Good morning, ladies and gentlemen. Inés Arellano speaking. Welcome and thank you for joining MERLIN's 2022 results presentation. Before we start, we ask you to please abide by the disclaimer contained in the presentation. The materials are available in our website, and they will be also shown on screen if you've dialed in. Today, our CEO, Ismael Clemente, and COO, Miguel Ollero, will walk you through the main highlights of our set of results. Thereafter, as always, we will open the line for Q&A. To raise questions, please press star followed by five. With no further delay, I pass the floor to Ismael. Thank you.
Thank you, Inés. Good afternoon, everyone. Thanks for joining MERLIN's financial year 2022 results conference. It is particularly difficult for me to address an informed group of people like all of you in a year like this. It's difficult because I necessarily have to feel very proud about a fantastic 2022, in which solidity of our operations have surprised even us on the upside, and where we have achieved all of our key objectives in terms of non-core sales and strengthening of our balance sheet in anticipation of a period of quantitative tightening, reduction of monetary mass, and increased cost of funding, both debt and equity.
It's difficult too, because I am also confident in 2023, despite all the uncertainty surrounding us, not only because two months are already behind us and nothing has happened, but also because, given the highly stable nature of our business, we have already very good visibility on the financial year 2023 results. We know that we will grow like for like in all of our key PNL magnitudes. The main reason why it's difficult is because we also need to report that nominal valuations of our assets have started to come down in 2022, and as a consequence of yield expansion induced by higher interest rates, and will continue to do so in 2023.
We are happy to take that pain because we knew it would be coming and have prepared the company balance sheet to absorb it. In fact, we would prefer, appraisers permitting, to accelerate this value adjustment now that we have a solid operational performance that allows us to partially offset it. Learning from other cycles, if the value adjustment phase is followed, sometime in the future by a weaker operational market in our traditional asset classes, we know that we count on a secret weapon to compensate, you know, income and values through additional income and value creation for shareholders brought to the table by our digital infrastructure plan.
After many years of silent, invisible CapEx spending in a new asset class that today is not yet identified by the market in our balance sheet, and valuation is not yet impacting, given that the valuation is not yet impacting our PNL, I mean, we are not yet reflecting any income after so many expenditures incurred. Well, let me explain in greater detail how 2022 evolved in all of our divisions, and we will be glad to address the Q&A afterwards to talk about the future, whatever is of interest to all of you. In terms of operating and operating performance, 2022 was a year of fantastic alpha. We obtained outstanding performance in all three asset categories, 7.3%.
The occupancy grew 60 basis points to 95.1%. Many of you may think that the like for like rental growth of 7.3% is all attributable to inflation. Far from being the case because the effect of inflation is less than half, and the rest has been nominal variation of rents and nominal positive valuation of occupancy. Offices surprisingly delivered excellent operating behavior with 6% like for like rental growth and a 5.8% respread, reaching a 92.5% occupancy at the end of the period, thanks to a big lease we signed in the A1 corridor towards the end of the year.
In logistics, we experienced strong dynamics, with an 8.6% like-for-like growth, fueled by indexation and the reversionary potential captured. We are currently in virtually full occupancy across our portfolio. In shopping centers, again, surprisingly to most of external observers, we obtained a 7.5% like-for-like growth with a 5.2% respread, and we have reached 95.0% occupancy. The sales, which started showing a solid trajectory starting in June approximately, exceeded the pre-COVID levels minus +2.7%. I know some of you will compare on a real basis. If you want to have that data, it's -4.4%, incorporating average inflation since 2019.
We are still slightly behind 2019 in real terms. It is also noteworthy to explain that after a hesitant beginning of the year with double digit differences in footfall compared to 2019, we started seeing a sharp recovery during the end of the spring and the summer. We ended up the year at -8.6% in terms of footfall, but with months like December already exceeding 2019, which is a trend that we are also seeing in January and February across our portfolio. Our occupancy cost ratio reached a historical low of 11.8%, showing the relative comfort of our tenants with our rental and common expense costs in our different shopping centers.
In terms of financial performance, we ended up producing EUR 0.62 FFO per share, 6.4% year-on-year, variation positive. We were able to beat guidance because you know, you all know that we left it at EUR 0.60, although we had already verbally indicated to you that we were hoping to get to around EUR 0.62. Simply was, a prudency stance, the one we took in terms of FFO. We experienced a slight decline in valuation across the board, - 1.5%. Very importantly, we absorbed a very significant yield expansion of 44 basis points. I have read in some of your analysis that it is in the upper range of what has happened in Europe.
Happy to be in that group, we will continue absorbing yield expansion during the year to see at least the yield expansion portion of the value adjustment behind us as soon as possible. We netted off most of this yield expansion with operational strength. Our balance sheet reflects a very strong financial situation with 32.7% loan to value calculated in the old-fashioned way. Calculated according to EPRA standards is 35.8%, which is a 6.5% reduction versus 2021. 100% of our interest rates are now fixed, and 98% of our debt is unsecured. We, as you all know, we conducted a requalification to green of all of our bond portfolio during the year. The 2023 bond maturity was refinanced.
We got a very good cost, mid-swap plus 1 2 6, mid-swap of the time we did it was around 250 something, compared to 320 it is now. This is why you may have noticed that we have a difference between spot and hedged pricing of our debt, because now we have a positive value in our derivatives. We have no maturities in the horizon till May 2025. Despite the value adjustment of our portfolio, we achieved a positive total shareholder return of +4.7% and distributed EUR 1.20 per share of dividend in the period, amounting to in excess of EUR 560 million, which is very, I think, very good news.
In terms of value creation, beyond the EUR 2.1 billion BBVA portfolio disposal that was affected at a 17% premium to gross asset value, we also ordinarily disposed of ancillary real estate assets amounting to EUR 112.8 million at an 8.7% premium to gross asset value. Landmark Plan, which we had already flagged to you, was finalizing, will be, the Ruiz Picasso building will be delivered to clients in the month of December, November, so end of this year. It's now virtually fully let with only one little space remaining, which is optioned by one of the existing clients. We have achieved top rents. I mean, in fact, above the advertised average prime rent for Madrid.
