Merlin Pptys Socimi Ord

Good afternoon, ladies and gentlemen. Thank you for joining Merlin Properties' 2024 results presentation. You can find all the materials that will be covered in today's call available in our website. I will please ask you to abide by the disclaimer contained in it. Our CEO, Ismael Clemente, and our two directors, Ines Arellano and Francisco Rivas, will walk you through the main highlights of 2024. We'll thereafter open the line for Q&A, where you have to press star five. With no further delays, I pass the floor to Ismael.

Thank you, Teresa. Good afternoon and welcome to Merlin Financial Institute 2024 results presentation. As commented by Teresa, the call today will be joined by my colleagues Ines Arellano and Francisco Rivas in order to avoid monologal exposition from my side. Our CFO, Miguel Ollero, cannot join today. He recently underwent surgery. and is still at the hospital. So it will be Fran, Ines and myself taking the call today and the questions afterwards. Regarding the operating performance of the company, the operating momentum during 2024 was exceptionally strong with a very good rental growth combined with record occupancy, which for the overall portfolio now, which is 96.7%, is very, very successful. The offices continue to perform very, very well with a positive like-for-like of 3.9 and a release spread of 2.3, which is affected by some little weakness in particularly in Barcelona because otherwise it will be even stronger. The majority is performing very well. We have reached full occupancy in the real sense of the term in logistics with 99.4% historical record too with a positive organic growth of 2.8 like for like and a good performance in terms of pre-let of existing development pipeline. Shopping centers delivered an incredible year with a very good like-for-like of 2.7, but more importantly with strong sales and footfall reflected in a very affordable level of occupancy cost ratio of 11.2%, which again is our historical minimum. So our tenants are really doing very well and what we here from them regarding 25 is positive too. I mean, they have started the year with a very positive tone. The and sales campaign in January have gone very well and they are all operating under the assumption that the year is going to be very positive as compared to 2024. In terms of financial performance, the company generated a very solid FFO. Clearly, there was also some boost by the capital increase carried out in mid-year because that increased our financial balances at banks, and that interest income, of course, helped the performance of our FFO, but a very significant part of it is purely operational. The valuations remain broadly stable. I mean, we continue depreciating a little bit logistics, shopping centers, and offices in order to be as close as possible to what we believe are reasonable passing yields in order to stabilize the valuation of those assets. That devaluation has been offset by a solid gain in the appraisal of data centers. Our financial situation following the capital increase, of course, is super strong with 28% LTV, everything at fixed rate, and no additional maturities until November 26th. We are repaying with existing cash. The bonds mature in May, which is... is yielding 1.75, so of course, and this will become a recurrent, I guess, theme over the next years. We are facing a steady increase in our financing costs, and that will continue through 2025 and 26, and I guess we'll reach stabilization towards the end of 26, 27. Both Moody's and S&P have upgraded our company. Interesting thing about that upgrading the debt rating is not only financial standing, is also a testimony of our ability to continue generating or to grow our cash flow profile in the coming years through our data center activity. And well, as you all know, we carried out a successful capital increase mid-year in order to fund the phase two of our data center development program. Regarding value engineering, We sold 73 million of non-core and left some 53 signed for this year. So our objective of 100 for the year was missed just because of the year-end cutoff date. But in general terms, we exceeded that objective. In our landmark plan, we are basically finished. I mean, we have delivered with Picasso once with incredible tenants. And, you know, for those of you who are familiar with Madrid, if you have visited the asset, you will see that it has become a landmark of quality in the AFCA area. And not only in AFCA, I believe in all central Madrid is a building which now is praised by everybody. Regarding the plans, best two and best three for logistics, we have finished our capacity to develop in Portugal by leasing close to 135,000 square meters to a Portuguese end client. And those square meters will be delivered in several phases, mainly during 25 and 36, although there will be one shed that will be delivered end of 27, beginning of 28. But with that, we have basically finished with our land development capacity in the Lisbon Logistics Park, taking into account that we have reserved, we have booked one of the pieces of land there for expansion of our Lisbon VFX data center in the future. And regarding data centers, there will be a specific explanation by Fran during the presentation. The main highlights of the year is that we signed a block of 15 MW IT in Barcelona at the very end of the year that started cashing in in January 2025. And we are in very advanced negotiations for the lease of another 18 MW block in the Ilao Arasur data center with more than one and we are now at the point of exchanging drafts of contract and helping the clients with the prices of electricity and the construction of a physical PPA in order to ensure competitive cost of electricity over the coming years. Regarding the results on page six of the presentation, you will see that gross rent jumped by approximately 25 million. That 25 difference remained true after incentives. Regarding EBITDA, we lost a little bit of margin as compared to last year. But in FFO, you can see that we recovered through the exceptional performance of EBITDA. the cash remuneration at banks following the capital increase. So it's been a lucky coincidence that we struck a period of high interest rates for the second part of the year. In terms of magnitudes per share, our 0.61 of last year converted in 0.55 this year as a consequence mainly of the capital increase. But you might remember that the capital increase implied the issuance of 20% new shares. So post-money, the dilution was 16.7. So that means we have recovered approximately half of the dilution caused by the capital increase by organic growth during the year. And also importantly, because I know some of you asked us to specifically stress the idea, we count the number of shares as number of shares at present. If we were to count the number of shares as weighted number of shares during the year, then the cash flow will be 0.61, so absolutely flat compared to the year before. In terms of MTA, the 1508 moved to 1432, again, as a consequence of the evolution caused by the capital increase, corrected partially by the increase in value created by the data centers during the year. For 2025, you will immediately notice, I mean, as it will be mentioned, I guess, during the Q&A session, that we are dealing a relatively flattish number. There are two reasons why we're doing that. One is because we still do not know which months of the year will be impacted by the new lease in the Basque Country. And second, because we continue to onboard more financial expenses. So, particularly after repaying the May maturity of the bond, we will continue increasing our cost of finance. hit a minimum of 198 in 2022 that has now moved to 246. We believe we are going to finish the year at around 2.6 and that number will move to around 2.9 by 2026. So as you can imagine, I mean, we are onboarding one full point of extra interest cost, which is around €50 million of cash flow that we need to generate in order to simply kill the increase in interest expenses. There is another reason why our guidance for 2025 cash flow may look like weak for many of you, which is that we don't capitalize interest. We have had some internal discussion regarding that. I know there are different schools of thought. We know that some of our peers do it. At some point, if we are obliged by either the regulator or the auditor, as it happened with the linearization of the FITL contributions, At that point, we will, of course, abide by whatever rule is imposed on us. But for the moment, we believe it doesn't reflect a good practice to perform your cash flow by kind of capitalizing your indirect expenses because in reality, you are showing a stronger image of yourself today that at the cost of you know, prejudicing your future cash flow machine. So, we prefer