental growth like-for-like for offices is 2%, with Madrid being 5%, Barcelona being 7%, Paris being basically flat.The numbers remain the same. But even better, if instead of talking about gross rental income, we do talk about net rental income where the group like-for-like growth of net rental income will be 3%, 4% if we talk about offices. That is within our very well-known framework of our prime positioning, 76% of our assets in CBD, and our strategic exposure to the French and to the Spanish market, 61% of our assets being today in Paris.Therefore, Page 8, our vacancy remains very healthy, 4%. We would like to share in H1 with you also to what extent also the volume of transaction signed is satisfactory. We've signed so far this year, 68,000 square meters. That's -- I mean, the third quarter shows an increasing number compared to the second. You will see later on that this is done at a sustained rental growth of 5% compared to December '19 ERV. And at a double digit release spread of 25% if we compare whatever we've been signing with previous contracts.This would be the highlight of what they are presenting to the market today. As usual, we'll go through different sections, explaining the rationale of the different aspects of the company. Before that, let me share with you a couple of comments regarding COVID and our management of it.On Page 10 of the presentation, you can see all the areas where we have been working very hard in the last few months. So I will only highlight what recently we've been working on. Just to summarize, on one front, we've been working in disposals. And you can see that since June, we have settled, first of all, the disposal of our logistics assets that were left for sale. And more recently, we've sold a couple of non-core assets located in Barcelona. That's regarding our assets.Regarding our capital structure, we've worked very hard. And during these months have taken advantage of the market through 2 bond issues, one in France through SFL; one in Spain at Colonial level, which have been followed by liability management processes and for both companies, SFL and Colonial. And just recently, we just signed a new credit facility of EUR 1 billion. So our financial structure becomes even more outstanding than when it was.Being more specific, Page 11, as I said, the collection rates of our company remain very strong. In the case of offices, as of Q3 or regarding exclusively in Q3, our collection rate is 98%. This 98% means 100% in Paris; 95% in Barcelona; 95% in Madrid.Page 12. We have been going through a process -- we have gone through the process of discussions and agreements with those clients who went through a tough situation on the -- during the lockdown period. Today, you have to say that the agreements with those clients are almost finalized. There's only one file left in France to agree. The rest is finalized. And, again, as we've done in the past, we may confirm that the impact year-to-date that this is having on an annual gross rental income is around 3%. So the impact of the extraordinary management of the extraordinary cases will be 3% -- around 3% of our gross rental income.As I said, 100% of the negotiations in Spain are finalized. Almost all of them in France, and this 3% means more or less EUR 10 million, which is the volume of discounts agreed with our clients in exchange of enhanced conditions of our contracts.Of course, this is will be results as of today. And as usual, we want to be diligent and prudent, and we'll see how things progress in the next months. But so far, we are now talking to you in the mid of November after so many moments to confirm with you this outcome is quite satisfactory in our opinion. This would be my words regarding the COVID crisis.Now we are entering our ordinary process of discussing our ordinary outlook, and let's start with reviewing market conditions. Section 3, Carlos Krohmer will step in. Thank you.

[Carlos Krohmer, Chief Corporate Development Officer]

