Lar Espana Real Estate SOCIMI SA

MAD:LRE

Earnings Call Transcript 2020-Q1

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Good afternoon, everyone. [Foreign Language], and thank you for joining us today. This is Hernán San Pedro, Head of Investor Relations and Corporate Communication of Lar España. Welcome to our Q1 2020 results presentation. As always, the press release, results presentation and financial report are available in our website, our app and at the CNMV official website. First of all, I hope that all of you, your families and friends are healthy and safe in these difficult times. Joining me this afternoon are Miguel Pereda, Board member of Lar España and Chief Executive Officer of Grupo Lar; Jose Manuel Llovet, Managing Director of Commercial Real Estate of Grupo Lar; and Jon Armentia, Corporate Manager and CFO of Lar España. Given these circumstances, we are doing this webcast remotely from our homes. We will start the presentation with the COVID-19 current situation. And we will continue, as in previous quarters, with Q1 2020 highlights, financials and ESG, our differentiated business model, and to conclude, remarks and all your questions. During the presentation, you will have the opportunity to submit all your questions. And at the end of the presentation, we will answer all of them. And now, let me hand the call over to Miguel Pereda. Miguel, please?

[Miguel Pereda Espeso, CEO & Director]

Thank you, Hernán, and good afternoon, everyone. Before starting the presentation and on behalf of everyone in Lar España, I want to share our sympathies for all of you who have been affected by this pandemic, and we really hope you are all well and safe. We also want to recognize the important role of all the frontline employees of our assets who have ensured we could continue to buy food and essential need goods in this crisis. Following declaration of the state of alarm in March 14, the company proceeded to facilitate transit zones to the retail stores that was remaining open in order to ensure the best service for our users and safe access to essential products. As a result, since March 16, nearly 1/4 of the commercial area of our shopping centers has remained open and continues to operate globally. From the beginning of the health crisis, we have started our commitment to the safety of employees, retailers and clients, and we are able to guarantee all health and the safety measures. Lar España, in coordination with Grupo Lar Gentalia, have been applying the same action protocol and information system to all our assets. Physical presence in the different work centers, central offices and shopping centers were reduced to an essential minimum, applying all safety measures in these cases. We benefit from a highly experienced management team with more than 50 years of activity, all in real estate and in all type of environment with a very ample success in the past. In parallel, we maintain critical functions internalized, reporting directly to the Board of Directors. By location and dominance in their respective areas of influence, our assets makes the difference in each of their locations. We have an occupation rate of 96%, and we fully own our assets. And that gives us a total control over the decision-making process on each of them. And that is very, very important in a moment like this. We have a solid, diversified and high-quality tenant base, and we maintain a strong and regular dialogue with all of them, even more in this current situation. Royal decree law of April 21 established a mechanism to defer rents during the state of alarm. They stood that under certain conditions and for different commercial categories. This deferral should not exceed more than 4 months, as you know, unless there has been a prior agreement between both markets. In line with our commitment to our tenants, Lar España is listening to the different needs in this regard of all of them. Although this royal decree law established that certain rents would subsequently be received in installments over the following 2 years, it's still too early to forecast the possible impact of this measure on rental income for the group in 2020. We are fully prepared for the opening of the rest of the commercial area from Monday, 25th, if the indicative time table that we have now are met. In annual global terms, given the weight of our activity in Sevilla, in the project of Lagoh, and other upgrade assets during 2019, there is a substantial offsetting potential in rental terms as these assets in 2019 operate only for a few months or far away of their full capacity. I would like to reiterate that the company can responsibly assume these type of scenarios with satisfactory results of the stress plans applicable to our business model. Lar