Merlin Pptys Socimi Ord

Ladies and gentlemen, thank you for joining Merlin's 2023 resource presentation. You can find the materials that will be covered in today's call available in our website, and please ask you to buy by the disclaimer contained on it. Our CEO is Maria Clemente, and our COO, Miguel Ollero, will walk you through the main highlights of 2023, and will thereafter open the lives of Q&As. For those of you who want to raise questions, Thank you, Ines.

Good morning, good afternoon, everybody. Okay, 2023 clearly exceeded our expectations, particularly in the second half, and ended up being an excellent year from an operating perspective for the company. almost able to make up for the absence of one-half of BBVA rent. We fell short only by $6 million, which is remarkable. The company also, I believe, will remember this year as a historic year because we finally set a foot in our promising new business line data centers with the opening of our three first facilities. The only negative aspect was the fact that we are not immune to decreasing valuations in real estate. From a purely operating performance perspective, the company achieved a very strong like-for-like rental growth of 6.5%. And the good work in the different business lines of the portfolio, particularly this year in offices, where we had slightly worse perspectives than what we finally saw at the end of the year, the company has reached an all-time high occupancy of 96.2%, above and beyond the less than 95 that we reached in the good old times in which we still had the second weapon of the 100% occupancy of the BBVA portfolio. So we are pretty happy and pleased with the performance of the different business lines and the hard work they have performed during the year. As commented, offices, I know it can be mind-boggling for some of you, but continue to perform very well. We continue onboarding a very modest positive risk spread, of course, You know, we have been charging significant CPI indexations for the last three years, and the value of our rents will end up suffering. I mean, according to our appraisers, we are minus 5% as compared to market, but, you know, this is clearly narrowing. We obtained... like-for-like growth of 6.1%, owing mainly to inflation, as commented, and could maintain the occupancy that we had reached during 2022. At the beginning of the year, our expectation was to lose between 100 and 150 basis points. We found no surprises in the performance of logistics, where just by chance, we reached full occupancy of 99%. I mean, it cannot be expected for the future. I mean, beyond 96 is full occupancy already, so we have to take that into account and achieve very good organic growth with a like-for-like of plus 4.8%. The retail, formerly the Cinderella of our portfolio, transformed into a princess. and achieved a 7.7% like-for-like growth with a 12% release spread and an occupancy close to historical intra-year records of 96.2%. And what is more important, with our clients being quite comfortable paying our rents with an OCR of just 11.7%. In terms of FFO, Of course, we couldn't make up for the whole of the VBA effect, which is not taken into account is performed in the top line in sales and EBITDA, but in FFO, we couldn't make it up completely for it. So we have a total FFO of 0.61 per share, one decimal below what we had achieved the prior year. but excluding the effect of the 3D portfolio, it would have been 9.6% above the prior year. We had an overall decline in valuations across the portfolio, which in net terms stood at minus 3.4%. However, on gross terms, we experienced declines in valuations of around 5%, both in offices and shopping centers, that were only compensated by gains on development, mainly in new projects in logistics and in our new data center business line of which I will comment farther down the presentation. The yield expansion that we onboarded during the year was 42 basis points, but more importantly, since values started correcting, We have already swallowed 95 bps, you know, since end of 2020. As commented on a number of other calls, we were expecting re-rating of the values, gross values of the portfolio in the region of 100 basic points. We believe that we should be reaching an end, at least in shopping centers. I believe correction will continue in offices for at least the new year and maybe beginning of next year. In terms of financial situation, LTV stood at 35% with 100% fixed in terms of interest rates. And our CFO department made an outstanding effort in flattening out all maturities until November 26th. and keeping the same liquidity levels we used to have. You might be confused by the fact that we had 1.8 billion at the end of the last year, but that was only because we had a bond expiring immediately in the new year, and as such we had accumulated the cash at the banks of the company. In terms of value creation, very muted activity in acquisitions and disposals with less than 40 million in disposals and some 30 million that have come into this year. So it was not a strong year in disposals, but it was pretty similar to other historic years of the company, reflecting a market which is not good at present in terms of liquidity. And unless you are absolutely forced, this is not a good time to dispose of assets. Regarding Landmark Plan, Plaza Ruiz Picasso was the last building to be delivered according to that plan. and was delivered to IBM in December. And now Globant and SAP have occupied the respective floors during the new year of 2024. Importantly, in best two and three, we continue converting land bank into cash flowing assets with the Cabanillas part to be shared of 47,000 square meters finished and delivered to PEPCO, so fully let. And as commented at the beginning, I will believe that what is really important for us this year is that we were able to finish the construction of our three data center facilities in Madrid, Getafe, Barcelona, Park Logistics, and Bilbao, Arasur. and fitted only three megawatts in each, being a little bit too shy with hindsight regarding the perspectives of cloud adoption and hence commercialization to cloud specialists in Spain. Clearly we were wrong, and our American engineers were right. I mean, there was more water in the pool than we initially assessed, and as a consequence what we have done since has been to accelerate to the extent possible the supply of new equipment in order to be able to correct that shortfall in equipment and exploit the situation in which we are at present in the market, which is really privileged from an IT capacity standpoint. Without further delay, I will pass it over to Miguel, who will comment on the numbers of the financial results. Good afternoon, everybody. This is Miguel. We move on to page six of the presentation. We have here the numbers, which are a mirror of the operational performance that Ismael has been commenting on for the year 2023. In principle, I should highlight that, in terms of product range, we were able to grow 5% over the year to 475.6 million euros. We take into account the full revenue generation of the group. It was 488 million, which reflects a 6% growth overall for the year. NOI was enhanced on a 6.6% basis, so there was also an improvement in the operational efficiency of the portfolio. And if we move down to EBITDA, we were reaching the $367 million mark. That was 9.7% ahead of 2022, which is also a remarkable figure, providing us a 77.2% EBITDA margin in the company, enhancing from 73.9% for the previous year. So as Ismail was commenting, the operational performance coupled by inflation, release spread, An increase of occupancy has proven to be the driver of our efficiency and data generation during the year. In terms of FFO, as Ismael was commenting, 284.2 million euros. It is slightly low last year, taking out the effect of the portfolio that was part of the portfolio in the first half of 2022. It is close to 10% higher. Little by little, catching up and putting the company into the same level of rents and cash regeneration that it was before the VBA portfolio disclosure. In terms of net profit, as commented before, there is a drop, there is a negative effect driven by the market of our real estate portfolio. for $366 million, that has provided us a loss of $83.5 million just for the year. Finally, on HEPA MTA, as a result of the 3.4% reduction in GAD on electrolyte basis, our HEPA MTA has gone down 3.8% to 15.08. The TSR for the year is minus 1% because in between there is a distribution of dividend during the year. If you move on to page 7, nothing relevant to be marked. We already were talking about it. So the electrolyte growth of our GRI has been 6.5%. very good results of performance in all the asset classes. They went from the 6.1% in offices to 7.7% in shopping centers. It has been the asset class that has been performing better in terms of general generation. And if we move on to page eight, we have here occupancy and portfolio. As we were commenting at the very beginning, this is a record year in terms of occupancy. We have reached 96.2% even higher than at the time we had the VA portfolio in the company, considering that it was an asset class that was bringing a 100% occupancy, considering the specifics of the contract we had with the VA. And no matter what, this is even better with our current portfolio. Important to remark that the district is at 99% occupancy, the shopping centers 96.2, which is who has been supporting the life of Merlin. And even offices has been able, in a challenging year, has been able to sustain the same level of occupancy that we had one year ago. I will get into the details of the different asset divisions. Okay, thanks Miguel. I will go very, very quickly through the different asset classes. In offices, as commented, very healthy rent increase, consequence of a full pass-through of inflation with a modest release spread after three years of passing relatively high inflation. Barcelona and Madrid were pretty similar in terms of like-for-like growth. Lisbon lagging a little bit behind simply because there were not significant transactions during the year. It's a portfolio which is almost fully occupied. In Madrid, slight improvement in occupancy, particularly stemming out of better A1 corridor In Barcelona, decreasing pattern in occupancy as a consequence of the oversupply in the 22-ath district, and Lisbon remains full and will remain so for a little while. In terms of leasing activity, with more than 300,000 square meters transacted, it was the third best year in history, pretty much on par with the second best. There was one year right after the purchase of Metro La Fesa in which we touched 450, but just because the Metro La Fesa portfolio came out to us with a lousy commercialization, and we had to correct the situation very quickly. But a very, very interesting way of performance of this year. I mean, we wouldn't have, at the beginning of the year, we wouldn't have predicted that this was the situation. during the whole of 2023. And we are witnessing the same view in this beginning of 2024. We see companies are reverting a number of decisions of space reduction that were taken a little bit hard pressed by circumstances like pandemic, the you know, people going home as a consequence of the COVID that too much of an exaggeration in the work from home effect, et cetera. At present, as commented, since the month of November last year, the physical attendance to our buildings has already reached the pre-pandemic levels and measured as, you know, through the turnstiles as, you know, persons going to the office on an average basis. Yes, there are some peaks and valleys during the week, particularly on Fridays. But, you know, the averages are now online with the ones that we achieved pre-pandemic. And in the renewals, we are seeing after two, three years in which that was the exception, now we are seeing many clients which are either holding up to the same occupancy or the same square meters they used to have, or in some cases expanding. In fact, as commented with you in past calls, Particularly with some multinationals, we were kind of reserving some space because we knew they were wrong in their space calculations. And in all cases, they are coming back to us and asking for that extra space that we reserved for them. The trend for 2024, we have, generally speaking, our guidance for the year is of a relative maintenance of relatively flat occupancy levels. can go up or down by almost nothing. But more than 50% of our renewals in the year are now, let's say, either agreed or at least negotiated with the tenant. So the office department is doing a very good job. And we don't foresee big problems in offices, contrary to many other places in the world. I know you will make a lot of questions about how can be that the US, et cetera, that, you know, we don't foresee big problems in offices given the supply and demand relative balance in Spain till the moment in which GDP growth starts to stall and eventually, particularly when private sector employment starts to fall. I mean, this is the real driver beyond the the literature about work from home, et cetera. Then in terms of Loom, the year was relatively muted in terms of new openings, just one, but we are opening five new places in 2024. We are expanding our successful Plaza de Catalunya scheme, which received the Architizer A-plus Award for the best coworking space in the world, for which we are really In terms of logistics, page 14, good like-for-like growth, of course, lower in Madrid because the sample is much more significant and bigger in Barcelona. Occupancy, however, in Madrid grew by more than 2.5 percentage points, and it also went up significantly in Barcelona by about 400 bps, as commented in other calls. The occupancy last year in Barcelona had been affected by one exit that was immediately replaced in the new year, and as such we are going back to normality in terms of occupancy. Again, here in logistics, whenever we start having problems with GDP growth or with