In the MEGA Plan, we are glad to report that the works in Bilbao Arasur, in Madrid, and in Barcelona are absolutely on track, both in terms of time and costs. The, all the three assets will be delivered in the second half of 2023, somewhere between October and November, more or less, and some of them being already accessed by clients earlier than that date in order to start making their own installations, plugging in their own equipment. Without further delay, I pass the word to Miguel Ollero that will talk about the financial results.
Good afternoon, everybody. First of all, I should remark, remind you that the PNL figures that we are showing right now, even for 2022 and for 2021, all of them are restated in the sense that they are not considering the net leases of the BBVA portfolio income and results for the two years in order to make them comparable. When we're talking about top line for 2022, it's only considering the ongoing business lines of the company, not considering what has been generated during the year by the BBVA portfolio that was sold on the 15th of June of 2022. If we look at the rents, EUR 452.8 million, that implies a 7.9% increase with regards to 2021.
Real increase that has been all across different asset classes. For example, for office was flat 6.2%, in logistics 11.5%, and shopping centers 7.8%. All business lines, now comparing to 2021, were very well, performing during the year with regards to the prior year. If we look at gross rents after incentives, which are EUR 428.2 billion, this implies also a growth of 13.5% with regards to 2021. The main rationale behind is that incentives were reducing largely. 2022 is a year which there was no COVID, expenses to COVID.
There was no incentives to our tenants, something that was happening in 2021, especially in the first half of the year. That has implied that we have moved from a 90% margin in 2021 to a close to 95% margin in 2022. It's not only that top performance at the top-line level, it's also that incentives were highly reduced during the year. If you look at FFO, that is EUR 290.5 million. This FFO is counting on our business lines and also the FFO contributed by BBVA during the time period on which it was already within our portfolio.
This EUR 290.5 million, which in per share terms is EUR 0.62 per share, is including around EUR 0.07 which are coming from the BBVA portfolio during the year. In the end, the business lines that continue within our portfolio were generating around EUR 0.55 out of the EUR 0.62 that we were generating during the year. This should be also considered the starting point looking forward because BBVA will be no longer with us in the future, and we will send it down the year that's in 2022. Finally, as Ismael was pointing out before, on net NTA, we were at 15.67%, a reduction of 2.7%.
It's important to remark that, 2022 was a year at which we had a big amount of dividend distribution, more than EUR 560 million of dividend distribution to our shareholders, especially due to the EUR 0.75 that was an extraordinary dividend attached to the BBVA disposal transaction. That implies that in the year, we will be receiving EUR 1.20 per share. That's why the TSR for the year is 14% despite the fall in NTA with regards to the prior year. We move forward, in terms of top line, as we were commenting before, all the business line were improving. We are like for like at 7.3% in GRI.
I'm very positive all across the different asset classes, 6% in offices, 8.6% in logistics, and 7.5% in shopping centers. This has been the main driver of the growth of the company. As Ismael was pointing out, half of it is related to CPI indexation, then the remaining is more linked to renewals with a positive lease spread, also, we continue enhancing the occupancy of the portfolio all across different divisions. On page eight, we have here our occupancy. Occupancy of the portfolio ended up in 95.1%, with growth in every single asset class, especially it's remarkable that we were achieving 92.5% occupancy in offices, whereas our guidance for the year was 91.5%. We were achieved.
All the other asset classes are approaching or even at close to our full occupancy, as it is the case for logistics. Also in the other activities, we are also very close to 100% occupancy. I should also remark that we were not growing only 60 basis points with regards to 2021, because in 2021, we were counting on the 100% occupancy of the BBVA portfolio. Like for like, if BBVA portfolio should be with us, we should be more than 95.5%. In the end, it was a 100 basis points increase on a like-for-like basis on our portfolio. With regards to the average term of the company is 3.2 years. This has increased, especially because BBVA is not with us anymore.
Remember, it was an asset class with a very long-term lease agreement, we will not enjoy that again. We continue to have a very healthy average life in our contracts. I'll pass it over to Ismael to review in further detail on the different business lines during the year.
Okay. Thank you, Miguel. I will do it very quickly. In offices in page 10, you have the performance of the year. It is important to note that we experienced good like for like both in Madrid and Barcelona. In Lisbon, we didn't experience anything because we are fully occupied. The occupancy in Madrid went beyond the 90% mark, which is important for us. We experienced, you know, a very interesting performance in the A1 corridor, where beyond the 14,000 sq m that we let at the end of the year. The total net occupancy gain has been of 36,000 sq m.
There has been a significant improvement in that area, which, as you know, has been endemically problematic to us, owing to the monstrous, for Spanish standards, traffic jams that normally happen in that area at peak hours. Clearly, the new works, the new road works in the northern area of Madrid, plus the proximity of the Operación Chamartín now, more clear in the horizon, are starting to bring new life to that area of Madrid, an area which has been difficult in the past. We also increased our occupancy in Barcelona, mainly in peripheral assets because in CBD locations we are more or less full. In Lisbon, you know, that is only happens from time to time.
We are at 100.0% occupancy, which is a little weird, but it is what it is. On the following page, you will see the square meters contracted and the number of contracts where with the relevant release spreads. Very important to comment that most of the names you see in the tenant's area, correspond to Iberian headquarters. We continue to be by far the leaders in the market in having the headquarters of the different companies with which we operate in our portfolio. More than 70% of our tenants in our portfolio, use our buildings to place their Iberian headquarters, both in Madrid or, Barcelona or, Lisbon.
Regarding Loom, we opened five new spaces in the year and increased the footprint by more than 50%, adding, you know, or having now 26,000 sq m with 2,600 desks. Our occupancy stands at 83%, so it's pretty high, particularly taking into account the average prices once they are individualized by square meters. We have 12 spaces now operating, to which we will continue adding new capacity in the future because this is clearly a product which is in high demand from our clients. In logistics, on page 14, we experienced a very sound like for like, very well spread between Madrid, Barcelona and other locations in the Iberian Peninsula. Occupancy is more or less at full.