not to do it. I mean, we told you in the last call that we will do an exercise in order to give you the pro forma. The pro forma is basically five cents more. So, instead of 0.54, we will be at 0.59, 0.60 for the year. We prefer to do it that way because this is the cash that we actually have at banks as of end of the year. The rest is simply a linearization or a pro forma, which, you know, is good, but it's not a true image of your accounting. So we prefer to stay that way and continue giving you the actual information. FFO including the interest expense incurred during the year in the development of our CAPEX in data centers. And what data centers and some other business lines, but mainly data centers. On page seven, you will see the GRI bridge with the performance of offices, logistics, and shopping centers. On page 8, you will see the evolution of occupancy, including also different asset classes, reflecting what I commented, which is that we have reached a new maximum of 96.7, increasing close to 60 bps during the year. As you all will immediately notice, I mean, this figure will be very difficult. to exceed in the coming years. I mean, we can add a little bit of occupancy in offices. We believe the growth in offices will come more in rents, but we can add a little bit of occupancy in offices, but there is very little that we can do now in shopping centers or logistics, because in shopping centers, as you know, those of you who are familiar with business, there is a significant rotational vacancy, which always strikes you, you know, at every month end and December is not, is not an exception. Regarding offices, as commented, a little weakness in Barcelona reflected in the loss of more than one percentage point in occupancy, but a very reasonable risk spread of 2.7%, which is remarkable taking into account that in the past year we have been eating significantly in our reversionary potential by applying inflation. that the market seems to be digesting that and the market brands are growing and we are growing together with the markets. In Madrid, we have a very, very active year with more than 130,000 square meters contracted. We have a release spread of 1.9%. It's a market which is much more stable because it's significantly bigger than Barcelona or Lisbon. Regarding loom on page 12, loom is now reaching maturity with 35,000 square meters now in operation and an 82% occupancy in 14 spaces. The ADR that we are charging at present is allowing us for the first time this year to obtain positive EBITDA at all levels, including the overhead of the, let's say, management of the division. So, Loom has been a clear contributor to Merlin since its initial creation by providing the company with a service that our clients demand. Then it moved also into a good contributor in terms of rents, although the Loom rents represent only around 2% of the total rents of Merlin in the office division. But recently, we are now making money with the business. I mean, besides paying market rents for the properties we use, the company or the division is making money on its own. And attracting very interesting clients. I mean, this year, Microsoft, Sanofi, OneTrust, I mean, those are incredible brands that have entered the Merlin universe. through Loom. So it's very interesting because in many cases, those companies then end up expanding into other assets of the portfolio in regular lease contracts during their business lives in Spain and Portugal. On page 13, we simply wanted to bring your attention to the fact that that little trend which is just emerging of transforming office into residential it's clearly making us hopeful that some tension will be created in the rental market in the coming years because that destruction of supply that is happening particularly happened in 2024 in a very clear way i mean depending on the source you follow, I mean, whether it's JLL, CBRE or Colliers, between 200 and 300,000 square meters have been distracted of offices in 2024 and moved into residential. And for those of us who have been working in Portugal for many years, this is a very similar wave to the one we saw in Portugal following the impatriation law. when the Portuguese government enacted the high value added professional impatriation law, the residential prices in Lisbon went to the roof. And as a consequence, the highest and best use of many buildings was residential. And many buildings in the Daisha and in the Shadow and in Rocio were moved into residential. And as a consequence of that, in only three years, the little stock because this one is relatively small market of less than 5 million square meters counted by CDRA because probably the residential use as offices can take that number to grow to 10 million that the offices looking as offices, which is 5 million all of a sudden went down by 600,000. I remember that perfectly. And the immediate consequence of that is that today We are trading in Portugal at rents of 28 and above. And we believe that in our Liberdade building we can reach a higher rent than that. We are probably going to hit the mark of 30. And in the peak before the great financial depression in 2007, the maximum rents in Lisbon were in the region of 22 euros. I mean, that was what McKinsey paid for Marqués de Pombal III, which currently is a building of ours. If you compare that to Madrid, you will see that the rents that we attained in the 2007 maximum were 46 to 48 in Castellana 64, Japan Imperial Tobacco and Goldman Sachs and UBS. and uh you know those ranks uh have evolved 17 17 or 18 years later to only 40 to 41 uh at present in two terms i mean a very different thing is the facial rent that some people is bragging about but you know then you need to do the fit of contributions the the free rent periods etc but when you calculate the real rent, we are present at something between 40 and 41 in true terms in Madrid. And, you know, we believe that given the effort rate of our clients, which is very low in offices, there is some room for future growth in the rent of city center in Madrid, particularly if the current, let's say, hyper-development of the city continues. I mean, Madrid is now a 7 million people city, including metropolitan area, and it's set to continue growing and reach very close to 8 million people by 2030. Madrid is, at present, economically, is clearly a rocket. It's an island in Spain. So, simply wanted to bring your attention to this, because I know there has been a lot of bad-mouthing about offices, and many of you are influenced by the problems in San Francisco and the U.S., et cetera, but, you know, for the moment, I think the office market in Madrid has coped very, very well with work from home, which has been negligible in terms of real effects in occupancy. And also with the densification wave, which by the way, now is returning, is coming the other way around. I mean, the pendulum has clearly shifted and many companies now that they are a little less concerned about ESG and a little bit more concerned about the quality of life of their own employees. So we are seeing some of our clients now re-densifying for lower density rather than for higher density. density within our portfolio. Logistics, page 15, a very good year. I mean, with a good like for like. A little drop in Barcelona, which is not a trend. It's simply a consequence of two modules in the Pago Logistics Fonafranca that couldn't be relayed on time for the year-end cut of date. But, you know, very interesting year in logistics, resulting in that 99.4% occupancy of the portfolio, which is absolutely remarkable. On page 17, you will see that our investment in Zalport continues to perform very satisfactorily, although it is clear that it has become now a completely mature and stable business following the development of more than 370,000 square meters since we joined. that were vacant. I mean, were in land status. So we developed a lot in that area. And now we have reached full occupancy and full development. And there is very little we can do in order to continue growing ZAL in its current framework. Shopping centers, page 19, again, Super strong year, which is continuing through 2025. Good evolution of footfall, despite, of course, the drag that we have had since 2019, which is the cinema industry, which by the way now seems to be resuscitating a little bit. But despite the drag of cinemas, very good food for evolution and very remarkable take and sales evolution. It's incredible how strong product consumption is. Those of you who know me, you know my opinion. We are a little bit doped by a lot of public spending. But one way or another, this is going into consumption and at the end is reflecting in performance of our shopping center portfolio. And then I will pass the floor to Ines, who will talk to you about valuation and depositions of the company.