I thank you, Pere. We are now -- let's step to Page 14. On Page 14, you'd see the evolution of the GDP projection of the IMF, showing at where it was in June and where it is at the last available update on October. Basically, for 2020, most of the countries in Europe have had an improvement of the correction.Also, Spain is, I would say, the only company in the space that has been remaining at the same level than it was in June. So it's a negative 13%. However, what is interesting to see on this page, and we will look at the impact of the recovery of 2021. All of these countries on this page, the recovery has been estimated downwards, except for Spain that has been estimated upwards by the IMF.If we now switch to the next page, on Page 15, we've prepared here a zoom on the 3 markets where we are and on the segment where we operate, that is the CBD segment. On Page 15, on the left-hand side, you see the total stock in CBD in every market. Roughly 1 million square meters is the CBD market of Barcelona. 3.1% is a CBD market of Madrid and 7 million is Paris. And if we look at the product that is comparable with Colonial high-quality product, there's just 1/3 of the stock in Spain that is Grade A product and only 9% of the stock in CBD Paris is Grade A product.If we then go a step further and look at the vacancy in this segment, you see the first column in light blue, the overall CBD vacancy. But if we go further on the dark blue column, you see that in Paris and in Barcelona, the Grade A CBD availability is below 1%, and in Madrid it's 1.8%.What does this mean in figures? That as of today in Barcelona only 8,000 square meters of Grade A in CBD available and in Paris and Madrid, only around 60,000 square meters of CBD product available to be let. So there is really no supply in the market.If we then switch to Page 16. On the left-hand side, you see the quarterly take-up in Barcelona, Madrid and Paris for the whole market. As you all know, there has been a sharp correction since the COVID, and you see it here on the Q2 figures. However, in Q3, as there has been some release of the lockdowns, there has been an immediate improvement of the take up. So it seems that if we at one day now come back to a less -- to less lockdown, this has quite a direct impact on the takeoff.ERVs are being more or less stable. You see here the data from the consultants and also some transactions that have happened in the recent months.Finally, on Page 17, information that is quite known. The yield versus the reference rate remain at very attractive spreads; above 300 basis points in Spain and close to 300 basis points in Paris. Paris, even though investment volume has gone down in Q2 and Q3, we are still talking about EUR 12 billion of year-to-date investment volume that shows the high liquidity of this market. In Q3, investors have come back, especially in Paris there has been a recovery of activity.So let me now step quickly through the main highlights of the operating performance. On Page 19, you see already what Pere introduced. Year-to-date, Colonial has signed close to 70,000 square meters. And this is basically thanks to Q2 and Q3, both quarters have been at levels of 28,000 and 26,000. So both quarters have been at quite significant levels.If we look on Q3, there have been 4,000 square meters in Barcelona. Interesting story about this is that 80% have been new lettings. And in Madrid, out of this 20,000 square meters, 4,000 square meters have been new letting. And in Paris, half of it new let.On Page 20, we have a little bit of zoom of the activity that has been in the COVID quarter, so in Q2 and Q3. Basically, what you see here is that the activity has been in good terms, good maturities, double digit release spreads and ERVs above the 2019 ERVs.On Page 21, just to show that there are several examples of assets where there have been these good turns. These are all examples of Q2 and Q3. OnPage 22, you can see with the gray shadow, what are the specific terms in terms of release spread and rents signed versus the ERV for Q2 and Q3. As you can see, the double digit release spread remains. And Q2 and also Q3 remain with a positive impact versus the ERV 2,000 -- versus the ERV of the beginning of the year. Blended Madrid has been slightly negative, but this is basically due to one contract -- one big contract that had a correction. Excluding this contract, it's slightly positive.Page 23, just some words on vacancy. The group vacancy remains at healthy 4%. The most interesting highlight is that we have improved significantly the vacancy in Madrid. It's today at 2.9%, so below 3%, whereas a quarter ago it was at 4%. And in Paris, the vacancy is 4.8%, but mainly due to the entry into operation of one of our renovation programs. Excluding this asset, the rest of the portfolio remains at a vacancy below 2.5%.Page 24, there is a little bit more zoom on the vacancy. On the right-hand side, you see what are the main spaces that are vacant. The spaces that are vacant are basically some of the legacy secondary assets from the Axiare acquisition and some secondary exposures in Barcelona. Excluding this, in the CBD, the vacancy profile would be even better.What you also can see on this page, on the bottom, is that in many quarters, always the vacancy of the Colonial portfolio has been somewhere around 3% to 4%.And with this, I hand over to the financial performance.

