Notes to the Consolidated Financial Statements for the year
ended 31 December 2020
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Merlin Properties SOCIMI, S.A. (hereinafter, the \u201cParent\u201d) was incorporated in Spain on 25 March 2014 under the Spanish Limited Liability Companies Law. On 22 May 2014, the Parent requested to be included in the tax regime for listed companies investing in the property market (REITs), effective from 1 January 2014.
On 27 February 2017, the Parent changed its registered office from Paseo de la Castellana 42 to Paseo de la Castellana 257, Madrid, Spain.
The Parent\u2019s corporate purpose, as set out in its Articles of Association, is as follows:
\u2022The acquisition and development of urban real estate for subsequent leasing, including the refurbishment of buildings as per the Value Added Tax Law 37/1992, of 28 December;
\u2022The holding of equity interests in other SOCIMIs or in other non-resident entities in Spain with the same corporate purpose and that operate under a similar regime as that established for SOCIMIs with respect to the mandatory profit distribution policy enforced by law or by the Articles of Association;
\u2022The holding of equity interests in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban real estate for subsequent leasing, and that operate under the same regime as that established for SOCIMIs with respect to the mandatory profit distribution policy enforced by law or by the Articles of Association, and that fulfil the investment requirements stipulated for these companies; and
\u2022The holding of shares or equity interests in collective real estate investment undertakings regulated under Law 35/2003, of 4 November, on collective investment undertakings, or any law that may replace this in the future.
In addition to the economic activity relating to the main corporate purpose, the Parent may also carry on any other ancillary activities, i.e., those that generate income, which in total represents less than 20% of its income in each tax period, or those that may be considered ancillary activities under the legislation applicable at any time.
The activities included in the Parent\u2019s corporate purpose may be indirectly carried on, either wholly or in part, through the ownership of shares or equity interests in companies with a similar or identical corporate purpose.
The direct and, where applicable, indirect performance of any activities which are reserved under special legislation are excluded. If the law prescribes the need for a professional qualification, administrative authorisation, entry in a public register, or any other requirement for the purpose of exercising any of the activities within the corporate purpose, no such activity can be exercised until all the applicable professional or administrative requirements have been met.
Merlin Properties SOCIMI, S.A. and Subsidiaries (\u201cthe Group\u201d) engage mainly in the acquisition and management (through leasing to third parties) of offices, industrial buildings, logistic centres, local premises and shopping centres, and they may also invest to a lesser extent in other assets for lease.
On 30 June 2014, the Company was floated on the Spanish stock market through the issuance of EUR 125,000 thousand shares, with a share premium of EUR 1,125,000 thousand. Merlin Properties SOCIMI, S.A.'s shares/securities have been listed on the electronic trading system of the Spanish stock exchanges since 30 June 2014.
On 15 January 2020, the Parent's shares were listed on Euronext Lisbon under a dual listing.
The Parent and the majority of its subsidiaries are governed by Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, regulating REITs (Ley 16/2012, de 27 de diciembre, por la que se regulan las Sociedades An\u00f3nimas Cotizadas de Inversi\u00f3n en el Mercado Inmobiliario). Article 3 of that Law sets out the investment requirements for these types of companies, namely:
1.At least 80% of a REIT's assets must be invested in urban real estate for leasing purposes and/or in land to be developed for leasing purposes provided such development starts within three years of acquisition, along with investments in the capital or equity of other entities referred to in Article 2.1of the Law.
The value of the assets will be determined according to the average of the individual balance sheets for each quarter of the year, whereby the REIT may opt to calculate such value by taking into account the market value of the assets included in such balance sheets instead of their carrying amount, in which case that value would apply to all balance sheets for the year. For these purposes, the money and collection rights arising from the disposal of these properties or shareholdings, if applicable, during the same year or previous years will not be calculated, provided that, in this last case, the reinvestment period referred to in article 6 of this Law has not elapsed.
2.Furthermore, at least 80% of the income for the tax period, excluding income from transfer of equity investments and real estate that are earmarked for pursuit of the principal corporate purpose, once the holding period referred to in the following paragraph has elapsed, must arise from lease of investment property and from dividends or profit shares obtained from those holdings.
This percentage is calculated based on consolidated profit if the company is a Parent of a group, as defined in article 42 of the Commercial Code, regardless of the place of residence and the obligation to prepare consolidated financial statements. Said group will be exclusively composed by the REIT and all the other entities referred to in article 2.1 of the aforementioned Law.
3.The REIT\u2019s real estate assets must be leased for at least three years. The time that the properties have been offered for lease, up to a maximum of one year, will be included for the purposes of this calculation.
This period will be calculated:
a)In the case of properties that are included in the REIT\u2019s assets before it avails itself of the regime, from the date of commencement of the first tax period in which the special tax regime set forth in this Law is applied, provided that the property is leased or offered for lease at that date. Otherwise, the provisions of the following paragraph will apply.
b)In the case of properties developed or acquired subsequently by the REIT, from the date on which they were leased or offered for lease for the first time.
c)Shares or equity investments in entities referred to in article 2.1 of the Law must be kept in the REIT's asset base at least during three years after their acquisition or, if applicable, from the beginning of the first tax period during which the special tax regime established in the Law applies.
As established in First Transitional Provision of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, regulating REITs, these companies may opt to apply the special tax regime pursuant to article 13 of this Law, even when the requirements stipulated therein are not fulfilled, under the condition that such requirements are met within two years since the application of the REIT tax regime is sought.
REITs are taxed at a rate of 0% for companies tax. However, where dividends distributed to an equity holder owning at least 5% of the REIT\u2019s share capital are exempt from taxation or taxed below 10%, such REIT will be subject to a special charge of 19% of the dividends distributed to the said equity holder, under the denomination of corporate income tax. If deemed applicable, this special charge will be paid by the REIT within two months after the dividend distribution date.
The transitional period in which the Company had to meet all requirements of this tax regime ended in 2017. Group management, based on the opinion of its tax advisors, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2020.
Consequently, the Group's consolidated financial statements and the individual financial statements of the Parent for 2020, prepared by its Directors, which are awaiting approval by the General Shareholders' Meeting, have been prepared under the REIT Regime. However, the Parent\u2019s directors consider that the aforementioned financial statements will be approved without any material changes.
On the other hand, the financial statements for the year 2020 of the companies that make up the Group are pending preparation by their respective Directors and are expected to be approved by their respective General Shareholders' or Shareholders' Meetings within the deadlines established by applicable law.
The separate and consolidated financial statements of Merlin Properties, SOCIMI, S.A. for 2019 prepared by its directors were approved by the shareholders at the Annual General Meeting on 17 June 2020.
The 2019 separate annual financial statements of the Group companies, which were prepared by their respective directors, were approved by their shareholders at the respective General Meetings within the periods established in applicable tax legislation.
In view of the business activities currently carried on by the Group, it does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the consolidated financial statements.
The Company has not modified its name or denomination in years 2019 or 2020
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and\u2022The holding of shares or equity interests in collective real estate investment undertakings regulated under Law 35/2003, of 4 November, on collective investment undertakings, or any law that may replace this in the future.In addition to the economic activity relating to the main corporate purpose, the Parent may also carry on any other ancillary activities, i.e., those that generate income, which in total represents less than 20% of its income in each tax period, or those that may be considered ancillary activities under the legislation applicable at any time.", "dimensions": { "concept": "ifrs-full:DescriptionOfNatureOfEntitysOperationsAndPrincipalActivities", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl8zMS9mcmFnOmIwNzE5NzIyNmZkNjRhYWM4YmI0NTliNjMyZjAxNDRlL3RleHRyZWdpb246YjA3MTk3MjI2ZmQ2NGFhYzhiYjQ1OWI2MzJmMDE0NGVfMTA5ODM_baf8006d-9cc4-4e4d-8d45-8f6f8fb358be": { "value": "The Company has not modified its name or denomination in years 2019 or 2020", "dimensions": { "concept": "ifrs-full:ExplanationOfChangeInNameOfReportingEntityOrOtherMeansOfIdentificationFromEndOfPrecedingReportingPeriod", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl8zNC9mcmFnOmM4ZjNmZjUyNjE3YzQyOWFiOTE3NmViMmJjZjY5YjFjL3RleHRyZWdpb246YzhmM2ZmNTI2MTdjNDI5YWI5MTc2ZWIyYmNmNjliMWNfMzEzNTk_a903335d-437a-4b14-8764-0695ac33930d": { "value": "2.\u00a0 \u00a0 Basis of presentation of the consolidated financial statements and basis of consolidation
2.1 Regulatory framework
The regulatory financial reporting framework applicable to the Group consists of the following:
\u2013The Commercial Code and all other Spanish corporate law;
\u2013The International Financial Reporting Standards (IFRSs) as adopted by the European Union pursuant to Regulation (EC) No 1606/2002 of the European Parliament and Law 62/2003, of 30 December, on tax, administrative and social security measures, as well as applicable rules and circulars of the Spanish National Securities Market Commission (CNMV);
\u2013Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, regulating Real Estate Investment Trusts (REITs) and the other commercial laws.
\u2013All other applicable Spanish accounting legislation
2.2 Basis of presentation of the consolidated financial statements
The consolidated financial statements for 2020 were obtained from the accounting records of the Parent and consolidated companies, and have been prepared in accordance with the regulatory financial reporting framework described in Note 2.1 and, accordingly, they present fairly the Group\u2019s consolidated equity and financial position at 31 December 2020 and the consolidated results of its operations, the changes in consolidated equity and the consolidated cash flows in the year ended on that date.
Given that the accounting policies and measurement bases applied in preparing the Group\u2019s consolidated financial statements for 2020 may differ from those applied by some of the Group companies, the necessary adjustments and reclassifications were made on consolidation to unify these policies and bases and to make them compliant with IFRSs as adopted by the European Union.
In order to uniformly present the various items composing the consolidated financial statements, the accounting, policies and measurement bases used by the Parent were applied to all the consolidated companies.
2.2.1 Adoption of Financial Reporting Standards and Interpretations effective as from 1 January 2020
In 2020 the following standards, amendments and interpretations came into force, which, where applicable, were used by the Group in preparing these financial statements:
Standards, Amendments and Interpretations | Description | Mandatory application in the years beginning on or after: |
Amendments to IAS 1 and IAS 8 - Definition of \u201cmateriality\u201d | Amendments to IAS 1 and IAS 8 to align the definition of \u201cmateriality\u201d with that contained in the conceptual framework | 01/01/2020 |
Amendments to IFRS 9, IAS 39 and IFRS 7. Reform of Benchmark Interest Rates--Phase 1 | Amendments to IFRS 9, IAS 39 and IFRS 7 related to the current changes to the benchmark indexes. | 01/01/2020 |
Amendments to IFRS 3 \u2013 Definition of a business | Clarifying the definition of a business | 01/01/2020 |
Amendments to IFRS 16 Leases - Improvements in rents | Amendment to facilitate the accounting of rental improvements related to COVID-19 in leases | 01/06/2020 |
These standards and amendments have not had a significant impact.
All accounting policies and measurement bases with a significant effect on the condensed consolidated financial statements were applied.
2.2.2 Standards not yet in force in 2020
The following standards were not yet in force in 2020, either because their effective date is subsequent to the date of the consolidated financial statements or because they had not yet been adopted by the European Union.
Standards, Amendments and Interpretations | Description | Mandatory application in the years beginning on or after: |
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Reform of Benchmark Interest Rates--Phase 2 | Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 related to the reform of the benchmarks | 01/06/2021 |
Amendment to IFRS 4 Differential Application of IFRS 9 | Differences in the application of IFRS 9 until 2023 | 01/06/2021 |
Amendments to IFRS 3 Reference to the Conceptual Framework | IFRS 3 was updated to align the asset and liability definitions in a business combination with those contained in the conceptual framework | 01/01/2022 |
Amendment to IAS 16 Income before projected use | The change prohibits deducting any income obtained from the sale of the items produced while the entity is preparing the asset for its intended use from the cost of property, plant and equipment | 01/01/2022 |
Amendment to IAS 37 Payable Contracts - Cost of performing a contract | The amendment explains that the direct cost of fulfilling a contract includes the incremental costs of complying with that contract and an allocation of other costs that relate directly to the performance of the contract | 01/01/2022 |
Improvements to IFRS Cycle 2018-20 | Minor changes to IFRS 1, IFRS 9, IFRS 16 and IAS 41. | 01/01/2022 |
Amendment to IAS 1 Classification of liabilities as current or non-current | Clarifications about the presentation of liabilities as current or non-current | 01/01/2023 |
IFRS 17 Insurance contracts and amendments to them | Replaces IFRS 4 and includes the principles of registration, measurement, presentation and breakdown of insurance contracts with the objective that the entity provides relevant and reliable information that allows users of financial information to determine the effect that insurance contracts have on financial statements | 01/01/2023 |
At present, the Group is assessing the impacts that the future application of standards with a mandatory application date from 1 January 2021 could have on the consolidated financial statements once they come into force, although these impacts are not expected to be significant.
2.3 Functional currency
These consolidated financial statements are presented in euros, since the euro is the functional currency in the area in which the Group operates.
2.4 Comparative information
The information relating to 2019 contained in these notes to the consolidated financial statements is presented solely for comparison purposes with similar information relating to the year ended 31 December 2020.
2.5 Responsibility for the information and use of estimates
The information in these consolidated financial statements is the responsibility of the Parent\u2019s directors.
In the Group\u2019s consolidated financial statements for 2020 estimates were occasionally made by the senior executives of the Group and of the consolidated companies, later ratified by the directors, in order to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following:
1.The market value of the net assets acquired in business combinations (see Note 3)
2.The market value of the Group\u2019s property assets (see Note 5.1). The Group obtained valuations from independent experts at 31 December 2020.
3.The fair value of certain financial assets (see Notes 5.5 and 5.6).
4.The assessment of provisions and contingencies (see Note 5.11).
5.Management of financial risk and, in particular, of liquidity risk (see Note 23).
6.The recovery of deferred tax assets and the tax rate applicable to temporary differences (see Note 5.13).
7.Definition of the transactions carried out by the Group as a business combination in accordance with IFRS 3 or as an acquisition of assets (see Note 3).
8.Compliance with the requirements that govern listed real estate investment companies (Note 1).
Changes in estimates:
Although these estimates were made based on the best information available at 31 December 2020, future events may require these estimates to be modified prospectively (upwards or downwards), in accordance with IAS 8. The effects of any change would be recognised in the corresponding consolidated income statement.
2.6 Basis of consolidation applied
All companies over which effective control is exercised by virtue of holding of a majority of the voting rights in their representation and decision-making bodies and the power to determine the company\u2019s financial and operational policies were fully consolidated; and companies in which the Group owns more than a 20% interest and exercises significant influence without holding a majority of the voting rights were accounted for using the equity method (see Note 9). Likewise, there is considered to be a significant influence on the investments held by the Group with a participation rate of less than 20% if it has representation on the Board of Directors of these companies of the parties related to it.
A number of adjustments have been made in order to bring the accounting principles and measurement bases of Group companies into line with those of the Parent, including the application of International Financial Reporting Standards measurement bases to all Group companies and associates.
It was not necessary to unify accounting periods since the balance sheet date of all the Group companies and associates is 31 December of each year.
2.6.1 Subsidiaries
Subsidiaries are considered to be those companies over which the Parent directly or indirectly exercises control through subsidiaries. The Parent has control over a subsidiary when it is exposed or has rights to variable returns from its involvement with the subsidiary, and when it has the ability to use its power to affect its returns. The Parent has power when the voting rights are sufficient to give it the ability to direct the relevant activities of the subsidiary. The Parent is exposed or has rights to variable returns from its involvement with the subsidiary when its returns from its involvement have the potential to vary as a result of the subsidiary\u2019s performance.
The financial statements of the subsidiaries are fully consolidated with those of the Parent. Accordingly, all material balances and effects of the transactions between consolidated companies are eliminated on consolidation.
Any third-party interests in the Group's equity and profit or loss are recognised under \u201cNon-controlling interests\u201d in the consolidated statement of financial position and \u201cResult attributable to non-controlling interests\u201d in the consolidated income statement and consolidated comprehensive income statement.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statements from the effective date of acquisition or until the effective date of disposal, as appropriate.
2.6.2 Associates
The companies listed in Appendix I, over which Merlin Properties, SOCIMI, S.A. does not exercise control but rather has a significant influence, are included under \u201cInvestments accounted for using the equity method\u201d in the accompanying consolidated statement of financial position and are measured using the equity method, which consists of the value of the net assets and any goodwill of the associate. The share of these companies\u2019 net profit or loss for the year is included under \u201cShare of results of associates accounted for using the equity method\u201d in the accompanying consolidated income statement.
2.6.3 Transactions between Group companies
Gains or losses on transactions between consolidated companies are eliminated on consolidation and deferred until they are realised with third parties outside the Group. The capitalised expenses of Group work on non-current assets are recognised at production cost, and any intra-Group results are eliminated. Receivables and payables between consolidated Group companies and any intra-Group income and expenses were eliminated.
2.6.4 First-time consolidation differences
At the date of an acquisition, the assets and liabilities of a subsidiary are measured at their fair values at that date. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If a deficiency of the acquisition cost below the fair values of the identifiable net assets acquired (i.e. a discount on acquisition) is disclosed, the measurements of the net assets are reviewed and, where appropriate, the deficiency is credited to profit or loss in the period in which the acquisition is made.
2.6.5 Business combinations
The Group accounts for business combinations using the purchase method. The date of acquisition is the date on which the Group takes control of the acquired business.
The consideration paid is calculated at the date of acquisition as the sum of the fair values of the assets delivered, the liabilities incurred and assumed and the equity instruments issued by the Group in exchange for control of the business acquired. Acquisition costs, such as professional fees, do not form part of the cost of the business combination, but are taken directly to the consolidated income statement.
Where applicable, the contingent consideration is recognised at the acquisition-date fair value.
Subsequent changes to the fair value of the contingent consideration are taken to the consolidated income statement unless this change arises within the one-year period established as the provisional accounting period, in which case the business combination will be modified.
Goodwill is calculated as the excess of the aggregate of the consideration transferred, any non-controlling interests, and the fair value of any previously acquired interest less the net identifiable assets acquired.
If the acquisition cost of the identifiable net assets is greater than their fair value, the related difference is recognised in the consolidated income statement for the year.
2.6.6 Perimeter of consolidation
The companies composing the Merlin Group at 31 December 2020, along with information relating to the consolidation method, are listed in Appendix I of the consolidated financial statements.
2.7 Quantitative and qualitative information on the impacts of COVID-19
The appearance of COVID-19 in China in January 2020 and its recent global expansion has resulted in the viral outbreak being classified as a pandemic by the World Health Organisation since 11 March 2020. This situation has affected global financial markets, since restrictions have been placed on mobility and business activity in many sectors.
On 14 March 2020, the Government of Spain declared a state of alarm under Royal Decree 463/2020, which remained in force until 21 June 2020. According to the declaration of the state of alarm, certain commercial and lodging activities have been classified as essential, where opening is permitted, while the others have been classified as non-essential based on their nature and therefore subject to forced administrative closure. Likewise in Portugal, an Estado da Emerg\u00eancia was declared by the President of the Republic in Decree 14-A/2020, of 18
March, which established limits on the restrictions of certain fundamental rights due to COVID-19, which included restrictions on the country\u2019s retail commerce.
In addition, in 2020, the Spanish Government and the Autonomous Communities took coordinated action to control the COVID-19 pandemic, among which are limits on mobility at night and between regions.
The Group's activity has been affected in various areas, and it has taken various measures to mitigate the effects of the COVID-19 pandemic. The Parent Company\u2019s Directors believe that the COVID-19 crisis represents a significant event that, under accounting regulations, requires the submission of separate breakdowns on the impacts. The main impacts related to COVID-19 and the actions carried out by the Group to mitigate their impact are presented below.
The Directors continue to evaluate and implement additional measures to adapt the Group's operations and to adopt the necessary measures based on how the pandemic progresses, and they believe that it is not possible to reasonably predict the impact of COVID-19. The general operational and financial impact will greatly depend on the extent and duration of the COVID-19 pandemic, including the possible appearance of additional new outbreaks, and on the effectiveness of any vaccines that have begun to be implemented, and it may be affected by other factors that cannot yet be foreseen.
The Directors and Management of the Parent believe that the COVID-19 health emergency and its effects on the Group's activities primarily affect the following aspects:
\u2022The Group's estimates and, the case being, the book value of the assets and liabilities on the balance sheet.
\u2022Financial risks: credit risk and liquidity risk.
These do not include all of the impacts, although the Directors and Management believe that the others not listed above will not have a significant effect on the Group's activity.
Measurement of fair value of investment property
The Group adjusted the fair value of its real estate investments in accordance with IAS 40. This fair value is determined using the reference of the valuations made by independent third parties every six months so that, at the close of each six-month period, the fair value reflects the market conditions of the elements of the investment properties at that date.
At 31 December 2020, the valuations carried out by CBRE Valuation Advisory, S.A. and Jones Lang LaSalle, S.A. (responsible for the valuation of 79.1% of the Group), although they point out that the pandemic and the measures taken to deal with COVID-19 continue to affect the economy and the real estate market at the global level, they highlight that, at the date of their valuation, the real estate markets have already begun to function again, with a volume of transactions and other sufficient market evidence to base their valuation opinion. In the case of the valuations carried out by the independent external party, Savills Consultores Inmobiliarios, S.A. (which, at 31 December 2020, valuates 20.9% of the Group's GAV), these are issued based on \u2018material valuation uncertainty\u2019 according to VPS 3 and VPGA 10, the RICS Global Valuation Standards, and therefore recommend keeping the valuation under frequent review.
The valuation methods described in Note 7 has not been modified, although they were influenced by, among other things, the following aspects derived from the effects of COVID-19.
\u2022Closure of activities in shopping centres.
\u2022Loss of customers and reductions in traffic.
\u2022The positive impact on logistics distributors.
\u2022The risk of losing major contracts.
\u2022Payments of rent for commercial spaces.
\u2022Increased discount rates and exit capitalisation rates due to future uncertainty.
Meanwhile, the details of main assumptions used in the appraisals at December 2019 and December 2020 based on the nature of the assets and the sensitivities to increases and decreases of those variables are included in Note 7 of the attached notes.
Liquidity risk
The Directors of the Parent believe that the appearance of the health crisis and the impact on the economy caused by the need for lockdown has caused a significant impact on the general financial position of companies, which can be divided into the specific liquidity risk of the companies or groups and the liquidity risk of customers (credit risk).
In this context, at 31 December 2020 the Group had a leverage ratio (defined as the loan-to-value ratio [LTV]) of 39,9% and cash and other liquid assets equal to EUR 252,022 thousand. The Group does not have any major loan maturities until 2022 because of the absence of promissory notes and other short-term financial instruments.
The S&P and Moody's rating agencies also confirmed the MERLIN Group's credit rating following the COVID-19 pandemic taking into account the commercial policy it implemented, which will be explained below. S&P rated the Group BBB with a stable perspective, while Moody's rated it Baa2 with a negative perspective.
The Group has taken the following measures to strengthen its capital structure:
\u2022CapEx investments. The Group has revised its investment plans to prioritise the execution of investments in assets with high levels of pre-rental.
\u2022Reduced structure costs. In its meeting of 8 April 2020, the Board of Directors decided to reduce its remuneration by 25%, and it agreed with the CEO, the General Corporate Director and the management team to renounce all of their remuneration and incentives plans for 2020.\u00a0 These measures represent EUR 11 million in savings on the year.
\u2022Drawdown of additional financing. On 20 March 2020, the Group drew down from its corporate line of credit, which was fully available, for a sum of EUR 700 million. This drawdown was made with the goal of strengthening the Group's financial position in the uncertain setting of the pandemic. After June, EUR 500 million of bond financing was issued with a 7-year maturity, which was used to partially repay two bonds maturing in 2022 and 2023 and two mortgage loans maturing in 2025 (see Note 14). The Group also repaid EUR 700 million of the credit facility mentioned at the beginning of this point
\u2022Dividends. On 8 July 2020, the supplemental 2019 dividend was paid out after it was passed in the General Shareholders Meeting held on 17 June 2020, for a sum of EUR 68,518 thousand. Additionally, that General Meeting passed a refund of the share premium for a maximum of EUR 0.174 per share payable in cash, its payment was delegated to the Board of Directors, which will decide if it should be paid out once the impact of COVID-19 on the evolution of the business becomes clear in view of the current setting of uncertainty.Finally, the Board of Directors has decided not to refund this share premium.
The Parent's Directors and Management are constantly monitoring the evolution of the situation and the effects it may have on the credit market, and they believe that the Group's situation at 31 December 2020 and the measures mentioned above ensure that it will be solvent to fulfil the current obligations on the balance sheet at 31 December 2020, and there is no material uncertainty about the continuity of the Group's operations.
Credit risk
As indicated in the consolidated director's report for the year ended 31 December 2019, the deterioration of the Group's receivables was not significant, taking into account that the risk of default was less than 1% of turnover and that the Group has deposits from its tenants to secure the credits.
In 2020, in response to the COVID-19 pandemic, the Group launched two commercial policies:
Commercial policy
After the outbreak of the pandemic, the Group implemented a commercial policy that offered 100% rent credits to commercial tenants whose activities where shut down administratively due to the state of alarm and that were current in their contractual obligations. This policy was in force during the shutdown mandated due to the state of alarm and involved a 100% rent relief for tenants that continued to pay community expenses and waived their right to any future actions against Merlin in relation to COVID-19.
The rental income of the tenants eligible for this policy represents 89% of the income of the shopping centres and 3% of offices. On the other hand, the level of acceptance by the tenants was higher than 85% in shopping centres
and 100% in offices, which meant a reduction in lease income at the end of 2020 of EUR 22.8 million because of these measures.
The Group recorded these credits as lower turnover, in accordance with accounting regulations and the consideration that there are have been no significant changes to the leases.
Additional commercial measures
The Group also approved a series of complementary commercial measures that will last from June to 31 December 2020.\u00a0 These measures are designed for most of the tenants with commercial activities in the Group's portfolio of assets, to help them reopen and recover during the rest of 2020. The measures consist of providing a partial rent credit from that decreased from 60% in June to 10% in December 2020.
The rent from the tenants eligible for these complementary trade measures represents 94% of the income from the shopping centre segment and 4% of offices. On the other hand, the level of acceptance by the tenants was 92% in shopping centres and 93% in offices. These measures resulted in a reduction in lease income at the end of 2020 for these actions of EUR 23.9 million, equivalent to 4.8% of the company's gross income over the period.
The Directors assessed the impact of the linearity of the bonuses associated with these complementary trade measures, concluding that their impact on the financial statements for the year is not significant and, therefore, they chose to record the entire amount subsidised at 31 December 2020 under the \u2018Net income heading of the accompanying consolidated income statement.
Due to the current situation and evolution of the COVID 19 pandemic, the Spanish and Portuguese Governments have continued to take various measures to contain the spread of the virus, which continue to affect the performance of economic activities such as trade, hospitality and tourism. In this context, and with the aim of continuing to assist the tenants, the Group has approved complementary trade measures, the implementation period of which ranges from January to 30 June 2021. These measures are aimed at retail tenants who are up to date in their contractual obligations, including the payment of prior rent and common expenses. The measure consists of a 100% subsidy in the event of forced closure exclusively during the period in which the tenants are not legally authorised to open and an average 25% subsidy granted to the tenants (30% for leisure and catering). The policy is applicable during the first half of 2021, with an estimated revised impact of EUR 19.6 million in the period (EUR 18.6 million for shopping centres and EUR 1.0 million for the retail component in offices) due to longer lockdowns than initially forecasted.