Thank you, Ismael. Good afternoon, everyone. So, as commented with Ismael, we go to slide 22. Valuations are pretty much in line with 2023, which stands at $11.5 billion. reaching a 5.3% passing yield for the entire portfolio, coming from a 5.1, which it derives or it implies a 4.5% net initial yield. In terms of how it comes to these flat valuations, you see that in the existing portfolio, we've had a 21 basis points expanding yield, That's on a gross basis, but on a net basis it's been absolutely negligible for office and for shopping centers, slightly more impact for logistics. But they said about 60 million of impairments has been netted off by the 17% uplift in data centers. As you know, data centers, we carry phase two and everything that we have in land bank at cost. Part of the valuation that will be created, and valuers are taking a conservative approach in this new asset class for us. Moving to page 24, well, as you know, we have a very sound financial structure. Thanks again for the capital increase that we saw in July. That was a great achievement, and obviously that was very well supported by you, by our own shareholders. But as well, this position has been strengthened, or there's been a big achievement, as Ismael has mentioned before, having an upgrade from S&P and Moody's on the basis of sustainable lower leverage and expanding cash flow generation. We stand at a $4.9 billion gross debt coming from 4.5%. As you know, and we've committed this many times in the year because this happened throughout the first half of the year, we raised almost $284 million of mortgage debt, and we also did a 100-tack on the September 29th bond. Those are the main actions that have taken place in the debt side. And the implied LTV is at 28.3%. It's about less than 10 times net debt to EBITDA. We are at 8.8 times net debt to EBITDA, which is a ratio that more and more credit person shareholders care about. We've also commented about the average cost and that we are, this average cost is going to increase definitely because we are refinancing our cheapest bonds. 14% of our debt, and we are in page 25, as you can see, is mortgage-based, but we remain with more than 85% being corporate. And again, our maturity for on the 26th of May, the bond, the $600 million bond maturity, that's done. We did the homework back in 2023, and the next maturity only comes in November 26th, so we still have a lot of time ahead of us. We'll probably start to tackle it at the end of this year, and then I'll put you in a quick basis. Moving to investments and divestments, so I'm going on slide 27. Well, again, you see there's been a modest activity both on investment and non-core divestment in the traditional asset classes, a little bit more active in data centers, but Sam will comment on that in a minute. And in terms of... what we've done is basically consolidated the ownership of the adjacent building of our landmark building in the primate area of Madrid. So that's only 4,700 square meters building. And regarding divestments, Again, 73 million disposals are double-digit premium, 10.8% to GAV. That's below 100 million targets just because some of those infections have moved to 25. We've been very focused on reconversion. opportunities to the residential, either selling land, office land, or non-core office buildings to be reconverted by next fire. And we're talking about 33,000 square meters in 24, and we have identified another 50,000 square meters in our own portfolio that could be reconverted in the future. In terms of value creation for logistics, as you all know, our pillars of growth come from data centers, mainly, and from logistics as well. Data centers, again, will be explained by Sam, but I'm going to walk you through very, very briefly through the logistics. So our total land bank amounts to 511,000 square meters, plus we have a refurbishment in the Victoria warehouse, which is 73 square meters. for which we already in negotiations, advanced negotiations for pre-legs. So overall, we have 40% of our portfolio with either pre-legs or head of terms. We ran out of land in Lisbon, as Ismael commented before, and out of the committed pipeline. We are expecting to deliver all these warehouses except for 68,000 communal warehouses in Lisbon. We're expecting to deliver this on the first half of 26, and the rent that will be generated, they're around $20 million, $19.6 million. which entail a 7.5% yield on cost and obviously a double-digit yield on carpet by investing $171 million. For the future, we have another 244,000 square meters of land that could generate around $13.8 million, also implying a 7%. yield on cost or an 11% yield on topics. And with no further delay, I'll pass the floor to the most interesting part of the presentation that will be carried out by Sam. Thank you.