In Barcelona, you see the 99.1% going to 94.7%, this only corresponds to the assets that we own 100%, which is Park Logistics Zona Franca, which is only 130,000 sq m. It's not really representative of the whole portfolio. If you add back the 760,000 sq m we operate in ZAL, our occupancy will go to around 99%, because in ZAL it's virtually full. On the following page, you have an excerpt of our leasing activity, the corresponding release spreads and the clients with whom we have been signing contracts during the year. On page 16, you have a detailed snapshot of Zona Franca of ZAL. You might see that the release spread is negative.
That corresponds mainly to one tenant, to which we were financing part of the CapEx through rent. Now that tenant has moved to a different shed within Zona Franca, and as a consequence, when bringing the new tenant to the old one, we have experienced a slight decline in the rent. That is not, you know, it's not a trend or it's not creating any sort of warning sign in our portfolio. In shopping centers, well, the year was fantastic. It really surprised us. The footfall came up at -8.6%, but as commented, that corrected throughout the year. This is the full year figure.
Throughout the year and towards the end, we started seeing a correction of that difference, of that delta, compared to 2019. In December, we were already in positive territory, which we continued to be in January and February. We like what we see, and very importantly, as commented in the intro, the occupancy cost ratio evolution is very positive for our tenants and for us because it clearly strengthens the, let's say, the comfort with which tenants are, you know, trading in our shopping centers. On page 19, you have the risk spreads and different clients. Let me pass the floor to Miguel to talk about valuation and debt position.
Okay. I will continue with that on page 21. First of all, I will remind that this year has been a year which we have been on one side, disposing assets. We have more than EUR 2.2 billion of disposal assets during the year with a very high premium to the latest valuation. In the case of the BBVA, it was a 17.1% premium. The additional EUR 110 million of disposals was really at around 10% premium to latest valuation.
At the same time, during the year, we were acquiring assets for EUR 144 million, and we were also putting CapEx in our existing assets of EUR 226 million, mainly devoted to data centers and logistics. In terms of valuation, as we have been commenting, at the very beginning, it has been the negative of the year, but also the expected one. Everybody knows that there was an acceleration of the high corporate interest rates, especially in the second half of the year, and that has been pushing up the demand of a higher yield on investments. This is the one that has been driving the valuation all across our portfolio.
It is true also that the impact of a higher interest rates and more demanding profitability from assets has been balanced partially by the fact that the higher rents that we have been achieving over the portfolio, and also the higher occupancy, has been balancing partially this impact in our final NVR valuation. All in all, we are talking about a -1.5% like-for-like evolution. You have here on this page the passing yield of our declining asset classes. On average, we are at 4.7% passing yield. If we move to page 22, we have here the impact by asset classes. The most impacted one is shopping centers with 3.5%, then offices with -1.9%.
Logistics continues to be mainly based on the fact that we have brand new assets in our portfolio that has been developed very recently with a very compelling range, the ones that have been already driving our up our valuation in logistics. Even though that there has been a yield expansion in the three asset classes of 39 basis points in offices, 29 in logistics, and 65 in shopping centers. Overall is 44 basis points on average. If we go to the other side of the equation, which is the financial structure of the company that is supporting this asset portfolio, we are very proud to say that this 2022 has been a year which we have been deleveraging largely the company.
We have been able to pay down debt close to EUR 2.1 billion of debt has been paid back in 2022. That has driven down our net debt to below EUR 4 billion, EUR 3.8 billion of net debt with a loan to value of EUR 32.7 million. As Ismael was pointing out, also, if you look at the new FICC metric that has been applied for the first time by the end of the year, it's EUR 35.8 million only. At the same time, important to say that we continue to have an average cost of debt below 2% with an existing debt that is fully hedged, and with an average maturity that by the year-end was 4.9 years on average.
That considering the refinancing that we are going to be applying in the month of April, in the May or in the month of April, due to the refinancing of the existing bond maturing that month, we are going to be expanding to five from eight. Going back to the point we used to be back in 2019 in terms of length of our average maturity. If we move on to page 24, it's important here to remark the financing that we have put in place for the EUR 742 million bond maturing in April. It has been refinanced on a bank basis, mainly because we had no bank exposure following the EUR 2 billion debt repayment that we were conducting last year.
The banks, that is a source of financing, we have been alwasy, has always been part of our financial structure. They are back into our balance sheet at a very compelling basis, 136 basis points spread only, and also fully hedged at levels that we were commenting before of around 2.5%, very well below the existing swap rates in the market today. In the end, with this transaction that we were conducting in the last quarter of the year, we have a company with no maturity after 2026. Sorry, 2025 in May is the next bond that will be maturing, and we are getting into it with a cash position of up to EUR 1.8 billion within the company.
The company is ready for the future, also in terms of financing. Finally, we are moving into sustainability remarks for the year that Ismael will be commenting with you.
Thank you, Miguel. In 2022, our main achievement was the final launch of our Pathway to Net Zero program, of which we are particularly proud because it is, you know, science-based and has been very carefully put together by our sustainability team. That Pathway consists first in reducing our operational carbon in Scopes 1 and 2. Second, in reducing our embodied carbon in the developments, mainly in offices and logistics, because we are not developing any further shopping centers. Third, by reducing the Scope 3 emissions in cooperation with our clients, which is clearly a relatively new thing in the industry. We apply rent reductions to the most environmentally conscious clients.
This program is, you know, working very well. Clients love it and are, you know, joining it massively and we like it. Fourth, of course, at some point, offsetting the unavoidable emissions when we cannot go further down. We, as commented before, we successfully re-qualified all of our outstanding bonds into green, and we have continued the certification and recertification program because now every two years you need to recertificate the different buildings in all three asset classes. We are very close to 95% certification in all of our portfolio. Which is good because that serves us, you know, by putting together the to-do lists, that serves us very well for CapEx purposes.
We know more or less what to do in every building. The result of that effort and the, you know, the creation of our sustainability team has been the number of scorings and accolades in different international publications and rankings. We have been included for the second year in a row in the Dow Jones Sustainability Index. In CDP, finally, we moved into A -, but we score very well against the peers. In Sustainalytics, we obtained a fantastic rating, 7.2, which places us in the top 1% of the world in terms of environmental risk. In GRESB, we are at 79%. We moved down by two points. We used to be at 81%, but the industry, the peers, went down very significantly.