Accounting implications of COVID-19 on the calculation of the expected loss of receivables
One of the implications considered by the Group due to COVID-19 has been the assessment of customer credit risk in the current market setting, which may increase, depending on the activity of its businesses and the degree of severity that COVID-19 has on them.
At the date of preparation of these consolidated financial statements, the Directors assessed possible impacts arising from COVID-19, taking into account the characteristics of the Group's contracts. At the date of preparation of these consolidated financial statements, the Directors assessed possible impacts arising from COVID-19, taking into account the characteristics of the Group's contracts. It should also be taken into account that the Group has a very high-quality base of customers, which mitigates the credit risk.
In this context, the Group has tried to help its customers affected by mandatory closures and severe restrictions in their operations, by implementing the trade policies described above, which has allowed the Group to present very low defaults. Rent collection levels were 99.8% for offices, 97.6% for shopping centres and 100% for logistics and 100% for the net leases segment.
Based on these facts, the Group evaluated applying the simplified approach of impairment and credit risk, and also taking into consideration other differential factors of the Group\u2019s portfolio of tenants and the characteristics of their leases, and the amounts collected thus far, the Group has concluded that the increased credit risk of its customers has not been significantly affected.
At 31 December 2020, the default risk was less than 1% of turnover.
In relation to its other financial assets exposed to credit risk, which mainly correspond to loans to associates and third parties, the Directors have determined that there has not been a significant increase in the risk, considering the measures agreed in some cases with tenants and the long-term expectations based above all on the historical
experience with those entities, which make it possible to estimate that the credit risk of the financial asset will remain in line with the previous year.
Nevertheless, the Group is constantly monitoring the evolution of this credit risk.
Other effects
Investment in assets and health measures derived from COVID-19
Since the start of the COVID-19 pandemic, the Group has launched various initiatives in its assets, which have been categorised into the main lines of recommendations from the competent authorities: (i) social distancing measures; (ii) hygiene and cleaning measures; and (iii) and organisational measures. The objective of these measures is to minimise the risk of infection with COVID-19, preserving the health and safety of those who enter the buildings, taking into consideration the evolution of the spread of the virus, and the latest provisions adopted by the various administrations, in addition to the various recommendations and ministerial orders of the Ministry of Health and the Ministry of Industry, Commerce and Tourism. At any rate, since the current situation of the pandemic is highly dynamic, the adopted measures will be adapted at all times as necessary to how COVID-19 evolves and the recommendations from the competent authorities.
Based on this situation, the Group has adopted gloves, masks, sanitiser gels, protective screens and other measures for sensitive areas (stairs, lifts and restrooms).
In addition, Merlin, its employees and its management team participated in the acquisition of eight robots with an investment of EUR 668 thousand.
The Company's Directors are monitoring the evolution of the situation constantly with the goal of successfully dealing with the possible financial and non-financial impacts that may arise.
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2020
1)Addition of Silicius Real Estate, S.L. to the scope of consolidation
On 27 February 2020, the Group resorted to a capital increase of Silicius Real Estate, S.L. for a sum of EUR 173 million. The capital increase was performed by contributing certain secondary commercial assets owned by the Group, namely those entitled Thader, La Fira and Nassica. The capital increase saw the Group acquire 34.37% of the shares in the company, which is a multi-product company managed externally.
The asset contribution also entailed the assumption of certain obligations associated with the contributed assets for a total of EUR 9 million, at a rate of EUR 1.8 million a year, EUR 8.1 million of which maintain outstanding obligations at 31 December 2020, recorded as \u201cother financial liabilities\u201d, current and non-current respectively.
The contribution indicated above includes certain criteria related to the shares received by the Group. Thus, for 50% of the shares it received, the Group has an option to by Silicius at the same contribution price. This option expires 24 months after the contribution.
The remaining 50%, in turn, has a liquidity mechanism starting the fifth year after the contribution, so Silicius itself has the option to buy them at a price associated with their NAV at the time plus a differential. If the option is not exercised, the Group can sell them by collecting on certain assets of the investee company.
The Group recorded the shares associated with 50% of the investment as \u201cfinancial assets available for sale\u201d for a sum of EUR 86.5 million, because it considers it highly likely that it will exercise its option to sell at the issuing price, and that there is therefore no exposure to the investee company's future risks and benefits, with the investment exposed to the debtor's credit risk. The remaining amount of the stake, which represents 17.19% of the company's shares, was recorded as an in companies consolidated with the equity method (see Notes 9 and 10).
The above transaction resulted in a loss to the Group amounting to EUR 14,012 thousand, after considering the expenses associated with it, as well as the obligations assumed, as indicated above.
2019
Business combinations
1)Torre Arts, Investimentos inmobili\u00e0rios, S.A. (formerly known as Edificio 160 Arts, S.A.)
The Parent acquired 100% of the share capital of Torre Arts, Investimentos inmobili\u00e0rios, S.A. for EUR 85,781 thousand.
Main line of business | Date of acquisition | Percentage of ownership acquired (voting rights) | Consideration transferred (thousands of euros) | |
Torre Arts, Investimentos inmobili\u00e0rios, S.A. | Acquisition and development of urban properties for subsequent management and lease | 17/01/2019 | 100% | 85,781 |
The detail of the net assets acquired is as follows:
Thousands of euros | |||
| Book | Ajuste de | Valor |
| Value | Valor | Razonable |
Investment property | 82,935 | 2,456 | 85,391 |
Current assets | 1,243 | \u2014 | 1,243 |
Non-current and current liabilities | (350) | \u2014 | (350) |
Deferred tax liabilities | \u2014 | (503) | (503) |
Total net assets | 83,828 | 1,953 | 85,781 |
Consideration transferred | 85,781 |
The main line of business of the acquired company is the lease of offices. Its only asset is the Arts building in Lisbon that is 97% leased and has a surface area of 22,150 square meters. Its fair value at the time of purchase according to an independent appraiser was EUR 85,391 thousand. The purpose of this business combination is to increase the Group\u2019s presence in the office market in Lisbon.
The Group used the valuation carried out by independent experts to determine the fair value of the property.
The method used to calculate the market value involved drawing up projections of income and expenses, adjusted at the business combination date using a market discount rate. The residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income projections for year 11.
The main assumptions used in the calculation were a discount rate of 7.06% and a cap rate of 5.25%.
The Group identified the various assets and liabilities acquired and then determined their fair value. The Group did not find any significant differences in the values of the assets and liabilities acquired compared to the carrying amounts at which they were registered in the financial statements of the businesses acquired. There are no contingent consideration assets or liabilities related to this business combination.
The fair value of the receivables acquired, which are mainly trade receivables, was EUR 157 thousand and did not differ from the gross contractual amounts. The Group performed an individualised analysis of these receivables to check for signs of impairment and so to calculate their fair value. The Parent\u2019s directors did not consider there to be any indications at the date of acquisition that these receivables would not be collected in full.
The valuation adjustment to liabilities of EUR 503 thousand corresponded mainly to the deferred tax liability associated with the valuation adjustments.
The net profit/(loss) and income obtained in 2019 included in the consolidated income statement for 2019 amounted to EUR 13,445 thousand and EUR 4,471 thousand, respectively, while the difference in the full year of the acquired company was not significant.
Net cash flow from the acquisition
Thousands of | |
euros | |
Cash paid | 85,781 |
Less: cash and cash | |
\u00a0 equivalents | (1.187) |
Total | 84,594 |
2)Torre Fern\u00e3o Magalh\u00e3es Investimentos inmobili\u00e0rios, S.A. (formerly known as Edificio 048 Magellexpo, S.A.)
The Parent acquired 100% of the share capital of Torre Fern\u00e3o Magalh\u00e3es Investimentos inmobili\u00e0rios, S.A. for 27,555 thousand euros.
Main line of business | Date of acquisition | Percentage of ownership acquired (voting rights) | Consideration transferred (thousands of euros) | |
Torre Fern\u00e3o Magalh\u00e3es Investimentos inmobili\u00e0rios, S.A.. | Acquisition and development of urban properties for subsequent management and lease | 17/01/2019 | 100% | 27,555 |
The detail of the net assets acquired is as follows:
Thousands of euros | |||
Book | Adjustment of | Fair | |
Value | Fair | Value | |
Investment property | 26,662 | 793 | 27,455 |
Non-current and current liabilities | 552 | \u2014 | 552 |
Non-current and current liabilities | (284) | \u2014 | (284) |
Deferred tax liabilities | \u2014 | (168) | (168) |
Total net assets | 26,930 | 625 | 27,555 |
Consideration transferred | 27,555 |
The main line of business of the acquired company is the lease of offices. Its only asset is the Torre Magallanes building in Lisbon that is 100% leased and has a surface area of 7,837 square meters. Its fair value at the time of purchase according to an independent appraiser was EUR 27,455 thousand. The purpose of this business combination is to increase the Group\u2019s presence in the office market in Lisbon.
The Group used the valuation carried out by independent experts to determine the fair value of the property.
The method used to calculate the market value involved drawing up projections of income and expenses, adjusted at the business combination date using a market discount rate. The residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income projections for year 11.
The main assumptions used in the calculation were a discount rate of 7.06% and a cap rate of 5.25%.
The Group identified the various assets and liabilities acquired and then determined their fair value. The Group did not find any significant differences in the values of the assets and liabilities acquired compared to the carrying amounts at which they were registered in the financial statements of the businesses acquired. There are no contingent consideration assets or liabilities related to this business combination.
The fair value of the receivables acquired, which are mainly trade receivables, was EUR 200 thousand and did not differ from the gross contractual amounts. The Group performed an individualised analysis of these receivables to check for signs of impairment and so to calculate their fair value. The Parent\u2019s directors did not consider there to be any indications at the date of acquisition that these receivables would not be collected in full.
The valuation adjustment to liabilities of EUR 168 thousand corresponded mainly to the deferred tax liability associated with the valuation adjustments.
The net profit or loss and income obtained in 2019 included on the consolidated income statement for 2019 amounted to EUR 7,093 thousand and EUR 2,279 thousand, respectively, and did not differ significantly from the total impact of the year of the acquired company.
Net cash flow from the acquisition
Thousands of | |
euros | |
Cash paid | 27,555 |
Less: cash and cash | |
\u00a0 equivalents | (314) |
Total | 27,241 |
3)Innovaci\u00f3n Colaborativa, S.L.
On 26 March 2019, the Parent acquired 53.97% of Innovaci\u00f3n Colaborativa, S.L. for EUR 1,667 thousand. With this acquisition, the Parent shares 100% of the share capital of this company. The core business of the acquired company is flexible office space management. The aim of this business combination is to integrate a growing business line and offer more services to the Group's customers. The contribution to profit or loss for the year was not significant. Likewise, no significant initial consolidation differences were identified.
In accordance with IFRS 3 (Business Combinations), the Group has a period of 12 months to complete the final allocation of prior acquisitions. At the end of 2019, the Parent's Directors considered the aforementioned allocations of the assets identified and the liabilities assumed as final. For its part, in relation to the 2020 combination, it was also considered definitive.
4)Corporate reorganisation of subsidiaries and acquisitions
On 5 July 2019, the Managing Bodies of the absorbing and absorbed companies approved the draft merger by reverse absorption of Merlin Parques Log\u00edstica, S.A. by Parc Logistic of Zona Franca, S.A. This process ended in 2019 and has no effect on the Group's consolidated financial statements.
In 2019, the holding group Jaureguizar Group 2002, S.A.U. was wound up, with no effect on the Group's consolidated financial statements.
On 30 October 2019, the Parent acquired Desarrollos Urban\u00edsticos Udra, S.A.U. (part of the San Jos\u00e9 Business Group) and a 14.46% stake in Distrito Castellana Norte, S.A. (DCN) for a total of EUR 168,893 million. Its current activity consists of preparing the future development of the land owned by ADIF (the Spanish Railway Infrastructure Administrator) and RENFE-Operator, in the urban areas APR 08.03 \u2018La Castellana Extension\u2019 and APE 05.27 \u2018Colonia Campamento\u2019 of the current Madrid General Plan for their subsequent real estate exploitation. After the acquisition, DCN is held 75.54% by Inverahorro, S.L. (wholly owned by Banco Bilbao Vizcaya Argentaria, S.A.), 10% by Udra, S.A.U. (belonging to the San Jos\u00e9 Business Group), and 14.46% by the Parent. That acquisition was consolidated by the equity method by considering that the Parent has a significant influence because it has a presence on the Board of Directors of that company, even if the percentage of participation is less than 20% (see Note 9).
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The distribution of profit proposed by the Parent\u2019s directors for approval by its shareholders at the Annual General Meeting is as follows:
Thousands of euros | |
Profit/(Loss) for the year | (25,467) |
Distribution: | |
To prior year negative results | 25,467 |
Other dividends distributed
On 17 June 2020, the General Shareholders Meeting approved the distribution of a dividend of EUR 68,518 thousand charged to the profit for 2019.
In the last five years, the Company distributed the following dividends and Share Premium refunds (thousand euros):
2020 | 2019 | 2018 | 2017 | 2016 | |
Shareholder remuneration | 68,518 | 232,347 | 215,364 | 187,411 | 101,202 |
.
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The main accounting policies and measurement bases applied in preparing the Group\u2019s consolidated financial statements, which comply with the IFRSs in force at the date thereof, are as follows:
5.1 Investment property
Investment property comprises buildings under construction and development for use as investment property held (by the owner or by the tenant as an asset under usage rights), which are partially or fully held to generate revenue, profits or both, rather than for use in the production or supply of goods or services, or for the Group\u2019s administrative purposes or sale in the ordinary course of business.
All assets and usage rights (through the corresponding administrative concession or area right granted by a public body) classified as real estate investments are in operation with various tenants. These properties are earmarked for leasing to third parties. The Parent\u2019s directors do not plan to dispose of these assets in the coming 12 months and have therefore decided to recognise them as investment property in the consolidated statement of financial position.
Investment property is carried at fair value at the reporting date and is not depreciated. Investment property includes land, buildings, usage rights of concessionaire projects and other constructions held to earn rentals or for the obtainment of gains on the sale as a result of future increases in the respective market prices.
Gains or losses arising from changes in the fair value of investment property are included in the income statement for the year in which they arise.
While construction work is in progress, the costs of construction work and finance costs are capitalised. The aforementioned assets are recognised at fair value when they become operational.
In accordance with IAS 40, the Group periodically determines the fair value of its investment property so that the fair value reflects the actual market conditions of the investment property items at that date. This fair value is determined every six months based on the appraisals undertaken by independent experts.
The market value of the Group\u2019s investment property at 31 December 2020, calculated based on appraisals carried out by Savills, JLL and CBRE, independent appraisers not related to the Group, amounted to EUR 12,180,759 thousand (see Note 7).
5.2 Inventories
Land held for sale or integration into property development is considered as inventories. The Group considers that its inventories do not meet the requirements of IAS 40 for consideration as investment property.
At 31 December 2020, certain land acquired in the course of 2020, which is part of a future urban development, has been registered as inventories and is currently pending final urban planning.
In relation to them, the Group maintains agreements with third parties for the future sale of those whose use is residential and for which it received, at 31 December 2020, advances amounting to EUR 1,030 thousand.
The Group valuates its inventories at acquisition cost (or at market value if the latter is lower), including both the acquisition cost of the land and plots, the urban planning costs, the construction costs and the personnel directly related to the real estate activity, as well as, where applicable, financial expenses to the extent that those expenses correspond to the period of urban planning and construction, provided that they are inventories that need a period of more than one year to be able to be sold. If the inventories are registered at a cost price higher than their market value, the appropriate valuation adjustments are made, recording the corresponding impairment.
5.3 Investments accounted for using the equity method
At 31 December 2020, this heading in the consolidated statement of financial position included the amount corresponding to the percentage of shareholders\u2019 equity of the investee relating to the Parent and accounted for using the equity method. In addition, and after accounting for these investments using the equity method, the Group decides whether or not an additional impairment loss needs to be recognised with regard to the Group\u2019s net investment in the associate.
5.4 Leases
At the beginning of a contract, the Group assesses whether the contract is or contains a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The group reassesses whether a contract is, or contains, a lease only if the terms of the contract change.
5.4.1 Tenant
For a contract containing a lease component and one or more additional leases or non-leases, the Group will distribute the consideration of the contract to each component of the lease based on the relative price regardless of the lease component and the aggregate price independent of the components that are non-lease components.
The relative price, independent of the lease and non-lease components, will be determined based on the price that the landlord, or a similar supplier, would charge an entity separately for that component or for a similar component. If there is no readily available separate observable price, the Group will estimate the separate price, maximising the use of observable information.
The Group chose not to apply the recognition and measurement requirements indicated in IFRS 16 to short-term leases in which the underlying asset is of low value, recognising the lease payments associated with leases as a straight-line expense over the lease term.
Initial recognition
At the commencement date, a tenant recognises a right-of-use asset and a lease liability.
At the commencement date, a tenant will measure a right-of-use asset at cost. The cost of the right-of-use asset includes:
(a)the amount of the initial measurement of the lease liability measured at the commencement date at the present value of the lease payments that were not paid at that date. Lease payments will be discounted using the interest rate specified in the lease, if that rate could be easily determined. If that rate cannot be easily determined, the tenant will use the tenant's incremental loan rate.
(b)lease payments paid before or from the commencement date, less leases received;
(c)the initial direct costs incurred by the tenant; and
(d)an estimate of the costs incurred by the tenant when dismantling and eliminating the underlying asset, restoring the location where it is located or restoring the underlying asset to the condition required by the terms of the lease, unless those costs are incurred to produce inventories. The tenant could incur obligations as a result of these costs either at the commencement date or as a result of using the underlying asset for a specified period.
At the start date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:
(a)fixed payments, less any leases receivable;
(b)variable lease payments, which depend on an index or rate, initially measured using the index or rate at the commencement date;
(c)amounts expected to be paid by the tenant as guarantees of residual value;
(d)the exercise price of a call option if the tenant is reasonably confident of exercising that option;
(e)late lease payments if the lease term reflects that the tenant will exercise an option to terminate the lease.
Subsequent measurement of the right-of-use asset
After the commencement date, the Group will measure its right-of-use assets using the cost model, unless it applies the fair value model of IAS 40 \u2018Investment properties\u2019 to its investment properties and rights of use that meet the definition of investment property (see Note 5.1). If the right of use of the assets relates to a class of property, plant and equipment to which the tenant applies the revaluation model of IAS 16, the tenant may choose to use that revaluation model for all right-of-use assets of assets related to that class of property, plant and equipment.
Subsequent measurement of lease liabilities
After the commencement date, the Group will measure a lease liability by:
(a)increasing the carrying amount to reflect interest on the lease liability;
(b)reducing the carrying amount to reflect the lease payments paid; and
(c)re-measuring the carrying amount to reflect the new measurements or changes in the lease and also to reflect the essentially fixed lease payments that have been revised.
5.4.2 Landlord
A landlord will classify each lease as an operating lease or a finance lease.
A lease will be classified as a finance lease when it substantially transfers all the risks and rewards inherent to owning an underlying asset. A lease will be classified as an operating lease if it does not substantially transfer all the risks and rewards inherent to owning an underlying asset.
Finance leases
At the commencement of the lease term, the Group recognises finance leases in the consolidated statement of financial position at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments. To calculate the present value of the lease payments the interest rate stipulated in the finance lease is used.
The cost of assets acquired under finance leases is presented in the consolidated statement of financial position based on the nature of the leased asset. These assets relate in full to investment property and are measured in accordance with that established in Note 5.1.
Operating leases
A landlord recognises lease payments from operating leases as income on a straight-line basis or on another systematic basis. The landlord will apply another systematic basis if it is more representative of the structure with which the profit from the use of the underlying asset is reduced.
The Group will recognise the costs as expenses, including depreciation, incurred to obtain the lease income.\u00a0 It will also add the initial direct costs incurred to obtain an operating lease to the carrying amount of the underlying asset and recognise these costs as an expense over the lease term, on the same basis as the lease income.
5.5 Financial Instruments
Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. From 1 January 2018, the Group classified its financial assets in accordance with IFRS 9 \u2018Financial Instruments'.
The classification of financial assets will depend both on how an entity manages its financial instruments (its business model) and on the existence and characteristics of the contractual cash flows of the financial assets. Based on the above, the asset is measured at amortised cost, at fair value through changes in other comprehensive income or at fair value through changes in profit or loss for the period, as follows:
\u2022If the purpose of the business model is to hold a financial asset in order to collect contractual cash flows and, under the terms of the agreement, cash flows are received at specific dates that exclusively constitute payments of the principal plus interest on the principal, the financial asset will be measured at amortised cost.
\u2022If the business model aims at both obtaining contractual cash flows and selling them and, under the terms of the agreement, cash flows are received at specific dates that exclusively constitute payments of the principal plus interest on the principal, the financial assets are measured at fair value through changes in other overall income (equity).
Outside these scenarios, the remaining assets will be measured at fair value through changes in losses and gains. All equity instruments (e.g. shares) are, by default, measured in this category. This is because their contractual flows do not meet the characteristic of being only payments of principal and interest. Financial derivatives are also classified as financial assets at fair value through profit or loss unless they are designated as hedging instruments.
For the purposes of measurement, financial assets should be classified into one of the following categories, with the accounting policies of each category being as follows:
1.Financial assets at amortised cost: these assets are subsequently recognised at their initial cost amortised in accordance with the effective interest method. This amortised cost will be reduced by any impairment loss. They are recognised in the consolidated income statement for the period when the financial asset is derecognised or impaired, or due to exchange differences. Interest calculated using the effective interest method is recognised in the income statement under the heading \u2018Financial income\u2019.
2.Financial assets at fair value with profit or loss: financial assets at fair value with profit or loss are recognised initially and subsequently at fair value, excluding transaction costs, which are charged to the income statement. Gains or losses from changes in fair value are presented in the income statement under the heading \u2018Changes in the fair value of financial instruments\u2019 in the period in which they originated. Any dividends and interest also leads to financial results.
3.Debt instruments at fair value with changes in total profit or loss: These instruments are subsequently recognised at fair value, recognising changes in fair value in \u2018Other comprehensive income\u2019. Interest income, impairment losses and exchange differences are recognised in the consolidated income statement. When sold or derecognised, the accumulated fair value adjustments recognised in \u2018Other comprehensive income\u2019 are included in the income statement as \u2018other financial income/(expenses)'.
4.Equity instruments at fair value with changes in total profit or loss: Their subsequent measurement is at fair value. Dividends are only recorded in profits and loss, unless the dividends clearly represent a recovery in the cost of the investment. Other gains or losses are recognised as \u2018Other comprehensive income\u2019 and are never reclassified as profit or loss.
Impairment of financial assets
The impairment model applies to financial assets measured at amortised cost that include the item \u2018Customers and other receivables'.
The impairment model is based on a dual measurement approach, under which there will be an impairment provision based on expected losses over the next 12 months or based on expected losses over the entire life of the asset. The fact that determines the transition from the first approach to the second is that there is a significant decline in creditworthiness.
The deterioration of the Group's receivables was not significant, taking into account that the risk of default was less than 1% of turnover and that the Group has deposits from its tenants to secure its loans.
Financial liabilities
The main financial liabilities held by the Group companies are held-to-maturity financial liabilities, which are measured at amortised cost. The financial liabilities held by the Group companies are classified as:
1.Bank loans and other loans: loans from banks and other lenders are recognised by the proceeds received, net of transaction costs.
Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the term of the borrowings using the effective interest method.
Financial debt is eliminated from the consolidated statement of financial position when the obligation specified in the agreement is paid, cancelled or expired. The difference between the carrying amount of a financial liability that has been cancelled or transferred to another party and the consideration paid, including any transferred assets other than the cash or liabilities assumed, is recognised in profit or loss for the year as other financial income or expenses.
Exchanges of debt instruments between the Group and a counterparty and substantial changes to initially recognised liabilities are recognised as a cancellation of the original financial liability and the recognition of a new financial liability, provided that the instruments have substantially different terms. The Group considers that the conditions are substantially different if the present value of the cash flows discounted under the new conditions, including any net commission paid from any commission received, and using the original effective interest rate to make the discount, differs by at least 10 percent from the discounted present value of the cash flows that still fall outside the original financial liability.
If the exchange is recognised as a cancellation of the original financial liability, the costs or fees are recognised in the consolidated income statement as part of the consolidated income statement. Otherwise, the modified flows are discounted at the original effective interest rate, recognising any difference with the prior carrying amount, in profit or loss. Likewise, the costs or fees adjust the carrying amount of the financial liability and are amortised by the amortised cost method for the remaining life of the modified liability.
The Group recognises the difference between the carrying amount of a financial liability or the part of it cancelled or transferred to a third party and the consideration paid, including any assets transferred other than the cash or liabilities assumed in profit or loss.
The Group will account for exchanges of debt instruments with a lender, provided that the instruments have substantially different conditions, such as a cancellation of the original financial liability and subsequent recognition of a new financial liability. Similarly, a substantial change in the terms of an existing financial liability or a part of it will be recognised as a cancellation of the original financial liability and a subsequent recognition of a new financial liability. The difference between the carrying amount of the cancelled financial liability and the consideration paid, which includes any transferred assets other than cash or any liabilities assumed, will be recognised in profit or loss for the year.
If it is determined that the new terms or changes of a financial liability are not substantially different from the existing ones and it is therefore determined that the change is not substantial, the existing financial liability will not be derecognised. The Group will recalculate the gross carrying amount of the financial liability and recognise in profit or loss for change. The gross carrying amount of the financial liability will be recalculated as the present value of the renegotiated or modified contractual cash flows discounted at the original effective interest rate of the financial liability.
2.Trade and other payables: trade payables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method.
The Group derecognises financial liabilities when the obligations giving rise to them cease to exist.
5.6 Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to hedge the risks to which its future activities, transactions and cash flows are exposed. There risks are mainly due to changes in interest rates. Among the various transactions, the Group uses certain financial instruments as economic hedges.
Derivatives are initially recognised at fair value at the date on which the derivative contract is signed and are subsequently measured at fair value at the date of each balance sheet. The accounting for subsequent changes in fair value depends on whether the derivative has been designated as a hedging instrument and, if so, on the nature of the item it is hedging.
At the beginning of the hedging relationship, the Group documents the economic relationship between the hedging instruments and the hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of the hedged items. The Group documents its risk management objective and strategy to undertake its hedge transactions.
The effective part of the changes in the fair value of the derivatives that are designated and classified as cash flow hedges is recognised in the cash flow hedge reserve under equity. The gain or loss related to the ineffective part is recognised immediately in the consolidated profit/(loss) for the year.
Gains or losses relating to the effective part of the change in the intrinsic value of the option agreements are recognised in the cash flow reserve hedge under equity. Changes in the time value of option agreements that relate to the hedged item (\u2018aligned time value\u2019) are recognised under other comprehensive income in the costs of the hedge reserve in equity.
When forward contracts are used to hedge expected transactions, the Group generally designates only the change in the fair value of the forward contract related to the cash component as the hedging instrument. Gains or losses related to the effective part of the change in the cash component of forward contracts are recognised in the cash flow hedge reserve under equity. The change in the forward element of the contract related to the hedged item is recognised in other comprehensive income on the costs of the hedge reserve under equity. In some cases, the gains or losses corresponding to the effective part of the change in fair value of the full term contract are recognised in the cash flow hedge reserve under equity.
\u2013Cash flow hedges: In hedges of this nature, the portion of the gain or loss on the hedging instrument that has been determined to be an effective hedge is recognised temporarily in equity and is recognised in the income statement in the same period during which the hedged item affects profit or loss, unless the hedge relates to a forecast transaction that results in the recognition of a non-financial asset or a non-financial liability, in which case the amounts recognised in equity are included in the initial cost of the asset or liability when it is acquired or assumed.
\u2013Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gains or losses on the hedging instrument recognised in equity are retained in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and provided that the host contracts are not measured at fair value by recognising changes in fair value in the consolidated statement of comprehensive income.