import-export activity or with consumption, because most of our space is linked to e-commerce related activities, is when we will start seeing problems in logistics. But as evidenced by the pre-let conversations we are having for our pipeline, the activity in the sector remains very, very strong. The leasing was pretty good with close to 300,000 square meters transacted, which again is on par with the best years of the company. And in Zaltport, we went slightly down in occupancy owing mainly to one big shed that was vacated, but we increased rents and had slightly lower FFO as a consequence of higher land lease payments to the Spanish government. In shopping centers, well, as commented or as already flagged during the year, the tenant sales kept on surprising us going beyond pre-COVID levels and while maintaining very low OCRs. The footfall in 23 was above 22, but it was also above 19. So compared to, let's say, undisturbed pre-COVID year, we had better footfall, which, as you might remember, was our main worry because cinemas were really not helping that much. And I must say that this increase in fruitful has not been driven by cinema. So as you can see on the sales, it's transient people that have been going to the shopping centers to consume rather than simply go to the cinema. And you can see it on the tenant sales evolution with a plus 10% print compared to the prior year and already 14% above pre-COVID levels while maintaining a very healthy OCR, 84 transactions carried out, close to 39,000 square meters that transacted during the year. And I will let Miguel explain the valuation and debt position of the company. Miguel. Okay, we'll start again with numbers. Regarding the portfolio valuation, as we have been commenting, this year we have been getting a knockdown in valuation mainly focused on shopping centers and office. whereas logistics, especially in terms of developments, and data centers have been the positive. I should say that overall we have been able to reach a passing yield of about 5%, or a 5.1. This is as a result of the adjustments in valuation we have been receiving during the year. We look at the different asset classes. In office, it was a GAB for like evolution of minus 4.7%. but screen development was 6.4%, so this is a big hit in valuation that is more or less in line with what we have seen in the market from other peers. If we look at logistics, despite that we have had until expansion of 39 basis points, we have been able to have a 3% increase on GAB on a life-for-life basis. The waste-grill development, it should be only 0.1, so the existing portfolio has been quite flat, whereas our projects are the ones enhancing the value of during the year. So also very well effective and the fact that there has been an increase in the issue rates and also in the IRR for valuation purposes. So all in all it was a 3.4% down in valuation. If we look at yield compression or expansion, for the year it was on average 42 basis points, but what is important to remark is that close to 100 basis points have been adjusted since 2020 all across the portfolio. Now we move into the balance sheet and debt position. It is important to remark that we have a net debt. of 4 billion euros, with a gross debt of 4.5 billion, with a net of 4 billion in net debt. The loan-to-value is 35%, which is quite healthy. It is, as you know, it's growing up a little bit, maybe based on the fact that valuation has been hit, and is the main driver of the loan-to-value evolution during the year. Average cost is 238%. higher than the previous year, given by the fact that we have been refinancing debt, not only the one that was maturing during the year, but also the one that is coming from maturity in this year. We will get into it later on. We don't have issues about a potential increase in terms of interest rates because all of our debt is fixed either by fixed coupon or either by hedging in the case of banking financing. We continue to have a very good average maturity, 5.1 years, which is much better than previous year. And liquidity remains high. That's already we keep having the same positive outlook that we used to have. And what I would like to highlight is more focus on page or slide 24. During the year, we have carried out two main actions. to secure the refinancing of the $743 million bond that was matured in April last year. That was secured by banking financing, so we were replacing bond financing by banking financing on a corporate basis with a $665 million facility. On top of that, during the year, we have also been working on the refinancing of the following a maturity that is only coming in May 2025. Nevertheless, we were raising in the second half of the year $118 million seven-year mortgage loan on a monthly financial basis and another $170 million on a 10-year basis. The two of them are very good, attractive margins between $110 million and $125 million. This was secure, and this part of the balance is at the end of the year, but in addition to that, first two months of the year, we have been able to progress additional 150 million banking financing on a 10-year basis. And we have been able to top up our bond maturity in September 2029 by 100 million. So all in all, this implies that the 600 million bond maturity in one year and two months from now is already secure on a banking financing basis. On top of it, we continue to have the possibility to continue refinancing because if you look at this slide because I'm 31, 32, and 33 are the areas which we can be placing future facilities getting into it. that this company has been able to finance bonds on a banking basis at much better prices and long-term basis. It was important to remark that only 9.6% of our debt is on a mortgage basis, so the vast majority of our debt continues to be on a corporate basis. And finally, we're moving to sustainability. Sustainability is one of the most important things As long as we have been saying that operational standpoint, the company has been achieving very good remarks. We should say that also in terms of sustainability, the company continues to be putting a high effort to continue making this part of the story of the day-to-day. So in terms of green clause, as you know, this is a clause that we were already putting in motion last year as part of our way to work together with our tenants. This has been now put into every single new contract that we are entering into, and will continue also into a new contract over the following year. Second thing that I will highlight is that we have a commitment to analyze which is the embodied carbon that we are including in any single either greenfield program or any retrofitting we are making in our projects. And as a matter of fact, we have set for the future maximum limits in terms of embodied carbon for our three asset classes, office, logistics, and shopping centers. The three of them are second to none in regards to what we have been analyzing and seeing in our peers. Also, we continue rolling out our solar panel strategy. We have reached close to 15 megas in start and in operation. We are aiming to reach 40 megas in the following years, and this is getting momentum. Also, as I was commenting before, the $1.1 billion raised during the year was on a green financing basis. So as a part of our commitment with the investors is that we are continuing to have the vast majority of our debt, if not all, on a green basis. And finally, our colleagues, this is just a result of what you are doing on your day-to-day basis. We should be highlighting that. We have been down for the first time, and this is the only European companies across the world are having to reach it at some point in time. Case 27 is just evidence of how we are evolving in energy consumption and carbon footprint. Two of them have evolved very positively in 2023 and will continue evolving likewise in the following years because we continue implementing a lot of measures to reduce it over time. And finally, page 28 is just, as I said, the accolades, which are quite remarkable. This is a way to set out how you are evolving on an absolute and a relative basis in this sustainability tax that we all have, and as you can see, all of them have been positive, and we have been either improving or maintaining our position with regards to 2022. Now it's my turn to enter into the value creation section of your presentation. Thank you, Miguel. On page 30, as commented, very, you know, modest activity both in investments and non-core investments. We simply bought opportunistically the possibility to expand our successful marinera shopping center, and we are already working on the retrofit for the addition of 18,000 square meters to our existing scheme. We will keep the remainder of the space we bought for the future. In terms of non-corded investments, we sold a couple of shopping centers, one industrial warehouse, one residential unit, and a supermarket. So very, very modest year in terms of activity. On 31, this is the latest render of the Red Picasso once. If you see it today, it is exactly the same with an IBM logo. And it's now completely full with really high rents in the let's say, highly sought-after area of Afgan in Madrid, which is subject to future improvement in terms of landscaping quality on the initiative of the Municipality of Madrid. And then little housekeeping things. We kept on refurbishing buildings on Cerro de los Gamos, which is an industrial business park we have on the A... sixth area of Madrid which is full and we refurbished two buildings there which were delivered completely full and we will continue doing so because the aspect it used to have, as you can see on the before picture, was very close to criminal. So now we are changing it for something a little bit more serious. On page 33, logistics, well, we commented last year we wanted to put in motion 180,000 square meters of new logistics. 47 of those have already been delivered. And we go back to the same figure, now 188, of which 160 have already ahead of terms. And 28,000 square meters are speculative. Don't be surprised. It's simply because that speculative shed is between two sheds that are already pre-committed and need to be built. So once we send the construction company there, it is more sensible to do the whole construction yard at the same time, even though the 28,000 square meters are speculative, than to then call the construction company in the future and disturb our existing clients in that park. The total remaining investment will be $78 million for delivery in the second quarter of 25 of the whole space. And the expected rents are above $10 million for a yield on cost including land price and incurred capex of 7.6. But if you only take into account the yield on pending capex, you will see that it will incorporate what will result in a 13.3% what is pending compared to the new rent that will be added. Then for the future, there are another 420,000 square meters close to which result in a capex of 223. Of those 420, about 100,000, we are already working on potential preleds that should result in deliveries around 2026 with around 60 million capex and yield on cost in the region of 7.5, 7.6, and yield on pending capex in the region of or above 10%. So very, very important because at present, we need all cylinders in our engine to be firing. I mean, we cannot afford the luxury of having idle land sitting on our balance sheet in a moment in which the company is making such a tremendous capex effort. So we hope to move those 100,000 square meters also into WIP as soon as we can. and have only 300,000 square meters pending development in our portfolio. Regarding the digital infrastructure plan, the data centers, well, some remarks which are important. We have been experiencing some delays in the effective electrification of sites. What does it mean? Basically that sometimes you have power which is contracted and paid for. You have delivered amounts to your supplier, to a distribution company. However, at the moment of effective delivery of that power, there is no one on the other side of the line. Why is that? It's a mix of guilds. Sometimes it's the distribution company itself, but in some other cases, regrettably, it's public administration. doing a trench or digging beneath a highway in Spain is a very lengthy process of authorizations. It's a calvary of papers that you need to fill out in order to get there. The good news is that in Barcelona we are done with about two quarters of delay, so we're expecting very, very soon the effective electrification, so the moment in which the power will be on in our site. This is the first site which is going to be fully electrified in our portfolio. In Bilbao Arasur, we are also getting the power imminently, so this is important. And just in Madrid, we have had to change a little bit our commercialization pattern because we have moved into what we call a capacity lease in which the client will be receiving the space in the moment in which we get the electricity. So we have to adapt a little bit our commercialization to the reality of things. We have spent already like 300 plus million CAPEX-wise, that you will see only 258 on the accounting, I mean, as CAPEX in data centers. The rest is down payments and pre-orders that we have placed. We need to pay, from an accounting perspective, $144 million in 2024. You should subtract the $40 million difference that we commented on for year 23. And then another 163 should happen in 25 onwards, although we are trying to anticipate that to 2024 to the extent possible. So we are trying to accelerate our investment in our data centers. Regarding total investment, you will see that the total amount has kind of gone up to 565. This is simply a consequence of the fact that in Bilbao we have been able to scratch another two megawatts in our Bilbao III building. So we are no longer talking about 58 megawatts, we are talking about 60. And it also owes to the fact that we are now doing the pilot modifications for conversion of Barcelona into direct liquid