[Carmina Ganyet I. Cirera, Corporate Managing Director]

Okay. Thank you, Carlos. In this section -- this section, we cover how this activity for month looked like in our P&L. The main -- the initial or the beginning of this section, we covered the gross rental income, highlighted that the gross rental income increases 2% like-for-like.Moreover, the rental income increases 2% additionally due to the projects and acquisitions coming into operation. And basically, the rental income remains flat in a year, considering the circumstance and the COVID period, which is, I would say, outperformance and also considering the disposal that we executed in 2019, who, of course, impacted negatively in 2020.So considering the situation or the circumstances and also the disposals, we have been able to remain -- to maintain our gross rental income in absolute terms, thanks to the 2% like-for-like increase in the rental income. And how this increase is due to.In the next page, in Page 27, you can see the sources of this increased 2%, basically driven by rental prices, especially in Barcelona with 7.2% increase. And in Madrid, combining volume -- important volume, important letting activity, as Carlos mentioned before, adding this 3.6% in the gross rental income increase, and additionally, also prices has been impacted positively in the gross rental income.If we go to the efficiency -- I am in Page 28, you can see also outperforming efficiency with an increase of 3% like-for-like, especially in Barcelona and Madrid. So this is something that also we highlighted in the first semester, and we will continue to highlight due to our effort in increasing efficiency in our operational performance of the portfolio.Some comments and some words reminding the disposal -- I am in Page 29. As you know, we signed in 2019, the logistics activity. It has been -- it was through a call option, which was executed already and executed in different settlements. The majority of this transaction has been already executed. EUR 100 million cash has been executed recently in July, and the remaining part would be executed in the following days. So in some days, all the logistics disposals will be already executed, and all the cash would be also be settled.Additionally -- I am in Page 30. Additional, as you know, we have sold 2 secondary assets in Barcelona, more than 18,000 square meters, which represented the price achieved 1.7x on the acquisition price. We cannot be very specific on the premium to the JV because of conferential. But, of course, through these transactions, we have confirmed widely the valuation we had in June 2020.Consequently, as you see in Page 31, our recurring EPS or reporting income increases from EUR 104 million to EUR 112 million, highlighting an 8% in terms of like-for-like recurring results. Due to the additional EBITDA, due to savings and the financial costs, without the disposals the EPS would have been close to EUR 0.24 per share -- EUR 0.2373. And also being impacted of -- we impacted the logistics for -- and the disposals we did in 2019 for more than EUR 200 million.Consequently, the EPS reached EUR 0.2210, which represents 8% more than it was last year's 3 quarter last year. So it's a very, I would say, positive result considering the disposals we did last year. Considering the strategy we execute prime to more quality asset base and also considering the release that we have achieved in the operational performance, consequently reaching this 8% increase in recurring EPS.In the next page, you see line-by-line what I mentioned. So I think all has been covered. The recurring EBITDA, 2% increase. Recurring earnings, 8% increase. As you know, this quarter, we did an update. The valuation will be updated at the end of this year. And the impact you see in extraordinary items is the valuation we did in June 2020. Consequently, I repeat this increase -- important increase in the EPS of 8%.In the next page, you see that it has been released, the activity, enhancing the credit profile of the company. Here, you have some main transactions that we have done and we have in plan during the last quarter. France, have one issuance of EUR 500 million in France, 7 years maturity, 1.5% fixed coupon.Second, issuance in Spain, additionally EUR 500 million, 1.35% fixed coupon for 8 years. Due to this issuance, we have executed some liability management to enhance the credit profile and will extend the activity profile. And this week also has been released. We signed a EUR 1 billion credit facility -- EUR 1 billion of new sustainable credit facility with 13 financial institutions, international and national. So a lot of interest of this credit facility.We've raised more than EUR 1 billion. Finally, we decided EUR 1 billion, its 5 years -- EUR 500,000, 5 years; EUR 500 million, 7 years. It's a good deal. The objective was replacing the credit facilities of EUR 875 million with that. And thanks to that, we have a credit liquidity profile, I would say, very healthy linked to the ESG benchmark and linked to the ESG rating.Consequently -- I'm in Page 34. You see here how this capital structure has been improved, has been enhanced through the bond issuance and France, extending the maturity until 2027. Due to the issuance in Spain, extended the maturity until 2028. And also on top of this, new credit facility, which as you see here, the profile of maturity of our debt. Importantly, that the position of liquidity we have today covers more than 4 years, the maturity -- the debt maturity -- sorry, cover the debt maturity for the next 4.5 years.So now KPIs, the net debt of EUR 4.5 billion, with a loan to value of 36.5%. Net EBITDA, 13x. As you mentioned, between cash and liquidity close to 2.5 -- sorry, EUR 2.4 million, which -- this debt maturity profile, which results a confirmation by our rating agencies, S&P and Moody's, the existing credit profile that Colonial has today.