The fair value of the derivative financial instruments is calculated using the valuation techniques described in Note 5.7 below.
5.7 Valuation techniques and applicable assumptions to measure fair value
The fair value of financial assets and liabilities is calculated as followed:
\u2013The fair value of financial assets and liabilities with standard terms and that are traded on active, liquid markets is calculated by reference to prices quoted in the market.
\u2013The fair value of financial assets and liabilities (except derivative instruments) is calculated in accordance with the generally accepted valuation models based on discounted cash flows using the prices of observable market transactions and the contributor prices of similar instruments.
\u2013The fair value of interest rate swaps is calculated by discounting future settlements between fixed and floating interest rates to their present value, in line with implicit market interest rates, obtained from long-term interest rate swap curves. Implicit volatility is used to calculate the fair values of caps and floors using option valuation models.
Consideration must be given when valuing financial derivative instruments that the derivative must also effectively offset the exposure inherent to the hedged item or position throughout the expected term of the hedge, and there must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effectiveness was intended to be achieved and measured. Moreover, pursuant to IFRS 13 and due to the inherent risk, the credit risk of the parties to the contract (both their own risk and that of the counterparty) must be included in the valuation of the derivatives. The Group applied the discounted cash flow method, considering a discount rate affected by the Merlin Group\u2019s own credit risk.
In particular for the measurement of the implicit derivative of the income, the Group based its estimate on the future total income arising from the agreement adjusted by the counterparty's credit risk. The estimate of future rental income was based on the eurozone inflation swaps (harmonised CPI in the euro area excluding tobacco) at the time of the analysis, and it considers the credit risk of the corresponding counterparty. The measurement approach used was based on the discounted cash flow model.
The following information is used in determining the value of the embedded income derivative (Note 10):
\u2013Forward curve of the consumer price index of the Euro area without tobacco (HICP).
\u2013Volatility of the HICP to calculate the value of the land (0%) included in leases.
\u2013EUR discount factors for calculating the present value of future income (sum of the components of future income and value of land).
\u2013Credit risk charges (Credit Default Swap) for the calculation of the adjustment for the value of the counterparty's credit risk (CVA).
HICP forward curve
For the construction of the curve, the 30-year zero coupon swap is used. From year to year, the annual rates are integrated and interpolated, applying seasonality adjustments, to obtain the forward rate curve.
HICP volatility
0% is taken as an initial premium for land. Subsequently, the volatility of each future settlement or forward year by year (floorlet) is calculated. Once the volatilities and forward rates are available, the amount of the land component is determined.
EUR discount factors
Since the market standard requires swap derivatives to be discounted at the Overnight indexed swap rate, both Euribor and Eonia rates are included in the yield curve data. The yield curve data used for the calculations are:
Deposit fees: 1D, 2D, 3D
Fixing of the Euribor: 1M, 3M and 6M\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0
Futures of Euribor: between 6M and 2Y
Euribor Swap Rates: from 2Y to 30Y
EONIA swap base fees: up to 30Y
Credit Default Swap (CDS) rates
We use CDS market data and interpolate for the specific deadlines or periods of the rents. We use the \u2018Current Exposure Method\u2019 to calculate the CVA.
Financial instruments measured subsequent to initial recognition at fair value are grouped into levels 1 to 3 based on the degree to which the fair value is observable:
\u2013Level 1: those measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
\u2013Level 2: those measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
\u2013Level 3: those measured using valuation techniques, including inputs for the asset or liability that are not based on observable market data (non-observable inputs).
The Group's financial assets and liabilities measured at fair value were as follows at 31 December 2020:
2020
Thousands of euros | ||||
Level 1 | Level 2 | Level 3 | Total | |
Derivative financial instruments (Note 14.3) | \u2014 | (128,622) | \u2014 | (128,622) |
Embedded derivatives (Note 10) | \u2014 | 107,910 | \u2014 | 107,910 |
Available-for-sale financial assets (Note 10) | 17,254 | \u2014 | 86,521 | 103,775 |
17,254 | (20,712) | 86,521 | 83,063 |
2019
Thousands of euros | ||||
Level 1 | Level 2 | Level 3 | Total | |
Derivative financial instruments (Note 14.3) | \u2014 | (96,926) | \u2014 | (96,926) |
Embedded derivatives (Note 10) | \u2014 | 124,684 | \u2014 | 124,684 |
Available-for-sale financial assets (Note 10) | 17,540 | \u2014 | \u2014 | 17,540 |
17,540 | 27,758 | \u2014 | 45,298 |
In addition, Note 7 includes information regarding the determination of the fair value of investment property.
5.8 Equity instruments
An equity instrument is a contract that evidences a residual interest in the assets of the Parent after deducting all of its liabilities.
Capital instruments issued by the Parent are recognised in equity at the proceeds received, net of issue costs.
The Parent\u2019s equity instruments acquired by the Group are recognised separately at cost and deducted from equity in the consolidated statement of financial position, regardless of why they were acquired. No gains or losses from transactions involving own equity instruments are recognised in the consolidated income statement.
If the Parent\u2019s own equity instruments are subsequently retired, the capital is reduced by the nominal amount of these treasury shares and the positive or negative difference between the acquisition price and nominal amount of the shares is debited from or credited to reserves.
Transaction costs related to own equity instruments are recognised as a decrease in equity, net of any related tax effect.
5.9 Distributions to shareholders
Dividends are paid in cash and recognised as a reduction in equity when the pay-outs are approved by shareholders at the Annual General Meeting.
The Parent is subject to the special regime for REITs. As established in article 6 of Law 11/2009, of 26 October 2009, amended by REITs Law opting to pay tax under the special tax regime are required to distribute the profit generated during the year to shareholders as dividends. Once the corresponding commercial obligations have been fulfilled, the distribution must be passed within six months from year end, and the dividends paid within one month from the date on which the pay-out is passed.
Moreover, as specified in Law 11/2009, of 26 October 2009, amended by Law 16/2012, of 27 December, the Parent must distribute the following as dividends:
\u2013100% of the profit from dividends or shares in profits distributed by the entities referred to in article 2.1 of Law 11/2009.
\u2013At least 50% of the profits arising from the transfer of the properties, shares or ownership interests referred to in article 2.1 of Law 11/2009, of 26 October, subsequent to expiry of the time limits referred to in article 3.2\u00a0 of Law 11/2009, which are used for pursuit of the entities' principal corporate purpose. The remainder of these profits must be reinvested in other property or investments used for the pursuit of said activity within three years after the transfer date. Otherwise these profits should be distributed in full together with any profit arising in the year in which the reinvestment period expires. If the items to be reinvested are transferred prior to the end of the holding period, that profit must be distributed in full together with, if applicable, the profit generated during the year in which the items were transferred. The obligation to distribute profit does not apply to the portion of the profit attributable to prior years in which the Company was not included under the special tax regime established in this Law.
\u2013At least 80% of the remaining profits obtained. When dividend distributions are charged to reserves generated from profits in a year in which the special tax regime applied, the distribution must necessarily be approved as set out above.
5.10 Cash and cash equivalents
The Group includes under this heading cash and short-term highly liquid investments maturing in less than three months that are readily convertible to cash and which are subject to an insignificant risk of changes in value. The interest income associated with these transactions is recognised as income when accrued while unmatured interest is presented in the consolidated statement of financial position as an addition to the balance of the aforementioned heading.
5.11 Provisions
When preparing the consolidated financial statements the Parent\u2019s directors made a distinction between:
\u2013Provisions: credit balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources embodying economic benefits that is uncertain as to its amount and/or timing will be required to settle the obligations; and
\u2013Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the Group\u2019s control.
The consolidated financial statements include all the provisions with respect to which it is likely that the obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements but rather are disclosed in the notes to the consolidated financial statements, unless the possibility of an outflow in settlement is considered to be remote.
Provisions are measured at the present value of the best possible estimate of the amount required to settle or transfer the obligation, taking into account the information available on the event and its consequences. Where discounting is used, adjustments made to provisions are recognised as finance cost on an accrual basis.
The compensation receivable from a third party on settlement of the obligation is recognised as an asset, provided there is no doubt that the reimbursement will take place, unless there is a legal relationship whereby a portion of the risk has been externalised, as a result of which the Group is not liable, in which case, the compensation will be taken into account when estimating the amount of the related provision.
5.12 Revenue recognition
Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Rental income is measured at the fair value of the consideration received, net of discounts and taxes.
Discounts (rent waivers and rebates) granted to lessees are recognised as a reduction in rental income when it is probable that conditions precedent will be fulfilled requiring them to be granted.
Discounts are recognised by expensing the total rent waiver or rebate on a straight-line basis over the term of the lease agreement in force. If a lease agreement is cancelled earlier than expected, any outstanding rent waiver or rebate is recognised in the last period prior to the end of the agreement.
Leasing of investment property to third parties
The Group companies\u2019 principal activity comprises the acquisition and leasing of primarily shopping malls, logistics units and offices. The Group\u2019s ordinary income is generated from the leasing of this investment property to third parties.
Ordinary income from the leasing of investment property is recognised taking into account the stage of completion of the transaction at the reporting date, provided the result of the transaction can be reliably estimated. Income from the Group\u2019s leases is recognised by Group companies on a monthly basis pursuant to the terms and amounts agreed with the tenants in the various leases. This income is only recognised when it can be measured reliably and it is probable that the economic benefits from the lease will be received.
In the case of services whose end result cannot be reliably estimated, income is recognised up to the limit of recognised expenses that are recoverable.
Service charges rebilled to tenants are recognised net of other operating expenses.
5.13 Income tax
5.13.1 General regime
Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).
The current income tax expense is the amount payable by the Group as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense.
The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled.
Deferred tax liabilities are recognised for all taxable temporary differences, unless the temporary difference arises from the initial recognition of goodwill, goodwill for which amortisation is not deductible for tax purposes or the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss).
Deferred tax assets are recognised for temporary differences to the extent that it is considered probable that the consolidated companies will have sufficient taxable profits in the future against which the deferred tax asset can
be utilised, and the deferred tax assets do not arise from the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). The other deferred tax assets (tax loss, temporary differences and tax credit carryforwards) are only recognised if it is considered probable that the consolidated companies will have sufficient future taxable profits against which they can be utilised.
The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that they will be recovered through future taxable profits.
5.13.2 REIT regime
The REIT special tax regime, as amended by Law 16/2012 of 27 December, is based on a 0% corporate income tax rate, provided certain requirements are met. Particularly noteworthy amongst those terms is that at least 80% of income must come from urban real estate used for leasing purposes and acquired in full ownership or through holdings in Spanish or foreign companies, regardless of whether or not they are listed on organised markets, that meet the same investment and profit distribution requirements. Likewise, the main sources of income for these entities must come from the real estate market, either through leasing the properties, their subsequent sale after a minimum lease period, or the income generated from holdings in entities with similar characteristics. Nevertheless, tax is accrued in proportion to dividend distributions. Dividends received by the shareholders are exempt, unless the recipient is a legal person subject to corporate income tax or a permanent establishment of a foreign entity, in which case a deduction in the tax liability is established, so that these earnings are taxed at the shareholder\u2019s rate. However, the remaining earnings will not be taxed so long as they are not distributed to shareholders.
As established in Transitional Provision Nine of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, which regulate REITs, the entity will be subject to a special tax rate of 19% on the total dividends or profit shares distributed to shareholders with a shareholding in the entity of 5% or more, when these dividends are exempt or taxed at a rate below 10% in the shareholders. The Group has therefore established the procedure guaranteeing confirmation by shareholders of their tax rate, proceeding where applicable, to withhold 19% of the dividend distributed to shareholders that do not meet the aforementioned tax requirements.
On 17 June 2020, the Company's General Shareholders Meeting resolved to distribute an ordinary dividend from the 2019 profit/(loss) on which the exemption established in article 21 of Law 27/2014, of 27 November, on Corporate Income Tax could apply to shareholders who meet the requirements of that provision.
5.14 Share-based payments
The Parent recognises, on the one hand, the goods and services received as an asset or as an expense, depending on their nature, when they are received and, on the other, the related increase in equity, if the transaction is equity-settled, or the related liability if the transaction is settled with an amount based on the value of the equity instruments.
In the case of equity-settled transactions, both the services rendered and the increase in equity are measured at the fair value of the equity instruments granted, by reference to the grant date. In the case of cash-settled share-based payments, the goods and services received and the related liability are recognised at the fair value of the latter, by reference to the date on which the requirements for recognition are met.
Additionally, the General Shareholders Meeting held on 26 April 2017 approved a remuneration plan for the management team and other important members of the Group\u2019s workforce (which includes, inter alia, the Executive Directors and Senior Management), the measurement period of which is from 1 January 2017 to 31 December 2019 (the \u201c2017-19 Incentive Plan\u201d). In accordance with that plan, the beneficiaries may be entitled to receive (i) a certain monetary amount based on the increase in the share price; and (ii) shares in the Parent, provided that certain objectives are met.
Vesting of the incentive will independently be conditional upon the total rate of return obtained by the shareholder during the three-year period due to:
\u2022an increase in the Parent\u2019s share price plus the dividends distributed by the Company to shareholders during the measurement period
In order for the right to the share-based incentive and to the EPRA NAV-based incentive to be vested, the total shareholder rate of return (TSR) must be at least 24%, as detailed below:
TSR NAV rate / TSR rate Share price | Percentage assigned to beneficiaries (\u201cPR\u201d) | Percentage assigned to shareholders |
< 24% | 0% | 100% |
\u2265 24% and < 36% | 6% | 94% |
\u2265 36% | 9% | 91% |
To calculate the TSR, (i) the percentage assigned to the Beneficiaries in accordance with the above table will be applied to the result of multiplying the Share Price TSR multiplied by the number of Shares of the Company as of 31 December 2019; (ii) the result of that transaction will be balanced through an adjustment mechanism in favour of the Beneficiaries, as, once a minimum return is reached, the Beneficiaries will be entitled to the assigned percentage of the total return generated from the start.
The date for calculating the amount of the incentive tied to the EPRA NAV per share and the amount of the incentive tied to the quoted price of the shares was 31 December 2019. The maximum amount to be received for the incentive tied to the share price from 2017 to 2019 amounted to EUR 37.5 million, which was paid out in 2020.
Also, the maximum amount of the incentive tied to EPRA NAV per share will be EUR 75 million and a maximum of 6,000,000 shares have been allocated for its payment. At 31 December 2019, there were 5,874,111 shares that were ultimately allocated to the incentive benchmarked to the EPRA NAV. 50% of the allocated shares will be paid out on the second settlement date, i.e., on the second business day after the formulation of the 2020 annual financial statements. The remaining 50% of the allocated shares will be paid out on the third settlement date, i.e., on the second business day after the formulation of the 2021 annual financial statements. However, these amounts may be modified based on how the EPRA NAV evolves in the 2021.
5.15 Employee obligations
Under current labour legislation, the Group companies are required to pay termination benefits to employees terminated under certain conditions.
When a restructuring plan is approved by the directors, made public and communicated to employees, the Group recognises the provisions required to meet any future payments resulting from their application. These provisions are calculated in accordance with the best estimates available of the foreseeable costs.
In this sense, at 31 December 2020, the Group does not have commitments for this item, and there is no Downsizing Plan in force.
5.16 Current assets and liabilities
The Group classifies its assets and liabilities as current and non-current in the consolidated statement of financial position. To this end, current assets and current liabilities are those that meet the following criteria:
\u2022Assets are classified as current when they are expected to be realised, or are intended for sale or consumption, during the course of the Group\u2019s normal operating cycle, when they are held primarily for the purpose of being traded, when they are expected to be realised within twelve months after the reporting date, or when they constitute cash or a cash equivalent, unless they are restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
\u2022Liabilities are classified as current when they are expected to be settled during the course of the Group\u2019s normal operating cycle, when they are held primarily for the purpose of being traded, when they are expected to be settled within twelve months after the reporting date, or when the Group does not have an unconditional right to defer repayment of the liability for at least twelve months after the reporting date.
\u2022Derivative financial instruments not held for trading are classified as current or non-current according to the period of maturity or periodic settlement.
5.17 Segment information
The Group groups its segments based on the nature of the assets in the various areas in which it implements its strategy. In this sense, each operating segment is a component of the Group that performs business activities from which it can earn revenue and incur expenses. The operating results of each segment are regularly reviewed by the Group's management to decide on the resources to be allocated to each segment, assess its performance and for which differentiated financial information is available.
5.18 Earnings per share
Basic earnings per share are calculated by dividing net profit or loss attributable to the Parent\u2019s shareholders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of shares of the Parent held by the Group companies.
For the calculation of the diluted profit per share, the Group calculates the amounts of the diluted earnings per share for the profit for the year attributable to the shareholders of the Parent and, where applicable, the profit for the year of the ongoing activities attributable to those holders of equity instruments.
To calculate the diluted earnings per share, the Group takes the profit or loss for the year attributable to the holders of ordinary equity instruments and the weighted average number of shares in circulation for all the dilutive effects inherent to the potential ordinary shares.
5.19 Environment
The Group carries out activities whose primary purpose is to prevent, mitigate or repair environmental damage caused by its operations.
Expenses incurred in connection with these environmental activities are recognised as other operating expenses in the year in which they are incurred. However, because of their nature, the Group\u2019s business activities do not have a significant environmental impact.
5.20 Consolidated statements of cash flows
The following terms are used in the consolidated statements of cash flows (prepared using the indirect method) with the meanings specified:
1.Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value.
2.Operating activities: the principal revenue-producing activities of the entities composing the consolidated Group and other activities that are not investing or financing activities.
3.Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.
4.Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl80Ni9mcmFnOmRjNjllZWNhMWUxMDRjNzA5Mzk3ZWMwYTAzYTk2YTU4L3RleHRyZWdpb246ZGM2OWVlY2ExZTEwNGM3MDkzOTdlYzBhMDNhOTZhNThfMTkyNDE0NTM1MDA1ODk_a7b67ed0-b245-4127-b2f5-0870b3f83e22": { "value": "6.\u00a0 \u00a0 Segment reporting
a)\u00a0 Basis of segmentation
The Group's management has segmented its activities into the business segments detailed below according to the type of assets acquired and managed:
\u2022Offices
\u2022Net leases
\u2022Shopping centres
\u2022Logistics
\u2022Other
Any revenue or expense that cannot be attributed to a specific line of business or relate to the entire Group are attributed to the Parent as a \u201cCorporate unit/Other\u201d, as are the reconciling items arising from the reconciliation of the result of integrating the financial statements of the various lines of business (prepared using a management approach) and the Group\u2019s consolidated financial statements.
The profits of each segment, and each asset within each segment, are used to measure performance as the Group considers this information to be the most relevant when evaluating the segments\u2019 results compared to other groups operating in the same businesses.
The Group carried out its business activities in Spain and Portugal in the year ended 31 December 2020.
b)\u00a0 Basis and methodology for business segment reporting
The segment information below is based on monthly reports prepared by Group management and is generated using the same computer application that prepares all the Group\u2019s accounting information. The accounting policies applied to prepare the segment information are the same as those used by the Group, as described in Note 5.
Segment revenue relates to ordinary revenue directly attributable to the segment plus the relevant proportion of the Group\u2019s general income that can be allocated on a reasonable basis to that segment. Ordinary revenue of each segment does not include interest or dividend income, gains on the disposal of investment property, debt recoveries or cancellation.
Segment expenses are calculated as the directly attributable expenses incurred in the operating activities, plus the corresponding proportion of the expenses that can be reasonably allocated to the segment.
The segment profit or loss is presented before any adjustment for non-controlling interests.
Segment assets and liabilities are those directly related to each segment\u2019s operations, plus the assets and liabilities that can be directly attributed thereto using the aforementioned allocation system, and include the proportional part of the assets and liabilities of joint ventures.
Segment reporting
Segment information about these businesses at 31 December 2020 is presented below:
\u00a0 | Thousands of euros | ||||||
2020 | Office buildings | Net Lease | Shopping centres | Logistics | Other | Corporate Unit | Group total |
Rental income | 221,974 | 86,153 | 68,437 | 56,652 | 7,846 | \u2014 | 441,062 |
Revenue from services rendered | 3,098 | \u2014 | 699 | \u2014 | \u2014 | 1,273 | 5,070 |
Revenues | 225,072 | 86,153 | 69,136 | 56,652 | 7,846 | 1,273 | 446,132 |
Other operating income | 1,670 | \u2014 | 623 | 147 | 77 | 123 | 2,640 |
Staff costs | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (40,888) | (40,888) |
Operating expenses | (28,059) | (932) | (16,124) | (3,339) | (1,463) | (17,018) | (66,936) |
Gains or losses on disposals of non-current assets | \u2014 | 162 | (14,350) | (1) | (111) | \u2014 | (14,300) |
Depreciation and amortisation charge | (495) | \u2014 | \u2014 | \u2014 | (13) | (1,106) | (1,614) |
Excess provisions | (38) | \u2014 | \u2014 | \u2014 | \u2014 | 8 | (30) |
Changes in fair value of investment property | 57,860 | 12,575 | (206,125) | 79,436 | (28,214) | \u2014 | (84,468) |
Negative goodwill on business combinations | \u2014 | ||||||
Profit/(loss) from operations | 256,010 | 97,958 | (166,841) | 132,895 | (21,878) | (57,608) | 240,536 |
Change in the fair value of financial instruments- | |||||||
Changes in fair value of financial instruments - Embedded derivative | \u2014 | (15,010) | \u2014 | \u2014 | \u2014 | \u2014 | (15,010) |
Changes in fair value of financial instruments - Other | \u2014 | (8,809) | \u2014 | (1,511) | \u2014 | (9,822) | (20,142) |
Finance income | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 3,387 | 3,387 |
Finance expenses | (338) | (22,474) | (6,596) | (6,351) | \u2014 | (113,895) | (149,653) |
Profit/(loss) on disposal of financial instruments | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (62) | (62) |
Share of results of companies accounted for using the equity method | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (3,444) | (3,444) |
Profit/(Loss) before tax | 255,672 | 51,665 | (173,437) | 125,033 | (21,878) | (181,444) | 55,612 |
Income tax | (3,171) | 659 | 10,773 | \u2014 | \u2014 | (7,515) | 746 |
Profit/(Loss) for the year | 252,502 | 52,324 | (162,664) | 125,033 | (21,878) | (188,959) | 56,358 |
\u00a0 | Thousands of euros | ||||||
As of 31 December 2020 | Office buildings | Net Lease | Shopping centres | Logistics | Other | Corporate Unit | Group total |
Investment property | 6,452,502 | 1,737,911 | 2,207,456 | 1,317,904 | 423,573 | \u2014 | 12,139,347 |
Non-current financial assets- | 23,639 | 120,762 | 12,569 | 9,192 | 7 | 226,578 | 392,747 |
\u00a0 Derivatives | \u2014 | 107,910 | \u2014 | \u2014 | \u2014 | \u2014 | 107,910 |
\u00a0 Other financial assets | 23,639 | 12,852 | 12,569 | 9,192 | 7 | 226,578 | 284,837 |
Deferred tax assets | 1,077 | 3,707 | 787 | 3,782 | \u2014 | 78,116 | 87,469 |
Other non-current assets | 4,820 | \u2014 | 45 | 50 | 893 | 436,387 | 442,194 |
Non-current assets | 6,482,038 | 1,862,381 | 2,220,857 | 1,330,928 | 424,474 | 741,081 | 13,061,757 |
Trade receivables | 5,312 | 409 | 14,408 | 5,317 | 585 | 7,336 | 33,368 |
Other current financial assets | 202 | 1,123 | 306 | 364 | 2 | 77,368 | 79,365 |
Other current assets | 42,915 | 25,960 | 68,459 | 15,789 | 24 | 149,975 | 303,122 |
Current assets | 48,430 | 27,493 | 83,172 | 21,470 | 612 | 234,679 | 415,856 |
Total assets | 6,530,468 | 1,889,873 | 2,304,030 | 1,352,398 | 425,085 | 975,760 | 13,477,612 |
Non-current bank borrowings and debenture issues | 16,643 | 726,366 | \u2014 | 68,243 | \u2014 | 4,946,646 | 5,757,899 |
Other non-current liabilities | 330,719 | 46,910 | 222,706 | 77,556 | 1,760 | 164,536 | 844,186 |
Non-current liabilities | 347,363 | 773,277 | 222,706 | 145,799 | 1,760 | 5,111,182 | 6,602,085 |
Current liabilities | 40,399 | 11,203 | 27,216 | 17,717 | 2,850 | 79,876 | 179,260 |
Total liabilities | 387,762 | 784,480 | 249,922 | 163,516 | 4,610 | 5,191,057 | 6,781,345 |
Segment information about these businesses at 31 December 2019 is presented below:
\u00a0 | Thousands of euros | ||||||
2019 | Office buildings | Net Lease | Shopping centres | Logistics | Other | Corporate Unit | Group total |
Rental income | 237,705 | 86,612 | 121,492 | 51,593 | 14,124 | \u2014 | 511,526 |
Revenue from services rendered | 1,093 | \u2014 | 302 | \u2014 | \u2014 | 1,932 | 3,327 |
Revenues | 238,798 | 86,612 | 121,794 | 51,593 | 14,124 | 1,932 | 514,853 |
Other operating income | 270 | \u2014 | 316 | 148 | 64 | 2,001 | 2,799 |
Staff costs | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (76,854) | (76,854) |
Operating expenses | (27,752) | (757) | (18,136) | (2,695) | (1,904) | (13,229) | (64,473) |
Gains or losses on disposals of non-current assets | (20,058) | 414 | 182 | 553 | (154) | \u2014 | (19,063) |
Depreciation and amortisation charge | (281) | (2) | (73) | (3) | (10) | (1,754) | (2,123) |
Excess provisions | 47 | \u2014 | \u2014 | (115) | \u2014 | 154 | 86 |
Changes in fair value of investment property | 264,378 | 7,701 | (1,867) | 80,974 | 3,786 | \u2014 | 354,972 |
Negative goodwill on business combinations | (2,865) | \u2014 | \u2014 | \u2014 | \u2014 | (1) | (2,866) |
Profit/(loss) from operations | 452,537 | 93,968 | 102,216 | 130,455 | 15,906 | (87,751) | 707,331 |
Change in the fair value of financial instruments- | |||||||
Changes in fair value of financial instruments - Embedded derivative | \u2014 | 2,397 | \u2014 | \u2014 | \u2014 | \u2014 | 2,397 |
Changes in fair value of financial instruments - Other | \u2014 | (2,687) | \u2014 | (1,476) | \u2014 | (9,302) | (13,465) |
Finance income | 5 | \u2014 | 4 | \u2014 | 2 | 653 | 664 |
Finance expenses | (492) | (22,762) | (3,972) | (4,909) | \u2014 | (84,107) | (116,242) |
Profit/(loss) on disposal of financial instruments | 5 | \u2014 | \u2014 | 31 | \u2014 | (76) | (40) |
Share of results of companies accounted for using the equity method | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 10,065 | 10,065 |
Profit/(Loss) before tax | 452,055 | 70,916 | 98,248 | 124,101 | 15,908 | (170,518) | 590,710 |
Income tax | (21,186) | 321 | (6,635) | 380 | 151 | (102) | (27,071) |
Profit/(Loss) for the year | 430,869 | 71,237 | 91,613 | 124,481 | 16,059 | (170,620) | 563,639 |
\u00a0 | Thousands of euros | ||||||
As of 31 December 2019 | Office buildings | Net Lease | Shopping centres | Logistics | Other | Corporate Unit | Group total |
Investment property | 6,291,960 | 1,748,544 | 2,540,437 | 1,136,961 | 451,255 | \u2014 | 12,169,157 |
Non-current financial assets- | 23,210 | 137,623 | 18,276 | 11,378 | 1,216 | 184,919 | 376,622 |
\u00a0 Derivatives | \u2014 | 124,684 | \u2014 | \u2014 | \u2014 | \u2014 | 124,684 |
\u00a0 Other financial assets | 23,210 | 12,939 | 18,276 | 11,378 | 1,216 | 184,919 | 251,938 |
Deferred tax assets | 312 | 3,957 | 788 | 3,818 | \u2014 | 78,903 | 87,778 |
Other non-current assets | 3,811 | 1 | 75 | 5,189 | 929 | 349,448 | 359,453 |
Non-current assets | 6,319,293 | 1,890,125 | 2,559,576 | 1,157,346 | 453,400 | 613,270 | 12,993,010 |
Trade receivables | 8,671 | 1,498 | 5,282 | 6,825 | 2,966 | 5,021 | 30,263 |
Other current financial assets | 50 | 1,277 | 151 | 688 | \u2014 | 5,557 | 7,723 |
Other current assets | 36,764 | 31,555 | 64,542 | 13,729 | 737 | 127,408 | 274,735 |
Current assets | 45,485 | 34,330 | 69,975 | 21,242 | 3,703 | 137,986 | 312,721 |
Total assets | 6,364,778 | 1,924,455 | 2,629,551 | 1,178,588 | 457,103 | 751,256 | 13,305,731 |
Non-current bank borrowings and debenture issues | 18,348 | 757,792 | 131,745 | 66,715 | \u2014 | 4,566,602 | 5,541,202 |
Other non-current liabilities | 347,848 | 46,903 | 242,553 | 75,446 | 7,483 | 121,593 | 841,826 |
Non-current liabilities | 366,196 | 804,695 | 374,298 | 142,161 | 7,483 | 4,688,195 | 6,383,028 |
Current liabilities | 47,959 | 15,018 | 29,223 | 20,987 | 1,598 | 99,218 | 214,003 |
Total liabilities | 414,155 | 819,713 | 403,521 | 163,148 | 9,081 | 4,787,413 | 6,597,031 |
a)Geographical segment reporting
For the purposes of geographical segment reporting, segment revenue is grouped according to the geographical location of the assets. Segment assets are also grouped according to their geographical location.