Now the average of our peers is 68%. We are fantastically placed on a relative basis to them. S&P Global, we achieved a 70% scoring. The average of the sector, 68% is a typo, is 21%. It's already been changed in our webpage. In Standard Ethics, we ranked number one in Spain in the IBEX 35. We are the most reliable company in Spain, according to the Standard Ethics index. In terms of value creation, on page 29, of course, the highlight of the year was the portfolio disposal of BBVA and the remaining ancillary disposals.
More importantly, that money, part of that money was employed in two deliveries, and corresponding to the Best II program in 2022. Two very similar in size sheds in Cabanillas Park 1J, and the opening shed in Cabanillas 2. The one in Cabanillas 1 was let to DSV Road. 45,000 sq m, more or less, at a yield on cost of 7%. And the one in Cabanillas Park 2 was let to Logista at a yield on cost of 8.1%, because we had that land in our books for longer, in fact. That land was, let's say, cheaper in our balance sheet than the other, because as you can imagine, construction costs are very similar in both cases.
On page 31, you have the final recalculated numbers for Plaza Ruiz Picasso. Tenants which are already public are IBM, Globant, and of course, Loom. There are two more tenants in the oven that will be known in due time, also belonging to the technology sector. The CapEx went up to EUR 70 million because of cost overruns during construction. The incremental rents surprised us on the upside, and now we are delivering a 10.2% yield on cost compared to our 100% BIP, compared to our 9.2% original yield on cost, you know, appraised when the transaction went through investment committee.
Regarding the digital infrastructure plan on page 33, the three projects are advancing as anticipated, both in terms of timing and costs, which is important. As you know, we started buying equipment in April 2021, and thank God we did so, because the bottleneck for equipment delivery in data centers keeps increasing and increasing and is now reaching between two and two years and a half for most of the critical equipment. The building for the first, let's say, the first block of the Bilbao-Arasur Data Center Campus, which consists of three, maybe four, the first block is now completed or nearing completion.
As you know, out of the 3 MW there, we have two pre-let, and the clients will be early accessing in April, May, the building, with projected opening in October. In Madrid, Getafe, and Barcelona, which, you know, can be easily distinguished because of their solar façade, because the one in Bilbao enjoys the proximity of ground solar photovoltaic installation with whom we have signed a PPA. The ones in Madrid and Barcelona have solar façade and are connected to roof installations within our logistics portfolio. We are advancing on track, and we expect to have them opened again around October, November this year with the pre-let levels that you can see.
As for closing remarks and outlook on page 35, simply to comment that MERLIN has delivered a very strong performance in all key financial and operating metrics. Our occupancy is now at an all-time high. Virtually everything that could have gone well in 2022 went well. It's been an excellent year for us. We started the year with a little uncertainty because of the immediate post-COVID situation, but the year ended up being a brilliant year for the company. It's been a very intense year for us in terms of alpha generation of work, not only because of the disposal, the disposal of BBVA, but also because of the ancillary disposals and the different programs that we have now under CapEx.
Our technical teams are working hard to deliver everything, you know, in time and to the extent possible in cost, which is not easy these days. In terms of outlook, we see 2023 as a transitional year for MERLIN after the BBVA disposal, because the upcoming deliveries of new product are all of them taking place towards year-end. The real effect on income will be felt more on 2024.
I know the market hates the word, transitional, but it is what it is, and I prefer not to, bullshit anyone because it's a, it's a year that, for us will mark, let's say, a new era in which we will try to, compensate the income lost due to the sale of, BBVA that, helped us to strengthen significantly our balance sheet with the income that will come in the future from our digital infrastructure plan, in which we will approximately, recycle 1/3 of the proceeds obtained from the sale of BBVA. I believe it will be a highly value-accretive maneuver for our shareholders. Of course, the results will start to be felt more in 2024 than in this year.
The balance sheet strength means basically that, you know, our people, our teams are now fully focused on operations because from a balance sheet standpoint, the years in front of us are relatively uneventful. I mean, we don't have expected maturities till May 2025, and even the May 2025 maturity is relatively comfortable in terms of size given the accumulation of cash the company currently enjoys, plus the available lines, et cetera. The estimated FFO for 2023 will be EUR 0.58 per share.
I know that sounds like less than this year, of course, where we made EUR 0.62, but you have to take into account that on a like-for-like basis, you know, the cash flow generation without BBVA will be in the region of EUR 0.54. We will be overcoming already around EUR 0.04 of the BBVA disposal of the one semester, one full semester of BBVA, you know, that we enjoyed in 2022. The final dividend corresponding to 2022, I know the market consensus, because we kind of guided towards it, was like EUR 0.22 additional.
It might be a little more than that. We will let the board of directors decide. It will be very soon because the general shareholders meeting is in principle penciled in for the 27th of April. The board of directors calling it should take place one month before. Towards the end of March, I guess the board of directors will be deciding what is the final distribution that they take to the general shareholders meeting for approval. As commented in the intro, we expect further decline in valuations.
It might well be that some people are saying that the rises in interest rates carried out by the central banks are now over, are behind us, and there will be no further rises, and as a consequence, there will be no further yield expansion. I don't know. I tend to be prudent in these situations, and I, you know, prepare for the worst and then enjoy what comes in case it is more positive than we anticipated. We still continue working in a scenario of continued rises in interest rates that will continue expanding yields.
Frankly speaking, I would love to see our portfolio at a passing, gross passing above 5% with shopping centers, you know, at or slightly above 6%, offices, somewhere between 5% and 5.25% , and logistics, clearly between 5.5% and 6% as well. We are, we still have room to go in that respect. We will try to pick up that decrease in valuation as soon as possible, appraisers permitting. If we can do it in the first half, nice. If we cannot do it in the first half, it will be absorbed towards the year-end. We would like to have it behind us and be prepared to enjoy a little bit of cash flow growth from 2024 onwards.