cooling which will be followed by Bilbao Arasur. Direct liquid cooling is a little tad more expensive than air cooling, and as such, we will need to incur a little extra capex. Just by chance, because the numbers have added up that way, the stabilized GRI is the same, 14.4%, owing to the fact that the rent you get in generative artificial intelligence higher than the ones you get normally for cloud services. And the growth to net remains the same, so we will be obtaining plus 10% in stabilized NOI. Regarding cash flow projections, I mean, and you should take all these with a pinch of salt because this is a moving target. Of course, we do as best as we can in terms of, you know, be true on our projections, but In 2023, we finally received only 0.5 million euros as a consequence of the delay in electrification of Madrid. And in 2024, we are maintaining the same guidance of around 11 million because there could be delays in one side, but I believe there will be accelerations on other sides. So for the time being, we maintain the same guidance to market. What will be different is the total rents, which have gone up to 81-something million as stabilized. They will not coincide with natural years. So that should be more or less the rent at the end of... 25 times 12 or very similar to the rent in 2026. More or less, that should be the number reconciliation. But rents have gone up as a consequence of simply better pricing capacity in a market which is really in need of IT loads at present. On page 37, you will see some real pictures of the Madrid Getafe The façade, which is photovoltaic, the generator set room, and the meet me room where the cable providers are meeting the operators within the data center. We have two of those. Regarding the electricity issue, we had 30 megawatts sourced and paid with the distribution company. you know, following a number of issues with public authorizations and the like, the new calendar is eight megawatts that we are going to be supplied by end of this year, and another eight megawatts that we are going to be supplied by end of next, and then the remainder, 14 megawatts, will be supplied during year 2026. As a consequence, of course, we have recalculated our different cash flows. And what is more important, the new equipment that we were receiving in Getafe is being reshipped at present to Barcelona in order to complete as soon as possible the Barcelona data center and start getting cash flow. And whatever is left will be sent to the Bilbao Arasur data center. So we will be reordering a little bit the equipment supplies depending on the availability of electricity. That will result in three megawatts of equipment already installed as of today. And then five megawatts extra to be received and installed within 2024, in fact they are Some of the components have already been received, but we will not end up receiving the lengthiest order, which is the generator set, until end of June. So they will be installed in the data center by September, October, and generating cash flow only for a portion of the year. And then the remainder, 12 megawatts, will be received and installed in 2025. Regarding commercialization, our existing clients are making use of two megawatts of IT capacity for cloud purposes, and we have a six-plus-six capacity lead booked that will result in filling up the vast majority of the capacity of the data center, or 60% of it, during this year and the next. without need to modify the refrigeration system because this capacity list has been made on the basis of cloud services. So very relatively low densities of between, I would say, 15 and 20 kilowatts per rack. So no need to modify our existing refrigeration systems in order to achieve the guaranteed PUE that we are giving to the clients. On page 38, you see also actual pictures of Barcelona. Very good-looking data center without the logos, this picture, yet. I mean, they are being installed as we speak. Generators set room and then the electrical switches and transformers. This data center has been, you know, Of course, there are some delays in the effective delivery of electricity, but the pleasant surprise is that we have found a little bit more electricity to be supplied than we initially anticipated. So we have sourced 24 MW capable of serving around 16 MW IT capacity that we will be receiving momentarily. And we have found the possibility to increase that supply by around 12 megawatts extra, which could give us a good additional 8 megawatts IT. That looks like a small thing, but the yield on cost of these additional 8 megawatts is very, very good because the core and shell is already done. So, you know, very, very interesting in order to keep our existing yields on cost. In terms of equipment, three megawatts are already installed and six megawatts will be received, you know, within the next quarter and installed right after the summer. And then the other seven megawatts will be received at the end of the year and installed at the beginning of 25 according to the ramp up agreed with the client. In this case, the client is a generative AI operator. Therefore, we are already modifying the MEP of this facility in order to incorporate a direct liquid cooling, which is, you know, pretty interesting. Not so many examples in Europe. This data center has significantly improved its connectivity because it is now connected to the first ring of the Barcelona cable landing station. So that effectively means that we are landing station now of Equiano to Africa and Meduse, which has been the reason why this facility, which originally was intended for wholesale collocation, has been moved into or has been converted into generative AI. Regarding Bilbao Arasur, we have a big contract here around for 100, good for 100 megawatts IP or probably good for a little bit more that we are making rounding calculations. The distributor will supply the electricity or the first 30 megawatts of electricity very soon, during the next quarter, which is very important. And this is really on track. I mean, we have been monitoring the works in the substation, the cabling, the anti-firing, and everything, and it is really on track. So, yeah, again, with around two quarters of delay, we are going to be receiving the electricity. Regarding equipment, three megawatts are already installed. And then another three will be received by the second quarter of 24, and another 12 before year end, which you should add another quarter more or less for installation in order to calculate the time to money. And then the remainder six megawatts will be received in 2025, most probably in the first half of 2025. Regarding pre-com, well, three megawatts of IT capacity led, and then we have additional booking of 21 megawatts with a ramp-up spanning through 24 and 25, beginning of 25. And again, this is for generative artificial intelligence, so it will entail very probably, with a high probability, at least partial change in the refrigeration systems for direct liquid cooling. What is much more important, we have submitted the extension license in this data center, concentrating all the remaining power in just one building. So we have the original scheme here was three buildings, BO03, BO02, and BO01. We constructed the first building and fitted well, initially 22 megawatts, which at present is 24, but the remainder, the 76, 78 megawatts that we believe we can scratch from the new facility, will be squeezed into just one building, and we will leave the full of Bill 01, we will leave it for further extensions of the data campus because we are working on making contracts and getting significantly much more power in this location with the help of the vast public authorities which have clearly detected the potential of a big artificial intelligence campus in their region and are helping us in this effort. This data center happens to be the landing station of MAREA, which is the cable that was laid across the Atlantic by Microsoft and Meta, and Grace Hopper, which is a cable that was laid by Google, and will become also the landing station of Anjana, which is a new cable which is being laid by Meta across the Atlantic, although it should have reached our facility in 2024, and it looks that it will be a little bit delayed. Regarding Lisbon, well, Lisbon is another big scheme, big data campus. capable of handling around 100 megawatts IT taken to the maximum. It's been a complicated process in terms of licensing. The construction itself will take us like a year and a half, which is not good, but it's not terribly bad compared to what we have taken in Madrid and Barcelona. In this case, we had to also approve a concentration of land plots in order to make a bigger shed. And that took us another year and a half. So it's been a relatively lengthy process. Of course, we didn't want to take any shortcuts, which is always, I believe, a good thing in Portugal. And we are at the end of the process. I mean, we are just waiting for the construction license. and we will immediately tender and begin works. We have already started leveling ground, doing the basement, and doing the urbanization of the plot in preparation of the construction. So when we start construction, it will mean actually erecting the building rather than preparing the ground that will shorten a little bit the total construction Regarding the commercialization approach for this scheme, well, I would say that there is a 25% probability that it could be commercialized in full and developed in one shot, and then 75 that it will be commercialized, let's say, more regularly, and we will start one or two buildings you know, 30 megawatts to 50 megawatts, and then go little by little with the rest. It will depend. Interest in this one is very, very high. I mean, because this data center happens to be also a landing station of Ellalink, which is a cable that comes from South America, and then to Africa, it can on Meduse as well. that we are receiving through the Tagus River. So very promising opportunity that we hope during the year we will inform regarding its development. As closing remarks on page 42, strong performance. We already commented on it on our traditional asset classes. occupancy at an all-time high across the board in terms of value creation we kept on doing our job delivering fully led office buildings and logistics we delivered our three data centers a little bit poorly equipped my fault and I beg your pardon for that that I was a little bit unsure about the speed of adoption of cloud in Spain, but generative AI completely changed the panorama in terms of commercialization speed. So sorry for that. We are trying to catch up as best as we can. And regarding Outlook for 2024, I know you hate the word transitional, but it's a transitional year for us because, you know, Very little can be expected from our traditional asset classes, which are virtually full. And, you know, other than continuing to enjoy good inflation and also obtain some positive risk spread if at all possible. And it will be a year mainly of data centers in which we will continue filling up our existing facilities and we will try to start the new facilities as soon as it is practical for us. However, from an operational standpoint, sorry that data centers is a cash draining business unit until it stabilizes. Why is that? Because an operating data center is an operating data center, which means basically you need to have more or less the same number of engineers and technical people that you will have once the data center is full. So expenses are, let's say, fully drawn while, however, income will only happen with time through a defined ramp up with the different clients. Regarding balance sheet management, it will be an uneventful year with no maturities. I mean, as commented, the CFO department has flattened completely for the next two and a half years the profile of maturities of the company until November 26. The FFO estimate will be 0.59, which again is lower than this year. it should start flourishing in 2025 and beyond. There should be a significant jump in 2025 to at least 68 per share. Regarding dividends, we already paid 20 cents on account, and the board will decide on the remainder. But in normal circumstances, I think it will be 0.44 or similar. once they decide on the calling of the AGM approval. And then regarding valuations, although in shopping centers we should probably be starting to see the light at the end of the tunnel. In fact, we have seen some of our peers that have actually revalued some of their assets. We fear that we will continue suffering in offices. because I believe we will not enter safe territory until we are above the 5% mark in terms of passing yield based on existing occupancy. Reversionary is more, but I believe that we will continue seeing declines in the value of office buildings. However, we have a number of jokers on the sleeve. The most important is that Lisbon remains valued at zero, the data center, and all the remaining capacity of Bilbao Arasur is valued at zero. So as we evolve in the construction of those sites and notably when we finally open, inaugurate those sites, there should be a significant value jump in those that will continue helping us in offsetting the declines in valuation of other asset classes. as commented on many calls in the past. That was precisely the reason why we bet on data centers a long time ago, because we thought that was the avenue of growth that the company was needing in order to offset eventual declines in valuation of traditional asset classes as a consequence of the increasing interest rates that are, of course, affecting the values. So that is All for today, let's move into Q&A. And we will be glad to be taking your questions and answer whatever we can answer. Or if there is something we don't have the information for, I'm sure that Ines and Teresa will reach out to you and give you the dollars and cents of whatever you want to know in terms of performance or data about the company. Okay, so without further delay, let's move into Q&A.