[Pedro Viñolas Serra, Vice]

Thank you, Carmina. We'll skip now to Section 6. Quickly, just as a reminder that we remain with good progress in our ESG strategy. I think that a key element of this strategy is our decarbonization goals and the way we are having progress towards these goals. We committed, we engaged Colonial with the Paris Treaty Agreement. We are aiming to a carbon neutral portfolio in 2050 with 75% carbon reduction in 2030.Well, basically, today, we have to confirm that our trend is aligned with these objectives. Just in the last -- with the last data available, our carbon emissions have gone down 70% compared to 2015, and 59% has taken place in the last year, so that's pretty satisfactory.On Page 37, we can have the same kind of picture with the absolute figure. We ended 2019 with 18,000 tons of CO2, which is 35% reduction on the previous year. Not only are we having progress on the decarbonization strategy. Also, in other areas of ESG, as we see in Page 38, we've been having progress on our green financing strategy.We have new sustainable credit line in place of around EUR 1 billion, which is based also on sustainable criteria. Its margin is linked to the rating obtained in the GRESB agency. We expect big improvement in our rating for GRESB this year. As you may know, GRESB ratings are expected later on -- normally in the following weeks. But we do expect a big improvement that not only would be good news by definition, but also would mean good news in terms of its impact in the green financing standard.And we already have done in the past on top of this new sustainable credit line, EUR 1.2 billion of sustainable credit lines that were already available. This is on top of the certification standards that we have. We remain 93% of our portfolio being either LEED or BREEAM certificate standard, which is quite high. So basically, on the ESG front, we remain committed and with the results in line with our goals.Let me then enter into the last section that has to do basically with strategic thoughts that I would like to share with you. Basically, the message we want to share is that our strategy remains linked to our exposure to super core CBD kind of portfolio. I think that history and recent data is telling us that this kind of positioning offers the best kind of risk-adjusted returns.We believe that particularly with the trends that now we are facing exposure to CBD, drives customer loyalty because of location, because of efficiency, because of experience, provides the best access to the best clients, and we are very comfortable with this positioning within the new kind of challenges that you have to face.Let us share with you a little bit what does this mean for us. Of course, super core portfolio means location, that's what you can see in Page 41. That is quite unparalleled. I think that if you try to map any kind of portfolio for any European company, it will be difficult to match this resilience in the end that this exposure means.On top of that, on Page 42, we would like to say that, for us, being positioned in super prime does not only mean location. It also means high-quality products. We would like to highlight that besides 76% of exposure to CBD, 85% of our assets mean floor size of more than 1,000 square meters per floor. This is again quite unparalleled. When everybody talks about the new trends that we are facing, this is a major source of loyalty and a appeal now for new clients.We would also like to share with you that we have always coupled this strategy of CBD focus with risk management through multi-tenant strategies as opposed to highly dependent on mono tenant strategies. As of today, 82% of our portfolio is multi-tenant. So that means that despite being in the best buildings, we do not depend on a single client and their particular strategies for our performance. That makes our portfolio even more resilient.And finally, as you know, as I said, this portfolio is also very performing in terms of efficiency, 93% of it meeting the best energy efficiency standards. So that's our positioning.We believe that this positioning is on the price. We believe that in a way, this proposition of value is appealing. This Page 43, it's not a new page. It's a page that we've shared with the market in the past. This shows for our markets where the bond rate is, where the prime CBD yield is and where our yields are based on our more recent valuation.Needless to say, this yield is based on our valuation and not on our stock price. Anyone can guess where the numbers would go if we took these different reference. That means the kind of spread valuation yields that you see, that means the kind of capital values that you see. So for us, it's not only about quality, it's also about money, what does this mean in terms of investment basis.Page 44, a comment about the market -- the direct investment market. To be honest, these days it's difficult to give an assessment on where market is. Market is showing less activity. And I would say that to simplify, today, if you talk about secondary kind of low-quality assets, there are no buyers in the market. When we talk about prime kind of products, there are no sellers in the market.That means that there are not many comparables to show for very different reasons. As I say, in prime, basically, our opinion is that market is missing sellers, and therefore, a few trades are happening. But I have to say that those rates remain quite strong. I would say, particularly in Paris, which is a deeper, as you know, market.On Page 45, we would also like to share that our positioning in prime has not only to do with the buildings, it's where the buildings are with design layout, quality of these buildings. It's not only based on having a multi-tenant strategy, it's who the clients are.And Page 45 tries to provide a little bit of color of which clients -- which kind of clients we do have and which kind of also regional