The following tables summarises ordinary income and non-current investment property for each of the assets held by the Group by geographical area:
2020
Thousands of euros | ||||
Rental income | % | Investment property (a) | % | |
Madrid | 216,868 | 49% | 6,518,339 | 53% |
Catalonia | 75,036 | 17% | 1,837,549 | 15% |
Andalusia | 21,021 | 5% | 441,517 | 4% |
Valencia | 16,936 | 4% | 398,190 | 3% |
Galicia | 13,710 | 3% | 373,993 | 3% |
Castilla-La Mancha | 17,006 | 4% | 540,051 | 4% |
Basque Country | 15,843 | 4% | 380,386 | 3% |
Rest of Spain | 28,548 | 6% | 672,634 | 5% |
Portugal | 36,094 | 8% | 1,084,598 | 9% |
Total | 441,062 | 100% | 12,247,257 | 100% |
(a) Also includes the amount of the embedded derivative described in Note 10
2019
Thousands of euros | ||||
Rental income | % | Investment property (a) | % | |
Madrid | 237,038 | 46% | 6,383,215 | 52% |
Catalonia | 93,153 | 18% | 2,002,321 | 16% |
Valencia | 21,610 | 4% | 410,596 | 3% |
Galicia | 20,649 | 4% | 400,275 | 3% |
Andalusia | 22,246 | 5% | 451,762 | 4% |
Basque Country | 18,530 | 4% | 394,106 | 3% |
Castilla-La Mancha | 15,492 | 3% | 448,482 | 4% |
Rest of Spain | 36,375 | 7% | 756,671 | 6% |
Portugal | 46,433 | 9% | 1,046,413 | 9% |
Total | 511,526 | 100% | 12,293,841 | 100% |
(a) Also includes the amount of the embedded derivative described in Note 10
b)Main customers
The table below lists the most significant tenants as of 31 December 2020, and the primary characteristics of each of them:
2020 | ||||||||||
Position | Name | Type | % of total | Total % | Maturity | |||||
of rents | ||||||||||
1 | BBVA | Net lease | 16,10% | 16,10% | 2022-2040 | |||||
2 | Endesa | Offices | 3,70% | 19,80% | 2021-2030 | |||||
3 | Inditex | Logistics and shopping centres | 2,90% | 22,70% | 2022-2024 | |||||
4 | T\u00e9cnicas Reunidas | Offices | 2,10% | 24,80% | 2021-2022 | |||||
5 | Community of Madrid | Offices | 1,90% | 26,70% | 2021-2030 | |||||
6 | PricewaterhouseCoopers, S.L. | Offices | 1,60% | 28,30% | 2022 | |||||
7 | Indra Sistemas, S.A. | Offices | 1,40% | 29,70% | 2024 | |||||
8 | Hotusa | Hotels | 1,40% | 31,10% | 2023 | |||||
9 | Caprabo | Net lease | 1,40% | 32,50% | 2026 | |||||
10 | FNAC | Shopping centres | 1,30% | 33,80% | 2022 |
2019 | ||||||||||
Position | Name | Type | % of total | Total % | Maturity | |||||
of rents | ||||||||||
1 | BBVA | Net lease | 15,30% | 15,30% | 2029-2040 | |||||
2 | Endesa | Offices | 4,10% | 19,40% | 2020-2028 | |||||
3 | Inditex | Logistics and shopping centres | 3,00% | 22,40% | 2020-2022 | |||||
4 | T\u00e9cnicas Reunidas | Offices | 2,10% | 24,50% | 2022 | |||||
5 | PricewaterhouseCoopers, S.L. | Offices | 1,50% | 26,00% | 2022 | |||||
6 | Hotusa | Hotels | 1,50% | 27,50% | 2024 | |||||
7 | Caprabo | Net lease | 1,30% | 28,80% | 2026 | |||||
8 | Indra Sistemas, S.A. | Offices | 1,30% | 30,10% | 2024 | |||||
9 | FNAC | Shopping centres | 1,30% | 31,40% | 2022 | |||||
10 | Dachser | Logistics | 1,30% | 32,70% | 2021-2024 |
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEntitysReportableSegmentsExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl80Ni9mcmFnOmRjNjllZWNhMWUxMDRjNzA5Mzk3ZWMwYTAzYTk2YTU4L3RleHRyZWdpb246ZGM2OWVlY2ExZTEwNGM3MDkzOTdlYzBhMDNhOTZhNThfMTU5NDI5MTg2MTcyNTE_b29913a9-a758-4552-b08e-73a332df2e89": { "value": "The Group carried out its business activities in Spain and Portugal in the year ended 31 December 2020.", "dimensions": { "concept": "ifrs-full:PrincipalPlaceOfBusiness", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl80OS9mcmFnOjI0ZmVlZmM2ZDRiYzRjZThhNDYwNjhkNmJjMGY3OTJiL3RleHRyZWdpb246MjRmZWVmYzZkNGJjNGNlOGE0NjA2OGQ2YmMwZjc5MmJfMTg2OTE2OTc3MTcxOTc_ee8865c4-93fa-4ab3-acbf-99d76eee6213": { "value": "7.\u00a0 \u00a0 Investment property
The breakdown of and changes in items included under the Investment Property heading in the consolidated statement of financial position in 2020 and 2019 were as follows:
Thousands of euros | ||
2020 | 2019 | |
Starting balance | 12,169,157 | 11,740,461 |
Additions due to business combinations (Note 3) | \u2014 | 112,846 |
Additions for the year | 251,107 | 230,758 |
Disposals | (196,449) | (269,880) |
Changes in value of investment property | (84,468) | 354,972 |
Ending balance | 12,139,347 | 12,169,157 |
Investment property is recognised at fair value. The expense recognised in the 2020 consolidated income statement from measuring investment property at fair value amounted to EUR 84,468 thousand (EUR 354,972 thousand in income in 2019).
Investment property mainly includes property assets in the office, net lease, shopping centre and logistics segments.
Additions and assets acquired in 2020 are as follows:
Thousands of euros | ||
Type of asset | 2020 | 2019 |
Business combination | ||
\u00a0 Offices | \u2014 | 112,846 |
\u2014 | 112,846 | |
Purchases/Additions: | ||
\u00a0 Logistics | 14,095 | 43,111 |
\u00a0 Offices | 15,411 | 17,737 |
\u00a0 Shopping centres | \u2014 | 3,028 |
\u00a0 Other | \u2014 | 459 |
\u00a0 Improvements to assets | 221,601 | 166,423 |
251,107 | 230,758 | |
251,107 | 343,604 |
The main additions during 2020 corresponded to an office building in Barcelona in the amount of EUR 15 million and to the acquisition of a logistics landplot in Azuqueca (Guadalajara).
The other additions for the year refer to the improvement and adaptation work carried out on certain properties owned by the Group, most notably the El Saler Shopping Centre in Valencia, X Madrid and Porto Pi in Palma de Mallorca, as well as the development of Monumental, Castellana 85, Torre Gl\u00f3ries and Diagonal 605 in the Office segment and certain logistics warehouses in Azuqueca, Lisbon, San Fernando de Henares and Seville.
The disposals in 2020 correspond to the contribution of three trading venues to the investee Silicius Real Estate Socimi (see Note 3) and to the sale of certain assets leased from subsidiary Tree, having obtained a positive result of EUR 161 thousand registered under the heading \u2018Profit/(losses) on disposal of assets\u2019 of the attached consolidated income statement.
The main additions of assets acquired in 2019 related mainly to the purchase of Nestl\u00e9\u2019s headquarters in Lisbon amounting to EUR 14 million, the acquisition of a property for logistics use in Cabanillas amounting to EUR 17 million, as well as the purchase of a turnkey logistics industrial building located in Riba-roja, Valencia, amounting to EUR 26 million. The assets included in the scope of consolidation come from the Portuguese companies acquired in the period (see Note 3).
The other additions in 2019 were the improvement and adaptation work carried out on certain properties owned by the Group, most notably the Larios Shopping Centres in Malaga and X Madrid, as well as the development of Torre Gl\u00f3ries and Torre Chamart\u00edn in the Office segment and certain logistics warehouses in Sese\u00f1a, Cabanillas, Pinto and Seville.
The disposals in 2019 corresponded mainly to the sale of a set of office real estate assets located in Madrid and Barcelona amounting to EUR 225 million and an associated cost of approximately EUR 217.6 million. The aforementioned agreement included certain investment commitments made by the Group on the aforementioned assets, amounting to a total of EUR 17.8 million to be performed according to a calendar in 2020 and 2021. Likewise, the agreement called for the Group to grant the buyer a loan amounting to EUR 70 million, with market interest and maturity in 2021 (see Note 10). At present, liabilities associated with the Group's investment obligations amounting to EUR 3 million remain. The net costs associated with the sale amounted to EUR 9,618 thousand.
At 31 December 2020, the Group had pledged real estate assets totalling EUR 1,980,286 thousand (EUR 2,443,433 thousand in 2019) to secure various loans and derivative financial instruments, the balances of which at 31 December 2020 amounted to EUR 764,937 thousand and EUR 112,298 thousand (EUR 965,312 thousand and EUR 86,086 thousand in 2019), respectively (see Note 14). The Group holds no rights of use, seizure or similar situations with regard to its investment property.
The Group did not hold financial leases in 2020 and 2019.
At 31 December 2020, all properties included in \u201cInvestment property\u201d are insured.
The Group, at 31 December 2020, has firm commitments to buy real estate investments amounting to EUR 41,069 thousand without considering the amounts indicated above associated with sales for the year. In 2020 and 2019 no significant finance costs were capitalised in the cost of constructing the properties.
Fair value measurement and sensitivity
All investment property leased or earmarked for lease through operating leases is classified as investment property.
In accordance with IAS 40, the Group periodically determines the fair value of its investment property so that the fair value reflects the actual market conditions of the investment property items at that date. This fair value is determined each year based on the appraisals undertaken by independent experts.
The market value of the Group\u2019s investment property as of 31 December 2020 and 2019, calculated based on appraisals carried out by Savills Consultores Inmobiliarios, S.A., CBRE Valuation Advisory, S.A. and Jones Lang LaSalle, S.A. independent appraisers not related to the Group, amounted to EUR 12,180,759 thousand (EUR 12,250,730 in 2019). This valuation includes the value of the implied derivative of the lease income with BBVA amounting to EUR 107,910 thousand and EUR 124,684 thousand in 2020 and 2019, respectively; it does not include advances paid by the Group to third parties for the purchase of assets amounting to EUR 34,450 thousand (EUR 15,283 thousand in 2019) and does not include the value of the rights of use registered by application of IFRS 16 amounting to EUR 32,048 thousand (EUR 27,828 thousand in 2019). The valuation was carried out in accordance with the Appraisal and Valuation Standards issued by the Royal Institute of Chartered Surveyors (RICS) of the United Kingdom and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee (IVSC).
The method used to calculate the market value of investment property, except for the BBVA portfolio, involves drawing up ten-year projections of income and expenses for each asset, adjusted at the reporting date using a market discount rate. The residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income projections for year 11. The market values obtained are analysed by calculating and assessing the capitalisation of the returns implicit in these values. The projections are designed to reflect the best estimate of future income and expenses from the investment properties. Both the exit yield and discount rate are determined taking into account the national market and institutional market conditions.
The method used by CBRE to value the BBVA portfolio analyses each property individually, without making any adjustments for inclusion in a large portfolio of properties. For each property, a capitalisation rate has been assumed for the estimated market rent and subsequently adjusted based on the following parameters:
\u2022Term of the lease, collateral terms and guarantees and creditworthiness of the tenant.
\u2022Location of the premises within the city (downtown, metropolitan area or suburbs).
\u2022Immediate vicinity of the property.
\u2022Level of upkeep of the property (outside and inside).
\u2022Above and below-ground distribution of the floor area.
\u2022Fa\u00e7ade on one street or more than one (corner, three-sided).
\u2022Lease situation with respect to current market rent.
In 2020 and affected mainly by the global situation of the COVID-19 pandemic, the above valuations were calculated in an uncertain environment (see Note 2.7). Therefore, the situation of the rental property market could lead to material differences between the fair value of the Group\u2019s investment property and their effective realisable values.
Fees paid by the Group to valuers for appraisal services rendered up to 31 December 2020 and 2019 were as follows:
\u00a0 | Thousands of euros | |
2020 | 2019 | |
Valuation services | 656 | 656 |
Total | 656 | 656 |
Breakdown of fair value of investment property
The detail of assets measured at fair value by their level in the fair value hierarchy is as follows:
2020
Thousands of euros | |||||||
Total | Level 1 | Level 2 | Level 3 | ||||
Fair value measurement | |||||||
Investment property | |||||||
Offices | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 2,231,069 | 2,231,069 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 4,221,433 | 4,221,433 | |||||
Net lease | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 382,218 | 382,218 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 1,355,694 | 1,355,694 | |||||
Shopping centres | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 459,984 | 459,984 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 1,747,472 | 1,747,472 | |||||
Logistics | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 262,322 | 262,322 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 1,055,582 | 1,055,582 | |||||
Other | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 198,326 | 198,326 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 225,247 | 225,247 | |||||
Total assets measured at fair value | 12,139,347 | 12,139,347 | |||||
2019
Thousands of euros | |||||||
Total | Level 1 | Level 2 | Level 3 | ||||
Fair value measurement | |||||||
Investment property | |||||||
Offices | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 2,159,968 | 2,159,968 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 4,131,992 | 4,131,992 | |||||
Net lease | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 389,223 | 389,223 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 1,359,321 | 1,359,321 | |||||
Shopping centres | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 584,853 | 584,853 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 1,955,584 | 1,955,584 | |||||
Logistics | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 292,042 | 292,042 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 844,919 | 844,919 | |||||
Other | |||||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Land | 212,622 | 212,622 | |||||
-\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Buildings | 238,633 | 238,633 | |||||
Total assets measured at fair value | 12,169,157 | 12,169,157 | |||||
No assets were reclassified from one level to another during 2020 or 2019.
At 31 December 2020, the gross surface areas and occupancy rates of the assets were as follows:
Square metres (*) | |||||||||||
Gross leasable area | |||||||||||
2020 | Comm. of Madrid | \u00a0Catalonia | Comm. of Valencia | Galicia | Andalusia | Basque Country | Castilla-La Mancha | Rest of Spain | Portugal | Total | Occupancy rate (%) |
Offices | 866,461 | 210,120 | \u2014 | \u2014 | 15,078 | \u2014 | \u2014 | 4,488 | 95,679 | 1,191,825 | 91,1% |
Net lease | 56,639 | 108,150 | 26,799 | 16,143 | 27,159 | 23,102 | 8,354 | 84,196 | \u2014 | 350,542 | 99,7% |
Shopping centres | 75,678 | 64,096 | 64,693 | 100,475 | 37,956 | 25,922 | \u2014 | 32,795 | 60,098 | 461,714 | 93,7% |
Logistics | 308,271 | 148,435 | 61,604 | \u2014 | 124,725 | 99,491 | 425,426 | 53,764 | \u2014 | 1,221,716 | 97.5% |
Other | 61,034 | 20,540 | \u2014 | 5,898 | \u2014 | 46 | \u2014 | \u2014 | \u2014 | 87,517 | 72,1% |
Total surface area | 1,368,083 | 551,341 | 153,096 | 122,516 | 204,918 | 148,561 | 433,780 | 175,243 | 155,777 | 3,313,314 | |
% weight | 41.3% | 16.7% | 4.6% | 3.7% | 6.2% | 4.5% | 13.1% | 5.3% | 4.7% | 100.0% |
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (*) Not including square metres of ongoing projects or land
Square metres (*) | \u00a0 | ||||||||||
\u00a0 | Gross leasable area | \u00a0 | |||||||||
2019 | Comm. of Madrid | Catalonia | Comm. of Valencia | Galicia | Andalusia | Basque Country | Castilla-La Mancha | Rest of Spain | Portugal | Total | Occupancy rate (%) |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
Oficinas | 850,253 | 227,866 | \u2014 | \u2014 | 15,078 | \u2014 | \u2014 | 4,488 | 95,679 | 1,193,364 | 92,8 |
Net lease | 63,476 | 109,783 | 27,201 | 17,049 | 27,766 | 23,291 | 8,354 | 85,589 | \u2014 | 362,509 | 100,0 |
Centros comerciales | 38,580 | 93,109 | 64,193 | 100,242 | 37,957 | 25,922 | \u2014 | 79,953 | 60,098 | 500,056 | 93,3 |
Log\u00edstica | 308,268 | 149,607 | 61,604 | \u2014 | 123,004 | 99,491 | 375,972 | 42,343 | \u2014 | 1,160,289 | 97,7 |
Otros | 61,034 | 20,540 | \u2014 | 5,898 | \u2014 | 46 | \u2014 | \u2014 | \u2014 | 87,517 | 72,1 |
Superficie Total | 1,321,611 | 600,905 | 152,998 | 123,189 | 203,805 | 148,750 | 384,326 | 212,373 | 155,777 | 3,303,736 | |
% Peso | 40,0% | 18,2% | 4,6% | 3,7% | 6,2% | 4,5% | 11,7% | 6,4% | 4,7% | 100,0% |
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (*) Not including square metres of ongoing projects or land
Hypotheses used in the valuation
In relation to the determination of the fair value of investment property, the significant non-observable input data used in the measurement of fair value corresponds to the rental income, the rates of return (\u2018exit yield\u2019) and the rate used to discount the cash flows of the projections. The quantitative information on the significant non-observable input data used in measuring fair value is shown below.
2020
Exit Yield | Discount rate | |
Offices | 3,00% - 7,25% | 4,75% - 10,50% |
Net Lease | 5,00% - 7,00%(*) | 6,50% - 8,25%(*) |
Shopping centres | 3,50% - 8,00% | 6,00% - 10,75% |
Logistics | 4,50% - 9,00% | 6,50% - 15,00% |
Other | 4,00% - 7,50% | 4,00% - 15,50% |
(*) This does not apply to BBVA because it is measured by directly capitalising the rent.
2019
Exit Yield | Discount rate | |
Offices | \u00a0 \u00a0 \u00a0 3,00% - 7,25% | 4,00% - 8,30% |
Net Lease | \u00a0 \u00a0 5,00% - 7,00%(*) | \u00a0 \u00a0 6,75% - 8,75%(*) |
Shopping centres | 3,50% - 7,50% | \u00a0 5,75% - 10,50% |
Logistics | 4,75% - 7,45% | \u00a0 6,72% - 15,00% |
Other | 4,00% - 7,50% | \u00a0 \u00a0 4,00% - 16,00% |
(*) This does not apply to BBVA because it is measured by directly capitalising the rent.
Rents: the amounts per square metre used in the valuation have ranged from EUR 2.90 to 82.56 depending on the type of asset and location. The growth rates of the rents used in the projections are mainly based on the CPI.
Analysis of the sensitivity of the hypotheses
The effect of a one-quarter, one half and one point change in the required rates of return, calculated as income, on the market value of the assets, on investment property in consolidated assets and in the consolidated income statement, would be as follows:
\u00a0 | Thousands of euros | |||||
\u00a0 | 31.12.2020 | |||||
\u00a0 | Assets | Consolidated profit before tax | ||||
0,25% | 0,50% | 1% | 0,25% | 0,50% | 1% | |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Increase in rate of return | (568,443) | (1,087,623) | (2,001,762) | (568,443) | (1,087,623) | (2,001,762) |
Decrease in rate of return | 625,069 | 1,315,668 | 2,939,504 | 625,069 | 1,315,668 | 2,939,504 |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
\u00a0 | Thousands of euros | |||||
\u00a0 | 31.12.2019 | |||||
\u00a0 | Assets | Consolidated profit before tax | ||||
0,25% | 0,50% | 1% | 0,25% | 0,50% | 1% | |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Increase in rate of return | (566,873) | (1,084,859) | (1,997,460) | (566,873) | (1,084,859) | (1,997,460) |
Decrease in rate of return | 623,022 | 1,310,972 | 2,926,973 | 623,022 | 1,310,972 | 2,926,973 |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The effect of a 1%, 5% and 10% change in the rents considered has the following impact investment property in consolidated assets and in the consolidated income statement:
\u00a0 | Thousands of euros | |||||
\u00a0 | 31.12.2020 | |||||
\u00a0 | Assets | Consolidated profit before tax | ||||
1% | 5% | 10% | 1% | 5% | 10% | |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Increase in rate of return | 80,798 | 403,992 | 807,984 | 80,798 | 403,992 | 807,984 |
Decrease in rate of return | (80,798) | (403,992) | (807,984) | (80,798) | (403,992) | (807,984) |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
\u00a0 | Thousands of euros | |||||
\u00a0 | 31.12.2019 | |||||
\u00a0 | Assets | Consolidated profit before tax | ||||
1% | 5% | 10% | 1% | 5% | 10% | |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Increase in rate of return | 74,288 | 371,439 | 742,878 | 74,288 | 371,439 | 742,878 |
Decrease in rate of return | (74,288) | (371,439) | (742,878) | (74,288) | (371,439) | (742,878) |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The effect of the quarter-and-a-half point change in the considered exit yield, in the assumption based on return calculated as the result of dividing the net operating income of the last year of the period analysed by the estimated exit yield, on investment property in the consolidated asset and in the consolidated income statement, would be as follows:
Thousands of euros | ||||
31.12.2020 | ||||
Assets | Consolidated profit before tax | |||
0,25% | 0,50% | 0,25% | 0,50% | |
Increase in rate of return | (370,941) | (708,138) | (370,941) | (708,138) |
Decrease in rate of return | 410,016 | 865,626 | 410,016 | 865,626 |
Thousands of euros | ||||
31.12.2019 | ||||
Assets | Consolidated profit before tax | |||
0,25% | 0,50% | 0,25% | 0,50% | |
Increase in rate of return | (320,321) | (612,931) | (320,321) | (612,931) |
Decrease in rate of return | 352,165 | 741,170 | 352,165 | 741,170 |
The details of \u201cChange in value of investment property\u201d in the attached consolidated income statement are as follows:
Type of asset | Thousands of euros | |
2020 | 2019 | |
\u00a0 Offices | 57,860 | 264,378 |
\u00a0 Net lease | 12,575 | 7,701 |
\u00a0 Shopping centres | (206,125) | (1,867) |
\u00a0 Logistics | 79,050 | 80,974 |
\u00a0 Other | (27,828) | 3,786 |
\u00a0 | (84,468) | 354,972 |
Accordingly, the impact on the consolidated income statement of the revaluations of the Group\u2019s real estate assets in 2020, taking into consideration all headings affected in the consolidated income statement, is as follows:
\u00a0 | Thousands of euros | |
2020 | 2019 | |
Changes in fair value of investment property | (84,468) | 354,972 |
Changes in the fair value of derivatives | (15,010) | 2,397 |
Effect on the income statement | (99,478) | 357,369 |
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentPropertyExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl81Mi9mcmFnOjBhZjMwZTRlNWZjOTQzNDY4NmQzMGYwMGVjMzYyOTQ2L3RleHRyZWdpb246MGFmMzBlNGU1ZmM5NDM0Njg2ZDMwZjAwZWMzNjI5NDZfOTM0NTg0ODg0MjkxMw_0684d1cc-be67-4433-9340-82ebddf91003": { "value": "8.\u00a0 \u00a0 Operating leases
8.1 Operating leases \u2013 Tenant
The Group, in its position as a tenant, only maintains short-term and low-value leases, which, following an analysis of the application of IFRS 16, recognises them as a straight-line expense over the lease term.
8.2 Operating leases \u2013 Landlord
The occupancy rates of the leased buildings at 31 December 2020 were as follows:
\u00a0 | % occupancy | |
2020 | 2019 | |
Offices | 91.1 | 92.8 |
Net lease | 99.7 | 100.0 |
Shopping centres | 93.7 | 93.3 |
Logistics | 97.5 | 97.7 |
Other | 97.1 | 71.5 |
At 31 December 2020, the ordinary income from and the fair value of each of the assets were as follows:
2020
\u00a0 | Thousands of euros | |
\u00a0 | Gross rental income | Fair |
\u00a0 | (a) | (b)\u00a0 |
\u00a0 | \u00a0 | \u00a0 |
Offices | 233,215 | 6,452,502 |
Net lease | 86,513 | 1,845,822 |
Shopping centres | 114,375 | 2,207,456 |
Logistics | 58,861 | 1,332,145 |
Other | 10,484 | 409,332 |
Total | 503,448 | 12,247,257 |
(a)The gross income indicated in the table above refers to the rental income (Note 6) of the properties, accrued since their incorporation into the Group, without taking into account credits (including those related to COVID-19), and rental income straight-lining.
(b)Includes investment property and the embedded derivative (Note 10).
2019
\u00a0 | Thousands of euros | |
\u00a0 | Gross rental income | Fair |
\u00a0 | (a) | (b) |
\u00a0 | \u00a0 | \u00a0 |
Offices | 243,431 | 6,291,960 |
Net lease | 86,962 | 1,873,228 |
Shopping centres | 127,300 | 2,540,437 |
Logistics | 53,796 | 1,136,961 |
Other | 14,429 | 451,255 |
Total | 525,918 | 12,293,841 |
(a)The gross income indicated in the table above refers to income from leases (Note 6) of the properties accrued since their incorporation into the Group, without taking into account credits and rental income straight-lining.
(b)Includes investment property and the embedded derivative (Note 10).
The leases entered into between the Group and its customers include a fixed rent and, where applicable, a variable rent linked to the tenant\u2019s performance.