España enjoys substantial financial strength with a leverage that is only 35%, and average financing cost of 2.1 and, very important, with no significant maturities in the next 2 years. Our cash position today is close to EUR 200 million after deducting the payment that was done of dividends in April 16. This trend in terms of cash resources allows the company to cover all these expenses, including the financial cost, even for the next 4 years. We have maintained our dividend payment schedule and also the share buyback program, but that was done after a detailed liquidity analysis that was reviewed by our Board of Directors. We also have applied an austerity plan to our ongoing activities, adapting expenditures to the new situation and minimizing the operating cost and also the CapEx. Finally, we are fully committed to transparency. So we will continue our usual policy on financial communication, informing the market of any significant event in this regard. During these difficult times, we have been also supporting our communities. We have offered our facilities to the UME command post, supported donation campaigns, and collaborated with stay-at-home activities for our clients. These are only some of the examples of all the social initiatives. Also, Grupo Lar and its foundation are also making substantial contributions. It is worth mentioning the development of an app. It's called TeAyudo, it's an altruistic network that allowed safe contact between neighbors, the ones that need help and those that can help them. Now I'm jumping to Slide 9. We are fully prepared for the reopening of our shopping centers from Monday, 25th of May if, as I said before, indicative time tables are met. From Phase 2, we will open the shopping centers without the common areas. And from the -- what they call Phase 3, expected in June 8, we will fully open our assets. Of course, controlling always visitor flows and with all the necessary measures to guarantee the safety, health and social distance of our customers. In this sense, the configuration of our portfolio of assets as safe spaces brings the advantage of having large spaces that avoid crowds, stores with large surfaces. And also, we can guarantee the best practices on accessibility and the most qualified technical and security personnel. Now let's go through the highlights of the first quarter of 2020 on Slide 11. Despite the health crisis, our net operating income has continued to grow in first quarter, 19.7%. We will compare those figures with the first quarter of 2019 or at 2.7% on a like-for-like basis. EBITDA has increased 47% (sic) [ 43% ] compared to the same period of last year. And EPRA earnings per share has also registered a positive increase of 75%. EPRA earnings per share stands at EUR 11.7. That is a 2.2% growth since December 2019. Moving on to our assets. Lar España continued to outperform the market in both retailer declared sales and footfall. We had a strong letting activity during the quarter, increasing new rents by 9%. Our occupancy rate is 96% that can be considered technically as almost full occupancy. Our guests stays an average of 90 -- 89 minutes per visit in our shopping centers, and that's also an increase versus Q4 2019 of 2%. On the corporate side, following, as I said, a detailed liquidity analysis that was reviewed by the Board of Directors, we decided to maintain our dividend payment schedule and also the share buyback program. In this sense, in April 16, we pay a dividend of EUR 0.73 (sic) [ EUR 0.63 ] per share over the 2019 results. We have, as we reviewed already, a healthy cash position of close to EUR 200 million. And even though that is after deducting this dividend that was already paid. With this amount, we can cover all our expenses at least for the next 4 years. Finally, our leverage stands at 35% net LTV and with an average cost of debt of 2.1%. ESG is still a very important metric also for us in our business. For the second year, EPRA has granted us with a gold award in recognition to our dedicated reporting on this specific aspect. We want all our customers are able to enjoy our properties on a safely and with comfort and even more in those circumstances. Let's move now to Slide 13, where we can see our business metrics to overcome the current situation. Retail occupancy rate increasing year-on-year has gone up to 96%. Rock solid diversified and high-quality tenant base with a very healthy effort rate of 9.5% and almost 60% of the contracts with operators have a term that is more than 5 years. We also keep comfortable levels of debt with this 35% LTV. And we'll have, as we've said before, no significant maturities in the next 2 years. Now let me hand the call to Jon Armentia.

[Jon Armentia Mendaza, Corporate Director & CFO]