Many thanks, Ines, and good afternoon to everyone. So I'm glad to cover now our project mega, focusing on the achievements completed over 2024, but also giving some guidance on our expectations from an operating point of view for 2025 and following years. So as you can see in page 31 and 32, we have summarized the current positions of our data center division that we call Merlin Edge for Raibea and Península. And it shows both the original two first phases that we have, that we named phase one and phase two, but also the former phase three and phase four now remain as upsizing for that capacity that is located in the former four locations that we selected, which are Madrid, Barcelona, Bibaura, Sur and Lisbon. and the future pipeline. So, in particular, I would like to drive your attention to the fact that this division has significantly changed over 2024. As you know, basically, we have fully spilled the equipment of the current three assets already built, but also we have started the construction of Phase 2 following the capital increase completed at the end of 2024. In Phase 32, we are updating the information on a phase basis and on an asset basis. and that we will come in more detail in a second. The first point you will notice is related to the fact that now phase one comprises 64 meg as compared to the 60 meg we have before, and phase two comprises 203 meg instead of 200. And this is due to the fact that this edition has now entered into a, you know, let's call it industrial dynamic where we are not anymore comprised by phases but just focus on projects and the demand driving those projects. We need also to consider that in this asset class we benefit from the fact that all the equipment and construction we are doing is modular, so basically we can move from one site to the other if needed. It means that probably for next presentations, instead of, you know, allocating everything to phase one and phase two and then have these type of movements that we'll explain in a second, probably makes more sense to have in line with other asset categories, operating assets, you know, WIP, work in progress, and pipeline. So if we go to the third part of the table, which is describing basically an asset-by-asset basis, the first thing that you are seeing is that That increase in phase one is due to the fact that now the six mega free power in Barcelona is let's say moving ahead. We got confirmation from the energy company that we will be having connectivity to this increase of power in the first half of 2026. So meaning that we move that capacity, comprising this in the full building for phase one. Also, with regards to building three in Al-Asur, we have now, let's say, achieved maximum design capacity at 2020 MEC. Originally, we thought we could go to 24 by based on the different level of density that the client is requesting. Basically, we have some limitation on the roof, so we will fix that at 2022. In exchange, that power coming from the same service station, we are using it in the other buildings of Al-Asur. of building two and building one that we have in phase two, reason why basically that capacity is increased now to 96 meg in total. Also, we are getting following a little bit, and we will describe this in a second regarding the possibility of increasing a little bit the power there, which also we are setting now in phase two, but as soon as we get confirmation, probably we'll move as well to phase one. That's the reason that probably going forward makes more sense to talk about operating assets In terms of just upsizing, the news there, as we will talk in a second, is the inclusion of a new project called MadriNorth with 30 meg, you know, immediate, and 130 capacity of upsizing, 230 that we have allocated to pipeline, as well as the two projects in Extremadura. So, going to more detail on a face basis, I'm on page 33 right now. We have... seeing basically that we have changed a little bit this slide as compared to the previous one. The reason why is that during this year, we have advanced negotiations for several assets. And with that, we are allowed basically to reduce the expected stabilized year from the original 2028 into 2027. In terms of equipment, we ended the year as reported at 26 megs fully equipped and that will jump in P32 by the end of this first half, and we will achieve 58 meg by the end of 2025 in fourth quarter. We are taking – we're coming in a second as well, but we're taking a bit of equipment in advance of the power that we will receive for Getafe in 2026. And the only part, basically, that for phase one that is planning to be equipped in 2025 is the six meg of the Republic of Barcelona. And basically the reason why is that we order now, but as this implies, basically some equipment linked to generators, the timing of receiving that equipment matches with the time we are getting basically the supply as in first half 2026. So as compared to previous slides, 2027 has disappeared and now 2025 and 2026. will, let's say, capture all the equipment that we need to deploy in that phase. That basically has moved us to 88 million in terms of stabilized rent and just rounded it up to 14.5% stabilized gross G-long cost for this phase one. Moving to page 34 and in terms of commercialization, as Ismael described before, For Barcelona, we were able to fully let the assets to an AI hyperscaler at the end of last year. So the only capacity we will have there is the three power in the six meg as soon as they come. And by the way, we give a high probability that the client, which is the largest client we have in that asset, will take as well this capacity when ready. Regarding Bilbao Barasur, we commented in last presentations that we have two options here because we were in conversations with a large hyperscaler for building one. And so for building three, the one which is already built, you see there, and the second building, as our CEO commented at the time, this was basically something that we thought a lot because in one side you can let two assets in a row, of course, in exchange of some, you know, sacrificing some level of rent. But in the other possibility, let's say, was going to continue with other clients and letting little by little with higher rent, but, you know, not basically with such amount of commercialization in one spot. So we decided to go with the large client over 2024 we passed all their onboarding technical homologation successfully, which basically comprises not only the equipment but also operations and even financial capabilities to provide this type of services. But we knew, both parties, that basically this building will be fully equipped by mid-2025. On top of it, they require some level of investment, additional investment on special fit-outs of the rooms, And in order to make or to comply with this date, we set a deadline in which basically the client needs to decide whether they go binding with us so we can guarantee it's ready for service date or not. The deadline basically or the time basically elapsed and the client was not in a position to be binding for that. So what we did basically is just to resume the previous conversation we had with the other two clients that are right now basically competing for that space and we are open to them that they are not in exclusivity. Cool enough, one of these clients is requesting, by the way, both clients are going for the full capacity for the 18MED that are available right now in this building which is constructed and one of those is requesting us similar requirements to the one large that we were commenting a minute ago. And also asking from our side, basically an option for building two, which basically give us a little bit of hint that probably the former client is still around. Here is an important thing, which basically we are seeing and we have received several questions in that sense, which is basically the amount of projects that are being announced globally and in Europe and, of course, in Spain, which basically do not show. They show a lot of capacity and a lot of access sometimes to power, but the reality is that there is not clear ready-for-service date, which is what is important for these type of clients. We need to make sure that when they receive the equipment, which are large investments, we have commented several times that it's sometimes between two and four times the amount of money that we are investing in equipping all these assets. So these guys, when they get all of these communities, they need to make sure that once they receive that equipment, it's a place to put them in service. So all of this noise, what it's doing is that at the end, they are super reluctant to commit to certain dates if they're not seeing that the learners can deliver that space. This has provoked a lot of Of course, these situations provoke that new clients come into the scene. In this case, basically, there is a new concept, which is AI as a service of companies which are getting a huge amount of capital invested because what they provide is not only the space, but also the servers already connected, which makes that these large hyperscalers at the end, they use these type of providers to secure or to enter into areas which are already flipped out and ready for service. And probably this is what we are having right now, which are in front of us. Regarding Maggi Getafe, we have 70% booking. In reality, we have 100% booked for the capacity which is available right now. It's the same client that we were reporting time ago. And the fact that it basically is not converted into lead spaces because this client wants the additional capacity of power that will come in the first half of 26. So we were holding that conversation. Now that we are approaching that available capacity is what basically is making more probable that we can convert this booking into lead spaces as soon as we have a certain date. We are prudent people, so what we don't want is to commit to a date if we don't have certainty and consider that we have suffered several delays for different reasons to get supply of that power. As soon as we have a certain date, then we will transmit this to the client and sign it. Moving now to phase, what we call phase two, in page 35. And following the capital increase, basically we have started works in the site, mainly Bilbao, Azur and Lisbon. We have first been, of course, the municipal tax initiated the construction. We start compacting the land. We have standard reconstruction works, issuing the purchase orders for equipment. We're incorporating new stuff for this asset. So all of this has been started right after the summer, once we were in a position to make this type of commitments. That's the reason why we are reporting here CAPEX commitments. Here in this asset class there is also something which is specific regarding the equipment where you normally do not pay a lot of amount of money upfront. You normally leave that back to 10 to 25 percent of the total investment and then once you commission, once you receive putting in service the equipment is when you pay the most part of the payments and of course you give some percentage basically for several months as a guarantee of that good performance. So what we are reporting here is the CAPEX commitment. Of course in order to queue in this CAPEX commitment we need to have the counterbalance of associated funding and now that with the CAPEX increase we have it is when we have launched all of these orders that are basically drafted here as in those amounts. In page 36, starting with Madrid Getafe and taking advantage of the experience we saw in Barcelona where we are empowering that building, we have also asked for the same type of increase of power. There is a particularity here in case of Madrid as compared to Barcelona. In Barcelona, basically, the new power is coming from a second substation, not from the original one, which from a technical point of view is a little bit more complicated in order to isolate one part of the building to the other. In the case of Madrid, it's a little bit easier because it will come through the same line, which in other words means that the delay we are suffering in getting that power supply could be partially compensated for the fact that we could get a little bit more power and basically improve a little bit the numbers once we are in full operation. Regarding Bilbao and Arasur, we have completed the preparation works for the land for the second building. We have started piling on site at the beginning of February and once we have finished already the tender of the construction companies, we are starting as well and construction there. And regarding the equipment, in this case, we are ordering for building two full equipment, the 48 meg in one shot and not in different phases as we did in the past. For third building, we are progressing with the construction license and we expect basically to be ready to start construction by beginning of 2026. And finally, this one, we have started compacting the land right after the summer, which is progressing as expected. We are incorporating the piling as soon as the preparation of the land is being completed in the different phases. And in this case, as you know, it's a little bit different to Bilbao-Arasur, and this is just because of the proximity we have to the Tejo River, which basically means that we have a longer period of time of compacting and piling as compared to what we have experienced in Arasur. We expect to have by last quarter of this year all the works completed, not only for the first building but for the full campus. And what we can do basically is start a little bit before on the construction of substations and generator building and first building as soon as the others basically are completed. In parallel, what also is a change that is interesting to comment is that seeing that the