At 31 December 2020, the future minimum lease payments under non-cancellable operating leases (calculated at the nominal amount) are as follows:
\u00a0 | Thousands of euros | |
2020 | 2019 | |
Within one year | 465,952 | 472,507 |
Between one and five years | 1,137,511 | 1,217,057 |
After five years | 1,108,520 | 1,165,643 |
2,711,983 | 2,855,207 |
.
", "dimensions": { "concept": "mer:DisclosureOfOperatingLeasesTextBlock", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl81NS9mcmFnOjFiYTkzYjhlYWM4MjQ4NDU4ZDE1NjMxODRmNTc5YmM0L3RleHRyZWdpb246MWJhOTNiOGVhYzgyNDg0NThkMTU2MzE4NGY1NzliYzRfMTU5NDI5MTg2MTMyMDg_f47d3a22-5e8e-4986-aaec-b94c5dda3f4c": { "value": "9.\u00a0 \u00a0 Investments accounted for using the equity method
The changes in 2020 in investments in companies accounted for using the equity method are as follows:
\u00a0 | Thousands of euros | |
\u00a0 | 2020 | 2019 |
\u00a0 |
| |
Starting balance | 346,973 | 169,133 |
Additions made during the year | 92,140 | 168,893 |
Dividends | (1,542) | (1,118) |
Profit/(Loss) for the year | (3,444) | 10,065 |
Ending balance | 434,127 | 346,973 |
The main changes in 2020 were as follows:
On 27 February 2020, the Parent acquired a stake in Silicius Real Estate, S.L., which represented an increase of EUR 91,021 thousand corresponding to 17.19% of the shares (see Note 3). In 2020, Silicius Real Estate, S.L., carried out capital increase by means of non-monetary contribution, in which the Parent did not participate, and the percentage of ownership was therefore diluted. At 31 December 2020, the stake amounted to 15.29% and the consolidated net value of that stake amounted to EUR 70,542 thousand as a result of incorporating the profit attributable to the Parent once the accounting criteria relating to the fair value of the assets were homogenised.
The main movements that occurred in 2019 were as follows:
On 31 October 2019, the Parent acquired a 14.46% stake in Distrito Castellana Norte, S.A. (DCN) from Desarrollos Urban\u00edsticos Udra, S.A.U. for a total of EUR 168,893 million. In addition, as an integral part of the transaction of the sale, the Parent granted Desarrollos Udra, S.A. a loan amounting to EUR 129,109 thousand divided into two tranches: (i) EUR 86,397 thousand maturing in 20 years; and (ii) EUR 42,712 thousand maturing in December 2019, with both loans at an interest rate of 2% per annum due at maturity. At 31 December 2019, the second tranche was collected in full, with an outstanding amount of EUR 86,695 thousand (86,397 in principal and 298 in interest) under the heading \u2018Other non-current financial assets - Third Party loans\u2019 in the attached consolidated balance sheet (see Note 10). This loan guarantees the holding of the aforementioned company in DCN.
The detail of investments in companies accounted for using the equity method and the profit or loss attributable to the Group at 31 December 2020 is as follows:
2020
Thousands of euros | |||||
Percentage | Result | ||||
of | attributable | ||||
Associate | Line of business | Registered office | Ownership interest | Investment | to the Group |
Distrito Castellana Norte, S.A | \u2018Operaci\u00f3n Chamart\u00edn\u2019 construction development and property operation | Madrid | 14,46% | 169,387 | (626) |
Silicius Real Estate, S.L. | Sale and lease of property | Madrid | 15,29% | 70,542 | (20,211) |
Centro Intermodal de | Gesti\u00f3n de la concesi\u00f3n portuaria de la Zona de | ||||
Log\u00edstica, S.A. | Logistics activities | Barcelona | 48,50% | 152,749 | 25,529 |
Paseo Comercial | Lease of | ||||
Carlos III, S.A. | Shopping centre | Madrid | 50% | 31,430 | (6,771) |
Provitae Centros | 3,508 | (572) | |||
Asistenciales, S.L. | Healthcare services | Madrid | 50% | ||
6,511 | (795) | ||||
Other investments | - | - | |||
434,127 | (3,444) |
2019
Thousands of euros | |||||
Percentage | Result | ||||
of | Attributable | ||||
Associate | Line of business | Registered office | Ownership interest | Investment | to the Group |
Distrito Castellana Norte, S.A | \u2018Operaci\u00f3n Chamart\u00edn\u2019 construction development and property operation | Madrid | 14,46% | 168,893 | \u2014 |
Centro Intermodal de | Gesti\u00f3n de la concesi\u00f3n portuaria de la Zona de | ||||
Log\u00edstica, S.A. | Logistics activities | Barcelona | 48,50% | 128,494 | 8,290 |
Paseo Comercial | Lease of | ||||
Carlos III, S.A. | Shopping centre | Madrid | 50% | 38,200 | 1,430 |
Provitae Centros | |||||
Asistenciales, S.L. | Healthcare services | Madrid | 50% | 4,080 | (25) |
Other investments | - | - | 7,306 | 370 | |
346,973 | 10,065 |
All companies detailed in the table above are accounted for using the equity method.
The key business indicators at 100% for the Group\u2019s associates (standardised using the regulatory framework applicable to the Group) are as follows:
2020
Thousands of euros | ||||||
Provitae Centros Asistenciales, S.L. | Paseo Comercial Carlos III, S.A. | Centro Intermodal de Log\u00edstica S.A. (CILSA) | Distrito Castellana Norte, S.A. | Silicius Real Estate S.L. | Other | |
Non-current assets | 9,790 | 148,976 | 570,155 | 6,117 | 667,318 | 28,913 |
Current assets | 11 | 4,765 | 8,106 | 158,284 | 49,505 | 2,533 |
Non-current liabilities | 621 | 86,840 | 241,262 | 499 | 311,034 | 13,259 |
Current liabilities | 2,164 | 4,041 | 22,047 | 15,394 | 49,649 | 465 |
Revenue | \u2014 | 5,460 | 58,832 | \u2014 | 21,941 | 1,691 |
Profit/(loss) from continuing operations | (1,144) | (13,540) | 50,011 | (4,327) | (66,966) | (2,424) |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
2019
Thousands of euros | |||||
\u00a0 | Distrito Castellana Norte, S.A. | Provitae Centros Asistenciales, S.L. | Paseo Comercial Carlos III, S.A. | Centro Intermodal de Log\u00edstica S.A. (CILSA) | Other |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
Non-current assets | 6,353 | 11,250 | 163,761 | 469,306 | 65,701 |
Current assets | 154,715 | 10 | 5,726 | 5,277 | 4,642 |
Non-current liabilities | 10,235 | 986 | 87,294 | 182,869 | 26,566 |
Current liabilities | 6,013 | 2,113 | 5,794 | 26,772 | 3,489 |
Revenue | \u2014 | \u2014 | 8,816 | 51,655 | 5,183 |
Profit/(loss) from continuing operations | \u2014 | (51) | 2,861 | 17,093 | 1,073 |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
10.\u00a0 \u00a0 Current and non-current financial assets
The breakdown, by type, of the balance of this heading in the consolidated statement of financial position at 31 December 2020 is as follows:
Classification of financial assets by category:
Thousands of euros | ||
2020 | 2019 | |
Non current: | ||
At fair value- | ||
\u00a0 Derivative embedded in BBVA lease agreement | 107.910 | 124,684 |
\u00a0 Available-for-sale financial assets | 103.775 | 17,540 |
At amortised cost- | ||
\u00a0 Equity instruments | 2.595 | 1,174 |
\u00a0 Loans to third parties | 108.704 | 163,630 |
\u00a0 Loans to associates | 625 | 625 |
\u00a0 Deposits and guarantees | 69.138 | 68,969 |
392.747 | 376,622 | |
Current: | ||
At amortised cost- | ||
\u00a0 Investments in associates | 2.093 | 1,055 |
\u00a0 Loans to third parties | 71.767 | \u2014 |
\u00a0 Other financial assets | 5.505 | 6,668 |
\u00a0 Trade and other receivables | 33.368 | 30,263 |
112.733 | 37,986 |
The carrying amount of financial assets recognised at amortised cost does not differ significantly from their fair value.
Derivatives
\u201cDerivatives\u201d includes the value of the embedded derivative corresponding to the inflation multiplier included in the lease agreement with BBVA to revise rents annually (see Note 7). The decrease in the value of the derivative in 2020 amounts to EUR 16,775 thousand (EUR 1,587 thousand increase in 2019). Of the variation, EUR 1,764 thousand, corresponds to the sum the Group collected as part of the sale of the BBVA branches sold in 2020. The rest of the variation, amounting to EUR 15,010 thousand, is recognised under \u201cChange in fair value of financial instruments\u201d in the accompanying 2020 consolidated income statement. The measurement approach used is described in Note 5.7 and is applicable to Level 2 of the fair value measurement hierarchy established in IFRS 7, as observable inputs but not quoted prices are reflected.
Sensitivity to fluctuations of percentage points in the inflation curves is analysed below:
2020
Thousands of euros | ||
Scenario | Assets | Consolidated profit before tax |
+50 bps | 35,434 | 35,434 |
-50 bps | (24,282) | (24,282) |
2019
Thousands of euros | ||
Scenario | Assets | Consolidated profit before tax |
+50 bps | 39,943 | 39,943 |
-50 bps | (27,807) | (27,807) |
Available-for-sale financial assets
The \u201cAvailable-for-sale financial assets\u201d caption includes the Group's investments in companies excluded from the scope of consolidation because they are less than 20% and do not have significant influence.
At 31 December 2020, a holding in Aedas Homes, S.A. is included in the amount of EUR 17,254 thousand, equivalent to 1.7% of its share capital (817,727 shares). The negative change in the fair value of this investment (hierarchical level 1, see Note 5.7) in 2020, amounting to EUR 286 thousand, is recognised under \u201cChanges in the fair value of financial instruments\u201d (market value as of 31 December 2020 is EUR 21.10 per share). This company is listed on the Madrid Stock Exchange.
The corporate purpose of Aedas Homes, S.A. is the acquisition, development and refurbishment of any property assets for their holding, enjoyment, disposal and lease; the acquisition, holding, enjoyment, swap, sale and management of national or foreign transferable securities, as well as any type of titles or rights, such as shares in private limited liability companies.
In addition, this heading includes 15.29% (after the dilution of the holding described in Note 9) in Silicius Real Estate, S.L. amounting to EUR 86,521 thousand acquired by the Parent through an asset injection (see Note 3). This company is not yet listed. In view of the absence of observable data, the Group has used the company\u2019s business plan as its best estimate of its fair value (hierarchical level 3, see Note 5.7). At 31 December 2020, it is very likely that the Parent Company will exercise its option to sell at the purchase price of the transaction, and Management's analysis did not indicate signs of impairment in the investment.
Loans to third parties
The \u201cOther non-current financial assets\" heading includes the loan provided to Desarrollos Urban\u00edsticos Udra, S.A.U. for a sum of EUR 86,397 thousand (see Note 9), which accrues market rate interest. At 31 December 2020, the outstanding amount was EUR 86,397 thousand in principal and EUR 1,725 thousand in interest. In relation to the aforementioned loan, the Group has guarantees from the creditor associated with 10% of the shares in the company.
Likewise, this heading also includes tenant rent linearisation and installation expenses amounting to EUR 19,766 thousand.
The \u201cOther current financial assets\u201d heading includes the loan provided to Juno Holdings 1, S.a.r.l. for EUR 70,000 thousand, which has a bullet repayment on maturity in November 2021. That loan accrues an annual interest rate of 2% due at maturity. At 31 December 2020, the outstanding balance amounted to EUR 70,000 thousand in principal and EUR 1,530 thousand in interest and is recognised under the heading \u2018Other current financial assets\u2019 on the attached consolidated balance sheet.
Deposits and guarantees
\u201cDeposits and guarantees\u201d primarily includes the guarantees provided by tenants as security amounting to EUR 66,706 thousand (EUR 66,488 thousand at 31 December 2019), which the Group has deposited with the housing authority (Instituto de la Vivienda) in each region. At 31 December 2020, deposits paid by tenants as security amounted to EUR 73,376 thousand (EUR 75,563 thousand at 31 December 2019) and were recognised under \u201cNon-current liabilities \u2013 Other financial liabilities\u201d on the liability side of the accompanying consolidated statement of financial position for 2020 (see Note 15).
Classification of financial assets by maturity:
The classification of financial assets by maturity at 31 December 2020 and 2019 is as follows:
2020
Thousands of euros | |||||
Less than 1 year | From 1 to 5 years | Over 5 years | Undetermined maturity | Total | |
Derivative embedded in BBVA lease agreement | \u2014 | \u2014 | 107,910 | \u2014 | 107,910 |
Available-for-sale financial assets | \u2014 | 103,775 | \u2014 | \u2014 | 103,775 |
Equity instruments | \u2014 | \u2014 | \u2014 | 2,595 | 2,595 |
Loans to third parties and associates | 71,767 | 10,508 | 98,821 | \u2014 | 181,096 |
Deposits and guarantees | \u2014 | \u2014 | \u2014 | 69,138 | 69,138 |
Investments in Group companies and associates | 2,093 | \u2014 | \u2014 | \u2014 | 2,093 |
Other financial assets | 5,505 | \u2014 | \u2014 | \u2014 | 5,505 |
Trade and other receivables | 33,368 | \u2014 | \u2014 | \u2014 | 33,368 |
Total financial assets | 112,733 | 114,283 | 206,731 | 71,733 | 505,481 |
2019
Thousands of euros | |||||
Less than 1 year | From 1 to 5 years | Over 5 years | Undetermined maturity | Total | |
Derivative embedded in BBVA lease agreement | \u2014 | \u2014 | 124,684 | \u2014 | 124,684 |
Available-for-sale financial assets | \u2014 | 17,540 | \u2014 | \u2014 | 17,540 |
Equity instruments | \u2014 | \u2014 | \u2014 | 1,174 | 1,174 |
Loans to third parties and associates | \u2014 | 70,874 | 86,695 | 6,686 | 164,255 |
Deposits and guarantees | \u2014 | \u2014 | \u2014 | 68,969 | 68,969 |
Investments in Group companies and associates | 1,055 | \u2014 | \u2014 | \u2014 | 1,055 |
Other financial assets | 6,668 | \u2014 | \u2014 | 6,668 | |
Trade and other receivables | 30,263 | \u2014 | \u2014 | \u2014 | 30,263 |
Total financial assets | 37,986 | 88,414 | 211,379 | 76,829 | 414.608 |
.
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At 31 December 2020, the heading \u201cTrade and other receivables\u201d includes the following items:
Thousands of euros | ||
2020 | 2019 | |
Trade and notes receivable | 19,275 | 27,318 |
Sales debentures | 937 | 487 |
Associates | 403 | 340 |
Sundry accounts receivable | 4,380 | 853 |
Employee receivables | 184 | 184 |
Other receivables from public authorities (Note 17) | 20,222 | 11,748 |
Impairment of trade receivables | (12,033) | (10,667) |
33,368 | 30,263 |
\u201cTrade and notes receivable\u201d in the accompanying consolidated statement of financial position at 31 December 2020 mainly included the balances receivable from leasing investment property. In general these receivables are interest free and the terms of collection range from immediate payment on billing to payment at 30 days, while the average collection period is approximately 5 days (5 days in 2019).
At 31 December 2020, a breakdown by age of overdue receivables not considered impaired is as follows:
Thousands of euros | ||
2020 | 2019 | |
Less than 30 days | 3.500 | 3.541 |
31 to 60 days | 2.248 | 1.247 |
61 to 90 days | 749 | 747 |
More than 90 days | 555 | 657 |
7.052 | 6.192 |
At 31 December 2020 and 2019, no collection rights had been transferred to financial institutions.
In accordance with IFRS 9, the Group periodically analyses the risk of insolvency of its accounts receivable by updating the related provision for impairment losses. The Group\u2019s directors consider that the amount of trade and other receivables approximates their fair value.
The changes in the impairment losses and bad debt in 2020 and 2019 were as follows:
Thousands of | |
Euros | |
Balance at 31 December 2018 | (11.924) |
Changes in the scope of consolidation | 1.276 |
Allocations | (1.178) |
Reversals/amounts used | 1.028 |
Other | 131 |
Balance at 31 December 2019 | (10.667) |
Changes in the scope of consolidation | \u2014 |
Allocations | (2.224) |
Reversals/amounts used | 773 |
Other | 85 |
Balance at 31 December 2020 | (12.033) |
Losses from bad debts amounted to EUR 289 thousand in 2020.
The majority of impaired receivables are overdue by more than six months.
Details of the concentration of customers (customers that account for a significant share of business) are included in the segment information in Note 6.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl82NC9mcmFnOmVhYmIxMmIwMDcwMjQyN2M5NTk0MzlkNjFhN2M4OTY2L3RleHRyZWdpb246ZWFiYjEyYjAwNzAyNDI3Yzk1OTQzOWQ2MWE3Yzg5NjZfNjgz_5ffa40f1-ea4f-4c02-9250-273172d9333d": { "value": "12.\u00a0 \u00a0 Cash and cash equivalents
\u201cCash and cash equivalents\u201d includes the Group\u2019s cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets does not differ from their fair value.
At 31 December 2020 and 2019, the balance of \u201cCash and cash equivalents\u201d is freely available, except for EUR 6,748 thousand and EUR 6,749 thousand, respectively, which mainly include a reserve account to cover payment of a quarterly instalment of the syndicated mortgage loan.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl82Ny9mcmFnOmU1ZjM2MjQyYTE3ODQ0Zjg5ZDhhZDE0ZjE5MWZmZjU1L3RleHRyZWdpb246ZTVmMzYyNDJhMTc4NDRmODlkOGFkMTRmMTkxZmZmNTVfOTM0NTg0ODg3MzYxMg_96c30925-13fa-4972-9d05-1ace9420e967": { "value": "13.\u00a0 \u00a0 Equity
The detail of \"Equity\" and of the changes therein is presented in the consolidated statement of changes in equity.
13.1 Share capital
At 31 December 2020, the share capital of Merlin Properties SOCIMI, S.A., amounted to EUR 469,771 thousand, represented by 469,770,750 fully subscribed and paid shares of EUR 1 par value each, all of which are of the same class and confer the holders thereof the same rights.
All the Parent Company's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia and Lisbon Stock Exchanges. The market price of the Parent\u2019s shares at 31 December 2020 and the average market price for the fourth quarter amounted to EUR 7.78 and EUR 7.22 per share, respectively.
At 31 December 2020, according to information extracted from the CNMV, in relation to the provisions of Royal Decree 1362/2007, of 19 October and Circular 2/2007, of 19 December, the shareholders with significant holdings in the share capital of Merlin Properties SOCIMI, S.A., both direct and indirect, in excess of 3% of the share capital, are the following according to public information:
Shares | % of share capital | |||
Direct | Indirect | Total | ||
Banco Santander, S.A. | 89,254,715 | 26,072,123 | 115,326,838 | 24.549% |
Manuel Lao Hern\u00e1ndez (*) | \u2014 | 29,459,324 | 29,459,324 | 6.271% |
BlackRock, INC | \u2014 | 18,773,897 | 18,773,897 | 3.996% |
The information of Banco Santander refers to the 2020 period, as communicated to the Company by this significant shareholder.
The most significant shareholder movement in the year was the entry into the share capital of the Company of NORTIA CAPITAL INVESTMENT HOLDING, S.L. with 6.271% (whose controlling shareholder is Manuel Lao Hern\u00e1ndez).
13.2 Share premium
The Consolidated Text of the Spanish Limited Liability Companies Law expressly permits the use of the share premium to increase capital and establishes no specific restrictions as to its use.
This reserve is unrestricted so long as its allocation does not lower equity to below the amount of share capital.
13.3 Other reserves
The detail of reserves at 31 December 2020 and 2019 is as follows:
\u00a0 | Thousands of euros | |
\u00a0 | 2020 | 2019 |
\u00a0 | ||
To legal reserve | 65,133 | 47,193 |
Reserves of consolidated companies | 2,385,540 | 2,001,298 |
Other reserves | 59,202 | 45,784 |
Total other reserves | 2,509,875 | 2,094,275 |
To legal reserve
The legal reserve will be established in accordance with article 274 of the Consolidated Corporate Enterprise Law, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital.
This reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available for this purpose, it must be restored with future profits.
At 31 December 2020, the Group had not yet reached the legally required minimum established in the Consolidated Text of the Corporate Enterprise Law.
The legal reserve of companies which have chosen to avail themselves of the special tax regime established in Law 11/2009, of 26 October, governing REITs, must not exceed 20% of share capital. The Articles of Association of these companies may not establish any other type of restricted reserves.
Reserves of consolidated companies
The detail of the reserves of consolidated companies is as follows:
Thousands of euros | ||
\u00a0 | 2020 | 2019 |
Merlin Properties SOCIMI, S.A. | 886,692 | 780,763 |
Tree Inversiones Inmobiliarias, SOCIMI, S.A. | 471,974 | 449,073 |
Merlin Retail, S.L.U. | 127,179 | 121,401 |
Merlin Oficinas, S.L.U. | 257,143 | 223,962 |
Merlin Log\u00edstica, S.L.U. | 300,892 | 211,033 |
Varitelia Distribuciones, S.L. | 48,027 | 43,743 |
Metroparque, S.A. | 73,981 | 70,317 |
La Vital Centro Comercial y de Ocio, S.L. | 15,568 | 14,281 |
Global Carihuela Patrimonio Comercial, S.A. | (234) | 2,389 |
Sadorma 2003, S.L. | (5,243) | (5,386) |
Parques Log\u00edsticos de la Zona Franca, S.A. | 38,912 | 8,396 |
Sevisur Log\u00edstica, S.A. | 18,361 | 17,274 |
Innovaci\u00f3n Colaborativa, S.A. | (4,114) | \u2014 |
Desarrollo Urbano de Patraix, S.A. | 232 | 238 |
Global Murex Iberia, S.L. | (30) | (12) |
Exhbitions Company, S.A.U | (17) | (4) |
Gescentesta, S.L.U. | 629 | 480 |
Milos Asset Management, S.L. | (1) | \u2014 |
MP Monumental, S.A. | 42,334 | 37,135 |
MP Torre A, S.A. | 13,865 | 9,838 |
MPCVI- Compra e venda Imobili\u00e1ria, S.A. | 13,796 | 9,665 |
MPEP-Properties Escrit\u00f3rios Portugal, S.A. | 6,338 | (31) |
VFX Log\u00edstica, S.A. | (2,078) | 769 |
Promosete Investimentos Imobiliarios, S.A. | 14,841 | 8,911 |
Pra\u00e7a do Marqu\u00e9s-Servi\u00e7os auxiliares, S.A. | 19,980 | 8,101 |
Forum Almada \u2013 Gestao Centro Comercial, Lda | 15,828 | (14,095) |
Torre dos Oceanus Investimentos Inmobiliarios,S.A. | 12,627 | 3,057 |
Torre Art, S.A. | 11,492 | \u2014 |
Torre Fernao Magalhanes, S.A. | 6,566 | \u2014 |
| 2,385,540 | 2,001,298 |
Dividends
On 17 June 2020, the General Shareholders Meeting approved the distribution of a dividend of EUR 68,518 thousand charged to the profit for 2019.
13.4 Treasury shares
At 31 December 2020, the Parent held treasury shares amounting to EUR 54,149 thousand.
The changes in 2020 were as follows:
Number of | Thousands of | |
Shares | euros | |
Balance at 01 January 2019 | 6,150,000 | 68,322 |
Additions | 52,776 | 633 |
Disposals | (1,125,407) | (12,095) |
Balance at 31 December 2019 | 5,077,369 | 56,860 |
Additions | 26,177 | 279 |
Disposals | (267,043) | (2,990) |
Balance at 31 December 2020 | 4,836,503 | 54,149 |
On 27 April 2017, the shareholders authorised the Board of Directors to acquire shares of the Parent Company. The General Shareholders Meeting held on 7 May 2018 revoked the authorisation granted by the General Meeting of April 2017 in the part not used and then authorised the acquisition of shares by the Company itself or by a Group company, pursuant to article 146 and related provisions of the Corporate Enterprises Act, in accordance with the requirements and restrictions established in prevailing legislation during the five-year period. The authorisation includes the acquisition of shares that, where applicable, must be handed over directly to employees or directors of the Parent or of Group companies as a result of the purchase option they hold or for the settlement and payment of share-based incentive plans of which they are beneficiaries.
In 2020 the Parent acquired 26,177 treasury shares at an average cost of EUR 10.63 per share. At 31 December 2020, the Parent held treasury shares representing 1.03% of its share capital.
The withdrawals of own shares amounting to EUR 2,990 thousand (average price of EUR 11.20 per share) correspond mainly to EUR 2,765 thousand (average price of EUR 11.20 per share), to the delivery of shares to employees within the Flexible Remuneration Plan and the 2017-19 LTIP. There were also EUR 225 thousand in sales in 2020 (at an average cost of EUR 11.20 per share).
13.5 Capital management
The Group\u2019s capital management objectives are to safeguard its capacity to continue operating as a going concern so that it can continue to provide returns to shareholders and to benefit interest groups, and to maintain an optimum financial structure to reduce the cost of capital.
In line with the practices of other groups present in the sector, the Group controls its capital structure through the leverage ratio, calculated as net debt divided by total capital. Net debt is determined as the sum of financial liabilities less cash and cash equivalents. Total capital is calculated as the sum of equity plus net debt.
Thousands of euros | ||
2020 | 2019 | |
Total financial debt (b) | 5,735,023 | 5,567,217 |
Less - Cash and cash equivalents and | ||
\u00a0 Other current financial assets (a) | (466,540) | (384,724) |
Net debt | 5,268,483 | 5,182,493 |
Equity | 6,696,267 | 6,708,700 |
Total capital | 11,964,750 | 11,891,193 |
Debt-to-equity ratio | 44,03% | 43,58% |
(a)Included is the financial asset available for sale corresponding to 50% of the shares acquired from Silicius Real Estate, S.L. (see Note 3) amounting to EUR 86,521 thousand, as well as the loan granted by the Parent to Juno Holdings I, S.A.R.L. in 2019 amounting to EUR 70,000 thousand, as an integral part of the sale of a group of real estate assets. In 2019, the amount of the same loan granted by the Parent to Juno Holdings I, S.A.R.L. was included. (Note 7). In both years, the amount of treasury shares is included as other current financial assets.
(b)Gross debt amounts without considering debt formalisation expenses.
13.6 Earning per share
Basic
Basic earnings per share are calculated by dividing the net profit attributable to common equity holders of the Parent by the weighted average number of ordinary shares outstanding during the period, excluding treasury shares.
The detail of the calculation of basic earnings per share is as follows:
2020 | 2019 | |
Profit for the year attributable to holders of equity instruments net of the Parent Company (thousands euros) | 56,358 | 563,639 |
Weighted average number of shares outstanding (thousands) | 464,900 | 464,454 |
Basic earnings per share (euros) | 0,12 | 1,21 |
The average number of ordinary shares outstanding is calculated as follows:
Number of shares | ||
2020 | 2019 | |
Ordinary shares at beginning of period | 469,770,750 | 469,770,750 |
Treasury shares | (4,836,503) | (5,077,369) |
Average adjustment of outstanding shares | (34,336) | (238,899) |
Weighted average number of ordinary shares outstanding at 31 December 2014 (shares) | 464,899,911 | 464,454,482 |
Diluted
In accordance with paragraph 41 of IAS 33, potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares could reduce the earnings per share of the continuing activities.
As indicated in Note 20, the Group has granted its executives and key personnel a variable remuneration plan payable in shares on condition that the shareholder return rate during the 3-year period ending in 2019 reaches a certain level. The amount of this variable remuneration amounts to a maximum of EUR 75 million, which will be paid with a variable number of shares, limited to a maximum of 6 million. At 31 December 2019 (the end of the measurement period) and taking into account the final share reference price (i.e., the average closing share price for the Company in the 90 trading sessions before 31 December 2019) 5,874,111 shares were allocated.