Thank you, Miguel, and good afternoon, everyone. Firstly, let me say that I hope you and your family and friends are all well. In Slide 15, I would like to run you through the key financial figures for Q1 2020. Gross asset value stands at EUR 1.6 billion distributed across 15 assets. Gross rental income in Q1 2020 amounting to EUR 24.1 million and grew a healthy 24% versus the same period last year as well as EBITDA, which climbed 43% and growth above EUR 17 million, thanks to the company's good operational performance. Gross financial debt stands at EUR 721 million, with the net loan-to-value at a comfortable 35% and diversified funding sources at a very competitive cost of 2.1%. Once again, these figures clearly demonstrate the strength of our balance sheet. In terms of EPRA, EPRA NAV amounted to EUR 1 billion and EPRA NAV per share rose to EUR 11.72, EUR 11.09 after adjusting the dividend effect, a 2.2% increase versus December 2019. EPRA earnings amounting to EUR 12.5 million and EPRA earnings per share rose to EUR 0.14 per share, up 75% on Q1 2019. We have kept our dividend payment schedule and share buyback program in place. In April, we paid a dividend of EUR 0.63 per share, and we have already completed almost 52% of the share buyback program. Let's move to Slide 16 to go over the retail performance during the quarter. We registered positive operating results during the period despite the impact of the COVID-19 lockdown. Gross rental income rose 19.5%, and net operating income increased by 19.7% versus Q1 2019, driven mainly by the opening of Lagoh Shopping Center. In like-for-like terms, excluding Lagoh and the refurbishment of Anec Blau and Albacenter hypermarket, we also registered a positive growth of 1.1% in gross rental income and 2.7% in net operating income, thanks to increasing MGR by 2.6% and reducing our operating costs by almost 9%. The occupancy rate stands at 96%, which can technically be considered almost equivalent to full occupancy. We have also seen a strong letting activity during the period. We signed 32 leases, including renewals, relocations, relettings and new lettings, resulting in a rent uplift of 9% with almost EUR 2 million negotiated rent and almost 8,000 square meters rotated in the period. I would like to highlight that close to 60% of all Lar España's active lease agreements have expiries beyond 2024 which provides us with a solvent tenant base and a significant level of guaranteed minimum rents. Let's now look at the portfolio valuation evolution in Slide 17. Lar España's gross asset value has gone slightly up to EUR 1.6 billion in Q1 2020. In these new times in which we are living, active management as well as the quality and the dominance of the portfolio are going to play an important and decisive role. Let me highlight the strength of our portfolio. By location and dominance in their respective catchment areas, our assets make the difference in each of their locations. We have a cherry-picked portfolio. We have built it by carefully analyzing and selecting each one of our assets. And we own 100% of the assets, having complete control over the decision-making process in each one of them, which is crucial at this moment in time. We would like to note that 75% of our retail assets are classified as large or very large according to Spanish Association of Shopping Centers. As such, and in line with the new space requirements, it may be necessary to reinforce social distancing rules and other measures. We have a solid, diversified and high-quality tenant base, and we have [ free ] and strong relationship with each and every one of them. And of course, it is all supported by the experience of Grupo Lar. With more than 50 years in the industry, the group has successfully dealt and overcome other crisis situations in the past. Now let's turn to Slide 18 to go over the P&L. In the slide, our assets generated a total revenue of EUR 24.1 million, a 24.3% increase versus Q1 2019, mainly driven by the entering in operation of Lagoh. Property operating results were 39.2% higher the same period last year. Focusing on the recurring column, our recurring EBIT has grown 39.4%, while our recurring profit for the period was up 67%, reaching EUR 12.8 million. We'll focus on the recurring results as we have the impact of EUR 10.4 million of the valuation of Lagoh in 2019 when it was still a development project. Let me remind you that we perform quarterly valuation of developments, but as we don't have any developments left, we no longer perform quarterly valuations. In Slide '19, you can see that at the end of the quarter, the company's total debt stood at EUR 721 million, with no significant maturities for the next 2 years. Let me highlight that EUR 25 million from the 2020 maturities correspond to our corporate loan that has been renewed today with a new maturity date in May 2021. Despite the current market condition, this was achieved, thanks to our strong lender relationships. Net financial debt stood at EUR 547.9 million, and net loan-to-value stood at a comfortable 35% at the end of the period. We fully comply with all the covenants of our financing agreements. The average cost of debt has remained unchanged at 2.1%, with most of the debt, 83%, being fixed. Let me underline that the company enjoys a strong liquidity and self-sufficiency with significant financial resilience. We have a cash position of close to EUR 200 million after deducting the 2019 dividend payment, which allows us to cover all expenses, including financial costs for the next 4 years. Now let's move on to Slide 20. Reflecting this financial strength, Lar España decided at the March general shareholders' meeting to keep the planned dividend payment schedule in place following a detailed liquidity analysis by the Board of Directors. As such, we paid a dividend of EUR 0.63 per share on April 16. We are aware that in uncertain times such as this, it is even more important to stick as closely as possible to the planning established before the outbreak of the health crisis. The dividend payment places the company for the third consecutive year among the leading Spanish-listed companies in terms of direct shareholder remuneration. Let's now look at Slide '21. Similarly, we will also continue with the share buyback program currently being implemented for a total of 5% of our share capital. We have already acquired more than 50% of the targeted share capital. We are always looking to maximize our shareholder value. We have amortized 100% of the shares from our first and second share buyback program, amortizing almost 8 million shares or 8% of our share capital. And we will also redeem all repurchased shares at the end of this third program. Let me remind you that we are not in the business of buying shares but of acquiring and managing assets to create value. However, at the current share price levels, which have been hit particularly hard by the health crisis, the company will be acquiring assets indirectly at very attractive terms. Moving on to the next slide, #22. Our properties already meet the most stringent environmental, social and corporate governance standards in the sector. These are only some examples of our ESG activity. We are proud to be the very first facility to have been awarded with the EPRA gold award in recognition of the quality of our financial reporting for 5 years. In terms of corporate social responsibility, we have also been rewarded with this distinction for the second year in a row. 100% of the shopping centers owned by Lar España boast BREEAM certification. We are 1 step ahead of the requirement set out in the new good governance code for listed companies proposed by the Spanish Stock Market Commission. And we have continued to work intensely on our contribution to agenda 2030 and the sustainable development goals. And now, let me hand the presentation over to Jose Manuel, who will review the business performance.