exposure and sector exposure. You can see that basically, our situation is of a high diversification, but also high-quality as a general rule.Which means that, Page 46, we remain confident about our rents. Basically, the message that you -- the takeaway of our presentation today is that, well, we are approaching the end of the year, and you can see the results today, where they are in terms of rental level, release spreads, rental growth compared to last year.Not only this, but in this Page 46, what we are sharing with you is how this release spread has evolved Q1, Q2, Q3 and the kind of price potential reversion that this is.Page 47, works -- I mean, and the next -- the following pages on our pipeline. I think that our pipeline is having a satisfactory evolution. We have already pre-let 2 out of the 4 big projects that we are dealing with, Louvre-Saint-Honoré and Marceau. At Marceau, we are now at 86% level of relating.And just to summarize the our views, these project are, 3 out of 4, on the Paris market, which are excellent location, which means that the level of risk attached to this project in our view, it's quite low or quite acceptable. Also, our project in Spain in the Louvre, in the South Castellana -- Paseo de la Castellana, I think that is also offering a level of risk, which is quite acceptable.Page 48 provides a little bit of details on the Marceau project where we signed with Goldman Sachs. This is already known by the market. So I'm not going to go into details, and I would skip to Page 49.Page 49, is just a reminder of the pipeline. The pipeline is worth EUR 1.3 billion. This compares with a total balance sheet of between EUR 11 million and EUR 12 billion. So that is more or less 10% of our total assets under management. Let's not forget that this EUR 1.3 million includes purchase cost and total CapEx. As of today, we have a pre-letting of these projects at the level of 34%, which is quite good.And most importantly, as of today, we confirm our expectation on yield on cost for this pipeline. Some of these projects are starting to approach delivery. And as we do that, we remain in line with the yield on cost estimates that we've been provided -- providing to the market and that should lead this company from a level of EUR 350 million of gross rental income to a level of EUR 436 million at the end of the -- really of all projects. So for us, the pipeline also remains a driver of our strategy.Page 50, I'm not going to go into details, because I already referred to that. But ESG and decarbonization remains also at the heart of our strategy, and we -- I already mentioned which goals are we trying to achieve and the fact that today, we are going in line with this.And finally, on Page 51, I think that Colonial has been able to create value also to the active asset management of our portfolio. Basically, the message here is well known. We are not changing our opinion, our strategy every quarter. So usually, you should hear the same kind of message.In the next few years, at the beginning, we were net buyers. Since 2018, we started to be more of a net seller. We remained net sellers in 2020. 2020, we have divested EUR 240 million to-date. And we are working on additional disposal. We estimate that in the next few months, we could add another EUR 300 million to this strategy.So remarks on our strategy, obviously, remains the same. We feel that we are well positioned for the current market environment, and that deserves good results, and that is what you can see again in Page 53, which is the conclusion. We are presenting to you today what we believe are strong financial results.Flat gross rental income for a company that has been selling assets, so good level of gross rental income. Increased efficiency, which means net rental income growing at 3%, despite the fact that, of course, you have to deal with certain files that have certain impact in our P&L. If we concentrate on -- only on offices, the net rental income that is growing 4%, I think that a 4% like-for-like growth for our office portfolio is quite satisfactory. And also because of the increased efficiency of our P&L, when we come down to the bottom line, the recurring earnings are showing 8% year-on-year growth of EUR 112 million EUR 0.2210 per share, which is also quite satisfactory from our point of view.We've been showing to you the drivers of this, which is, first of all, non-relevant impact of the extraordinary events we're going through in terms of collection rates. Ordinary activity remaining in line with previous quarters, occupancy 96%, good letting activity, good release spreads. And also, we've been sharing with you good experiences coming from our project pipeline.On top of that, more recently, good news coming from the capital structure in terms of new issuance and also coming from our asset management, coming from the disposal front. So we believe that we are adding this quarter in satisfactory terms.As we've been saying in the past, and we say it today, when you go through this presentation, we don't want to give the impression that we don't know the world we live in, that we don't know what the current economies are facing across Europe. We very much appreciate the challenges and difficulties of these times. And, therefore, we are extremely prudent about the prospects for the future.But of course, we have to be factual about our current situation, and we have to, of course, share with a certain degree of happiness the fact that several months have gone through and as of now, the results are quite good. And if anything, are more similar to a pre-COVID world than to a post COVID. This satisfaction doesn't mean, as I said, that we remain prudent about the prospects for the future.So let's now enter into the Q&A, if you have any questions. I mean, here I'm finishing this presentation. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Oliver Carruthers from Goldman Sachs.