Just to remind you that those who want to raise questions, please press star, followed by number five. Lorraine, you have the first question. It comes from the line of .

Hello, can you hear me? Yes. Yeah, hi Ismael. I got two questions for you. Can I take you back to what you said during your CMD in 2022? You were talking about how to invest the proceeds from the BBVA sale back at the time, and there's two numbers that I would like you to clarify today. The first one would be on the FFO guidance for 2026. which you had guided at 0.80, based on the guidance that you provided for 25, it implies a 70% growth year-on-year. So basically, two years of double-digit FFO growth. I'd like to know if you're still standing by that 0.80 euro guidance. And if not, what has derailed the investment case since you started deploying the proceeds from the BBBA sales? And also, if you could talk about that 25 guidance, if it takes into account a potential dilution from an equity raise. And on the second point, that would be about CapEx. I think we all appreciate the additional guidance you provided on the data-centered pipeline, but can you also talk about the DCM project? Because during the 2022 CMD, you were talking about the investment required on the DCM project, which was a total cost of almost $800 million, $300 million in land and infra, $300 million in construction. Construction has started or was guided to start it this year, so I was wondering if you could guide a bit more on the capex required that needs to be spent on that project, and if you already spent the $300 in land and infra. which I guess is not yielding at this stage. And I think overall, if you could just provide a capex number that you're planning to spend this year, adding everything, DCN, offices, data centers, and logistics. Thank you.