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Thank you, Jon. Good afternoon, and I hope you and yours are all well. It is evident that this is a very complex moment and there will be an important impact in the economy and the retail industry. We will probably see an acceleration in the change of trends on omnichannel retailing. But it is fair to say that any crisis does not affect evenly to any kind of retail and any kind of asset within each sector and subsector. In Slide 24, we show you what the sector needs and what Lar España is offering, what is our positioning that comes from a strategy that you already know. These points are the pillars to reacting quicker and better to the new challenges that are brought by these new times. The customer and the main retail operators are requiring assets to be attractive, safe, customized, experimental and integrated. It is obvious that the first priority is getting clients to come back to the shopping centers. It is well-known and it was previously mentioned by all of us that we have dominant asset with a strong presence of food in each catchment area, with high penetration and quite low competition of other shopping centers, relevant high-street shops or even online. We have the best tenants and the best services in town. Probably the key element to success is a mix between the strategy that we have been following and the action plan that we have for the near future. Health and hygiene will be crucial assets that are able to guarantee social distancing. The configuration of our portfolio of shopping centers and retail parks permits to control capacity, affluence and avoid crowding. We have ample retail stores, best practices in accessibility and the most qualified private security personnel. I will also go over the details of health and security measures later on. Assets will also need to be flexible to adapt and customize. In Lar España, we have been working in a customer journey, identifying our clients and learning about their preferences. This customer insight, together with the new technologies, help us adapt into this new situation. Experience will also play an important role. Additional to shopping, leisure and family entertainment, the client today demands security and new services. And finally, assets should be integrated. We have been saying this for a long time now. Shopping center must be omnichannel, and even more now. We have implemented a lot of initiatives that you know, from our [ own ] marketplace for our smaller tenants to online loyalty clubs, or click and collect or delivery facilities. We must stress even more in this line now. Now in Page 25, we see the operational indicators for Lar España that were strong and outperforming the market once again up to March 14, following the declaration of the state of alarm here in Spain. We believe that in moments of dramatic change, it is also important considering the strength of the portfolio in its most recent results. Until February 29, tenant declared sales were up by 7.2% or 4.4% in comparable terms, outperforming again the Spanish index. In terms of footfall was particularly strong, up by 6.7%, again, outperforming the Spanish footfall average. Each visit to our center lasts 89 minutes, a 2% increase versus the same period last year. This is thanks to our combination of retail leisure experience and services. You know that visits are monitored. And thanks to the implementation of our customer journey, Lar España has created a set of digital tools that let us know more about the client needs, preferences, likes and behavior within the shopping centers and retail parks. Once again, in terms of letting, we have had a very strong activity. We signed 32 operations during Q1 with almost EUR 2 million of new rent and over 7,600 square meters of GLA rotated, which is around a 6% rate with increase of rents of 9%. In the next slide, we see that Lar España has a solvent and diversified tenant base. We enjoy a strong and regular partnership with all of them and even more so in this current situation. 60% of contracts with operators have a term of more than 5 years, where WAULT stands at 3.4 years, while we have an effort rate including expenses of 9.5%, clearly below the market average. We have an occupancy rate of 96%, which is technically equivalent to full occupation. We maintain excellent relationship over the medium and long term with our retailers. And top 10 tenants make up 34% of our rental income. Another question, how are we managing rents in this moment and how we will do in the coming months? We have done exhaustive analysis per tenant, type of company, activity, estimated sales and effort ratio in the context of [ reduced ] capacity in the centers regulated by law. During these days and in the coming weeks, we will have meetings with all and each of them. We are managing this point case by case. Our initial premises. First, our relationship with our tenants is long term. Second, we will be prudent, and we will not take premature decisions. And third, we will listen carefully their request on rent reduction, both during closing and in the coming months due to the limited capacity of the centers and get a balanced solution for both parties. Now in Page 27, let me go through the CapEx program and highlight that it was nearly completed before the beginning of the crisis. All the CapEx implemented are net cash generators. Therefore, we will see the positive relative impact in the coming months. Thanks to having completed already the most important projects, we can now apply austerity without damaging returns. Decision on projects in progress will be taken accordingly to the moment when activity begins to normalize. We