clients are requiring a higher density than the original projected. Remember that here what we have for this 100 meg is five buildings of roughly between 18 and 20 meg each. what we are doing right now or we have already requested and it's looking very good is to increase the density per building, increase it to the 36 meg which basically will mean that we will basically absorb that capacity of the hundred in couple of buildings and then we can move what we have commented for phase three upsizing into the same plot. We are in commercialization. advancing with one particular client, but we need to be conscious basically that we need to confirm at some point in time the ready for service date. So as soon as we are advancing, we'll have more clarity on these conversations. And finally, as well as we need for the campus in Arasur, that's where we are basically, as you know, setting on-site photovoltaic plant very close to the site. We are doing the same in Lisbon, which is basically another of the requirements that normally the clients request, which is basically to have energy production very close to the data center. Moving to page 37, the former phase three that we call now upsizing. On Lisbon, as commented, basically this APMEC on repowering will be using the same in the first five buildings, the 120 meg extension links to the adjacent plant that Ismael commented at the beginning of the presentation. And the news here basically are the inclusion of Madrid North, which is a project that we have closed just this week with an initial amount of capacity of 30 meg, but very interesting, as this land allows us basically to go with further capacity that we are planning for 130 meg more. And basically due to something which is pretty interesting, which is that the substation that provides this capacity is completely adjacent to the plot we're talking about. It's a big plot, about 200,000 square meters of buildability. So there is capacity there to grow. And so what we are seeing right now in phase three is an upsizing of another project in Madrid north of 30 meg in a way basically to cover as well the city with Getafe could be converted in the future into a data center campus as we have in other parts of Spain. And finally, moving into page 38, this is phase four with two projects, two of them basically we announced already, which is the one in Aval Moral de la Mata and Valdecavalleros in the region of Extremadura. As commented in our announcement, the reason of selecting this area is because this is the region in Spain where there is more sustainable energy generation area as compared to the consumption levels of the region. So in terms of capacity, this area comprises roughly like 30 gigawatts of capacity installed and only close to five, not even five gigawatts of capacity is the one that the current region is using, which means that it exports 25 gigawatts of capacity. So taking that in consideration, we have been looking for a while of projects that could make sense in that region, and we found two of them. One is Navalmoral, which especially of this project is that this is a very well-connected area. It's very close to the motorway, which means that it's basically adjacent to the fiber cable that connects Lisbon and Madrid. And also because it's urban land, so it's ready to be built as soon as basically we have to find clients for the project. We have announced that a little bit ahead of a big conference that we're holding in the U.S. at the beginning of the year, PTC, And after sharing this with, you know, the big hardware scalers and clients that were taking part of that congress, we received a considerable interest of several parties, and in particular one which is very interesting on the two sides. Naval Moran is more immediate, but the Caballeros still need to be done some urban projects. approvals maybe through the connections to the site. So, I mean, this timing compasses very well the needs of that client. So, we will basically comment in future calls as soon as we progress with that. So, in summary, 2024 has been a game changer for our Merlin Edge division. Phase one at full speed of capacity. Phase two already started. and with a lot of work in terms of construction, delivery of capacity and commercialization during 2025. But we think that we are very well positioned as one big operator in the sector in Europe. Okay. Thank you, Frank. Well, basically, just to summarize and close today's exposition, the company has clearly delivered very strong performance. all key financial and operating metrics during the year, like for like growth, occupancy, risk spread, effort generation. So it's been a great year, a year that started a little bit dubious in the first quarter, but at the end ended up being a very, very good year for the company. We have reached historical maximums in occupancy. Our traditional asset classes are very close to full optimization. which goes hand-in-hand with what we have been telling you for many years now, which is that the reason why we decided to move into the data center business is because we felt that following the digestion and the homing of the metro assessor's portfolio, there will be a point in which the company will have no significant further growth to offer to the market, and we wanted to find a new area of activity that was sufficiently enticing for the market in order to continue growing the company and convert it into a significant player in the European arena. In terms of value creation, we will continue during 2025 to develop logistic land. We have a wonderful portfolio. distributed in key locations in Madrid, Lisbon, Valencia, but now the refinement in Victoria and Seville. And the yields and costs that we can achieve on the development of our own product are very significantly above what those similar assets trade for in the secondary market. So we will continue assisting in that route of growth. And the main route of growth will continue to be our mega plan as Fran was commenting This is an important year for us because even logistically we are receiving about 26 and 32 megawatts of equipment before year end that we need to store and install in order to have it ready for receiving the power during the first half of 2026. In the cases of Madrid and the repowering of Barcelona, we need to start operations whoever the final client is in the bus country during the second half of the year. We have only included in our cash flow projections a couple of months of cash flow in the bus country data center. If we can change a contract a little bit earlier and we can obtain some extra cash flow that will clearly add into our guidance for the year. We continue beefing up our options and properties with a view to honing our mega plant portfolio in anticipation of what we believe is going to be a very significant wave of speculation once the available energy positions of the different substations across the national territory are made public during the year. I mean, that will clearly spark a wave of speculation. brokers and traders trying to assemble land with electricity in order to basically flip positions. And we are one of the few real off-takers that exist in the market. So instead of simply waiting for traders and intermediaries and brokers to come here and offer us land, position with electricity at gold prices. We are taking a more proactive stance and accumulating some land banks, similarly to what we did in logistics in 2016, 17, and 18, in order to enhance a little bit the profitability of our project. Because, yes, land is not super relevant as a cost for the total cost of a given data center project. but better get cheaper land and more expensive if you want to extract that little extra profitability that we want to extract in everything we do. Of remark, the agreement with the regional government of Extremadura in that respect, the first block in Navalmoral de la Mata is fully permitted and infrastructure and electricity is within close proximity. It is a location in which we could eventually start had we closed an agreement with an existing client. But this one is relatively ready and available. The one in Valdecavalleros will take more time because we need some road infrastructure to be done by the authorities, and we also need to bring the dark fiber from – we are deciding which route are we going to take in order to bring the fiber to the location. But it's also a very interesting location with a sea of renewable power immediately around our site. I mean, 1.3 gigawatts of photovoltaic, thermosolar, and hydraulic plants in very close vicinity. together with direct line to the new plant of Navalmoral, precisely, which is the one that is also giving us the backup for the same project. Regarding outlook for the year, as commented, 2025 will be a hard boots and helmet year. I mean, we will be building. data centers will continue draining resources from the company during its buildup. So it will be a negative contributor of cash flow during the year, despite the fact that this year at least the income figure is going to be much more meaningful, the one we have in the in the budget is around 25 million. So it will be much more meaningful, but still cost will outweigh income production in the data center division. And this will continue basically through stabilization. I mean, we will clearly be positive in 2027, but in 2026, you know, plus or minus, maybe we will get into positive territory that it will not be meaningful for the company. The year will be uneventful in terms of debt maturities. The next one we have is in November 26. So, you know, towards the end of this year, beginning of the next, we will start moving in the market and with the bank community trying to prepare in advance for the November 26 maturity. Clearly, if we move too early, We get extra cash, which is not good for the company because at present the cash remuneration is not good and the extra cost of taking additional debt on the balance sheet is not good. But we are prudent people, so if we need to sacrifice a little bit of cash flow, we will do it because we want full safety and make sure that in November 26th we repay our existing bond. We are suggesting to our board to pay another 22 cents per share dividend on account of the 2024 financial year. That should be recommended by the board and approved by the general shareholders meeting that we will be holding in April and paid during the month of May, more or less. The estimated FFO for 2025 will be around 54 per share, flattish as compared to last year. I mean, bear your pardon, but as commented, we have significant increased financial costs that we are digesting into our P&L and also the data center division is growing. That growing means also staffing it up. and taking a number of expense decisions, which are, for the moment, detrimental to our P&L, but I'm sure will bring very significant growth in the future. The data centers, many people asked us this morning how dilutive we expect them to be in 2025, in the region of four cents per share. In the absence of data centers, we will be at 0.58, around 0.59 in terms of guidance of FFO. But, of course, we need to continue paying for that division until it is mature and a big contributor to the P&L of the company. And this is basically it. I mean, I see that the market didn't like what we did in 2024. So I took the opportunity to buy some additional shares this morning. Thanks a lot. I mean, market volatility is always good for people who is in the know. Understanding by in the know that we, I mean, technically we are out of blackout period since 8 o'clock this morning. So I bought after that. but I fully believe in what we are doing. We are not here in the data center business looking for extra hype in our share price. We are not here simply to brag about the fact that we are now part of the AI noise. We are here in order to look for cash flow. We are trying to build a significant revenue contributor to the company. We are here in order to double up our cash flow generation and if at all possible also double up our dividend payment capacity. So that will take time. It requires a lot of patience. Patience is something that the markets normally do not have. So I know it's going to be a bumpy road between now and 2027 when people start to see that there is something behind the data center name. It will be a bumpy road, but I am fully confident on what we're doing, and I'm sure that you will all enjoy the fruits of what we are seeing today a couple of years down the road. Some of you have requested some remark on what is happening in the world. Of course, I am not a geostrategic expert. I have no fucking clue of what lies in the mind of Mr. Trump. I only know that we operate in Spain, Portugal. Both countries are, you know, bear a very significant deficit with the U.S. in terms of trade. So if tariffs are imposed on Europe, it will not be the guilt of Spain and Portugal. I mean, Spain particularly carries a $10 billion deficit in trade with the U.S. I know that Europe in general bears like a 50 billion super average, mainly in the export of goods because we are deficitarian in the import of services, but clearly not Spain, Portugal. Spain has been put on tier one in terms of import of technological products from the US, which is very good news because that was really reason for concern. So we can enjoy here, or our clients can enjoy here, the state-of-the-art technology in terms of GPUs, CPUs, TPUs, and everything, which is very, very good news for us. And we will continue trying to make sense of our relationship with our current U.S. and European clients in the future in our data center division. So without further delay, I think we can move into Q&A. I pass the floor to Teresa, who will organize the Q&A session. And we are here to respond to your queries and questions as best as we can.