Okay. Look, Celine, regarding the 2022 comment on 26, look, if the FFO in 2025 has been guided to 11 million in 2024, you can assume with the ramp up from data centers, another 30 to 50 million in 2025, and the rest should happen in 2026. I will, of course, refrain from giving you a guidance for 2026 because it's two years out, but it should be pretty much in line. Remember one very important thing. Our ambition when we sold the EVA was basically to write up our balance sheet and reduce radically our debt and then recycle around one-third of the total proceeds in developing our data center arm with the aim of replacing like-for-like, more or less the same range of BBVA with data centers. We are doing that just with the first batch, with the first fourth of the data centers. We are more or less replacing like-for-like well beyond the 70 million that we anticipated. And even more importantly, The organic performance of our existing businesses have been able to almost make up for half of the BBVA cash flow, which, as you know, was triple net. So they're pretty happy with the way the company has managed to perform following the BBVA disposal. Remember a very important thing. The world has changed, so the interest rates are not the same, and you can see it in our existing numbers. I mean, you can see that our financial expenses have gone up significantly. But still, I think you can count on pretty similar numbers to the ones you have in mind, okay? And then regarding the CAPEX and particularly DCN, well, DCN, the amount of CAPEX that it will require in 2024, November, assuming we have finally transmitted the land, is going to be around 37 million, which is relatively immaterial. And then in the years to come, yes, you remember, rightly remember a total figure, total equity, let's say total use of resources of 700 million in that project, but that spans over the next 20 years. So, yeah, you can assume that around two-thirds of that will be employed in the first 10, but still, I mean, it's relatively immaterial for the company. It will only be material if we were the majority owners of DCM, but with our current 15% position, it's relatively immaterial for the company. And regarding CAPEX, total CAPEX reconciliation, I'm sure Miguel and his department will feed Ines with the information and she will be able to give it to you. Another important question you made, which is whether the figures had already taken into account dilution, not at present. I mean, we haven't taken into account any dilution from the capital increase because the potential dilution of ownership of the capital increase in our calculations, in our model, are resulting in very significant EPS accretions. So, you know, whenever we reach that river, we will cross that bridge. I mean, at present, we are simply doing our bottom-up analysis of the eventual capital increase that the company needs to do. We know it's going to be akin to an M&A transaction, so existing shareholders will want their share price re-rated and new entrant will want to achieve certain returns. The key in order to provide information and tranquility to both parties is our own assessment of the situation. So we are modeling the company with different scenarios so that particularly our existing shareholders, the board of directors, has very good information about what the company is worth with and without the capital increase. And if and when that moment comes, we will also provide some info to the eventual new entrant so that they can see that ballpark figures they will get their returns through the investment of the company. What is crucial for us as a management team is that that pipe, that M&A transaction takes place because we need that primary raise if we want to continue developing our data center business. Of course, we could simply stop where we are and add 80 million of rents to the company, but we believe it is significantly better as a fiduciary duty of care of the company we are running to continue exploiting the success we have obtained in being first movers in this particular field.