have been very lucky in timing. Our diligence and agility in transforming the assets during the last 5 years reinforce our position today. Here, I would like to remark that only a company with full ownership of the asset that is not subject to the decision of other co-owners is able to implement this ambitious and fast plan of transformation. We can see a good example in Page 28. This is Anec Blau which is ready to open, as you see, at the top of the slide. We completed the full refurbishment of Anec Blau before all these health crisis, and it is ready to open as soon as the transition plan let us. It is a full transformation based on the knowledge of the customer after a deep analysis of our area penetration. We expect to get EUR 2 million approximately of additional rents. Anec Blau has a new fashion platform where Inditex has refreshed all their stores. One example is the expansion of ZARA, which is now the brand's largest shopping center in Catalonia. Other brands, including Oysho, Guess or Tous have modernized their stores as well. We are also incorporated a new food and beverage area in a modern architectural environment with high-quality materials and dramatic increase of natural lighting with new internal and external terraces, an outside garden that will complement -- will be completed in the coming months. These improvements will help to further strengthen Anec Blau's status as the leading fashion, leisure and dining hub in the area. At the same time, it increases our returns and reinforces our portfolio. Also during the last 2 months, we have completed Albacenter project. We removed the old hypermarket and have brought a new Mercadona supermarket that will open in June, additional to the new fashion and leisure activities. The same in Megapark Bilbao where we are underway to transform the cinemas and restaurants area to complete total refurb of the asset. Retail park and factory outlet are already renewed, resulting in a strong sales and visit increase. The renovation of the outlet has led us to close leasing agreements with Adidas mega store and, more recently, with HUGO BOSS. Moving to Page 29, we are right to Lagoh. As you know, Lagoh was opened in September last year and is ready to show its full capacity in the second semester 2020. It opened with full occupation and annual rents of over EUR 17 million, which is a great contribution to our portfolio as well. Lagoh, as you know, is a premium shopping, leisure and family entertainment destination that symbolize the retail model that Lar España has embraced. Lagoh has taken customer experience to the next level and also retail, of course, is playing a very important role with flagship stores of Tier 1 retailers. We are confident that it is completely adapted for these new times to guarantee social distancing, thanks to its latest technology, customization, ample retail stores, best practices in technology accessibility and its large spaces that help avoid crowding. And in the last 2 slides of my part, I want to remark in more detail how are we already preparing the centers for reopening. Health measures, protocols for cleaning, protocols for access, vertical transformation, restrooms, controlled flow of people, controlled capacity, et cetera, are now key. We have safe assets due to the size and shape, and we have highly experienced management team. Our property manager, Gentalia, together with SGS, has developed a certification of all safety and hygiene measures against COVID-19. It is a pioneer certificate in the retail sector in Spain, aims to provide clients, retailers, employees, suppliers and authorities with the maximum guarantees that the correct measures are being applied, always in accordance with the regulations with an action plan for optimal reopening of our centers to minimize the risk associated with contagion and spread of COVID. I'll list some examples quickly. We will complete a full daily disinfection in each of our assets before the reopening, and we will increase the cleaning and disinfectant frequencies. We will have sanitizing points and gloves dispensing in every open entrance and in critical points of each asset. A security guard will be controlling every open access. Queues will be limited by horizontal vinyl in the floor, or catenaries to maintain social distance for the entrance to the shopping center, the entrance to stores or to the food court, the use of elevators or the access to restrooms, among others. We are paying special attention to the food court with a redistribution of tables to guarantee social distances and additional cleaning measures, for example, each meal service, the furniture and trays used will be disinfected. I'm finishing in Page 31. The challenge at the end of the day is to re-attract our customers, and thus [ compare ] a big stake of consumption. It is the moment to be focused on building confidence through security. It is essential permanent communication and adaptation of our marketing actions to the established safety and hygiene measures. Create a positive visit experience is crucial. Facilitate express visits and be ready to improve services like click and collect or package sent to home is extension, improve the shopping experience to help revive consumption, enhancing the offer of our operators to help recovery and strengthening our digital assets. Encourage active listening with clients, operators and employees through our channels. Use feedback, surveys, monitoring the conversations in social media. Reward loyalty and encourage recurrence. And after all these set of measures on all the positioning of Lar España in front of this crisis, let me turn the call back to Miguel Pereda for closing remarks.