Taking into account the characteristics of the plan (detailed in Note 20) and the fulfilment of its terms, at 31 December 2020 the plan would have a dilutive effect on earnings per share.
Diluted earnings per share are calculated by adjusting the profit attributable to equity holders of the Parent by the weighted average ordinary shares outstanding after adjusting for the dilutive effects of potential ordinary shares, i.e., as if all potentially dilutive ordinary shares had been converted.
The potential ordinary shares of the variable remuneration plan, as stated in paragraph 46 of IAS 33, have been determined as if the plan consisted of a contract to issue a certain number of ordinary shares at their average market price during the period, which will not have dilutive effect, and a contract to issue the remaining ordinary shares for free.
The detail of the calculation of the diluted earnings per share is as follows:
2020 | |||
Thousands of euros | Thousands of shares | Earnings per share | |
Profit for the year attributable to holders of equity instruments net of the Parent Company (thousands euros) | 56,358 | ||
Weighted average number of shares outstanding (thousands) | \u2014 | 464,900 | 0,12 |
Weighted average number of potential ordinary shares to be delivered under the variable remuneration plan (Note 20). | \u2014 | 5,874 | |
Weighted average number of potential ordinary shares not provisioned at market price | \u2014 | (781) | |
Diluted earnings per share (euros) | 56,358 | 469,993 | 0,12 |
13.7 Valuation adjustments
This heading of the consolidated statement of financial position includes changes in the value of financial derivatives designated as cash flow hedges. Movement in this heading in 2020 was as follows:
Thousands of | |
euros | |
Balance at 31 December 2018 | (36,906) |
Changes in the fair value of hedges in the | |
\u00a0 year | (46,229) |
Balance at 31 December 2019 | (83,135) |
Changes in the fair value of hedges in the | |
\u00a0 year | (16,402) |
Balance at 31 December 2020 | (99,537) |
.
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At 31 December 2020, current and non-current liabilities were as follows:
Thousands of euros | ||
2020 | 2019 | |
Non current: | ||
Measured at amortised cost | ||
\u00a0 Syndicated loan | 850,000 | 850,000 |
\u00a0 Syndicated loan arrangement expenses | (11,054) | (14,361) |
\u00a0 Total syndicated loan | 838,946 | 835,639 |
\u00a0 Senior syndicated mortgage loan (Tree) | 670,133 | 692,520 |
\u00a0 Syndicated mortgage loan arrangement costs (Tree) | (52,276) | (57,486) |
\u00a0 Total senior syndicated mortgage loan (Tree) | 617,857 | 635,034 |
Revolving credit facility | \u2014 | \u2014 |
Non-mortgage loan | 29,000 | \u2014 |
Mortgage loans | 84,637 | 260,093 |
Loan arrangement expenses | (5,688) | (8,675) |
Total other loans | 107,949 | 251,418 |
\u00a0 Debentures and bonds | 4,091,086 | 3,750,000 |
\u00a0 Debenture issue expenses | (25,284) | (26,586) |
Total debentures and bonds | 4,065,802 | 3,723,414 |
Total amortised cost | 5,630,554 | 5,445,507 |
Measured at fair value | ||
Derivative financial instruments | 127,345 | 95,695 |
Total at fair value | 127,345 | 95,695 |
Total non-current | 5,757,899 | 5,541,202 |
Current: | ||
Measured at amortised cost | ||
\u00a0 Syndicated loan | 644 | 2,501 |
\u00a0 Senior syndicated mortgage loan (Tree) | 9,016 | 9,335 |
\u00a0 Debentures and bonds | 36,291 | 34,631 |
\u00a0 Mortgage loans | 1,795 | 5,100 |
\u00a0 Revolving credit facility | 404 | 161 |
\u00a0 Non-mortgage loan | 125 | \u2014 |
\u00a0 Loan arrangement expenses | \u2014 | (2) |
\u00a0 Total amortised cost | 48,275 | 51,726 |
Measured at fair value | ||
Derivative financial instruments | 1,277 | 1,231 |
Total at fair value | 1,277 | 1,231 |
Total current | 49,552 | 52,957 |
There is no material difference between the carrying amount and the fair value of financial liabilities at amortised cost.
On 20 April 2016, the Parent Company was given a credit rating of \u201cBBB\u201d with stable outlook by Standard & Poor\u2019s Rating Credit Market Services Europe Limited. On 24 May 2018, Standard & Poor's updated this rating to \u201cBBB\u201d with a positive outlook, changing it to stable outlook due to the COVID-19 pandemic on 27 March 2020.
Additionally, on 17 October 2016, the Company was given a credit rating of investment grade \u201cBaa2\u201d by Moody\u2019s. On 27 May 2020, Moody's updated this rating to \u201cBaa2\u201d with a negative outlook due to the COVID-19 pandemic.
14.1 Loams
The detail of loans at 31 December 2020 is as follows:
Thousands of euros | |||||
Bank borrowings | |||||
Initial loan / Limit | Expenses incurred from formalising loans (Note 14.5) | 31.12.2020 | |||
Long term | Short term | Short-term interest | |||
Syndicated loan | 850,000 | (11,054) | 850,000 | \u2014 | 644 |
Non-mortgage loan | 115,000 | (47) | 29,000 | \u2014 | 125 |
Revolving credit facilities | 700,000 | (3,026) | \u2014 | \u2014 | 404 |
Senior syndicated mortgage loan (Tree) | 716,894 | (52,276) | 670,133 | 8,443 | 573 |
Mortgage loans - other assets | 88,900 | (2,615) | 84,637 | 1,724 | 71 |
Total | 2,470,794 | 69,018 | 1,633,770 | 10,167 | 1,817 |
2019
\u00a0 | Thousands of euros | ||||
Bank borrowings | |||||
\u00a0 | Initial loan / Limit | Expenses incurred from formalising loans (Note 14.5) | 31.12.2019 | \u00a0 | |
\u00a0 | Long term | Short term | Short-term interest | ||
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Syndicated loan | 881,000 | (14,361) | 850,000 | 1,905 | 596 |
Revolving credit facilities | 700,000 | (3,023) | \u2014 | \u2014 | 161 |
Senior syndicated mortgage loan (Tree) | 716,894 | (57,486) | 692,520 | 8,725 | 610 |
Mortgage loans - other assets | 268,000 | (5,652) | 260,093 | 3,974 | 1,126 |
Non-mortgage loan | 115,000 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 2,680,894 | (80,522) | 1,802,613 | 14,604 | 2,493 |
Syndicated loan and revolving credit facilities - Parent
On 25 April 2019, the Group arranged a senior syndicated loan amounting to EUR 1,550 million, including two tranches, a corporate loan of EUR 850 million and a corporate credit facility of EUR 700 million due in 2024.
The initial maturity date for this revolving credit facility was 2024, with the possibility of two optional one-year extensions. The first one-year extension was approved on 2 July 2020, and the new maturity date is 9 May 2025.
The corporate loan accrues an interest rate of the one-month EURIBOR + 120 basis points, while the revolving credit facility yields an interest rate of the one-month EURIBOR + 90 basis points, and both incorporate a cost adjustment mechanism based on four sustainability criteria.
On 20 March 2020, the Group drew down EUR 700 million from its corporate credit facility to optimise and strengthen its financial position in view of the uncertainty generated by COVID-19. On 17 July 2020 the Group repaid the full amount drawn down from its credit facility.
In accordance with IFRS 9, the Group assessed in 2019 the nature of the refinancing undertaken previously, concluding that it does not represent a substantial change (10% test). Therefore, the difference between the value of the old debt at amortised cost and the new debt discounted at the effective interest rate of the old debt was recognised in 2019 as a lower financial expenses of EUR 7,797 thousand under \u201cFinancial expenses\u201d in the consolidated income statement. This amount will revert to the consolidated income statement for subsequent years in accordance with the effective interest rate of the debt. In 2020, the application of the amortised cost in relation to these concepts involved a financial cost of EUR 1,795 thousand (EUR 1,162 thousand in 2019).
This financial arrangement maintains the commitments to maintain certain coverage ratios existing in the previous financial arrangement and in the Group's bonds. The Parent\u2019s directors have confirmed that these ratios were met at 31 December 2020 and do not expect that they will not be fulfilled in the coming years.
Unsecured loan of the Parent
On 20 December 2018, the Parent formalised a loan without mortgage security with the European Investment Bank in an amount of EUR 51,000 thousand and with 10-year maturity. On 4 November 2019, the Parent formalised the second tranche of the mortgage-free loan with the European Investment Bank amounting to EUR 64,000 thousand, amounting to EUR 115,000 thousand. This financing has a maturity of 10 years. This credit facility will be allocated to the development of logistical assets in the Castilla\u2013La Mancha region.
On 10 March 2020 and 26 October 2020, the Group drew down EUR 23,400 thousand and EUR 5,600 thousand corresponding to the first tranche of the financing. This loan accruals a fixed interest rate of 60 basis points.
Syndicated loans - Subsidiaries
Syndicated loan without mortgage guarantee signed by Sevisur Log\u00edstica, S.A. for EUR 31,000 thousand in principal, maturing in September 2020. This financing consists of two tranches of EUR 25,000 and 6,000 thousand, with a market rate of EURIBOR + 125 and 200 basis points, respectively. In 2020, the company repaid it.
At the end of 2018, Parc Logistic de la Zona Franca, S.A. maintained a loan without mortgage collateral with a balance of EUR 23,336 thousand maturing in 2019. In 2019, the company repaid it.
Senior syndicated mortgage loan (Tree):
The senior syndicated mortgage loan of the subsidiary, Tree Investments Inmobiliarias SOCIMI, S.A., was signed on 29 July 2010 and novated for the first time on 30 December 2014.
The refinancing for 2014 and the first application of IFRS 9 \u2018Financial Instruments\u2019 resulted in an increase in reserves and a decrease in debt amounting to EUR 30,592 thousand at 1 January 2018, as well as an increase in financial expenditure amounting to EUR 10,083 thousand in 2018.
On 29 November 2018, the senior syndicated loan was novated so that the initially scheduled maturity in 2024 was postponed until 31 March 2031 with the possibility of extending the maturity annually for the next 3 years until 31 March 2034. The first of these extensions was approved in 2020. This financing accrues interest at a rate of the 3-month EURIBOR + 120 basis points.
In accordance with IFRS 9, the Group evaluated the nature of the refinancing undertaken in 2018 and concluded that it did not represent a material change (10% test). In accordance with IFRS 9, the difference between the value of the old debt at amortised cost and the new debt updated at the effective interest rate of the old debt was recognised as a financial result. This result will revert to the consolidated income statement for subsequent years in accordance with the effective interest rate of the debt. In 2020, the application of the amortised cost in relation to these concepts involved a financial cost of EUR 4,472 thousand (EUR 4,439 thousand in 2019).
The financing includes commitments to maintain certain coverage ratios, which are standard in these types of real estate companies, such as the loan-to-value ratio, the ratio of the subsidiary\u2019s income used to service the debt (interest coverage ratio, ICR), and a minimum credit rating of BBVA from ratings agencies. The Parent\u2019s directors have confirmed that these ratios were met at 31 December 2020 and do not expect that they will not be fulfilled in the coming years.
Secured loans - other assets
At 31 December 2020, the Group\u2019s subsidiaries had taken out the following mortgage loans:
Thousands of euros | |||||
Loan | Long-term | Short-term | |||
Financial institution | Original | Term | Term | Interest | Collateral |
Caixabank | 21,000 | 16,737 | 1,724 | 69 | Hipotecaria |
ING | 67,900 | 67,900 | \u2014 | 2 | Hipotecaria |
Total | 88,900 | 84,637 | 1,724 | 71 |
2019:
Thousands of euros | |||||
Loan | Long-term | Short-term | |||
Financial institution | Original | Term | Term | Interest | Collateral |
Allianz Real Estate | 133,600 | 133,600 | \u2014 | 888 | Hipotecaria |
Caixabank | 21,000 | 18,462 | 1,699 | 76 | Hipotecaria |
Caixabank | 45,500 | 40,131 | 2,275 | 160 | Hipotecaria |
ING | 67,900 | 67,900 | \u2014 | 2 | Hipotecaria |
Total | 268,000 | 260,093 | 3,974 | 1,126 |
On 19 February 2015, the Group entered into a mortgage-backed loan with Allianza Real Estate for the Marineda shopping centre. The principal of the loan taken out amounted to EUR 133,600 thousand, has a term of 10 years, accrues interest at a fixed rate of 2.66% and the principal is repayable in full upon maturity. On 1 September 2020, the Group repaid this financing early.
On 26 March 2015, the Group subrogated a mortgage-backed loan taken out with Caixabank, S.A. with a mortgage guarantee on the Alcal\u00e1 38-40 office building. This loan has a principal of EUR 21,000 thousand, a term of 15 years, an interest rate of 3-month EURIBOR + 150 basis points, a 4-year grace period for the principal, and the principal is repayable in full using the French method over the following 11 years.
On 2 October 2015, the Group took out a first-ranking floating-rate mortgage-backed loan with Caixabank, S.A. on the portfolio made up of 33 property assets in Catalonia. This loan has a principal of EUR 45,500 thousand that will be allocated to finance a portion of the acquisition price of the assets portfolio. It matures in October 2025 and accrues interest at the rate of the 3-month EURIBOR + 150 basis points until the end of the loan, which is payable on a quarterly basis. On 31 July 2020, the Group repaid this financing early.
On 26 April 2019, the Group entered into a novation agreement modifying the mortgage loan subscribed on 4 December 2015 with ING Bank N.V. by the subsidiary Merlin Log\u00edstica S.L.U. The due date for this financial arrangement, originally set to be in 2020, was extended until 2026.\u00a0 This financial arrangement accrues an interest rate of EURIBOR at three months + 100 basis points; it includes a cost adjustment mechanism based on four sustainability criteria. This loan requires that the company maintain and comply with certain coverage ratios, such as the loan-to-value ratio and the ratio of the company\u2019s income used to service the debt (interest coverage ratio, ICR). The Parent\u2019s directors have confirmed that these ratios were met at 31 December 2020 and do not expect that they will not be fulfilled in the coming years.
In accordance with IFRS 9, the Group evaluated the nature of the refinancing undertaken of the previous ING loan and concluded that it did not represent a material change (10% test). Therefore, the difference between the value of the old debt at amortised cost and the new debt discounted at the effective interest rate of the old debt was recognised as a lower financial expenses of EUR 2,291 thousand under \u201cFinancial expenses\u201d on the 2019 consolidated income statement. This amount will revert to the consolidated income statement for subsequent years in accordance with the effective interest rate of the debt.
In 2020, the application of the amortised cost in relation to these concepts involved a financial cost of EUR 363 thousand (EUR 248 thousand in 2019).
Maturity of debt
The breakdown by maturity of these loans is as follows:
2020
Thousands of euros | |||||
Secured | Revolving | ||||
Syndicated | Senior | Syndicated | line of | ||
Loan | Tree | Secured | credit | Total | |
2021 | \u2014 | 8,443 | 1,724 | \u2014 | 10,167 |
2022 | \u2014 | 9,996 | 1,750 | \u2014 | 11,746 |
2023 | \u2014 | 9,847 | 1,777 | \u2014 | 11,624 |
2024 | 850,000 | 9,700 | 1,802 | \u2014 | 861,502 |
2025 | \u2014 | 17,435 | 1,824 | \u2014 | 19,259 |
Over 5 years | 29,000 | 623,155 | 77,484 | \u2014 | 729,639 |
879,000 | 678,576 | 86,361 | \u2014 | 1,643,937 |
2019
Thousands of euros | |||||
Mortage | Revolving | ||||
Syndicated | Senior | Syndicated | line of | ||
Loan | Tree | Secured | credit | Total | |
\u00a0 | \u00a0 | ||||
2020 | 1,905 | 8,725 | 3,974 | \u2014 | 14,604 |
2021 | \u2014 | 8,616 | 5,401 | \u2014 | 14,017 |
2022 | \u2014 | 10,201 | 5,914 | \u2014 | 16,115 |
2023 | \u2014 | 10,049 | 6,418 | \u2014 | 16,467 |
2024 | 850,000 | 9,899 | 6,921 | \u2014 | 866,820 |
Over 5 years | \u2014 | 653,755 | 235,439 | \u2014 | 889,194 |
\u00a0 | 851,905 | 701,245 | 264,067 | \u2014 | 1,817,217 |
The Group had undrawn loans and credit facilities at 31 December 2020 with a number of financial institutions totalling EUR 786 million (EUR 815 million at 31 December 2019).
None of the Group\u2019s debt was denominated in non-euro currencies at 31 December 2020 or 2019.
There are no significant differences between the fair values and carrying amounts of the Group\u2019s financial liabilities.
The finance cost for interest on the loans totalled EUR 25,113 thousand in 2020 (EUR 27,810 thousand in 2019) and is recognised in the accompanying consolidated income statement for 2019.
At 31 December 2020 and 2019, the debt arrangement expenses had been deducted from the balance of \u201cBank borrowings\u201d. In 2020, the Group charged an expense of EUR 13,296 thousand (in 2019 a lower expense of EUR 1,092 thousand was charged) under the heading \u2018Financial costs\u2019 of the accompanying consolidated income statement (see Note 18.d) related to the debt. This allocation in the accompanying consolidated income statement includes both the first application of IFRS 9 and the allocation of the debt to the income statement at amortised cost.
14.2 Debenture issues
On 12 May 2017, the Parent subscribed a Euro Medium Term Notes (EMTN) issue programme of up to EUR 4,000 million, which will replace the original bond issue programme and its supplement subscribed on 25 April 2016 and 14 October 2016, respectively, for an overall maximum amount of EUR 2,000 million.
On 18 May 2018, the Parent Company extended that bond-issue scheme (Euro Medium Term Notes \u2013 EMTN) up to an amount of EUR 5,000 million. This programme was renewed on 22 May 2020.
On 7 February 2020, the Parent issued a bond of EUR 100 million at 15 years at 102% of the nominal value and with a coupon of 1.875%, in addition to EUR 500 million of the same bond issued in the fourth quarter of 2019.
On June 17, 2020, the General Shareholders' Meeting approved the extension of this bond issuance program up to an amount of EUR 6 billion.
On 13 July 2020, the Parent issued a bond of EUR 500 million at 7 years with a coupon of 2.375%. Some of the funds were used to repurchase EUR 151.7 million of the bond maturing in 2022 and EUR 107.2 million of the bond maturing in 2023. The remainder (EUR 241.1 million) was used to early settle mortgage loans maturing in 2025.
The terms of the bonds issued by the Group abide by UK laws and are traded on the Luxembourg Stock Exchange. The bond issue scheme has the same guarantees and ratio compliance obligations as the syndicated loan and the revolving credit facility. At year-end 2020, the Group complied with the covenants set forth in this contract and the directors consider that they will be met in 2021.
The detail at 31 December 2020 of the bonds issued by Parent is as follows (in thousands of euros):
Maturity | Face value | Coupon | Listed price | Yield | Market |
(Millions of Euros) | |||||
May 2022 | 548 | 2,375% | MS + 36 p.b. | -0,16% | Ireland (a) |
April 2023 | 743 | 2,225% | MS + 56 p.b. | 0,04% | Luxembourg |
May 2025 | 600 | 1,750% | MS + 98 p.b. | 0,51% | Luxembourg |
November 2026 | 800 | 1,875% | MS + 118 p.b. | 0,75% | Luxembourg |
July 2027 | 500 | 2,375% | MS + 146 p.b. | 1,10% | Luxembourg |
September 2029 | 300 | 2,375% | MS + 164 p.b. | 1,32% | Luxembourg |
December 2034 | 600 | 1,875% | MS + 185 p.b. | 1,74% | Luxembourg |
4.091 | 2,085% |
2019
Maturity | Face value | Coupon | Listed price | Yield | Market |
(Millions of Euros) | |||||
May 2022 | 700 | 2,375% | MS + 32 p.b. | 0,31% | Irlanda (a) |
April 2023 | 850 | 2,225% | MS + 51 p.b. | 0,46% | Luxemburgo |
May 2025 | 600 | 1,750% | MS + 72 p.b. | 0,68% | Luxemburgo |
November 2026 | 800 | 1,875% | MS + 84 p.b. | 0,89% | Luxemburgo |
September 2029 | 300 | 2,375% | MS + 119 p.b. | 1,43% | Luxemburgo |
December 2034 | 500 | 1,875% | MS + 146 p.b. | 1,95% | Luxemburgo |
3.750 | 2,068% |
(a) Due to the business combination with Metrovacesa carried out in 2016, the Group recognised a bond issue launched by Metrovacesa for EUR 700 million. The terms of the bonds abide by UK laws and are traded on the Irish Stock Exchange. This issue also includes a series of compliance obligations and guarantees, which is common in these types of transactions. At year-end 2020, the Group complied with the covenants set forth in this contract and the directors consider that they will be met in 2021.
The finance cost for interest on the debenture issues amounted to EUR 82,109 thousand (EUR 68,787 thousand in 2019) and is recognised in the accompanying consolidated income statement for 2020. The accrued interest payable at 31 December 2020 amounted to EUR 36,291 thousand (EUR 34,631 thousand in 2019). Debt arrangement expenses taken to the consolidated income statement in 2020 amounted to EUR 5,610 thousand (EUR 4,255 thousand in 2019).
14.3 Derivatives
The detail of the financial instruments as of 31 December 2020 is as follows:
Thousands of euros | ||
2020 | 2019 | |
Non-current | ||
Interest rate derivatives | 127.345 | 95.695 |
\u00a0 Total non-current | 127.345 | 95.695 |
Current | ||
Interest rate derivatives | 1.277 | 1.231 |
\u00a0 Total current | 1.277 | 1.231 |
To determine the fair value of the interest rate derivatives, the Group discounts its cash flows based on the embedded derivatives determined by the euro interest rate curve in accordance with market conditions on the measurement date.
These financial instruments are classified as Level 2 as per IFRS 7.
The detail of the derivative financial instruments included in the consolidated statement of financial position at 31 December 2020 is as follows:
2020
Thousands of euros | ||
Assets | Liabilities | |
Financial | Financial | |
Non-current | ||
Interest rate derivatives | \u2014 | 127,345 |
Derivative embedded in contract | ||
\u00a0 BBVA lease (Note 10) | 107,910 | \u2014 |
Current | ||
Interest rate derivatives | \u2014 | 1,277 |
Total derivatives recognised | 107,910 | 128,622 |
2019
Thousands of euros | ||
Assets | Liabilities | |
Financial | Financial | |
Non-current | ||
Interest rate derivatives | \u2014 | 95,695 |
Derivative embedded in contract | \u2014 | \u2014 |
\u00a0 BBVA lease (Note 10) | 124,684 | \u2014 |
Current | ||
Interest rate derivatives | \u2014 | 1,231 |
Total derivatives recognised | 124,684 | 96,926 |
At the end of 2020, the interest rate hedge financial instruments came mainly from the corporate syndicated loan of the Parent, which was refinanced in the first half of 2020, as well as from the syndicated mortgage financing of the subsidiary Tree Inversiones Inmobiliarias SOCIMI, S.A.
On the occasion of the refinancing of the syndicated loan of the Parent, a new interest rate swap (IRS) was signed to hedge the extension of the maturity of the financing from 2021 to 2024. The notional contract amounts to EUR 850,000 thousand at a cost of 0.0154%.
On 26 April 2019, the subsidiary Merlin Logistics S.L.U., in the framework of the refinancing of the mortgage loan with ING Bank N.V., signed a new interest rate swap (IRS) to hedge the extension of the maturity of the financing from 2020 to 2026. The notional contract amounts to EUR 67,900 thousand at a cost of 0.31%.
On the occasion of the novation of the mortgage loan of Tree Inversiones Inmobiliarias SOCIMI, S.A. on 18 December 2018, a new interest rate swap (IRS) was signed to hedge the maturity extension of the mortgage loan from 2024 to 2031. The notional contract amounted to EUR 662,514 thousand and a cost of 1.693%.
The derivatives arranged by the Group and their fair values are as follows (in thousands of euros):
2020
Thousands of euros | |||||||
Outstanding notional amount at each date | |||||||
Interest rate | Interest | Fair | Years | ||||
Contracted | Value | 2020 | 2021 | 2022 | 2023 | years | |
| |||||||
Syndicated Parent (ending 2021) | 0,0981% - (0,12%) | (2,519) | 840,000 | \u2014 | \u2014 | \u2014 | \u2014 |
Syndicated Parent starting 2021) | 0.0154% | (13,805) | 850,000 | 850,000 | 850,000 | \u2014 | |
Tree Inversiones (ending 2024) | 0,959% | (38,975) | 698,213 | 688,405 | 677,196 | 665,987 | \u2014 |
Tree Inversiones (starting 2024) | 1,693% | (70,457) | 660,029 | ||||
Other subsidiaries | 0,31% | (2,866) | 67,900 | 67,900 | 67,900 | 67,900 | 67,900 |
(128,622) | 1,606,113 | 1,606,305 | 1,595,096 | 1,583,887 | 727,929 |
2019
Thousands of euros | |||||||
Outstanding notional amount at each date | |||||||
Interest rate | Interest | Fair | Years | ||||
Contracted | Value | 2019 | 2020 | 2021 | 2022 | years | |
Syndicated Parent (ending 2021) | 0,0981% - (0,12%) | (5,290) | 840,000 | 840,000 | \u2014 | \u2014 | \u2014 |
Syndicated Parent starting 2021) | 0.0154% | (5,279) | 850,000 | 850,000 | 850,000 | ||
Tree Inversiones (ending 2024) | 0,959% | (38,505) | 707,553 | 698,213 | 688,405 | 677,196 | 665,987 |
Tree Inversiones (starting 2024) | 1,693% | (44,590) | \u2014 | \u2014 | \u2014 | \u2014 | 660,029 |
Other subsidiaries | 2,085% - 0,25% | (2,031) | 110,306 | 67,900 | 67,900 | 67,900 | 67,900 |
(95,695) | 1,657,859 | 1,606,113 | 1,606,305 | 1,595,096 | 2,243,916 |
The Group has opted for hedge accounting, suitably designating the hedging relationships in which these financial instruments are hedging instruments of the financing used by the Group. In this manner, the Group has neutralized flow variations stemming from interest payments and fixed the rate to be paid for said financing. The only derivatives that are highly effective prospectively and retrospectively, cumulatively, since the date of designation, are those associated with the financing of Tree, so their changes in value are recognised in equity.
The Group has recognised in equity the fair value of the derivatives that meet the effectiveness requirements, without considering any tax effect due to adhering to the REIT regime. Under the heading \u2018Changes in fair value in financial instruments\u2019 of the consolidated income statement, the Group has registered as a result of derivative financial instruments that have not met the hedge requirements due to ineffectiveness, negative EUR 19,856 thousand in 2020 (negative EUR 12,884 thousand in 2019).
On adopting IFRS 13, the Group adjusted the measurement techniques for calculating the fair value of its derivatives. The Group includes a bilateral credit risk adjustment to reflect both the own credit risk and the counterpart party risk in the measurement of the fair value of the derivatives. The Group applied the discounted cash flow method, considering a discount rate affected by its own credit risk.
In order to calculate the fair value of the financial derivatives, the Group used generally accepted measurement techniques in the market, which account for current and future expected exposure, adjusted by the probability of default and the potential loss given default affecting the contract. The CVA (Credit Value Adjustment) or counterparty credit risk and DVA (Debt Value Adjustment) or own credit risk were therefore estimated.
Current and expected exposure in the future is estimated using simulations of scenarios of fluctuations in market variables, such as interest rate curves, exchange rates and volatilities as per market conditions at the measurement date.