Sure. Thank you very much, Ismael. Just remember, if you want to ask a question, you have to press star five. The first question comes from the line of Mark Motsi from Bank of America. Mark, the floor is yours. No, sorry. So the first question comes from the line of Florent Laroche from Oddo. Florent, the line is yours.

Hi, good morning, Ismaila. Good morning, everyone. So thank you for this presentation. I would have three questions, if I may. So my first question would be on the advanced discussions that you have for 18 megawatts in Bilbao. So I understand that you don't know when it will start, but maybe could you please tell us what you have taken in your guidance, if you have taken something for 2025. My second question would be for offices and shopping centers. So we understand that you have optimized notably occupancy. So what kind of dynamic can we expect for 2025? And my third question would be on data centers. So we can see that you increase a lot the potential IT capacity in terms of megawatts. So all the development costs a lot of money. How do you manage your development risk? on this data center before starting development of a new building or for extension of a new work. So that would be my three questions.

Okay. All right, Fran. Regarding the first one, I will let Fran respond to you basically. I guess you were referring to the fact that we had conversations during 2024 with a certain client for building three and two in Bilbao, which is now has been replaced by conversations for building three and then an auction on building two. You can explain. So the D-MEC basically for building three will be ready, so what we call ready for service by the end of second quarter 2025, so end of June, beginning of July. Once you basically, if you have a contract signed, you need to count basically you have a couple of months where the client normally do their fit out or we do the fit out for them, which is normally what we are doing so far because of the nationality of the client. And then once you have that ready, it's basically when they start paying. So that's the reason why Ismael was saying before that we were counting for a couple of months you know, of cash flow during this year for this asset, things can change depending on the level of retail that finally they convert. This is basically the visibility we have right now. So that's basically the impact. So the guidance basically is based on that assumption. Okay. Well, regarding offices and shopping centers and the dynamics that we can expect in 2025, I think that... in shopping centers, increasing occupancy will be, you know, a hard thing. So, occupancy will remain more or less flattish. We are going to continue capturing some diversionary potential, mainly through variable rents and more income because the centers are better attended. I mean, there is more footfall. And as a consequence, our tenants are selling more. So, the marginal propensity to pay rent increases. And as such, you know, we could capture part of it in the rent renewals plus inflation. So the like for like will not come by positive variation in occupancy, will come mainly through the spread and a little bit of inflation pass on with maybe a little income from, you know, more spaces and, you know, The boot into operation of Marineda, if and when it is finished, I mean, we are finalizing the construction works, it will mainly hit 2026, but there will be also some contribution very little in 2025. In offices, in principle, we are projecting a relatively flat year, too, in terms of occupancy. It is not easy to grow occupancy significantly with a big portfolio like ours. But I know that during the year, we will also be negotiating a number of big leases that eventually, if you hit one of those, you can add a little bit of net occupancy to your portfolio. So, you know, very interesting dynamics in that market. Rents are clearly going up slightly, but steadily. So I like that. We are passing on inflation without a problem. So the like for like in this case, occupancy, we cannot bet on it, but we could add a little bit of occupancy. Clearly, rents are really spread. We little by little recover. I mean, we have had a period of relatively low rent spread because we run too fast. by applying inflation following COVID in the high inflation period and took a significant dent into reversionary potential. But now, little by little, we are again creating a cushion between passing and reversionary, and we should be getting some risk spread during the year with positive inflation. And regarding data centers and money funding, Two things. One, phases three and four, don't even bother about them because physically, logistically, we will be occupied building phase two till 2029. However, I would also like to introduce another concept, which is fungibility. So, don't be surprised if in phase two, we decide to run faster with the first building in Navalmoral and slower on the third building in Lisbon. If that happens, don't be surprised. I mean, as Fran commented, most of our equipment now is on purpose is modular, so the gensets are exchangeable from our different skids, the UPSs, the transformers are now you know exchangeable among our different sites and depending on demand we could adapt by moving that demand to one or another particular place but in summary we will be building 200 to 200 and change megawatts of capacity between now and 2029. Don't be led to believe that we are going to be building one gigawatt of capacity between now and 2029 for one very simple reason, because it is impossible. You need to send project managers, engineers, you need to have purchasing managers, you need a lot of logistics. We on purpose chose to do second phase mainly in two existing locations. Had we decided to do second phase through 10 different locations across Europe, I would have perceived much more significant risk of execution in that plan. So we wanted to be strong in the locations that we know and where we have already a lot of personnel deployed. So playing with that, think about this concept, which is fungibility. Eventually we can exchange or move parts from here to there, but we are going to be building exactly the number of networks for which we have been funded through the capital increase and with the eventual bond cappings that we will be doing during 2025 and 26.