Okay, can I can ask a follow up question? Yeah. Is now the value correction in your portfolio is very minor so far, and it's not matching what the other rates are reporting, which is more double digits. So I was wondering if you could talk about it.

Well, the starting point in Spain is also very different from other countries. I mean, yes, you might see the value correction as a minor But you need to take into account a number of things. First, that the gross value correction has been significantly bigger. However, the delivery of WIP in logistics and data centers has significantly offset the primary fall in value in offices and shopping centers. And second, we were already running at yields of So it is very different to be running your property at yields of 4 plus than to be running your properties at yields of 2 plus. So because if the new normality has to go, I mean, 10-year risk-free is like 260 to 270, and you need to be between 100 and 300 days above the risk-free, of course now probably at the top of that range because of the negativity against real estate worldwide. Well, then it is not the same to start from a 4.5 than to start from a 2.5. So I can understand that in other places things have been different. This is what came out of the appraisal exercise of our appraisers We were, I must say, relatively surprised, positively surprised. And let's see what happens during the year. Eventually, they will continue adjusting during this year. I mean, there is nothing I can do. So basically, we're in the hands of the appraisers, and let's see what they do during the year. But I am really not afraid. You know, I am not mad. I know you want blood. As a manager of a listed company, I mean, if it was my particular choice, I would have given you blood because I know you want blood. That is not necessary. I mean, this is what has emerged out of the valuation exercise. So let's see what the year 2024 keeps for us and what is the result of the valuation exercise on the 30th of June and the 31st of December. We have seen this movie in the past. We have been discussing in our board about selling the shopping centers for zero and things like that. We are accustomed to these types of things. We have been in a number of cycles already. And let's see. We will continue adjusting values if need be. And let's see what 2024 is holding for us.

Thanks a lot Ismael.

It's a pleasure.

Next question comes from the line of Stephanie Bergman from Jefferies. Stephanie, the line is yours.

Hello, can you hear me? Yeah.

Yeah, actually, I had the same questions from Stéline regarding valuation because it's very, I would say, far lower than for your European peers. And is there any reason why... valuation should be more resilient than in the Paris region, for instance, in terms of working from home trends, the assumptions that appraisers are taking in terms of indexation, reversion, this kind of thing. And the second question regarding your net initial yield, something I don't reconcile is that I had 6.4% for 2022. And now I find 5.6% in your in your release going so falling to 5.4% if I'm correct, so maybe I'm missing something here.

Okay. Well, first, on the net initial yield, which I understand is the APRA net initial yield, I have no clue of what you're referring to, so I will defer to my team to go back to you and do the reconciliation exercise to see what eventually may have happened in terms of APRA net initial yield. We report according to APRA standards. We have always done that, and we will see what you are referring to. Regarding, again, the modest decrease in valuations, There is nothing I can say. Of course, it depends on whether... The Paris region, I am not an expert in Paris. I know it is a huge market. I know there is a lot of liquidity there. However, in my honest opinion, I don't see a right from God to be exchanging buildings at 3%. Let's see what finally happens there. Regarding work from home trends, I know our own work from home trends, which I can tell you are inexistent at present in Lisbon and Madrid, and a little bit noticeable in Barcelona because it is a little bit more prone towards programmers and tech industry. So it is a little bit more noticeable in our buildings in Barcelona measured with the turnstiles, but not in Madrid and Lisbon. Indexation, well, you know, in Spanish and Portuguese civil code, there is a full indexation every year. In exchange for that, contracts are much shorter. So in Anglo-Saxon countries, sometimes contracts are longer and there is no indexation, and rather there is simply a mark to market every now and then. So, you know, it is the way it is. You know, we are accustomed to this way of doing things. The market is very quick to react in terms of rents. I mean, whenever there is a hike or a fall in rents, the market adapts very, very quickly. And regarding values, well, there is nothing else I can really guess or comment as commented before. We will wait to see what happens in 2024, whether they continue falling, which is, personal let's say forecast and I am telling you openly but also if you want to do a what-if exercise within s and you want to adjust the office values to you know 20% below where they are today and see what is the effect on LTV or well on LTV in the company, you are free to do so and we are happy to provide you with information if you want to do these kind of things.

Thank you and maybe a follow up on that because that was the underlying question regarding your leverage and have you discussed these assumptions on valuation with rating agencies? What are their assumptions on capital value decline and how does it translate into their credit metrics threshold?

No, no. What I was commenting is that you are free to do your own assumptions. So you call in there and if you want to drop the office values by one billion, do it and we can test it in our model more or less what is the LTV, etc., which is the only thing that really will change. And, you know, be our guest. I mean, do it.

In terms of the rating agency, Stephanie, we haven't had yet or any overview. Okay. Thank you. You're welcome. So the next question comes from the line of Adam Chapton from Green Street. Adam, the line is yours.

Nice, well, thank you for taking the question. Just a quick one on shopping centres, just the operational performance. If I interpret the numbers correctly, it looks like a little bit of a slowdown in the life-life growth in the second half in Q4. I appreciate that's one quarter maybe, but what are you observing so far in 2024? And I guess the broad question is, It's 12% OCR. You said it was comfortable for your tenants, but do you think they can tolerate much more than that, or do you think your rent growth can outperform sales growth in the medium term?

Okay.