Anyway, to the dismay of many people, the fall in values has been -1.5%. You know, I have been called by many people talking about 30, 20, 40 and you know, at the end, as commented in many occasions, you know, we work in real estate. In real estate, things happen relatively smoothly, particularly when you are compensating falling values with an increase in operating performance, which increases the numerator in terms of cap rates, because you have more income. Let's see how the year goes. You know, we will continue enjoying tailwind in terms of operations. I mean, we expect 2023 to be better than 2022 in all PNL magnitudes.
You know, we don't know what will happen with occupancy, but, slightly up, slightly down, it will be compensated by inflation, and it will be compensated also by rent re-spread. Although, you all know that re-spread are the first victim of high inflation. Normally, when you're in an environment of high inflation, clients are reluctant to re-spread because they know they are going to be charged the variation in inflation that can be very significant at times. Let's see what happens during the year. We do expect a very positive 2023 compared to 2022 on a like-for-like basis. That's all for today. We are happy to entertain Q&A. I guess there are numerous questions on the line.
Please feel free to make any questions that are of interest to you.
Okay, thank you, Ismael. As a reminder to raise questions, please press star followed by number five. We already have three questions on the line. The first one coming from Ignacio Domínguez from JB Capital. Ignacio, the floor is yours.
Okay. Thank you. Good afternoon. Thank you for taking my questions. I have two. Firstly, could you provide more color on outlook for 2023 in terms of occupancy rates in offices and shopping centers? The second one is on rent adjustments. How often do you update rents for inflation? Thank you.
Okay. The second is easy. 100.0% of our rents have been updated by inflation this year. We have applied an average inflation of 6.3%, which might differ mentally from the one you think is the latest or whatever, but this is the average inflation that has been applied during the year to the different contracts that went up for renewal, taking into account that some of those contracts had last 12 months indexation, some others were indexed to the last month. They are, you know, the cases are completely different. The average inflation applied to rent renewals has been 6.3%, and it has been applied to 80% of our portfolio, which is one minus was up for renewal. In renewals you apply re-spread.
You only apply inflation on the part of your portfolio, which is already, let's say, ticking up in terms of rent adjustment. Regarding the outlook for offices and shopping centers, it is very difficult to provide one. In the absence of macroeconomic shocks, Ignacio, I will tell you pretty flat. You may say, "Flat? How discussing." Of course, it's very difficult to grow. I mean, the only real portfolio in which we can grow is in offices, but I believe the beneficial effects of the A 1 improvement will be felt over time. They will not all concentrate in one year, particularly in a year where all companies are affected by a lot of uncertainty. As a consequence of that, they are not taking decisions regarding expansion or relocation.
You know, because of that, I believe, in the absence of macroeconomic shocks, it should be a relatively stable year in terms of occupancy. However, many people is pointing towards some sort of mild recession towards the second half of the year. If that happens, and particularly if that happens accompanied by employment destruction, we will of course take part of it in our office occupancy. you know, the time you see people getting laid off in the market, you start seeing vacancy or additional vacancy in your offices. We saw it during the COVID. Many of you were worried about work from home and many other, you know, popular things.
We told you during the COVID that the main problem affecting our offices was not work from home. Was simply GDP and employment market destruction. You know, as a proof of it, as soon as the market, as the economy recovered a little bit, in fact, Spain has not yet recovered the pre-2019 situation, but as soon as the economy recovered, we more than proportionally recovered to pre-COVID levels in our office portfolio. Regarding shopping centers, if there is, you know, further continued inflation, and particularly if there are job cuts, the capacity of households to continue spending will suffer.
As you know, Spain is at the historical maximum in bank deposits. Clearly people have significantly saved during COVID, but approximately 1/3 of those savings have already been spent in maintaining the consumption patterns that they used to have pre-COVID. You know, the cushion is shrinking a little bit. I mean, only 2/3 of the extra savings achieved during the COVID are now kept in bank deposits. We don't know at which point, but we believe that somewhere in the future, you know, there should be an alteration of the consumption patterns of families and households. However, we are, of course, we are not immune to it, but we know it's going to be sector wide, so it will affect us and all of our competitors.
With one advantage to us, which is that our occupancy cost ratio is the lowest in Spain among our peers. you know, you know, being in one of our shopping centers is a relatively cheap thing as compared to being in some other shopping centers of our competition. we are very well-placed to withstand whatever happens at a con- you know, with the consumption, if a mild recession or strong recession, for argument's sake, ends up hitting Spain.
Ignacio, do you have any other questions? No? Okay, thank you. The next question comes from the line of Florent Laroche-Joubert from ODDO. Florent, the floor is yours.
Hi. Thank you for this presentation. I would have three questions. The first one is on the data center. When we look at your pre-letting levels, we can see that we are not close to 100%. Could you please maybe give us maybe more color on how you can see this pre-letting level increasing in the coming months? Maybe a second question, coming back with your comments on the further decline in valuation.
Could you please give us some comments on how you see today's investment market and if we should expect any disposals at MERLIN in the coming months and at which premium or discount against appraisal values? And maybe the last question, could you please give us some colors about your big potential discussions with your tenants in offices and shopping centers in terms of negotiation power, in terms of ability to pass in the fixation for the next time if it is still high. Thank you.
Okay. Okay. Starting in the same order, in data centers, well, the pre-let levels that you see, in fact, are, I would say, completely abnormal. I mean, in this industry, you normally build spec because the tenant only enters your data center if they try and test it and it works for them. In our case, what we did was a compromise between sacrificing a little bit in rent and having a very good quality guinea pig client for our three projects that allowed us back in the past to go through the board of directors and convince them to invest in this new product line in the company.
The pre-lets in our case were the price to pay in order to get that new venture for the company approved. They are a rarity within the market, except in the cases where the hyperscalers are developing their own facilities, which in Spain is, by the way, not the norm. The second thing that I must say is that that situation is worsening because there is a general lack of credibility among hyperscalers regarding the data center market, particularly in Europe, I must say, because a lot of projects have been announced, but very few people, and I must say, almost no people have put a shovel in the ground.
