Merlin Pptys Socimi Ord

Ladies and gentlemen, welcome and thank you for joining Merlin's 9-month, 24-week Trading Update Conference Call. As in previous call, the results for CEO Ismael Clemente will provide you with the main highlights of the period. Thereafter, we will open the line for Q&A. To raise questions, please press star followed by number 5 on your telephone. With no further delay, I'll have the floor to Ismael. Thank you.

Thank you, Ines. Good afternoon, everyone. Welcome to Merlin. third quarter results presentation. On Monday, we were heading to approve of the Board of Directors and report to market an excellent set of results, both quantitatively and qualitatively, given particularly the progress on the data center business plan. Disgracefully, given the news about the attempted modification of the regime, these results have been all of a sudden overshadowed by uncertainty and anger, two of the worst enemies of the stock market. Our shares plummeted on Tuesday by more than 7% and we have been unable to recover the previous level during the week. It's not been our fault that we feel sorry for this and beg your pardon for being subject to such a volatile regulation depending on political agreements outside of what one could consider common sense. As of lunchtime Monday, there was a draft law about the minimum taxation of multinationals. That law was a transposition of the EU directive. That EU directive very precisely exempts the rates from being subject to the scope of that minimum taxation. There were some proposed amendments, including number 80, by the socialist group, assuming the text of the directive and exempting their rates. All of a sudden, the meeting among parliamentary groups to prepare the approval of the draft law was adjourned. A new meeting was called exclusively between the socialist and communist groups, and the gates of hell opened right above our heads. The communist group called Sumari in Spain proposed the elimination of the regime and somehow the socialists did not oppose, which is strange given that in 10 years of operation and many meetings with their policy makers and regulators, they have always manifested that they perfectly understand the social and economic motivation of the regime within the framework of the internationally recognized regime. Luckily for us, the parliamentary agreement reached by the socialist group on Monday did not meet sufficient consensus to be finally approved, since it was not consulted with nor supported by the technical bodies of the government and the Economic Office of Presidency. It was also not supported by the Catalan and Basque Conservative parties. Next Monday, a new meeting will be held among all parliamentary groups. Till then, we have to remain necessarily prudent. And consequently, we have been analyzing the financial impact of an elimination of the SOSIMI regime and determining the course of action of MERLIN should such an elimination finally be materialized. With the current tax regulations in place, we have estimated an impact should this measure have theoretically been applied to financial year 24 of approximately 8.5% of FFO. This assumes managing the company on a business as usual basis. Of course, this wouldn't be the case going forward as we have a number of tools to further reduce this impact. In compliance to our fiduciary duty with shareholders, we will need to quickly address sheltering income and profits of Portuguese source from a spurious double taxation in Spain. These represent at present around 12% of our cash flow, and with the ongoing development of Vilafranca de Xira data center or data campus, this figure could easily drift up towards more than 20%. Moreover, any potential future income and profit from other European countries needs also to be protected. Spanish income and profit would remain fully taxed, and it would make no difference staying here or moving abroad. We could operate here through what is called a permanent establishment and the assets could remain with the existing debt. The conclusion is relatively easy to grasp for anyone with economic or tax knowledge. IBEX 35 will continue drifting towards IBEX 5, drawn in the wave of populism. Let me talk about what really matters and bring all of us here, which is our results. Okay, our results have been excellent, thank God. The FFO has been increasing organically at close to 7% and the overall occupancy continues growing, being at present at 95.6%, improving at quarter on quarter on all asset classes. Given the fact that we executed at 20% total shares outstanding capital increase in July, of course the FFO and NPA metrics have worsened, minus 11 and minus seven, but you can easily notice that these correspond favorably or these compare favorably to the 17% theoretical dilution. So we are clearly recovering part of the dilution caused by the capital increase already in 2024. As a consequence of that, we have proposed to the board and obtained approval for the distribution of a dividend of 18 cents per share that will be payable on the 10th of December. Moody's has upgraded our debt rating to BAA1, which comes on top of the upgrade by S&P to BBB+. Going down to the business, in October, we signed a couple of large leases, securing more than $500 million in backlog rents. That includes close to 135 square meters pre-let turnkey for three sheds in our Lisbon Logistics Park in Vilafranca de Xira on a 25 year basis and a 15 megawatt lease, 10 years with extensions in our data center in Barcelona, BCN01, which is now fully let and will impact the whole building will impact our income next year by around $23 million, which is above what we had internally forecasted in our business plan for the year. Regarding the rest of the businesses, we had very satisfactory like-for-like growth in rents, both in offices, 2.5%, logistics, 3.2%, or shopping centers, 2.3%. The release spread was positive, too, with 1.7% in offices, 4.6% in logistics, and 5.5% in shopping centers. What is more important, the three asset classes are pointing to a continuation or even a sharpening of the good performance towards year end. I mean, logistics is currently around 98% occupied. We expect to finish the year above 99. We said to you that it will be between 92.5 and 93. It's going to get above 93. And shopping centers are going to be around flat, 96.2 or similar, because we have reached probably technical full occupancy. I mean, the rest is simply rotation of shops. There's always shops we need to rotate. So the company is clearly... in very good shape. Traditional asset classes are firing with all cylinders up. And data centers, the data center strategy is starting to show some signs of its real potential, of which we expect to continue giving you positive news in results presentations to come. Without further delay, I will move into Q&A, but I wanted to comment because it's been the subject of a number of analyst questions. What is the FFO guidance for the year with the new share count? We are pointing towards a minimum of 54 cents. The dividend guidance, we are pointing at around 40 cents. with the new share count. Remember last year we distributed 44, so we expect the organic performance of the company to continue eating on the dilution cost by the capital increase. We will make also a number of disposals, but it will not be a relevant figure, around 30 million. Another point of information which is important is that given the tragedy of the floods in the eastern coast of Spain, we requested and obtained board approval in order to provide some relief aid to the victims in an amount of around 1 million euros, which is equivalent to 0.0018 per share. That will be complemented also by employee donations. Basically, it's being addressed the main deficit in the area, which is heavy machinery in order to remove the mud, the debris, and the cars from streets. We are currently working in two schools and we are trying to restore them back to normality. There are some priorities that have been established by the regional government and schools, of course, are among them. We have also provided some direct aid to employees affected, not employees of ours, thanks God, but employees of condominium associations with which we have daily contact or relationship. And we have also addressed part of the relief aid to a little town in in Albacete, in Castilla-La Mancha, called Le Tour World Heritage, which has almost disappeared as a consequence of the flood. None of our assets in the area have suffered significant damages. The worst has been the Riva Roja logistic complex, which is right next to the Barranco del Pollo, to the protagonist of the disaster. And although there was a dam effect of the A3 highway, it ended up flooding. We are now cleaning up together with the client and in about two or three weeks should go back to normality if nothing goes wrong. We have also suffered some minor leaks because the rainfall was bigger than the extraction capacity of some of the collectors. in a number of other assets, but nothing to remark or to report. We have been very, very lucky in this situation. Okay, let's move into Q&A because I am sure you will bombard us with the regime. I mean, I can't say what I can say. I cannot make future predictions. but eventually I am all yours and will be openly answering any questions you might have.

Okay, so we remind you that for those who want to raise questions, please press star followed by number five. Thank you. The first question comes from the line of Ignacio. Ignacio, the floor is yours.