[Oliver Carruthers, Research Analyst]

Just one question for me. Are you seeing capital redeployment opportunities? And if not, what do you plan to do with your current and, I guess, future sales proceeds, particularly given your strong liquidity position, and evidence of resilient asset values in your portfolio?

[Pedro Viñolas Serra, Vice]

We missed the beginning of the question. Sorry, if you just could repeat again the question.

[Oliver Carruthers, Research Analyst]

Sure. No worries. You can hear me okay now?

[Pedro Viñolas Serra, Vice]

Yes, it looks like, yes.

[Oliver Carruthers, Research Analyst]

So the beginning of the question which is just are you seeing capital redeployment opportunities? And if not, what do you plan to do with your current and future sales proceeds, particularly given your strong liquidity position and evidence of resilient asset values in your portfolio?

[Pedro Viñolas Serra, Vice]

Yes. Well, we tend to see the situation as follows. We believe that what is going to happen to the market, it's going to go through different phases. We believe that for this year, basically no interesting capital deployment opportunities will be available, not for us in the market, because I think that people is still in a different mood. That happens always this way. That happens the same way in similar circumstances in the past.At the beginning, I think that people have other priorities. So according to this, as we internally thought, okay, let's focus ourselves at the beginning in deleveraging further the company, number one. Number two, delivering, what we have to do with our pipeline, as expected; and number three, having a resilient, of course, P&L and balance sheet and as much strength as possible.Our estimate, which, of course, you never know, is that this capital redeployment opportunities will come, and we would expect that this to happen during the course of year 2021. We don't know it could be in the first half or in the second half. That's comfortable for us. For us, we now remain focused in other kind of activities. Of course, we pay attention to the market in many circumstances, but we expect this to happen at a later stage. And I think that not us -- nobody is today in the position of finding interesting capital redeployment opportunities.

[Operator]

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

[Florent Laroche-Joubert]

I would have 3 questions, if I may. The first one is about an information on Page 8 of your presentation. We can see that the rental growth in Madrid against the ERV of end of 2019 is minus 1.6%. So would it be possible to have more color to explain this figure? So this is my first question.My second question is on the quality of your clients. So you said that you have AAA quality in terms of clients. So do you have any quantitative metric to clarify the quality of your clients, like, for example, all offices [ weight ]?And my third question is about preletting in Marceau, you have done in Q3. Would it be to have more color on the price of the floor you have rent in the quarter?

[Pedro Viñolas Serra, Vice]

Yes. Carlos, on the first question.

[Carlos Krohmer, Chief Corporate Development Officer]

Yes, on the first question, basically, the explanation for this is on Page 22, also that's focused on the quarter. So what we had was in the Q3 a big renewal on one contract -- on a one big contract in Madrid that was with the correction to the ERV. So this has led to this correction. If we take this -- just for this one contract, the ERV evolution is still positive.On top, what is important to say on this contract, even though there has been a correction in ERV, the release spread has been in the range of 20%. And this is the situation. It's just located on one contract. Excluding this contract, Madrid remains positive.