Well, on shopping centers, we were really afraid of a bad second half last year. We were thinking, let's say, the base assumption was that private consumption would end up falling in Spain as a consequence of increased cost of utilities, higher cost of basic food, and general CPI effects in the spending capacity of households. However, the countering effects of those probably weighted more than we thought, and the low level of leverage of Spanish families so far has been holding the private consumption better than we expected. There is also a role of informal economy, which in Spain is significant. And there is also the fact that the government continued applying a pretty generous fiscal policy. And I guess they will continue to apply that kind of fiscal policy till they can. There is also the effect of the monetary illusion created by salary increases overall. I mean, wages have been increased a number of times already in Spain, and as a consequence, there is a domino effect in all salaries, which the only limit is, of course, productivity. But for the moment, clearly, we were wrong, and during the second half, we didn't see any slowdown on the private consumption pattern in Spain. If you want to be super picky, the Black Friday campaign and the Christmas campaign was a little tad lower than the year before. However, the Three Kings and the sales campaign at the beginning of 24 have been above last year. So isn't that mind-boggling? Really don't see why one thing goes with the other. Eventually it has to do also with the weather. I don't know, but for some reason we are in the last attendance or in the last footfall reports we are getting from our shopping centers, we are seeing a very, very healthy pattern of behavior during the month of February and going into March. So, frankly speaking, I don't know what to say. We are expecting, again, for 2024, a fall in consumption. But, again, we will prove to be wrong because there are forces which are more powerful than reason when you try to explain the behavior of an average consumer. Regarding OCR tolerance, Look, historically, our OCRs have been ranging between 13 and 14. Normally, 13.5, 13.6. That has been the norm for us in the past. You know that there were some countries in Europe where problems started above an average of 16. And in the US, there were, in some cases, averages above 20 that resulted in chaos. But in our portfolio, based on our experience, between 13 and 14, it's always been kind of the right ballpark for rents. So whenever we start getting above those ranges, we normally adapt rents. And whenever we go below those ranges, we try to push rents, which is exactly what we are doing as we speak. This is the OCR tolerance. I can see. An important thing, many people, particularly at COVID, predicted that all shopping centers will move into variable revenue. I can tell you that our 9% variable revenue out of total remains the same it was 20 years ago. I mean, we have had that discussion with a number of clients. We have offered them to move into variable. Nobody wants to move into variable. And I remember this was one of the strongest opinions that people were giving us during the COVID. Everyone is going to move into variable. The rents are no longer going to be predictable. And therefore, the capitalization rates will need to adjust to reflect. Okay, we have offered most of our clients to move into variable. Nobody wants to move into variable and be audited. So they prefer to pay, let's say, a fixed rent. So this is where we are. We will report during the year according to what we see, what we witness in our day-to-day operation. And you can rest assured that if things start to worsen, we will report that things are worsening. So we are have normally been, I mean, we are new kids in the block relatively, but we have always been pretty transparent in the way we have informed the market, and we will continue to do so. So if we see that in the second half, you know, footfall goes down significantly, let's say in a worrying manner, we will immediately report to market.

Okay? That's great. Thank you. Okay, thanks, Alan.

The next question comes from the line of Ferrand from Kepler. Ferrand, the line is yours.

Hello. Yeah, I would have Ferrand from Kepler. I would have three questions, please. Could you provide the net yields for the shopping centers and the office for the portfolio, please? The second one would be regarding the new development at Picasso. Has IBM moved in December as the tenant already? And the third one would be if you could provide guidance on like-for-like APEX for the next two years, please.

Okay, Net Yields.

APRA Net Yields for offices and shopping centers. Give it to me. With Picasso 11, IBM is already in, and Globant and SAP are already in, and the rest will continue going in. till the summer. So I would say more than 50% of the building is now occupied and it will continue. Occupancy will continue growing till the summer. What we are doing now is fit-out works. I mean, as the clients move into the building, we are fitting out and we will continue filling up.

Nery M. Ollios, the rank for offices is 3.9. Logistics is a 5.0. Shopping centers is 5.1. The overall portfolio is a 4.3.

Okay.

And then, like for like of CAPEX, Miguel, if you can... Do you mean maintenance CAPEX? No, he probably... No, he means probably offensive CAPEX.

I mean, what is the... What are you referring to on CAPEX?

Yeah, to offensive CAPEX, please. Yeah.

Offensive CAPEX.

Offensive capex, but not like-for-like.

So what is the offensive capex of budget of the company for the coming years? Yes. Okay.

So it's only focused on data centers mainly, and then logistics that we've provided you. Those are the two pillars of growth of the company. And then we'll have, you know, a little bit of noticers, the ones that we've been carrying out in the assets that we've been putting to... put them, you know, in shape, like the one that we've shown you in . But as Ismael commented on, the landmark plan is already over, and then a flagship for a shopping center. So the whole investment is going to be mainly focused on logistics and data generation.

Yes, in the data center, we already pointed out in the presentation that it's going to be 145 million. In terms of logistics, on the new projects that we're aiming to deploy, for the year 2024, it will be about 80 million. And there will be some additions, but there will be minus with regard to the other asset classes. In the case of office, we are under the refinement of Correa in Lisbon, and we will start also the refining of Divendade in Lisbon as well. And we are going to be adding two more buildings in the interior of Ramos. These are the four main assets, and we are already putting a fourth in office. And the shopping center is just limited to the replacement we're putting in place in Marinera that was bought from . I'm not talking about all in all 300 million. Rough number. Rough number for the year for all asset classes in terms of .

Perfect. Thank you very much. Welcome.

The next question comes from the line of Fernando from Alantra.

Hello. Thank you very much for the presentation. Three questions, please. First, just sorry to come back with this again. Just to be clear in data centers, your ambition is to raise capital and address the opportunity that data centers bring. The question is still unknown what would the structure be and also the size of the potential capital increase? This is the first question. And then second question, again, under the sentence that you've mentioned about Lisbon and the huge interest that you are receiving, I understand that it is still preliminary because you're still waiting the license and so on. But I don't know if it's fair to assume that you can also reach the 14.4% percent yield on cost that you've achieved for the Spanish assets as well for the Lisbon. And then third question is about offices. So market trends in 2023 in CBD, they have grown at inflation or even higher than inflation. And non-CBD have lagged behind, flattish more or less. My question is, what do you expect to do? What do you expect market trends to do in 2024? between CBD and non-CBD. Thank you.