The data center community, the hyperscalers, are increasingly becoming, like Billy Brash says, from Missouri. They only believe in what they see, and they only join your data center if they can try and test it. At present, we have, like, 5.6 MW pre-let in our, o ut of the inaugural nine. We are in conversations for another 3 MW that will take us to almost 100% pre-let. I bet my word that that contract is not signed. I mean, they will drag the feet. That contract will not be signed till our data centers are up and running, and they come and test our facilities.
In the meantime, we will go through the arduous situation of explaining the peculiarities of Spanish legislation regarding square meters and megawatts and many other things which are highly passionate for American lawyers. We will continue working to explain that we are different, but at the end, you can achieve the same results if you are intelligent. But this is what I can comment about the level of pre-let. We are very happy with the level of pre-lets that we have achieved in our data centers. By the way, you must know that the modules that we have fitted in, which are, like 3 MW per data center, can be easily doubled up.
You know, bringing a new 6 MW module is not easy. However, bringing three extra in an existing three is relatively easier and can be achieved between three and four months. In case, you know, we need the sufficient demand in the market, we can relatively quickly scale up our operations in the three existing data centers. Regarding decline evaluations and how they compare to investment market and whether we will make disposals. The investment market is, as commented in many calls because this is not new, I mean, it has happened for the last year and a half. The investment market is relatively dry these times. It is mainly restricted to office buildings of relatively small ticket.
If you sell an office building well occupied, at a ticket below 50 or even better, 30, you might achieve clients. Mainly Spanish family offices are taking a protecting stance against inflation, and they are buying real estate. However, international investors are now in their, you know, headquarters. They are not out there looking for product. Things with a relatively big ticket are difficult to trade these times. That will not be eternal. At some point, there will be price discovery, the new prices will reset, and the market will reopen. In the meantime, what you have to do is if you are desperate, you can sell. If you are not desperate, you simply wait, which is what we are doing.
Don't expect from us lots of disposals this year. In parallel, we will not be making big or significant investments in existing products. That is important to note. Whether premium versus discount, a very important thing is that even in the current market, we are not seeing a significant discounts. When bid and ask finally meet and transaction is closed, normally those transactions are at or slight premium compared to the book values. However, if you were to sell assets massively in the current market, I believe, it will be more challenging. If you really need to sell assets because you are a fund and you are approaching your termination date or whatever, then I believe, you should be prepared to accept some discount.
In our case anyway, the word discount is relative because our trading price is so far from net tangible asset print that, you know, we have a lot of leeway in case we want to do disposals. Which is, by the way, not what we want to do during 2023. Regarding inflation pass-through, my bet, and I could be wrong, is that in 2023 at least, we will continue passing inflation, I would say, almost in full. Why is that? This is peculiar probably to Spain, but I believe this is, and this is my opinion, this is due to two facts. One, that virtually all of our clients, 82% of our clients, have been with us for more than five years.
Given that in Spain, inflation is applied on the up and on the down, a client that has been with us for five years now, in the last five years has experienced two reductions in rent, significant reductions in rent, owing to negative CPI. One year, -0% , one year, +0% , and this year, 6%. When they put everything together and they make the computation on five years, they will surprisingly discover that the average inflation applied to their contract has been between 1.5% and 1.8%. This is what we are calculating more or less for most of our clients. Importantly, they don't believe this is abusive. This is the beginning of. You start having problems normally when clients start believing that what you do is abusive.
You know, this is the situation, this is what we are seeing across our portfolio. The second reason, which is also very peculiar to Spain, why rents, generally speaking, are not so much contested by clients, is because we are still far from the historical maximums that they have in the back of their minds. Belonging to the 2007, 2008 period, pre-great financial depression. At that time, using, for example, prime offices as a proxy, rents for prime offices in Madrid were between EUR 46 and EUR 48. Today we are signing at EUR 38, EUR 38.5. We are still far from the pre-great financial depression rent.
If you go to logistics in Barcelona, which is the most expensive logistic product in Spain, in Sal, we used to sign above EUR 9.25 in 2007, 2008, and currently we are signing between EUR 7 and EUR 7.5. We are still very far from the historical maximums people have in mind. Again, that helps people not to identify real estate prices in Spain with abuse. And hence why people is not that reluctant to take on board inflation adjustments. I know in some other places in Europe and in the world, the reality is very, very different.
You know, when people is already seeing rents which are 20% or 30% above the maximums observed in 2007, 2008, of course, when the landlord starts inflating from there, from that basis, of course, people doesn't feel very comfortable about it. This is what I see in Spain, and probably what is explaining the peculiarity of being able to do a full pass-through of our inflation. Continental law also helps. I remember having that discussion with all of you during the COVID, where you, with your Anglo-Saxon mentality, you thought, "Okay, people will pay or not pay rent." No, no. If you don't pay rent in Spain, you have a Roman Law consequence, and that Roman Law consequence is not good.
It's not like I feel like paying, I feel like not paying. This is not Silicon Valley. You know, that is important also to mention.
Okay. We have another question from Jaap Kuin from Kempen. Jaap, the line is yours.
Yeah. Hi, MERLIN team. This is Jaap from Kempen. Two questions. It's now, I kind of missed, I think, part of your statements on the dividend. Could you maybe just highlight, if you quoted a number that you have in mind or maybe explain to us why there was no print of a divvy number on the paper this morning? The second question would be, I think very interesting to zoom in a bit on the leasing in the A1 corridor and the vacancy because, I guess it's very kind of emblematic for, yeah, for maybe, either success, or normal course of business in the kind of a more average quality, office assets in Madrid.
Whether you, for example, needed stronger discounts to get the leasing done or, if you feel that the rents, are maybe, ripe for some upside there or just a bit more color around the whole transaction in the area, please.
Okay. Okay. Thank you, Jaap. Look, regarding the dividend, of course, I have a number in mind, and I know perfectly what I will be recommending the board on the 20 something of March when they gather to discuss the calling of the general shareholders meeting. I have been instructed not to provide you with a guidance. Basically, this is why I have refrained from providing a guidance because, you know, the board is kind of claiming that capacity, and they will provide the guidance to the market themselves. Regarding the A 1 corridor, look, we don't have average quality buildings in that corridor. I mean, thanks God, we...