Furthermore, for the credit risk adjustment, the Group's net exposure has been taken into account with regards to each of the counterparties, if the financial derivatives arranged with them are within a financial transaction framework agreement that provides for netting positions. For counterparties for whom credit information is available, the credit spreads have been obtained from the CDS (Credit Default Swaps) quoted in the market; whereas for those with no available information, references from peers have been used. The Group hired Chatham Financial Europe Ltd. to measure the fair value of the derivatives.
The impact on liabilities and profit or loss before tax of a 50 basis point fluctuation in the estimated credit risk rate at 31 December 2020 and 2019 would be as follows:
2020
Thousands of euros | |||
Scenario | Liabilities | Equity | Consolidated profit before tax |
5% rise in credit risk rate | (49.513) | 27.331 | 22.182 |
5% reduction in credit risk rate | 53.641 | (11.935) | (41.706) |
2019
Thousands of euros | |||
Scenario | Liabilities | Equity | Consolidated profit before tax |
5% rise in credit risk rate | (57.253) | 55.476 | 1.777 |
5% reduction in credit risk rate | 60.114 | (46.798) | (13.316) |
14.4 Reconciliation of the carrying amount of the liabilities arising from financing activities
The breakdown of the financing activities and their impact on the Group\u2019s cash flows in 2020 was as follows:
Thousands of euros | |||||||
No impact on cash | |||||||
31/12/2019 | Cash flows from financing activities (net) | Interest paid | Reclassifications of debt | Accrued interest | Other adjustments | 31/12/2020 | |
Long-term loans | 1,802,613 | (159,919) | \u2014 | (8,924) | \u2014 | \u2014 | 1,633,770 |
Short-term loans | 16,936 | (13,359) | (21,679) | 8,924 | 20,758 | \u2014 | 11,580 |
Long-term revolving credit facilities | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term revolving credit facilities | 161 | \u2014 | (4,094) | \u2014 | 4,289 | 48 | 404 |
Bonds | 3,784,631 | 341,086 | (80,449) | \u2014 | 82,109 | \u2014 | 4,127,377 |
5,604,341 | 167,808 | (106,222) | \u2014 | 107,156 | 48 | 5,773,131 |
Thousands of euros | ||||||
No impact on cash | ||||||
31/12/2018 | Cash flows from financing activities (net) | Reclassifications of debt | Accrued interest | Other adjustments |
| |
Long-term loans | 1,813,946 | 3,271 | (14,604) | \u2014 | \u2014 | 1,802,613 |
Short-term loans | 40,679 | (62,315) | 14,604 | 23,968 | \u2014 | 16,936 |
Long-term revolving credit facilities | 150,000 | (150,000) | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term revolving credit facilities | 1,054 | (4,735) | \u2014 | 3,842 | \u2014 | 161 |
Bonds | 3,284,007 | 431,837 | \u2014 | 68,787 | \u2014 | 3,784,631 |
5,289,686 | 218,058 | \u2014 | 96,597 | \u2014 | 5,604,341 |
31/12/2020 | 31/12/2019 | |
Long-term loans | 1,633,770 | 1,802,613 |
Short-term loans | 11,580 | 16,936 |
Short-term revolving credit facilities | 404 | 161 |
Bonds | 4,127,377 | 3,784,631 |
5,773,131 | 5,604,341 | |
Non-current derivatives | 127,345 | 95,695 |
Current derivatives | 1,277 | 1,231 |
Loan arrangement expenses | ||
\u00a0 Syndicated loan | (11,054) | (14,361) |
\u00a0 Senior syndicated mortgage | (52,276) | (57,486) |
\u00a0 Debenture issues | (25,284) | (26,586) |
\u00a0 Other | (5,688) | (8,675) |
Total current and non-current liabilities | 5,807,451 | 5,594,159 |
In addition, under the interest rate hedging agreements signed (see Note 14.3), the net balance of the settlements amounted to EUR 14,447 thousand in 2020 (EUR 13,409 thousand in 2019).
14.5\u00a0 Debt arrangement expenses
Changes in debt arrangement expenses during 2020 and 2019 are as follows:
Thousands of euros | |||||
31/12/2019 | Allocation to profit and loss account \u2013 Amortised cost | Impact income statement IFRS 9 | Capitalisations | 31/12/2020 | |
of arrangement expenses | |||||
Non-mortgage finance | 17,384 | (2,214) | (1,795) | 752 | 14,127 |
Senior syndicated loan (Tree) | 57,486 | (1,777) | (4,472) | 1,039 | 52,276 |
Mortgage loans - other assets | 5,652 | (2,674) | (363) | \u2014 | 2,615 |
Debentures and bonds | 26,586 | (5,610) | \u2014 | 4,309 | 25,284 |
107,108 | (12,275) | (6,630) | 6,100 | 94,302 |
Thousands of euros | |||||
31/12/2018 | Allocation to profit and loss account \u2013 Amortised cost | Impact income statement IFRS 9 | Capitalisations | 31/12/2019 | |
of arrangement expenses | |||||
Syndicated loans | 3,912 | (2,074) | 7,797 | 7,750 | 17,384 |
Senior syndicated loan (Tree) | 63,695 | (1,771) | (4,439) | \u2014 | 57,486 |
Mortgage loans - other assets | 3,732 | (712) | 2,291 | 340 | 5,652 |
Debentures and bonds | 24,460 | (4,255) | \u2014 | 6,380 | 26,586 |
95,799 | (8,812) | 5,649 | 14,470 | 107,108 |
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl83My9mcmFnOmU3Y2ZjYWE1YjRiNzQ3M2ZhOTEwOThiODIzZDI0ZjZmL3RleHRyZWdpb246ZTdjZmNhYTViNGI3NDczZmE5MTA5OGI4MjNkMjRmNmZfMTU5NDI5MTg2MTI2NzQ_7ff71dab-d82f-43ff-b422-8f7d2dbc09cb": { "value": "15.\u00a0 \u00a0 Other current and no-current liabilities
Details of this heading at 31 December 2020 are as follows:
Miles de euros | ||||
2020 | 2019 | |||
No Corriente | Corriente | No Corriente | Corriente | |
Otras provisiones | 18,296 | \u2014 | 33,708 | 778 |
Fianzas y dep\u00f3sitos recibidos | 89,326 | 714 | 92,257 | 646 |
Pasivos por impuesto diferidos | 684,454 | \u2014 | 687,654 | \u2014 |
Otras deudas | 46,260 | 7,065 | 28,207 | 5,930 |
Deudas con empresas del Grupo y asociadas | 5,850 | \u2014 | \u2014 | \u2014 |
Otros pasivos corrientes | \u2014 | 8,344 | \u2014 | 7,847 |
Total | 844,186 | 16,123 | 841,826 | 15,201 |
\u201cProvisions\u201d includes the provision for the variable remuneration indicated in Note 20 amounting to EUR 9,305 thousand (EUR 22,825 thousand in 2019) and that will be paid in the long term.
It also includes provisions for the measurement of risk associated with a number of lawsuits and claims filed by third parties arising from the Group\u2019s activity, which were recognised in accordance with the best existing estimates.
This heading also includes liabilities for tax debts for which there are uncertainties as to their amount or timing, whereby it is likely that the Group may have to dispose of resources to cancel these obligations as the result of a present obligation.
\u201cGuarantees and deposits received\u201d primarily comprise the amounts deposited by tenants to secure leases, which will be reimbursed at the end of the lease term.
The Parent and the majority of its subsidiaries adhere to the REIT regime. Under this regime, gains from the sale of assets are taxed at 0%, provided that certain requirements are met (basically, the assets must have been held by the REIT for at least three years). Any gains from the sale of assets acquired prior to joining the REIT tax regime will be distributed on a straight-line basis (unless proven to be distributed otherwise) over the period during which the REIT owned them. Any gains generated prior to joining the REIT tax regime will be taxed at the general rate, while a rate of 0% will be applied for the other years. The Parent\u2019s directors estimated the tax rate applicable to the tax gain on the assets acquired prior to their inclusion to the REIT regime (calculated in accordance with the fair value of the assets obtained fromexpert appraisals at the date of the business combination and as of 31 December 2020), recognising the related deferred tax liability.
The Parent's directors do not envisage disposing of any of the investment property acquired after the Parent and its subsidiaries joined the REIT tax regime within three years, and have therefore not recognised the deferred tax liability corresponding to the changes in fair value since the assets were acquired as the applicable tax rate is 0%.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl83Ni9mcmFnOmQxYWZiMjg1ZGZmYjQyNjk5ZmE5MTAwOGE5MmE2ODU3L3RleHRyZWdpb246ZDFhZmIyODVkZmZiNDI2OTlmYTkxMDA4YTkyYTY4NTdfMjEzNg_96c8da2a-4a54-4c62-8773-abeb2404d19d": { "value": "16.\u00a0 \u00a0 Trade receivables and other accounts payable
Details of this heading at 31 December 2020 are as follows:
Thousands of euros | ||
2020 | 2019 | |
Current | ||
Suppliers | 49,250 | 69,400 |
Suppliers, group companies and associates | 544 | \u2014 |
Sundry accounts payable | 30,207 | 13,598 |
Remuneration payable | 17,476 | 51,922 |
Other accounts payable to public authorities (Note 17) | 12,497 | 9,747 |
Advances from customers | 1,138 | 65 |
Total | 111,112 | 144,732 |
The decrease in the \u201cRemuneration payable\u201d heading comes from payment in 2020 of the incentive benchmarked to the value of the price of the 2017-19 Incentives Plan for a sum of EUR 37,500 thousand.
The carrying amount of the trade payables is similar to their fair value.
Information on the average period of payment to suppliers. Final provision two of Law 31/2014, of 3 December:
The information required by Additional Provision Three of Law 15/2010, of 5 July (modified by Final Provision Two of Law 31/2014, of 3 December) prepared in accordance with the Spanish Accounting and Audit Institute's Resolution of 29 January 2016 on information to be included in the notes to the annual financial statements with regard to the average period of payment to suppliers for commercial transactions is detailed below.
2020 | 2019 | |
Days | Days | |
Average payment period to suppliers | 31,3 | 33,6 |
Ratio of transactions paid | 31,2 | 34,2 |
Ratio of transactions payable | 34,9 | 24,7 |
Thousands | ||
of Euros | ||
Total payments made | 411.847 | 154.722 |
Total payments pending | 9.502 | 11.216 |
In accordance with the Spanish Accounting and Audit Institute's Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions corresponding to the delivery of goods or provision of services that took place from the date of entry into force of Law 31/2014, of 3 December.
For the exclusive purpose of providing the information envisaged in this Resolution, payable to suppliers are considered trade payables for debts with suppliers of goods and services, included under \u201cTrade receivables and other payables\u201d under current liabilities in the attached balance sheet.
\u201cAverage period of payment to suppliers\u201d is understood as the time elapsed between the date the supplier delivers the goods or provides the services and the date of actual payment.
The maximum legal period applicable to the Group in accordance with Law 11/2013, of 26 July was 30 days following the publication of the aforementioned law to date (unless the terms established therein are met that would enable the aforementioned maximum period to be extended up to 60 days).
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl83OS9mcmFnOmM4MWViYzVlYTY2ZTQ3MTM4MTBkOGY1NjJkNGM2ZjI1L3RleHRyZWdpb246YzgxZWJjNWVhNjZlNDcxMzgxMGQ4ZjU2MmQ0YzZmMjVfMTU5NDI5MTg2MjkyODQ_7e71397b-86b9-45ee-a9ca-95f3f846216e": { "value": "17.\u00a0 \u00a0 Tax situation
a) Tax receivables and tax payables
The detail of the main tax receivables and payables at 31 December 2020 is as follows:
2020
Thousands of euros | ||||
Tax assets | Tax liabilities | |||
Non- | Non- | |||
Current | Current | Current | Current | |
Public finance for withholdings and other items | \u2014 | 10,258 | \u2014 | 4,879 |
VAT | \u2014 | 9,964 | \u2014 | 7,360 |
Tax assets | 87,469 | \u2014 | \u2014 | \u2014 |
Corporate income tax | \u2014 | \u2014 | \u2014 | 2,474 |
Payable to the Social Security | \u2014 | \u2014 | \u2014 | 258 |
Deferred tax liabilities | \u2014 | \u2014 | 684,454 | \u2014 |
87,469 | 20,222 | 684,454 | 14,971 |
2019
Thousands of euros | ||||
Tax assets | Tax liabilities | |||
Non- | Non- | |||
Current | Current | Current | Current | |
Public finance for withholdings and other items | \u2014 | 3,909 | \u2014 | 3,321 |
VAT | \u2014 | 7,839 | \u2014 | 6,167 |
Tax assets | 87,778 | \u2014 | \u2014 | \u2014 |
Corporate income tax | \u2014 | \u2014 | \u2014 | 1,113 |
Payable to the Social Security | \u2014 | \u2014 | \u2014 | 259 |
Deferred tax liabilities | \u2014 | \u2014 | 687,654 | \u2014 |
87,778 | 11,748 | 687,654 | 10,860 |
b) Reconciliation of the accounting profit/loss to the taxable profit/tax loss
At 31 December 2020, the taxable profit was calculated as the accounting profit for the year plus the effect of changes in the fair value of investment property, and temporary differences due to the existing limitations. At the reporting date of these financial statements, the Group did not recognise any deferred tax assets in this regard, as it is generally subject to a tax rate of 0% as the Parent and the majority of the subsidiaries adhere to the REIT regime.
The reconciliation of the accounting profit to consolidated income tax expense for the year at 31 December 2020 is as follows:
Thousands of euros | ||
2020 | 2019 | |
Profit/(Loss) before tax | 55,612 | 590,710 |
Permanent differences: | ||
Negative goodwill on business combinations | \u2014 | 2,866 |
- Consolidation adjustments to profit or loss | 29,050 | 24,200 |
- Tax adjustments Operating profit | (32,137) | 194,025 |
- Non-deductible finance costs | 40,578 | \u2014 |
- Profit and loss accounted for using the equity method | 3,444 | (10,065) |
- Tax adjustments outside the sale of assets | \u2014 | \u2014 |
- Other permanent differences | 88,410 | (7,221) |
| ||
Temporary differences: | ||
- | 84,468 | (354,972) |
- | (76,144) | (84,709) |
Tax loss carryforwards | \u2014 | \u2014 |
Adjusted taxable profit | 193,282 | 354,834 |
The Parent and a significant number of its subsidiaries adhere to the REIT regime. As indicated in Note 5.13, the taxation of this scheme is constructed at a rate of 0%, provided that certain requirements are met.
In relation to the permanent differences/consolidation adjustments to profit or loss, the results of the companies integrated by the equity method are mainly included, as well as the incorporation of the amortisation expenses of the real estate investments not included under Income before taxes on the attached consolidated financial statements.
Temporary differences arose from the change in value of investment property (IAS 40 ? Fair value model). As the Parent's directors plan and state that investment property acquired by subsidiaries already subject to the REIT tax regime will not be sold within three years, the fair value adjustment in 2020 and 2019 is taxed at 0% and therefore the deferred tax liability is also zero.
c)\u00a0 Reconciliation of accounting profit and tax expense
Expense / (Income) | Thousands of euros | |
2020 | 2019 | |
Expense for increase in value of investment property (a) | 2,739 | (23,016) |
Expense for disposal of properties within the REIT regime (b) | (607) | (1,526) |
Expense for disposal of properties outside the REIT regime | \u2014 | (184) |
Expense for gain/(loss) at standard rate | (1,692) | (4,862) |
Income from adjustments to prior years | \u2014 | 998 |
Other | 306 | 1,519 |
Total corporate income tax expense | 746 | (27,071) |
(a)This corresponds to the increase in the value of the assets of the non-REIT subsidiaries (resident in Portugal, which meet the requirements of article 2.1 [c] of the REITs Law to be considered as eligible assets for the purposes of the aforementioned regime). The amount is the result of applying the tax rate that the directors consider will be applicable to the capital gains.
(b)Adjustment corresponding to the profit arising in the individual financial statements of Tree Inversiones Inmobiliarias, SOCIMI, S.A. as a result of the sale of real estate assets (BBVA branches, see Note 7).
d) Deferred tax assets recognised
The detail of the tax loss carryforwards at 31 December 2020 is as follows:
2020
Thousands of euros | ||
Recognised | Tax | |
Tax base | credit | |
Tax loss carryforwards: | ||
2009 | 138,838 | 34,960 |
2010 | 7,487 | 1,872 |
2011 | 95,395 | 23,849 |
2014 | 11,142 | 2,785 |
2015 | 1,801 | 450 |
2018 | 718 | 180 |
2019 | 462 | 116 |
2020 | 1,319 | 330 |
Total tax loss carryforwards | 258,162 | 64,541 |
Other deferred taxes recognised | 91,715 | 22,929 |
Total capitalized deferred tax assets | 349,877 | 87,469 |
The \u201cOther deferred taxes recognised\u201d heading mainly includes the timing differences caused by the limitation of the depreciation of the assets generated by the acquisition of the Testa and Metrovacesa subgroup and the tax deductions pending application mainly due to reinvestment.
Those deferred tax assets were recognised in the consolidated statement of financial position, since the Group's directors consider that, based on the best estimates of the Group's future results, including certain tax planning measures, it is likely that these assets will be recovered.
The detail of the tax assets not recognised at 31 December 2020 is as follows:
Thousands of euros | |
Non-registered | |
Tax base | |
Tax loss carryforwards: | |
2009 | 52,955 |
2010 | 5,673 |
2011 | 1,231 |
2012 | 1,676 |
2013 | 440 |
2014 | 20,158 |
2016 | 328 |
2017 | 1,866 |
2018 | 1,236 |
2019 | 2,845 |
Total tax loss carryforwards | 88,408 |
e)\u00a0 Deferrex tax liabilities
As indicated above, the deferred tax liabilities arise mainly from the business combinations carried out in recent years and the increase in the value of the assets of Tree Inversiones Inmobiliarias, SOCIMI, S.A. (assets acquired prior to its incorporation into the REIT regime) and the non-REIT subsidiaries (resident in Portugal, which meet the requirements of article 2.1 (c) of the REIT Law to be considered as eligible assets for that regime).
The changes at 31 December 2020 are as follows:
Thousands of | |
euros | |
Total deferred tax liabilities at 31 December 2018 | 666,563 |
Increase in value of investment property | 23,016 |
Additions due to business combinations (Note 3) | 671 |
Temporary differences | (2,596) |
Total deferred tax liabilities at 31 December 2019 | 687,654 |
Increase (decrease) in value of investment property | (2,739) |
Temporary differences | (461) |
Total deferred tax liabilities at 31 December 2020 | 684,454 |
As indicated in Note 17.b, the increase in value of investment property acquired by subsidiaries subject to the REIT tax regime generate temporary differences at a tax rate of 0%, whereby no deferred tax liability has been recognised.
f) Years open to audit and tax inspections
Under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year statute of limitations has expired. At 2020 year-end, the Parent and certain of its subsidiaries had all years since their incorporation open for review for all the taxes applicable to them. The rest of the subsidiaries had 2017 to 2019 open for review for income tax and 2017 to 2020 open for review for the other taxes applicable to them. In accordance with the provisions of Additional Provision Nine of Royal Decree Law 11/2020 of 31 March and Additional Provision One of Royal Decree Law 15/2020 of 21 April, the period between 14 March and 30 May 2020 will not count for the purposes of the limitation periods established in Law 58/2003 of 17 December, on General Taxation, so that the usual deadlines are extended by 78 additional days.
The Parent's directors consider that the tax returns for the aforementioned taxes have been filed correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in relation to the tax treatment afforded to certain transactions, such liabilities as might arise would not have a material effect on the accompanying financial statements. Also, Law 34/2015, of 21 September, partially amending Law 58/2003, of 17 December, on General Taxation establishes the right of the tax authorities to initiate a review and investigation procedure of the tax losses offset or carried forward or tax credits taken or carried forward, which will become statute barred after ten years from the day on which the regulatory period established for filing the tax return or self-assessment relating to the year or the tax period in which the right to offset the tax loss or to apply the tax credits arose
g) Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012
The disclosure requirements arising from the Parent and certain subsidiaries being considered REITs are included in the related notes of the separate financial statements.
", "dimensions": { "concept": "mer:DisclosureOfPublicEntitiesAndIncomeTaxTextBlock", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl84Mi9mcmFnOjVlZjc2Yzk5OTFiZDRmZDNiOGZmZjA5YjY0ZDhlNDNkL3RleHRyZWdpb246NWVmNzZjOTk5MWJkNGZkM2I4ZmZmMDliNjRkOGU0M2RfMTUzOTMxNjI3OTc1NzQ_721d9914-9394-48d8-bbc3-048aba91d7b8": { "value": "18.\u00a0 \u00a0 Revenue and expenses
a) Revenues
At 31 December 2020, the Group's revenue breakdown is as follows:
Thousands of euros | ||
2020 | 2019 | |
Rental income | 441,062 | 511,526 |
Revenue from services rendered | 5,070 | 3,327 |
Total | 446,132 | 514,853 |
b) Other operating expenses
At 31 December 2020, the detail of \u201cOther operating expenses\u201d in the consolidated income statement is as follows:
Thousands of euros | ||
2020 | 2019 | |
Non-recoverable expenses of leased properties | 45,454 | 47,780 |
Overheads | ||
\u00a0 \u00a0 Independent professional services | 7,898 | 6,869 |
\u00a0 \u00a0 Travel expenses | 394 | 907 |
\u00a0 \u00a0 Insurance | 396 | 246 |
\u00a0 \u00a0 Other | 3,456 | 2,165 |
Costs associated with asset acquisitions and financing | 4,174 | 4,492 |
Losses on, impairment of and change in provisions | 1,740 | 483 |
Other expenses | 3,424 | 1,531 |
Total | 66,936 | 64,473 |
c) Staff costs and average headcount
The detail of \u201cStaff costs\u201d at 31 December 2020 is as follows:
Thousands of euros | ||
2020 | 2019 | |
Wages, salaries and similar expenses | 18,308 | 29,498 |
Termination benefits | 1,167 | 328 |
Social security costs | 2,723 | 2,410 |
Other employee welfare expenses | 458 | 376 |
Long-term incentive plan | 18,232 | 44,242 |
Total | 40,888 | 76,854 |
The decrease in the \u201cStaff costs\u201d heading come from the effect of the long-term remuneration plans for management and other relevant staff members one of which ended in 2019, and from the reduction in the bonuses paid to management following their waiver of their bonuses due to the COVID-19 assistance measures (see Note 2.7).
The average number of employees at the various Group companies in 2020 and 2019 was 222 and 203 respectively.
The detail of the headcount at 2020 and 2019 year-end, by category, is as follows:
2020
Women | Men | Total | |
Executive Directors | \u2014 | 2 | 2 |
Senior management (*) | \u2014 | 5 | 5 |
Management Team | 1 | 4 | 5 |
Middle management | 10 | 42 | 52 |
Other employees | 87 | 69 | 156 |
Total | 98 | 122 | 220 |
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (*) Includes the Internal Audit Director
2019
Women | Men | Total | |
Executive Directors | \u2014 | 2 | 2 |
Senior management (*) | \u2014 | 6 | 6 |
Management Team | 1 | 4 | 5 |
Middle management | 10 | 43 | 53 |
Other employees | 86 | 66 | 152 |
Total | 97 | 121 | 218 |
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0
\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (*) Includes the Internal Audit Director
The average number of employees at the Group in 2020 with a disability equal to or greater than 33%, by category, was as follows:
Category | 2020 | 2019 |
Senior management | \u2014 | \u2014 |
Technical personnel and middle management | \u2014 | - |
Administrative staff | 5 | 5 |
Total | 5 | 5 |
d) Finance income and costs
The breakdown of these items in the consolidated income statement is as follows:
Thousands of euros | ||
2020 | 2019 | |
Finance income: | ||
Interest on deposits and current accounts | 3,387 | 664 |
3,387 | 664 | |
Finance costs: | ||
Interest on loans and other credits | (136,062) | (110,057) |
Other finance costs | (13,591) | (6,185) |
| (149,653) | (116,242) |
Net finance expense | (146,266) | (115,578) |
Finance costs include mainly the interest corresponding to the bank borrowings and obligations detailed in the Note 14 amounting to EUR 25,113 thousand and EUR 82,109 thousand, respectively. The amounts above also include amortisation of debt formalisation costs amounting to EUR 18,905 thousand (EUR 3,163 thousand in 2019), from application of the effective interest rate on financial debt (see Note 14.5), as well as the financial costs associated with interest rate derivatives amounting to EUR 9,934 thousand.
e) Contribution to consolidated profit
The contribution of each company included in the scope of consolidation to profit for 2020 was as follows:
Thousands of euros | ||
Company | 2020 | 2019 |
| ||
Full consolidation: | ||
Merlin Properties SOCIMI, S.A. | (53,651) | 194,163 |
Tree Inversiones Inmobiliarias, SOCIMI, S.A. | 45,703 | 65,138 |
Merlin Retail, S.L. | (21,748) | 17,558 |
Merlin Oficinas, S.L. | 10,812 | 42,623 |
Merlin Log\u00edstica, S.L. | 87,194 | 101,046 |
Varitelia Distribuciones, S.L.U. | (18,558) | 10,242 |
Metroparque, S.A. | (13,512) | 11,276 |
La Vital Centro Comercial y de Ocio, S.L. | (5,093) | 3,709 |
Global Carihuela Patrimonio Comercial, S.L.U. | (19,553) | (2,622) |
Sadorma 2003, S.L. | (2) | 143 |
Parques Log\u00edsticos de la Zona Franca, S.A. | 17,363 | 15,954 |
Sevisur Log\u00edstica, S.A. | 9,956 | 3,493 |
Promosete Invest. Inmobiliaria, S.A. | 3,517 | 5,929 |
Pra\u00e7a do Marques Servicios Auxiliares, S.A. | 2,706 | 11,879 |
MPCVI - Compra e Venda Imobili\u00e1ria, S.A. | 1,770 | 4,267 |
MPEP - Properties Escrit\u00f3rios Portugal, S.A | 1,903 | 6,369 |
MP Monumental, S.A. | 10 | 5,198 |
MP Torre A, S.A. | 2,202 | 4,027 |
Forum Almada \u2013 Gestao Centro Comercial, Lda | (5,137) | 29,922 |
Torre dos Oceanus Investimentos Inmobiliarios,S.A. | 2,801 | 9,571 |
Torre Arts Investimentos Inmobiliarios, S.A. | 5,650 | 13,445 |
Torre Fern\u00e3o Magalh\u00e3es Investimentos Inmobiliarios, S.A. | 5,332 | 7,093 |
VFX Log\u00edstica, S.A. | 1,119 | (2,847) |
Other companies | (982) | (4,002) |
| ||
Equity method: | ||
Paseo Comercial Carlos III, S.A. | (6,770) | 1,430 |
Centro Intermodal de Log\u00edstica, S.L. | 25,529 | 8,290 |
Provitae, S.L. | (572) | (25) |
Sicilius Real Estate S.L. | (20,211) | \u2014 |
Distrito Castellana Norte, S.A. | (626) | \u2014 |
Other investments | (794) | 370 |
Total | 56,358 | 563,639 |
.
", "dimensions": { "concept": "mer:DisclosureOfRevenueAndExpensesTextBlock", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl84NS9mcmFnOmEyNWJmY2M5ZmU5OTQ0NWFiMDE4MWUyYmMyMjVmMmJjL3RleHRyZWdpb246YTI1YmZjYzlmZTk5NDQ1YWIwMTgxZTJiYzIyNWYyYmNfMTUzOTMxNjI4MDYwNzM_adc7c27c-904d-44d1-b85d-a133f20eeb94": { "value": "19.\u00a0 \u00a0 Related party transactions
In addition to subsidiaries, associates and joint ventures, the Group's \u201crelated parties\u201d are considered to be the Company's shareholders, \u201ckey management personnel\u201d (members of the Board of Directors and executives, along with their close relatives), and the entities over which key management personnel may exercise significant influence or control.