[Miguel Pereda Espeso, CEO & Director]

Thank you. Thank you very much, Jose Manuel. Before opening the Q&A session and finishing the call, let me highlight some of the favorably asked question in those past weeks. The first are about the measures we have adopted. I want to highlight that our priority is in this context that we are living, protecting the safety and the health of our employees, our clients, our suppliers. Since the beginning, we have adopted all the necessary measures to guarantee their safety and health. With -- we have a fluid relationship with our tenants. And that happens in all our assets. And we maintain our regular dialogue with all of them. We have applied a very intensive austerity plan to our ongoing activities and we have adapt the expenditure to the new situation, redacting the common expenses cost to the maximum level. And also all the CapEx have been reduced to a minimum. Secondly, and regarding the possible impact in this environment, sand what impact it can have on rental income for the year, as we explained during the call, our current strategy is focused on maintaining occupancy at the highest level and deferral of rents. As you know, we will be reopening the rest of the commercial areas that are not open today, expected on the 25th of May if the indicative time tables and the conditions required are met. And that is going to be different depending on the regions. That will be one of the strengths or Lar España having such a diversified portfolio. Although the royal decree law established that certain rents will subsequently be received in installments over the following 2 years, it's still too early to forecast the possible impact of this measure on rental income of the company for 2020. As Jose Manuel was saying, we will be granting some bunches to our retailers, and that will be done on a case-by-case basis. Finally, regarding the future. Lar España is clearly prepared for these new times with safe assets that guarantee the safety of our visitors, and that has become a key point. In that respect, our assets have the highest standards beyond all the recommendations coming from the government and the rest of institutions. Our shopping centers are safe are adapted and fully refurbished and completely prepared to attract and receive our customers. Let me reiterate our commitment to our tenants with whom we maintain excellent and constant communication that is going to be key in the coming months. Thank you very much for attending the call, and now we are open to your questions.

[Operator]

Ladies and gentlemen, we now end the Q&A session. If you like to ask a question, you can write it and submit it using the Ask a Question Tab from the webcast platform. I now hand the call over to Hernán San Pedro.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Okay. Thank you very much, Miguel, Jose Manuel and Jon. We can go over the different questions we have received. The first one for Jon. Please Jon, can you clarify the main figures and the dates of the present share buyback program we have under execution nowadays?

[Jon Armentia Mendaza, Corporate Director & CFO]

Thank you for the question. Yes, this share buyback program was launched in January, exactly launched on January the 14th, with a maximum amount in terms of cash we implemented in EUR 45 million, with a maximum number of shares to be acquired of 5% of the total capital of the company. That means more or less EUR 4.5 million for a period of 9 months. So it will be finishing, we'll maintain that date in October. And today, it's completed more or less in 52% of the total [ firm ].