The buildings we have in that corridor are, I would say, in the upper to top percentile, class in terms of quality in that corridor. I mean, of course, we have suffered from an endemic lack of occupancy in that corridor, but I must say that, you know, within that endemic lack of occupancy, we have been operating relatively well in the area. Now it's improving a little bit. What means improving? Rental discounts. Well, rental discounts, for reasons unknown to me, are not very typical in Spain. You can see it in our portfolio.
I mean, unless you are a fund, in which case you want a high facial rent, because you want to flip the building very quickly and, you know, then you want to have a side letter with a, you know, a rent concession to the tenant. I mean, for industrial companies like us, you might easily divide the gross and the net, and you will see that we are not very prone to rental discounts. We prefer to take the hit on the rent and not. This is not Paris. We, you know, we don't take the discount as a norm in the way we negotiate. This is true for CBD, and it is true for the A1 corridor. That means basically that you have to negotiate rents in the area.
In that area, it is clear that because of the high vacancy, you are more a price taker than you can be a price leader. However, even being a price taker, if you have a good product which is adapted to the modern standards of the market in terms of layout, quality, cabling, sustainability, which is a very, very important and growing input in the different RFPs that we get from our clients. Of course, you can be always at the top end of the rent in the area. Which are the rents in the area? The closer you are to the Five Towers area, the closer you will be to around EUR 18 .
You can in some cases, you can even go slightly below, slightly above EUR 18 in some cases in some of our best buildings in the area, Torre Chamartín, we have gone beyond EUR 18 . I would say that in the first tranche of the A1, the one from La Moraleja to the Five Towers, the rents might oscillate between EUR 15 , EUR 16 to EUR 18, more or less, bigger as you get closer to the city, to the Five Towers area. The problems normally start in the second and third tranche of the A1, so beyond La Moraleja to San Sebastián de los Reyes, beyond San Sebastián de los Reyes, which is normally where, you know, the complication starts.
In those areas, rent can oscillate between EUR 12 and EUR 15 , again, higher as you get closer to the city. This is the reality in the A1 corridor. I believe, and this is my personal opinion, that the A1 corridor will be getting out of the out-of-favor situation it has enjoyed during the last years, and this eventually might impact the A2 corridor. I believe today, from what I see from the leads we receive for our buildings, from the visits we receive from our buildings, I believe the A2 corridor might be a little more now out of the radar than the A1 is and will be.
Of course, you know, as the Operación Chamartín approaches, you know, people becomes conscious that by setting their headquarters in the area, they are pre-locating in an area which in 10, 20 years' time will be first line of, you know, CBD. You know, this is clearly helping us. Another important fact is that you can see that the difference between EUR 17-EUR 18 and EUR 37-EUR 38, which is what you charge in prime, is a very significant delta. The A1 corridor, and in general the M30 ringroad, remains the preferred location for large corporations with large staffs. We normally tend to talk, and talk a lot about CBD, but at the end, CBD is affordable, by, you know, consulting companies, law firms, investment banks, super high value-added companies.
In ancient times, it was also highly affordable for technology companies. Now, technology companies are starting to be a little bit more mindful of their PNLs. You know, that has been the main feeder of the CBD. There is of course life in the non-CBD areas, in non-prime areas. You know, most of our, let's say, most salient logos in our collection of client logos, the one that you can see in our corporate presentation, in fact, are not located in CBD, are located in the outskirts of the city. I think that's it for the A1. If you have extra questions, I will be happy.
Good. Thank you, Jaap. We have another question from Fernando Abril from Alantra. Fernando, the floor is yours.
Hello. Thank you for taking my questions on just a couple, please. First is with regards the guidance for 2023. Basically, if we take the Q4 FFO, which was roughly EUR 0.14, more or less, no, and we annualize this, we get to EUR 0.56, which is not far from your guidance. Basically, we can add inflation and occupancy, and we can get to the guidance. I don't know if you expect no contribution from, or little contribution from Picasso this year, and also from data centers or any detail, you can walk us through your assumptions would be great.
Second, with regards the logistics plan with Aena, that, you know, several press releases were out and they were saying that you were interested again on this project. I don't know if you can comment on this as well. Thank you.
Thank you, Fernando. Regarding the guidance for 2023, you are right in extrapolating the Q4 cash flow generation. That would point to EUR 0.56 in 2023. You know, the extra EUR 0.02 you are attributing basically to inflation, plus minus, net variance in occupation and re-spread. The reason why you don't see more contribution by Picasso and the data centers is simply because they will be inaugurated towards the end of the year. You know, between installation of clients and eventually the rent-free periods, there will be very little contribution in the 2023 PNL. We will be enjoying that cash flow mainly in 2024. Contribution in 2023 will be relatively meaningless.
Regarding Aena. Look, as you know, there was a very stringent contest put together by the Spanish state, the National Airport Authority, regarding a super prime logistic plot in the immediacy, in the close vicinity of the Barajas Airport. The contest was very well attended. Five offers were selected. We scored number four. The scoring was a combination of your CapEx estimation, plus the amount of money you would put in the SPV with the national airport authority, you know, to compensate eventually cost deviations in the CapEx and or other working capital requirements of the SPV. We were preceded by SEGRO, Logicor, and P3.
I will not talk about the specifics of their offers, but only one of them, in our opinion, estimated the CapEx correctly in the region of EUR 140 million-EUR 145 million, which is where we see it. The other two, in order to be more competitive, kind of underestimated CapEx to between EUR 110 million and EUR 120 million. When you read through the legal documentation, you are fully liable for whatever CapEx deviation. At the end, it is not extremely productive to underestimate CapEx in the bid.
Then there was also the additional, let's say money to be put in the SPV for working capital and deviations in CapEx, in which there was very, very significant variation between the first offer and our offer that ranked number four. Our offer was kind of 70% below the one that was ranking first. That looks like stupid, but when you translate it into the cost of building 150,000 of logistics, you know, for the first, it would have meant a cost of construction of around 17 or more than EUR 1,700 per square meter. Whereas if you take our offer, you will be at around slightly below EUR 1,200. That's almost 50% difference.