The following transactions are typical of the ordinary course of business and have been carried out under normal market conditions.
The detail of any significant transactions, given their amount or importance, carried out between the Parent or its Group companies, and related parties, is as follows:
2020
Thousands of euros | |||||
Type | |||||
of the | |||||
Related party | relationship | Revenue | Expense | Assets | Liabilities |
Banco Santander, S.A.\u00a0 (a) | Financing | \u2014 | 4,788 | \u2014 | 200,519 |
Banco Santander, S.A. (a) | Cash | \u2014 | \u2014 | 75,513 | \u2014 |
Banco Santander, S.A. (a) | Notional derivatives | \u2014 | \u2014 | \u2014 | 464.471 (*) |
Banco Santander, S.A. (b) | Lease of | 914 | \u2014 | \u2014 | 98 |
Banco Santander, S.A.\u00a0 (b) | Services | \u2014 | 99 | \u2014 | \u2014 |
Banco Santander, S.A. (c) | Special encumbrance | \u2014 | \u2014 | \u2014 | \u2014 |
G36 Developments S.L.(d) | Financing | 6 | \u2014 | 625 | \u2014 |
Total | 920 | 4,887 | 76,138 | 665,088 |
(*) This amount does not represent the recognition of a liability as of 31.12.2020.
Ejercicio 2019
Thousands of euros | |||||
Type | |||||
of the | |||||
Related party | relationship | Revenue | Expense | Assets | Liabilities |
Banco Santander, S.A.\u00a0 (a) | Financiaci\u00f3n | \u2014 | 4,338 | \u2014 | 205,076 |
Banco Santander, S.A. (a) | Tesorer\u00eda | \u2014 | \u2014 | 76,055 | \u2014 |
Banco Santander, S.A. (a) | Nocional Derivados | \u2014 | \u2014 | \u2014 | 466.056(*) |
Banco Santander, S.A. (b) | Arrendamiento | 1,880 | \u2014 | \u2014 | 219 |
Banco Santander, S.A.\u00a0 (b) | Servicios | \u2014 | 50 | \u2014 | \u2014 |
Banco Santander, S.A. (c) | Gravamen especial | 1,099 | |||
G36 Developments S.L.(d) | Financiaci\u00f3n | 2 | \u2014 | 625 | \u2014 |
Total | 2,981 | 4,388 | 76,780 | 671,351 |
(*) This amount does not represent the recognition of a liability as of 31.12.2019.
Transactions executed with significant shareholders
During 2020, only the shareholder Banco Santander, S.A. held the status of significant shareholder pursuant to the regulations in force.
(a)Financing transactions
\u2022As of 31 December 2020, the Group has been granted loans from its shareholder Banco Santander, S.A. amounting to EUR 200,519 thousand. The notional amount of the derivatives in force contracted totals EUR 464,471 thousand.
\u2022These positions correspond to Banco de Santander, S.A.\u2019s stake in the loans included among the financing operations of the MERLIN Group, the detail of which can be found in Note 14.
\u2022As indicated in that Note 14, on 25 April 2019, the Group arranged a senior syndicated loan amounting to EUR 1,550 million, including two tranches, a corporate loan of EUR 850 million and a corporate credit facility of EUR 700 million. Banco Santander participates in this refinancing with EUR 120 million (7.7% of the total) of which EUR 65.8 million correspond to its share of the corporate loan and EUR 54.2 million correspond to the credit line, on the terms as the other financial entities. At 31 December 2020, the credit facility was not drawn down.
\u2022Also indicated in Note 14, the Group maintains a syndicated loan in three tranches for the financing of Tree Inversiones Inmobiliarias, S.A., with EUR 678,576 thousand in outstanding principal, of which the portion owed to Banco Santander is EUR 134,713 thousand.
\u2022The Group has bank balances deposited with Banco Santander, S.A. amounting to EUR 75,513 thousand (including EUR 13 thousand in the accounts in the name of the associate Paseo Comercial Carlos III, S.A.).
\u2022In 2020, the finance costs incurred in transactions with Santander, S.A. amounted to EUR 4,788 thousand, which included EUR 33 thousand in guarantee fees and EUR 128 thousand in current account management costs.
\u2022The Group has been granted guarantees by the shareholder Banco Santander, S.A. amounting to EUR 6,962 thousand (EUR 5,446 thousand granted to MERLIN Properties SOCIMI, S.A. and EUR 1,516 thousand granted to the associate Paseo Comercial Carlos III, S.A.).
(b)Leases and services rendered.
\u2022The Group has 6 lease agreements with Banco Santander, S.A. in different buildings. The duration of the lease contracts covers a period of up to 4 years, and in 2020 they generated income of EUR 914 thousand, including income from leasing, as well as parking spaces and transfers of ATM space in shopping centres. The deposits paid to secure these leases amounted to EUR 98 thousand.
\u2022In addition, the Group has contracted General Shareholders Meeting and shareholder registration organisational services amounting to EUR 65 thousand, in addition to listing agent services on the Euronext Lisboa stock exchange for EUR 32 thousand.
(c) Special encumbrance
\u2022In 2019, the Group recorded income corresponding to the special tax provided for in section 9.2 of Law 11/2009, of 26 October, regulating Real Estate Investment Trusts.
Transactions with companies accounted for using the equity method
(d)\u00a0 G36 Developments S.L.
\u2022MERLIN Properties, SOCIMI, S.A. has a loan outstanding amounting to EUR 625 thousand, granted on 1 October 2018 to the associate G36 Developments, S.L., dedicated to management of co-working spaces. The interest accrued in 2020 amounts to EUR 6 thousand.
Dividends and other profits distributed to related parties (thousands of euros)
2020 | 2019 | |
Significant shareholders | 16,999 | 52,822 |
Banco Santander, S.A. | 16,999 | 52,822 |
Directors and Executives | 695 | 2,179 |
Directors | 439 | 1,344 |
Executives | 256 | 835 |
Total | 17,694 | 55,001 |
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRelatedPartyExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl84OC9mcmFnOjY1YjEwOTBmYzVkNTRjOTc5NDBhOWFkMjM3OTk3NzVjL3RleHRyZWdpb246NjViMTA5MGZjNWQ1NGM5Nzk0MGE5YWQyMzc5OTc3NWNfOTAzNg_52a50732-e6cc-4f33-b035-3ef38b1b9c5e": { "value": "20.\u00a0 \u00a0 Information on Directors
The Parent\u2019s directors and the parties related to them did not have any conflicts of interest that had to be reported in accordance with article 229 of the revised text of the Corporate Enterprise Law.
Directors' compensation and other benefits
At 31 December 2020 and 2019, salaries, per diem attendance fees and any other type of compensation paid to members of the Parent Company\u2019s managing bodies totalled EUR 3,149 thousand and EUR 5,812 thousand, as detailed below:
Thousands of euros | ||
2020 | 2019 | |
Fixed and variable remuneration | 2,909 | 5,802 |
Statutory compensation | \u2014 | \u2014 |
Termination benefits | \u2014 | \u2014 |
Per diem allowances | 228 | \u2014 |
Life and health insurance | 12 | 10 |
Total | 3,149 | 5,812 |
In addition to the sums above, the Executive Directors were paid a total of EUR 1,815 thousand in relation to the variable objectives for 2019, and to the deferred sums for 2014 and 2017, in accordance with the terms of those plans. At 31 December 2020, the executive directors had not accrued an entitlement to variable remuneration (EUR 2,850 thousand in 2019).
There was still EUR 3,250 thousand pending payment associated with the bonus objectives for 2015-19 and that is recorded as long-term provisions. Similarly, the amount of variable remuneration paid over the short term amounts to EUR 3,027 thousand, and is recognised under \u201cTrade and other payables\u201d in the accompanying balance sheet
Also, as indicated below in this Note, as members of the management team, the Executive Directors are entitled to payment of a remuneration plan granted to the management team in 2017 for the 2017-19 period, which will be described below. Under that plan, the Executive Directors have been paid EUR 12,500 thousand based on compliance with the incentive linked to increasing the Company\u2019s share price.
The Ordinary General Shareholders Meeting of 17 June 2020 approved the appointment of Mar\u00eda Ana Forner Beltr\u00e1n and Ignacio Gil Casares Satr\u00fastegui as proprietary directors. The Board of Directors thus consisted of 14 members on 31 December 2020. On 20 January 2021, Director John G\u00f3mez Hall resigned.
The breakdown, by board member, of the amounts disclosed above is as follows:
Board member |
| Thousands of euros | |
2020 | 2019 | ||
Remuneration of board members |
| ||
Javier Garc\u00eda Carranza Benjumea | Chairman - Proprietary director | \u2014 | \u2014 |
Ismael Clemente Orrego | CEO | 1,000 | 2,450 |
Miguel Ollero Barrera | Executive director | 1,000 | 2,400 |
Mar\u00eda Luisa Jord\u00e1 Castro | Independent director | 144 | 129 |
Ana Garc\u00eda Fau | Independent director | 134 | 129 |
George Donald Johnston | Independent director | 116 | 117 |
John G\u00f3mez Hall | Independent director | 97 | 100 |
Fernando Ortiz Vaamonde | Independent director | 111 | 115 |
Juan Mar\u00eda Aguirre Gonzalo | Independent director | 146 | 134 |
Pilar Cavero Mestre | Independent director | 124 | 117 |
Francisca Ortega Hern\u00e1ndez Agero | Proprietary director | \u2014 | \u2014 |
Emilio Novela Berl\u00edn | Independent director | 127 | 111 |
Mar\u00eda Ana Forner Beltr\u00e1n | Proprietary director | 73 | \u2014 |
Ignacio Gil Casares Satr\u00fastegui | Proprietary director | 65 | \u2014 |
Total |
| 3,137 | 5,802 |
In its meeting of 8 April 2020, the Board of Directors decided to reduce its remuneration by 25%, and it resolved with the CEO, the General Corporate Director and the management team to waive all of their remuneration and incentives plans for 2020 (see Note 2.7).
The Company has granted no advances, loans or guarantees to any of its directors.
The Parent\u2019s directors are covered by the \u201cCorporate Third-Party Liability Insurance Policies for Directors and Executives\u201d taken out by the Parent in order to cover possible damages that may be claimed, and that are evidenced as a result of a management error committed by its directors or executives, as well as those of its subsidiaries, in discharging their duties. The premium amounted to an annual total of EUR 221 thousand (EUR 122 thousand in 2019).
Remuneration and other benefits of senior executives
The remuneration of the Parent's senior executives, including the Head of Internal Audit, excluding those who are simultaneously members of the Board of Directors (whose remuneration is disclosed above) in 2020 and 2019, is summarised as follows:
2020
Thousands of euros | |||
Number of people | Fixed and variable remuneration | Other remuneration | Total |
5 | 1,865 | 26 | 1,891 |
2019
Thousands of euros | |||
Number of people | Fixed and variable remuneration | Other remuneration | Total |
6 | 5,477 | 31 | 5,508 |
In addition to the above amounts and in relation to the variable remuneration for Senior Management corresponding to the prior years' bonuses, an amount of EUR 1,904 thousand was paid related to the variable objectives for 2019, as well as the deferred amounts of the variable objectives for 2014 and 2017 in accordance with the terms set out in the aforementioned plans.
EUR 850 thousand recognised as long-term provisions is maintained as unpaid accrued amounts associated with variable remuneration targets for 2015 to 2020, and the variable remuneration that will be paid in the short term amounts to EUR 4,835 thousand and is recognised under the heading \u2018Trade and other payables\u2019 in the accompanying balance sheet.
Under the 2017-19 incentives plan, Senior Management have been paid EUR 10,063 thousand based on compliance with the incentive linked to increasing the Company\u2019s share price.
As regards \u201cgolden parachute\u201d clauses for executive directors and other senior executives of the Company or its Group in the event of dismissal or takeover, these clauses provide for compensation that represented a total commitment of EUR 4,000 thousand as of 31 December 2020.
2017-19 incentives plan
Also, at the General Shareholders Meeting held on 26 April 2017, the shareholders approved a new remuneration plan for the management team and other important members of the Group\u2019s workforce, the measurement period of which is from 1 January 2017 to 31 December 2019 (the \u201c2017-19 Incentive Plan\u201d). According to the plan, the members of the management team may be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) Parent Company shares, if certain objectives are fulfilled.
Vesting of the incentive will independently be conditional upon the total rate of return obtained by the shareholder during the three-year period due to:
\u2022the increase in the quoted price of the Parent\u2019s share plus the dividends distributed to shareholders during the measurement period; and
\u2022the increase in the EPRA NAV per share of the Parent plus the dividends distributed to shareholders during the measurement period.
In order for the right to the share-based incentive and to the EPRA NAV-based incentive to be vested, the total shareholder rate of return (TSR) must be at least 24%.
TSR NAV rate / TSR rate | Percentage assigned to beneficiaries (\u201cPR\u201d) | Percentage assigned to shareholders |
< 24% | 0% | 100% |
\u2265 24% and < 36% | 6% | 94% |
\u2265 36% | 9% | 91% |
To calculate the TSR, (i) the percentage assigned to the Beneficiaries in accordance with the above table will be applied to the result of multiplying the Share Price TSR multiplied by the number of Shares of the Company as of 31 December 2019; (ii) the result of that transaction will be balanced through an adjustment mechanism in favour of the Beneficiaries, as, once a minimum return is reached, the Beneficiaries will be entitled to the assigned percentage of the total return generated from the start.
The date for calculating the amount of the incentive tied to the NAV per share and the amount of the incentive tied to the quoted price of the shares was 31 December 2019. The maximum amount to be received for the incentive tied to the quoted price from 2017 to 2019 amounted to EUR 37.5 million, which was paid out in March 2020. As of 31 December 2020, the Company recognised the expense in the amount of EUR 1,974 thousand, corresponding to the vested portion of the 2017-19 Incentive Plan, with a balancing entry under liabilities.
Also, the maximum amount of the incentive tied to EPRA NAV per share will be EUR 75 million and a maximum of 6,000,000 shares have been allocated for its payment. At 31 December 2019, there were 5,874,111 shares that were ultimately allocated to the incentive benchmarked to the EPRA NAV. 50% of the allocated shares will be paid out on the second settlement date, i.e., on the second business day after the formulation of the 2020 annual financial statements. The remaining 50% of the allocated shares will be paid out on the third settlement date, i.e., on the second business day after the formulation of the 2021 annual financial statements. However, these amounts may be modified based on how the EPRA NAV evolves in 2021.
As of 31 December 2020, the Company recognised the expense in the amount of EUR 16,258 thousand, corresponding to the vested portion of the 2017-19 Incentive Plan, with an offsetting entry in reserves.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl85MS9mcmFnOjRkODAzMjU5MzIzNjRiNjQ5MmEzNmRjNjY4ZDBlNDU1L3RleHRyZWdpb246NGQ4MDMyNTkzMjM2NGI2NDkyYTM2ZGM2NjhkMGU0NTVfNzU0_62f01d96-921c-457a-8287-ba5b956826c0": { "value": "21.\u00a0 \u00a0 Auditor's renumeration
The fees for financial audit services provided to the various companies composing the Merlin Group and subsidiaries by the principal auditor, Deloitte, S.L., and entities related to the principal auditor and other auditors is as follows:
Miles de euros | ||
Description | 2020 | 2019 |
Audit services | 592 | 580 |
Other audit-related services | ||
\u00a0 Other attest services | 138 | 155 |
Total audit and related services | 730 | 735 |
Tax advisory services | \u2014 | \u2014 |
Total other services | \u2014 | \u2014 |
Total\u00a0 | 730 | 735 |
The heading \u2018Other audit-related services\u2019 includes the verification services performed by the auditor in the bond issue process, as well as certain agreed procedures related to the performance of covenants.
For its part, the audit services include, in addition to the statutory annual audit, services from revisions of intermediate periods.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAuditorsRemunerationExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl85NC9mcmFnOjc1M2E4YTY2NzU4OTRlMzA5N2QwZmQyNDY5YmVkODI1L3RleHRyZWdpb246NzUzYThhNjY3NTg5NGUzMDk3ZDBmZDI0NjliZWQ4MjVfNDg4_e455befc-26f4-44d9-97b9-563b699af876": { "value": "22.\u00a0 \u00a0 Enviromental information
Given the activity in which the Group engages, it has no environmental liabilities, expenses, assets, provisions or contingencies that could have a material impact on its equity, financial position and results of its operations.
Therefore, no specific environmental disclosures have been included in these notes to the consolidated financial statements.
", "dimensions": { "concept": "mer:DisclosureOfTheInformationOnTheEnvironmentTextBlock", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl85Ny9mcmFnOjhlNGIxYjc2OTY5NjRmYzc5ZDAyMTg3ODhjNjkzMmQxL3RleHRyZWdpb246OGU0YjFiNzY5Njk2NGZjNzlkMDIxODc4OGM2OTMyZDFfMTA5MjI_91f907b5-07ac-4db5-af2f-ebaeba2a1012": { "value": "23.\u00a0 \u00a0 Risk exposure
Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and cash flow interest rate risk. The Group's overall risk management programme is based on the uncertainty of financial markets and aims to minimize the adverse effects of such risks on the financial profitability of the Group.
Risk management is undertaken by the Group's Senior Management in accordance with the policies approved by the Board of Directors. Senior Management identifies, evaluates and mitigates financial risks in close collaboration with the Group's operating units. The Board of Directors issues the written global risk management policies and the policies for specific areas, including those for covering market risk, interest rate risk and liquidity risk and investing cash surpluses.
Market risk
Given the current status of the real-estate sector and in order to mitigate the effects thereof, the Group has specific measures in place to minimize said impact on its financial position.
These measures are applied pursuant to the results of sensitivity analyses carried out by the Group on a regular basis. These analyses involve:
\u2022The economic environment in which the Group operates: Designing different economic scenarios and modifying the key variables potentially affecting the Group. Identifying interdependent variables and the extent of their relationship; and
\u2022The time scale in which the assessment is being carried out: The time frame of the analysis and its possible deviations will be taken into account.
MERLIN Properties is exposed to market risk from possible vacancies or renegotiations of leases when the leases expire. This risk could have a direct negative impact on the valuation of the Company's assets.
However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease terms negotiated with customers. Therefore, at 31 December 2020, the average occupancy rate of the asset portfolio was 94.2%, with a weighted average unexpired lease term of 5.4 years (weighted by GRI).
Credit risk
Credit risk is defined as the potential risk of loss in earnings to which the Group is exposed if a customer or counterparty breaches its contractual obligations.
As a general rule, the Group places cash and cash equivalents with financial institutions with high credit ratings.
Except in the case of the BBVA branch leases, the Group is not exposed to significant concentration of credit risk with one customer or counterparty. The Group regularly reviews the credit rating and thus the creditworthiness of BBVA vis-\u00e0-vis the segment of bank branches leased to this bank. The Group also pays close attention to this situation, since the finance held is dependent on credit quality being maintained. The Parent's directors do not consider that there is any material credit risk regarding receivables due from this tenant.
With respect to other customers, the Group has policies in place to limit the volume of risks posed by customers. Exposure to the risk of being unable to recover receivables is mitigated in the normal course of business through funds or guarantees deposited as collateral.
The Group has formal procedures to identify any impairment of trade receivables. Delays in payment are detected through these procedures and individual analysis by business area and methods are established to estimate impairment loss.
Details of the estimated maturities of the Group's financial assets in the consolidated statement of financial position at 31 December 2020 are as follows. The tables present the results of the analysis of the aforesaid maturities of financial assets at 31 December 2020:
2020
Thousands of euros | |||||
Less than 3 months | 3 to 6 months | 6 months to 1 year | Over 1 year | Total | |
Loans to third parties | \u2014 | \u2014 | 71,767 | 108,705 | 180,472 |
Guarantees and deposits | \u2014 | \u2014 | \u2014 | 69,138 | 69,138 |
Trade and other receivables | 14,884 | 13,147 | 5,337 | 33,368 | |
Other current financial assets | 5,505 | \u2014 | 2,094 | \u2014 | 7,599 |
Cash and cash equivalents | 252,022 | \u2014 | \u2014 | \u2014 | 252,022 |
Total | 272,411 | 13,147 | 79,198 | 177,843 | 542,599 |
2019
Thousands of euros | |||||
Less than 3 months | 3 to 6 months | 6 months to 1 year | Over 1 year | Total | |
\u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Loans to third parties | \u2014 | \u2014 | \u2014 | 163,630 | 163,630 |
Guarantees and deposits | \u2014 | \u2014 | \u2014 | 68,969 | 68,969 |
Trade and other receivables | 17,138 | 12,785 | 340 | \u2014 | 30,263 |
Other current financial assets | 6,244 | \u2014 | 1,055 | 424 | 7,723 |
Cash and cash equivalents | 254,016 | \u2014 | \u2014 | \u2014 | 254,016 |
Total | 277,398 | 12,785 | 1,395 | 233,023 | 524,601 |
Cash and cash equivalents
The Group has cash and cash equivalents of EUR 252,022 thousand, which represents its maximum exposure to the risk posed by these assets.
Cash and cash equivalents are deposited with banks and financial institutions.
Liquidity risk
Liquidity risk is defined as the risk of the Group encountering difficulties meeting its obligations regarding financial liabilities settled in cash or with other financial assets.
To manage liquidity risk and meet its various funding requirements, the Group uses an annual cash budget and a monthly cash projection, the latter being detailed and updated daily. The factor causing the liquidity risk is the working capital deficiency, which mainly includes short-term debt. At 31 December 2020, the Group\u2019s working capital amounted to EUR 236,595 thousand.
In addition, liquidity risk has the following mitigating factors, which should be highlighted: (i) the generation of recurrent cash from the businesses on which the Group bases its activity; and (ii) the capacity to renegotiate and obtain new financing facilities based on the Group's long-term business plans and the quality of its assets.
At the date of preparation of the consolidated financial statements, taking into account the foregoing, the Group had covered all its funding requirements to fully meet its commitments to suppliers, employees and the authorities based on the cash flow forecast for 2021. Likewise, the type of sector in which the Company operates, the
investments it makes, the financing it obtains to make such investments, the EBITDA they generate and the occupancy rates of the properties, enables the liquidity risk to be mitigated and excess cash to be produced.
Any cash surpluses are used to make short-term investments in highly liquid deposits with no risk. The acquisition of share options or futures, or any other high-risk deposits as a method of investing cash surpluses, is not among the possibilities considered by MERLIN Properties for investing cash surpluses.
Details of the Group's exposure to liquidity risk at 31 December 2020 are provided in the table below. The tables present the results of the analysis of financial liabilities by remaining contractual maturity date:
2020
Thousands of euros | |||||
Less than 3 months | 3 to 6 months | 6 months to 1 year | Over 1 year | Total | |
Bank borrowings | 1,545 | 4,092 | 43,915 | \u2014 | 49,552 |
Other non-current liabilities ? Guarantees | \u2014 | \u2014 | \u2014 | 89,326 | 89,326 |
Trade and other payables (excluding payables to public authorities) | 28,021 | 68,101 | 2,186 | \u2014 | 98,308 |
Total | 29,566 | 72,193 | 46,101 | 89,326 | 237,186 |
2019
Thousands of euros | |||||
Less than 3 months | 3 to 6 months | 6 months to 1 year | Over 1 year | Total | |
Bank borrowings | 3,127 | 4,415 | 45,415 | \u2014 | 52,957 |
Other non-current liabilities ? Guarantees | \u2014 | \u2014 | \u2014 | 92,257 | 92,257 |
Trade and other payables (excluding payables to public authorities) | 51,922 | 69,400 | 13,663 | \u2014 | 134,985 |
Total | 55,049 | 73,815 | 59,078 | 92,257 | 280,199 |
Cash flow interest rate risk and fair value risk
The Group manages its interest rate risk by borrowing at fixed and floating rates of interest. The Group's policy is to ensure non-current net financing from third parties is at a fixed rate. To manage this, the Group enters into interest rate swaps which are designated as hedges of the respective loans. At 31 December 2020, the percentage of debt the interest rate of which is covered by the aforementioned financial instruments was 99.8%. The impact of interest rate fluctuations is explained in Note 14.3.
Exchange rate risk
The Company's policy is to borrow in the same currency as that of the cash flows of each business. Consequently, currently there is no foreign currency risk. However, noteworthy in this connection are the exchange rate fluctuations arising in translating the financial statements of foreign companies whose functional currency is not the euro. At 31 December 2020, the functional currency of all subsidiaries and associates of the MERLIN Group was the euro.
Tax risk
As mentioned in Note 1, the Parent and part of its subsidiaries are subject to the special tax regime for Real Estate Investment Trusts (REITs). The transitional period of the Parent ended in 2017 and, therefore, compliance with all requirements established by the regime (see Notes 1 and 5.13) became mandatory. Some of the more formal obligations that the Parent must meet involve the inclusion of the term SOCIMI (REIT) in its company name, the inclusion of certain information in the notes to its separate financial statements, the share price on the stock market, etc., and other obligations that require estimates to be made and judgements to be applied by management that may become fairly complex, especially considering that the REIT regime is relatively recent and was developed by the Directorate-General of Taxes mainly in response to the queries posed by various companies. Group management, based on the opinion of its tax advisors, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2020.
Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should be noted that, as established in article 6 of Law 11/2009, of 26 October, amended by REITs Act, and in the percentages established in it, companies that have opted for the special tax regime are required to distribute the profit generated during the year to their shareholders in the form of dividends, once the related corporate obligations have been met. This distribution must be approved within six months from each year-end, and the dividends paid in the month following the date on which the pay-out is agreed (see Note 5.13). If the Parent does not comply with the requirements established in the regime or if the shareholders at the General Meetings of these companies do not approve the dividend distribution proposed by the Board of Directors, calculated in accordance with the requirements of this Act, it would not be complying therewith and, accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs.", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialRiskManagementExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl8xMDAvZnJhZzoyY2E1Y2Q1YmQyODY0MTJiODFjOWVkMDU5MzE0Y2Q0Mi90ZXh0cmVnaW9uOjJjYTVjZDViZDI4NjQxMmI4MWM5ZWQwNTkzMTRjZDQyXzE1OTQyOTE4NjA0NTEx_acb45fca-078f-4ceb-b697-166d544d977e": { "value": "24.\u00a0 \u00a0 Events after the reporting periodIn January 2021, the Group delivered a 98.757 sqm (A-2 Azuqueca II) industrial plant to Carrefour.
In February 2021, the Group sold three non-strategic logistics assets amounting to 50,904 sqm and one BBVA branch for a total amount of EUR 43.9 million, with a premium of 1% on the December 2020 valuation.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjJmZjdmNzBhNDgxMzRjYzc5NzkzOWQwMTBkMjAyNDJiL3NlYzoyZmY3ZjcwYTQ4MTM0Y2M3OTc5MzlkMDEwZDIwMjQyYl82MDIvZnJhZzplNmFkYTQ3NGI1OTc0Y2NhOGIxOGY5MmM2ZDc4MWYxYy90ZXh0cmVnaW9uOmU2YWRhNDc0YjU5NzRjY2E4YjE4ZjkyYzZkNzgxZjFjXzE1OTQyOTE4NjAzMTMx_1b5d0fdb-fd2d-437c-8715-b8e43adf0ce1": { "value": "25. Explanation added for translation to English
These financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Company in Spain (see Note 2.1). Certain accounting practices applied by the Group that conform with that regulatory framework may not conform with other generally accepted accounting principals and rules.
", "dimensions": { "concept": "mer:ExplanationAddedForTranslationToEnglishTextBlock", "language": "en", "entity": "scheme:959800L8KD863DP30X04", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00" } } } }