Okay. Starting by the end, Fernando. Well, we expect rents in CBD to continue going up. I mean, our vacancy in CBD, including Lisbon, Barcelona, and Madrid, is like 6,000 square meters. So, you know, basically there is not a lot of space available, and as such, the pricing power is high. And regarding new business areas, all in all, I expect the rents to be relatively flat because there are areas which are improving a little bit. As commented, the A1 corridor is improving, but there are other areas like the A2 corridor which are going down. And in Barcelona, well, clearly the 22A is now for regular buildings, not for Torre Glorias, which is an icon. that for regular buildings, it is an area that is suffering in terms of rent. So, you know, all in all, I believe it's going to be relatively flat. That only God knows because, you know, the activity in this first quarter has been, I would say, pretty high. I mean, it is surprising us on the upside. There is a lot of leads, a lot of visits. There is a lot of people now moving in the market or taking decisions about extensions of contract versus relocation. Let's see how the year evolves. Take into account one very important thing, which is that rents in our three markets are very, very low, particularly when you talk about new business areas and peripheries. We are talking about rents, which in some cases are a little tad above logistics. So, you know, there is no significant worry about those rents going significantly below, because at some point they will reach zero, and at zero they will rebound, I'm sure. So, you know, very, very interesting to see what will happen this year. Regarding the yield on cost of the lease bond asset, I don't expect a 14% year-on-cost growth in Lisbon for two reasons. The Lisbon site is a riverbank, and as a consequence, the basement or let's say the bedrock, the foundations of the building needs to be done through a very special technique called micropiloting, which is expensive. Plus, in the case of Lisbon, like in California and other areas in the US, we need to go through significant anti-seismic protections because it's an area which is above average in terms of seismic risk compared to, for example, Madrid or the Basque Country, not Barcelona, but Madrid or the Basque Country. So, you know, I don't think we will get to 14.4, however, That said, we are seeing tension in rents. We are seeing an eventual narrowing in the gross to net because more expenses can now be recharged to tenants. The market will dictate what is the level that can be achieved in a place like Lisbon. Regarding the capital increase, we haven't decided. on the structure. Regarding size, very rough numbers. We need to develop 180 megawatts that will require 2 billion, more or less, capex. A little less, but to calculate a little bit in excess. So those 2 billion, our idea will be to make a 50-50 composition of 1 billion capital, 1 billion debt. You may say, okay, but that is 50%. That will affect your 35% LTV maximum. The truth is that we believe that upon opening of the data centers, another billion of revaluation gains will be realized. So it will be at the end, it will be 1 billion of debt divided by 3 billion of value. So we believe we will significantly keep our numbers below the 35% mark in terms of LTV. This is the way we want. Regarding structure, there is no structure at present. We are simply modeling bottom-up the company. We are trying to provide quality information to the board of directors. so that with that information they can start negotiating process which as commented I believe a pipe is more an M&A transaction than a public market transaction. There is a new entrant that of course wants the lowest price possible and there is an existing incumbent that wants the highest price possible. So they will need to get to an agreement and we will simply witness that negotiation and you know, praying for the fact that they get to an agreement and we obtain the funds we need in order to develop our cherished data centers.

Okay, thank you. Can I make a follow-up? Yeah. Yes, you've mentioned the revaluation in data centers and you've reported already in Q4 some value gains. I was wondering what is the appraiser's How are the appraisers valuing the data centers based on a stabilized gross rental income? What gross yield are they applying, basically?

They are doing DCFs, Fernando, like in every other asset class, and they are using exit yields present in the region of 6% to 7% gross. which correspond to five to five and a half more or less net. This is what we are seeing. So, in reality, in, well, as you have seen in our revaluation this year, only taking into account the existing capacity without attaching any value to the Lisbon site or to the extension of the Basque Country site, the revaluation has been pretty significant, in the region of 50%. So, you know, very interesting data point in order to calculate the potential evolution in the future, provided you can maintain the same yield on cost, which in our case, given that the land is ours, at least for this first batch of development, should be, generally speaking, maintained. I mean, with the exception of this one, it could be a little bit lower, but they will be more or less maintained. If you were to buy land in the open market, that is a completely different ballgame. But in our case, that we are owners of significant land, we should be able, for the next tranche of development, to maintain more or less the yielding costs.

All right, so the next question comes from the line of Thomas from Deutsche Bank.

Thomas, the line is yours. Good afternoon. One question, follow-up question on data centers, actually. Just wondering how the competitive landscape is involving giving a strong demand. I guess it's a kind of first come, first serve for power. Maybe you can provide some color on the development pipeline of your main tiers. Not sure if you have transparency here.

Okay.

The sound was not really good, Thomas, but I understand you wanted an idea of competitive landscape and how power is obtained in the market and what is the risk of not getting to it. and what is the development pipeline at present? Yes, well, competitive landscape. There are two... Regarding the competitive landscape, there are two very, very good incumbents that exist in the market. which is Equinix and Digital Realty, as you can imagine. They entered the Spanish market through acquisitions, which is very good because they were very quick on time to market and therefore time to money. They bought existing incumbents in Spain that had their data centers relatively modestly occupied, and they immediately improved occupancy in those data centers, which is, of course, always a very good business plan. The only caveat of that is that those data centers are located in significantly dense urban areas, and as a consequence, their possibility for repowering in those facilities is low. So at present, they do not have too much capacity to offer in the market. Does this mean that they will not react and go and buy extra land in a more remote location compared to the city center and develop data centers? No, of course they will. Of course they will move and buy land and develop data centers in other locations in Spain. However, between taking the decision Obtaining the funding from the US, because in those cases, those are multinational companies and will have Spain competing with other countries in terms of obtaining the funding. Buying the land, entitling, getting the power, equipping, constructing, and obtaining all the licensing, et cetera. There is a very significant time lag involved. Very, very significant time lag. I mean, I will... fall shy of quantifying, but you know, between 24 and 36 months, easily. I mean, it is not easy to simply go and build a data center at present in Spain. Then, above and beyond the really established incumbents, there is a number of tier two data center operators that have been significantly reinforced in recent times by private equity. So we are talking about QPS, we are talking about Vantage, we are talking about Data4. You know, those competitors, of course, with the steroids provided by private equity will become very, very significant in the future. But again, they will need to go find the land, develop, and do whatever they need to do in order to have operating data centers. Availability of power. Availability of power, while generally speaking, Spain is a country which is abundant in power, and particularly in renewable power, then for administrative reasons, for bureaucracy, getting that power is not an easy task. Not an easy task. And in some cases, it is a really frustrating task. We have our own formulas of doing it. You need to check whether you want to be above the radar of going to the national grid authority or below the radar and going straight to the distributors. You need to take decisions. We have already learned, painfully, but we have already learned how to do things, and we will, of course, put that in practice in the future. But it's not that easy, although, as commented, generally speaking, electricity in Spain is relatively cheap, relatively abundant, and the grid is relatively strong, and the cabling, well, the cabling is fantastic, both internal cabling owing to Telefonica and also submarine cabling with other parts of the world. Development pipeline. I prefer not to comment too much on that. I mean, there were two significant projects in Madrid. None of them are progressing at the pace we thought they would be progressing. Let's leave it there. I mean, not progressing very quickly. And in Lisbon, there was a very significant competing project happening in Sines, south of Lisbon, that of course was, you know, a very, very powerful rival to us. But that, again, that project is now no longer progressing at the pace it was expected to progress. for a number of legal issues they have had in recent times. So not a lot of competitive landscape at present. I will refrain from making future statements, but not at present. If you want 20 megawatts in Spain of IT capacity, you don't have too many doors in which to knock. Unless you are an owner-user like AWS or Microsoft, and you have your own data centers in Aragon, which in the case of Microsoft has not even yet started. Unless you are an owner-user, not easy to find IT power in Spain the way many other people would normally expect.

Thank you. You're welcome.

Okay, so there are no more questions. Thank you for being here for almost two hours. And if you have other questions, please do not hesitate to come back to us and have a good day. Thank you very much. Bye-bye.