You know, we are happy that we held the horses and resisted the temptation of, you know, let's say exaggerating our numbers in order to be more competitive. We stood where we thought we should stay, and as a consequence, a number of different rebounds have ended in us being back into play for the thing. We will, of course, reevaluate the whole project with our board, particularly with regard to new construction costs. I can anticipate that they are not significantly different from the ones we anticipated, because there are things which have gone up, things that have already corrected.
We assess the convenience of going forward in this project, which we like because it clearly puts a cherry in the cake of our presence in the A 2, A2 corridor, because we own a lot of super high quality logistics in the area. This will be together with what we have in Coslada and San Fernando, this will be kind of the closest to the Madrid city center and perfectly suitable for last mile logistics. Let's see. I don't want to anticipate what I, you know, what the board will decide. You know, as you know, we are a very long-term holder of assets. We are not flippers.
You know, we believe that eventually, we can make sense out of the calculations.
Okay. Thank you. The next question comes from the line of Ana Escalante from Morgan Stanley. Ana, the floor is yours.
Good afternoon. Thank you for taking my questions. The first one would be on your CapEx. You said in today release that your CapEx efforts will be pre-let driven. How will-
How should we look at the CapEx pipeline that you provided last year and your capital markets day, particularly regarding the logistics and data centers plan? Should we expect any changes on that guidance?
Yes, you should expect changes in the guideline, in that guideline, but mainly time-wise. In some of our developments, we are advancing probably slightly faster than we anticipated, including pre-let. We will be, I guess, making announcements during the year. They might or might not mean start of construction in 2023. Some of them might, some of them might slip into 2024. Clearly, what we will not be doing except in two very specific cases in which we have taken the decision to go spec, one in the Henares corridor . You know, except in two cases, for rapidly and one in Lisbon, for, let's say standard sheds, that we believe will be pre-let before we end construction.
For the rest, we will be waiting till we have confirmation of pre-lets, which by the way, continue to be a pretty active market both in Spain and Portugal.
Okay. The next question comes from the line of Clara de la Fuente from Kepler. Clara, the floor is yours.
Hello, good afternoon. Thank you for taking my questions. I was wondering if going forward, do you expect both data centers and logistics yield and cost to remain the last provided levels in November, or like close to 8% for logistics and 9.55%-11.7% for data centers? Or do you expect any changes going forward? Thank you.
Okay. Look, while in logistics, we have recalculated our yield on cost based on most recent construction costs, and they have gone down by 100 basis points. By the way, this is a moving target. I mean, this is what is happening today with the current rents and the current construction costs. If rents continue pushing, and construction costs either stabilize or moderate, eventually we will, you know, recover, you know, some basis points in terms of cost efficiency and hence on given cost. While in logistics, we have recalculated, and we have, of course, identified differences. In data centers, at present, we are not identifying any differences. First, because they were budgeted after we budgeted most of our logistics plans.
Second, because 70% of the expenditure in data centers lies in equipment, and that equipment was commissioned long, long time ago, so the price is closed. The only variance you can find in data centers could be a slight variation up in the cost of construction. You know, between land and cost of contract, and construction is only 30%. Hence, the total variation in the cost of the data center is not really meaningful. This is why we haven't recalculated data centers.
We expect once, you know, phase II is finished, so once we have 70 MW in operation, or at least 60 MW, I mean, once we are more or less in full operation of what we call phase II, we expect to be in a stabilized yield around the 11.2%, provided to market or slightly better than that.
Next question comes from the line of Céline Soo from Barclays. Celine, the floor is yours.
Hi, everyone. Just have one question, please, on the general election this year in Spain. I was wondering if you could say a few words about it, what you're expecting, and if there could be any material decisions for SOCIMI or real estate in general. Thank you.
Okay. Look, Céline, there are two elections upcoming in Spain. One around May will be local and autonomous regions. Most political observers are pointing towards general elections towards the month of December, around the 10th of December or so. The effects on our industry for those elections, I must say we anticipate should be limited. Most of the real estate related measures that are being flagged by the different political parties are mainly related to residential. Residential is clearly at the forefront of the public debate. Everybody is thinking about, everybody's kind of tendering their ideas for residential. Thank God, commercial is completely out of the public debate. We are relatively tranquil in that respect.
What might affect us is particularly in local and autonomous region elections, is that by experience, we know that when we approach election dates, normally the public administration tends to paralyze in full. Basically, people is either not at their jobs or if they are, they are a little bit dispersed thinking about what happens or might happen in the elections. Normally you, what you can expect is a ralentization, a slowdown in the obtaining of licenses and things with the public administration. The truth is that miraculously, it is one of the few good times in our history in that this might happen because we don't have that much these days at stake with the public administration at the local or autonomous region.
At the central government level, the politicization is exactly the same, even longer in some cases. I mean, it can span to four or five months before the elections and three, four months after the elections. Frankly speaking, we don't have too many things to ask or decide with the central government. Thanks, God.
Thank you, Céline. The next and last question comes from the line of Marie Dormeuil from Green Street. Marie, the line is yours.
Hi. Good afternoon. Just a one side question, because we've seen a change in regulation in Barcelona with regards to distribution warehouses. Just wanted to get your take on that change in regulation and how does that potentially impact you in a positive or in a negative way?
Okay. Look, Marie, again, thanks God, all of our warehouses in Barcelona, and we are talking about close to 1 million sq m, are completely out of that area of regulations. My take of it, and I coincide very much with the paper you recently wrote on it, is that they were trying to regulate dark kitchens, and at some point they got a little lost and started regulating, you know, X and Y and Z. In the definition of what they were regulating, they, you know, they have been so vague that, you know, in reality, you can interpret that even for logistics, that might have an impact. To the best of my knowledge, what they were trying to regulate were only dark kitchens.
I guess in the future, somebody will clarify. I hope it is clarified. If it is not clarified, and if it stays as it is, the take for us is slightly positive, of course, because we are already, you know, without competition in the market in terms of proximity to the city center. If restrictions are applied to our competitors, we will be even better in that regard.
Okay, there are no more questions. We thank you all for staying with us for this one hour and a half. As always, we remain at your disposal for any further questions that you may have. You know where to find us, and we hope you have a great evening. Thank you very much. Bye-bye.