The next question comes from the line of Mark Mosby from Bank of America. Mark, the floor is yours.

Yes, thank you very much. Sorry for messing up with the staff side. I have three questions. The first one is regarding your 2025 FFO guidance. Can you give us a bit of more color around what are the moving parts? specifically on the financial cost, net financial cost, including potential income from your cash in hand, which is 1.5 billion, if I'm correct. And if you were to give us a high range, what could it be? Because if I understand you correctly, your 0.54 cents of FFO in 2025 is kind of a very, very conservative guidance, and you're going to easily beat it. So, just give us a little bit of color on that one. Thank you. That's my first question. Okay. All right. So, .

So, basically, on the moving parts, Mark, as Ismael commented before, our data center ramp up is going to, is costing us, Let's put it this way, even though we are increasing our top line in data centers by 23 million, roughly, in 25, from 2.2 to 25 million, that's being aided by the profits on the overhead in the division, plus the financing costs that we need to bear. As you know, the homework that we did in 2023 was great because it enabled us to pay the bond in May, the $600 million bond in May with available cash. That's great, but it's also costing us more financial expenses. So these are the two moving parts, the data center draft. and the huge financial interest that we're having, which on a net basis is even higher, because as Ismael commented before, in 2024, we've been benefiting from nice financial income coming from the deposits, but unfortunately, we cannot get that remuneration anymore for the cash flow that we still have. So having a lot of cash It's great, especially for rating agencies, but it's not very efficient, if you wish, as we move forward with the data center rollout.

If you want, let's say, a range or a bracket, I can tell you that it's complicated to provide at present. I mean, particularly without knowing the date of operation of the Arasur lease, and the hedging and the evolution of the interest expense during the year. In a good day, we can move to 55, but don't expect 58 or something like that. Be mindful of one thing, which is that we, again, as commented, we don't capitalize expenses. So if we were to capitalize expenses, which is probably the figure that many people have in mind, You know, that 54 will be 59 and that 55 will be 60. So, you know, cosmetically, the figure will look much higher. But the reality is that we are spending a lot of money. Just last year, we grew the gross financial debt by 400 million. This year, the gross financial debt will continue growing as we continue spending in the different CAPEX lines. And as a consequence, you know, there is a significant interest cost that we need to swallow and we need to digest till we reach stabilization. The bond that we are killing now in May had a coupon of 175. Our current cost of financing for long-term, you know, something between seven years and beyond, it's well above 35, I mean, between 35 and 375, depending on the tenor. The bond that we are going to be killing next year in November has a coupon of 1875. So, you know, all that needs to be accommodated into our P&L. However, at some point, we will reach a standard that will not be exceeded. And, you know, once we are there, our P&L in terms of financial expenses will be absolutely stable. But for the moment, we are still adjusting to the new environment in interest rates.

Okay, thank you very much. My second question is on your dividend. I'm not sure to understand why you felt the need to cut it by 9%, because we're talking about 20 million of saving out of capex of 2.5 billion of additional income of roughly 400 million euros. I'm not sure I understand what sort of signal you would like to send us from that cutting dividend.

Look, Mark, in reality, we are not cutting. I mean, the figure we are distributing is exactly the same. And we also are continuing adhering to the same policy, which is basically 80% payout based on our existing adjusted FFOs. We have taken into consideration your reflection and your commentary. We have been thinking about what to do because it will be very easy for us to increase the dividend and pay 44. As you rightly commented, it's only 20 million more. But two things. First, there's people in our shareholding base who is, of course, dividend seeker, and we need to please those. But we also have people in our shareholding base who reason in a different way and say, you have raised money from the market in July and are giving back money to the market in the following two years. Why? I mean, I prefer that you spend that money in more generator sets for your data centers. I mean, don't give it back to me because it is not – very sensible from a purely financial standpoint to be asking money with one hand and be giving back the same money to shareholders with the other hand. So we prefer to be a little bit orthodox. I know we run the risk of looking idiot. We run that risk in many decisions we take, but we prefer to be a little bit stagionalist and make sure that we do things by the book and hope for the market to understand that when you do a capital increase, your EPS gets a little bit diluted, and hence your DPS gets a little bit diluted, and take it as a normal thing, and then hope for a better cash flow and DPS generation in the future. That has been our reasoning, but we don't have the revealed truth in our hands. So it might well be that you are right and, you know, giving 20 million extra this year and 20 million extra next year and keeping the dividend at 44 is better understood by the market. I mean, I can tell you we still struggle with Spanish media and the regulator to explain that we pay dividend twice per year because in most newspapers, we are purported as paying 1.9% dividend because it's twice per year and they take the last figure reported and they only take half. So sometimes with your best intention, you take decisions and then the market doesn't even fucking understand what you're doing. So I know it's hard and you could be perfectly right, Mark. But we have taken this decision, and I beg your pardon, and I hope you understand that, you know, there is no big difference in giving $20 million more payout to our shareholders while we are still spending heavily in data centers.

Yeah, it's just sending the wrong message. That's not the only point. And my last question is regarding your NTEA. How much of your data center capital gains, potential capital gains for phase one has been yet recognized in the NTA? Or let's put it differently, how much you still have to recognize on your phase one in terms of capital gains in 2025 and 26, of course? That's quite an evolution that we have.

Sorry, you're talking about how much... No, no, no.

Equity gain. Yeah, what is the expected equity gain in the future? I mean, to me... Or how much on the other side... I mean, I don't want you to give us how much you're going to expect, but give us how much you have recognized already as capital gains in your phase one.

Our data center division presently is valued at around $600 million, and... To me, if you take Naviac's multiples and you take into account that cash flow production is going to be in the region of 85 to 90 million, I think they should be valued at no less than 1.2 billion, no less. So you still have like, you know, the same amount to be recognized. You know, another 600 million.

Just for phase one?

Just for phase one, yes. And then you have, of course, all phase two and all the land that we are accumulating, which, as you know, we carry it at cost.

Okay. Thank you very much. Very clear from my side. Thank you. All the best. Okay.

Cheers. Thank you, Mark. The next question comes from the line that's promised from Deutsche Bank.

Hi, good afternoon, everybody. A couple of questions. The first one is on data center demand overall. I mean, there have been some concerns recently, as you know, triggered by DeepSeq and also maybe the America First approach. Just wondering what's your experience so far? That's my first question. Okay.