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you very much, Jon. The second one is about the performance of the shares. Miguel, can you give us some color about our -- thoughts about what is happening with our shares?

[Miguel Pereda Espeso, CEO & Director]

Thank you, Hernán. And well, fortunately, the performance of the share has been very good. And I think that all companies have been strongly affected in the last 2 months after all that crisis came. And of course, we are not an exception of that. In the other hand, there is also [ unsafety ] because of the sector in which we are involved. When we compare ourselves with other European peers that are in the same retail sector, that is probably a sector that is not completely well understood, we are in line with the discounts that we are seeing. Of course, we have some extreme situations of some companies, but they are only special sometimes. But on the rest, we are more or less aligned. If you see what are the recommendations today of the analysts and to see there is something that is substantial to our company, well, we don't have any sell. Most of the combinations are buy. And the consensus more or less in target price is EUR 8.2. So that's why we think that this is a short term effect. We are clearly suffering a very specific situation that affects all companies and also ourselves. So the performance has been poor, but we don't think it's a structural thing. We think it's something that is circumstantial.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you very much, Miguel. We have a new question. Jose Manuel, please. Richard Williams from Marten & Co asked us about valuations, next valuations. Any color about what is going to happen with the valuations closing the first semester?

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Okay, Hernán. It's a very good question because it is a very high uncertainty moment. We think that it is still early to estimate change of value. There are not comparable -- there are not transactions within the market, therefore, it is very difficult to establish comparable for the valuation of the assets. In our opinion, the keys are going to be high occupancy and security of income stream. Direct return is going to be very important and the sustainability of the rents is going to be crucial. So in my opinion, valuations are going to be driven more by real NOI than cap rates. In any case, again, I say again, it is early to estimate the changes in value yet.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you very much, Jose Manuel. The next one is from José Cravo, Santander. Thank you very much for the question, José. Jon, please can you explain a little bit about reduction of fixed costs. What is doing the company in order to reduce and to carry the cash?

[Jon Armentia Mendaza, Corporate Director & CFO]

Yes, Hernán. Thank you, José, for your question. Well, at the moment what we are doing and taking around this situation is, for sure, to review also the cost at an asset level. And as we have seen, we have been able to -- while the shopping centers are not fully open, we have been able to reduce the service charge and the cost on the expansion that we have in our assets. And for sure, additionally, we are reviewing the corporate expenses that we have in our company. In fact, we have been -- we have seen in this first quarter that we have been able to reduce them in the first quarter around to 3% in comparison with the previous year. And for sure, we will review it in the coming months.

[Miguel Pereda Espeso, CEO & Director]

Let me -- Jon, if I may. It's Miguel. Just add something, and we will compare those with last year. It's also true that there were -- last year, because there were some extraordinary activities of selling, buying and also reopenings. There was, I mean, significant extraordinary expenses that will not happen that year. So both effects, we will see both effects this year.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you very much, Jon and Miguel. The next question is from José Cravo, another time. Please, Jose Manuel, can you explain something about the policy of incentives that we are going to apply or not to the tenants?

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

What I mentioned during my presentation, we are going to discuss with all of the tenants, we have received request for rent reduction from all of them. And as I said before, that we are going to do it case by case. We are going to sit together with each and every tenant to see how we are going to negotiate with them a balanced solution for both parties. And as I said also that it is very important for us. Not everybody is the same. It is not the case of one size fits all. I think that it depends on activity size, kind of company behind, kind of capital financing of the retailer. So you have many factors. You have to put all together, and you have to analyze one by one. The main point for us, it is -- we want to maintain a cooperation. It is very important. And also the other very relevant point is that we are here for many time from now. So we want to have a long-term relation with the tenants. And we need to be together with them in the best and in the worst moments. So we are going to do that.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Okay. Thank you very much. There are no more questions. Please remember that if you can -- you want to send us any other more, you have the [ ware ] in order to send us the questions. There is no more question. Thank you very much for your attention. Please remember that all the Lar España teams are at your disposal. Feel free to contact for us for additional information, both our manager, Grupo Lar and the team of Lar España, we are at your disposal. Thank you very much, and good afternoon.