[Pedro Viñolas Serra, Vice]

On the second question, which is kind of metrics that we try to apply for the quality of our clients, that's -- it's very difficult to have a specific quantitative metric. But as disclosed on Page 45, we pay attention to a number of things. The first is the risk rated company that provides not only a degree of solvency, but it speaks about more things, and it is about the level of discipline, long term commitment of companies. We also look at size and geographical exposure. So to be a multinational company, it also is a metric.And a third listed corporate to be listed, is only -- is also another metric. The underlying rationale of this is, we look for customer loyalty. What we like to show to the market is the percentage of our clients that remain with us for many years, and this percentage is extremely high for us. And for a client remain many years, usually, you have to ask for this kind of metrics, meaning that the company is big. That means that it's not tactical. It means that look at the long term objective. It means that it's solid. And it means also that usually, they do give some value to the intangible products that we are delivering.So its people not driven by short-term opportunistic divisions based on cost. So that's why it's difficult to give numbers. But yes, we have a sort of breakdown of what do we expect from clients to become the most the higher quality kind of tenants. As I said, the underlying rationale is, to what extent we can expect for them to extend the customer loyalty as for long term.And the third question was about rental growth. If I understood correctly, on Q3, we could provide more color…

[Carmina Ganyet I. Cirera, Corporate Managing Director]

Contract and Marceau new floor.

[Pedro Viñolas Serra, Vice]

Sorry.

[Carlos Krohmer, Chief Corporate Development Officer]

The overall understanding [indiscernible].

[Pedro Viñolas Serra, Vice]

So on Marceau, it has been -- the ground floor in is the previous transaction, we cannot provide any kind of visibility on the rent side.

[Operator]

The next question comes from Pedro Alves from CaixaBank BPI.

[Pedro António Alves, Research Analyst]

So I would be interested in your capital allocation strategy given the current mismatch of valuations between private markets and the stock market. So I understand EUR 300 million of disposals in the next months is part of the answer. But then about the future capital redeployment opportunities that you mentioned, what kind of investments would you be looking at? For instance, would you consider at some point buying out the minorities of SFL taking into account the low market valuations and simultaneously reduce further your exposure to Spain and reinforce your fight to quality strategy? Or would you prefer, for instance, to launch another buyback program? Hello?

[Operator]

Ladies and gentlemen, please hold the line where we reconnect the speaker line. Just a second, please. Please hold your line, ladies and gentlemen. Thank you. Dear speaker you are connected, please go ahead.

[Pedro Viñolas Serra, Vice]

Hello…

[Operator]

Yes, sir could you get closer to the microphone, please?

[Pedro Viñolas Serra, Vice]

Yes. Sorry, everyone for the miscommunication and we are now using a different phone.

[Operator]

I'm sorry for the interruption, sir. Could you get the closer, please?

[Pedro Viñolas Serra, Vice]

Yes. Can you hear me now? Not yet? Can you hear me now?

[Operator]

Okay. Now it's perfect. Thank you, please.

[Pedro Viñolas Serra, Vice]

Okay. Sorry, everyone, for these communication problems because the line was cut. And what I was saying is that Pere, I don't know you're still there, but it was -- at the moment that you just asked a relevant question, a very interesting question. So the fact that the was cut is not -- that we didn't want to address this, of course.So your question was about capital allocation strategies. What do we pretend to do in the future in the redeployment of capital? And I was -- what I was saying because, as usual, I kept talking alone for a while. What I was saying is that there are certain principles that we want to always meet. Number one is discipline on capital structure. So whatever we do must not undermine our investment-grade situation. That would exclude most like aggressive share buybacks, to put an example. So it's a present condition of everything -- our capital structure.Second, regarding our asset exposure, our traditional exposure to value-added initiatives, which, broadly speaking, as I said, is around 10% of our assets under management that remains for us a good guidance, because we believe that is a good combination of opportunities that enhance value for the future without meaningful risk for the company.This should remain the same. And interesting point about that is that as time goes by, we are getting closer to the delivery of some of the existing projects, which means that what you could expect in the future is that while some of these projects are being delivered, we feed the pipeline with new kind of value-added projects within this kind of constraints that I mentioned.The third principle, I -- and think you mentioned that anything that is within the strategy of flight to quality, we like. So in the last 4 years, we've been disposing of things we don't believe were so close to our strategy and we've been investing in quality kind of exposure. As you said, including, for example, indirect kind of exposure to SFL, not to [indiscernible] that we've been growing in our exposure.I think that these things we like and we should remain in place.And finally -- my final remark would be as in the previous question, timing is important here. So we believe that we have to play this cycle in a precise way. We do not see us investing aggressively in the next few months, simply because we believe that market conditions won't be there, we believe more in remaining in the kind of strategy that we have now, while being able of taking advantage of the market at a later stage.If we now concentrate ourselves in remaining strongly, I think that we'll be in a better position to take advantage of investment opportunities that will come -- that which are not there in the market now, but will be there at a later stage. So in rough terms, this is a little bit our approach to capital allocation strategies.

[Operator]

And the next question comes from Celine Huynh from Barclays.

[Celine Huynh, Research Analyst]

I've got 2 questions. My first question is following your comments on capital redeployment and opportunities to come next year. You currently have 4 developments in Spain that are not committed at the moment, including the big one, Méndez Álvaro. So my question would be like, how confident are you to commit those in the near term? You've also mentioned not investing aggressively in the next few months. So if I was to sum up the strategy in the near future, would that be deleveraging and focusing on the current pipeline committed to gains only? And then my second question would be on the time line for the EUR 300 million disposals you're planning to do?

[Pedro Viñolas Serra, Vice]

Yes. First of all, yes, we have a focus on our pipeline, because as I said in previous presentations, this allows for value creation without having to invent anything in particular. I mean, if we walk through the numbers of the pipeline. If you just deliver that, you are creating a lot of value. So this is priority number one.Within this pipeline, we have 4 big projects. 2 out of them are already pre-let. The other 2 remain to be pre-let. We are -- today, we remain confident about these 2 projects. I think that Biome in Paris and Méndez Álvaro in Spain are -- have the best kind of quality characteristics to be confident about the future. So we remain, let's say, comfortable with these investments.If we go to the second level of investments, which are not so big individually, I think that we are even more comfortable. We are talking about the fact that in Spain, we will be delivering in a year or so Miguel Ángel, 30, we will be delivering Velázquez, 80. We will be delivering the Diagonal 525. All of these projects have very good prospects in terms of leasing. Well, some of them, for example, Diagonal 525 is already pre-let. But for example, Velázquez, 80 and Miguel Ángel, and also the building where we are currently now, which is the Diagonal 532, in all of these we are starting to have conversations with interested parties well in advance of the delivery of them. So in this, let's say, second level projects, we, as of today, remain quite confident.Can we go beyond that? Yes, as I was sharing the next question. First of all, as delivery comes from those of new projects, room is created for new projects without any layer -- additional layer of risk. So that will be a little bit policy, which, yes, it means that for the next few months, it's more, let's say, enhance the strength of the company. Honestly, also because even if we wanted to do something now would not be available, that's the reality of the market. So let's concentrate on the strength of the company while we wait for better market conditions and then less concentrate on investment opportunities at the later stage.You asked about the timing for the disposal strategies, this, by definition, it's difficult to assess because that sometimes depend on market conditions, which are -- which may vary for different kind of assets. So we believe that we prefer to stick to, let's say, something like 6 months to deliver this kind of a strategy. We don't have any particular constraints. So we are not in a hurry. That would be the time period that it could provide. But it could be very quick or not so quick depending on market conditions at every moment that we may have.So I think -- I'm being told that we have no further questions. Thank you for your attention. Sorry about the communication problems. We hope to be able to share with you some good results again in the future.One final remark, let's not forget that we have our Capital Markets Day that we expect to have on December 9. We would like to take advantage of this day not only to talk about how the company is performing, but how we are facing the kind of challenges that our industry is going through right now. So that would be the next opportunity to be able to share with you how the company is facing this environment that we have in front of us right now.Thank you for your attention today, and let's keep in touch. Thank you. Bye-bye.