Well, Of course, we were concerned like everybody else when we saw the deep-seek news. However, what we did is basically consulted with our own engineers and with our clients. I mean, we are in the middle of a certification project with NVIDIA as preferred partner. And we asked them and we asked the hyperscalers and we asked the artificial intelligence service operators. we saw little preoccupation. And the truth is that we saw little preoccupation. What they tell us is that neuronal networks exponentially consume more energy as you add one layer of complexity. So once you have a neural network, which is already working, you add one extra layer, and the consumption doesn't increase by 10%, increases by significantly more every time you make more complex your model. So, you know, together with that, we haven't seen one client even blinking about in the current conversations. I know you are all concerned about a certain TD Cohen report stating that Microsoft let go to leases in the U.S. amounting to 200 megawatts, et cetera. Well, all I can say is that I don't know what were the specifics and the circumstances of those negotiations and what was the reason, specific reasons on why Microsoft let those contracts go. But I don't see any abatement in the demand at present in the market. What I do see is that, particularly with hyperscalers, is that as much as they are wonderful magic organizations, technologically speaking, and they do wonders in what they do, organizationally, they are complicated. They have grown very, very big, and in some cases, the administrative, the admin that accompanies that growth hasn't grown at the same speed in terms of efficiency, et cetera. So they tend to be very, very, very complicated animals. The infrastructure people can be very eager to take a certain position. They might drive you mad with different iterations of equipment layouts. Now I want liquid cooling. Now I want air. Now I want 130 refrigeration. Now I want only 60. Now I want larger hacks. Now I prefer shorter hacks. So they can drive you mad with all that. And you have a frank and open dialogue with the infrastructure people, but then when the technical conversations are finished and they go for approval to California, sometimes it is quite complicated. So to fill that void, what we have seen is that they are using the AI for service guys, because the AI for service guys are younger companies, much lighter, much leaner in terms of structure. They are full of cash and they are taking blocks of capacity as if there was no tomorrow. And in many cases, at the end, they end up putting that capacity at the service of the same hatter scaler who couldn't get the approvals on time in California. This is what we see. We see also some Chinese demand in the market, which is new. Very interesting. And we are starting to see some hints of European demand, which is a very, very promising circumstance, particularly because, you know, by operation of the EU Data Sovereignty Act, starting 2026, about three gigawatts of IT capacity need to be repatriated to Europe, which is at present is European capacity, which at present is completely spread throughout the world. So, you know, needs to be repatriated into Europe. So for the time being, we are not super worried. We will grow with the market. Of course, our long-term ambition is simply to have a fair market share of a tiny market like the Iberian Peninsula. So at present in Spain, the total install capacity is like 140 megawatts. Come 2030, the estimates are that it should grow to something between 600 and 800 megawatts. All what we want to have is a fair share of that. which is between two and 300 networks, which goes hand on hand with our phase one and phase two deployment. So not overly concerned about the worries that are now isolating the market regarding deep seek and et cetera. We believe that there is enough space for us to continue growing in our home market.

So the other question is on pricing power. in the data center business. I mean, how would you assess the situation? I mean, it seems like pretty strong on your side. Maybe also what was the reason momentum of, you know, market rental growth and what do you expect to have? I think currently it's the under 20 euros level per kilowatt per month. If you could provide some color on this.

Pricing power for us at present is, Even we are talking only in abstract because very few leases are being signed. But even in abstract, we see that the rents continue to go up. Average rents now for a seven-year lease oscillate between 120 and 130, more or less. And this is significantly above what we initially underwrote when we built our DC model down in 2020 and updated in 2022. I mean, just to give you an example, the updated phase one average rent for us was 112 and regarding phase two, we underwrote 118 and we are comfortably exceeding those rents at present in all of our leasing conversation. So the pricing power remains. It is true that if you want to lease 120 MW in one block to a hyperscaler, then you better be prepared for some price tension. I mean, they will stab you to death, I mean, on the back. But precisely what is new in the market and provides you with some defense in that regard is that three years ago, The only counterparty you could have in order to lease more than 20 megawatts was a hyperscaler. Today, you can lease more than 20 megawatts to 15 or 20 different counterparties in the market. And what is really scarce is IT capacity. So, you know, you are the holder. of a group which in the market is scarce, which is IT capacity, immediately deployable, and the number of procurers, number of offers for that capacity has grown significantly. So, generally speaking, the fundamentals for offer or demand supply in the market are good for the owner of the capacity. Anyway, I mean, the only thing which is certain in life is tax and death. So we will see how the thing evolves in the coming years.

And last one is actually on the competition situation in the data center space. I mean, maybe you could describe a bit the supply side. It seems like there's a lot of allocation of capital to the segment.

Okay. I guess we can talk about our home market, which is Spain, Portugal in general. As my colleague, Fran, was a little bit hinting sometime before when he was presenting his data center rollout, the biggest problem we have at present is the amount of noise that has been created. My mother believes that everyone is doing data centers in Spain. Then the truth is that if you take a car and go, you know, travel Spain in secondary roads and big conurbations, the periphery of big conurbations, the number of machines that you will see breaking holes on the ground in order to build a data center is exactly zero at present. In fact, there was one little data center being built in Cerdañola del Valles in Barcelona that was originally started by Panattoni. Panattoni flipped into AQ. AQ flipped into somebody else. So the truth is that nothing has started, yet it has already flipped like twice. And like similar to that, I mean, many people is in this business in order to hit up a share price or brag about the fact that they are super modern and they are working together with the AI models. I don't know that the truth is that there is a lot of noise, very, very little reality So competitive landscape, as we speak in Spain, if you Thomas, you come to Spain and you require 20 megawatts immediate, understanding by immediate before end of 2025, you will have one counterparty to talk to. And that counterparty is talking to you now. And then for 2026, I think virtually the same, maybe two. if one of our colleagues finishes what we believe they are into. Maybe three in a good day. But very, very, very little competition at present in our market. I don't know in the rest of Europe. I am not super familiar with what is happening in the flaps. I really don't know. I cannot be very specific about it. But in our home market, very little competition. And importantly, since you decide that you fancy to do some data center, why not? Till the moment you erect, you know, open a quick source electricity and start operating with blinking red and green lights in your data center, If you are Superman, three years, but more normally, it will be by five years. So, time to market is of the essence, and I don't really see many people even starting development at present. I guess they will start in the coming two years. A number of new developments will start, but for the moment, there is nothing.

Thank you.

You're welcome.

Okay, thank you. The last question comes from the line of Fernando Abril from Alantra. Fernando, the floor is yours.

Hello, thank you very much. I have two or three questions. Please, first with regards from a data center tenant, besides the beauty of Extremadura, why do you think a tenant may opt to go to Extremadura or to Navarro Moral de la Mata instead of Bilbao? I would like to understand the driver's Behind it, is it lower rental cost, lower or cheaper energy cost, or, I don't know, the proximity to networks? Your views on this would be very helpful. Then second, you provided a very good color on the logistics pipeline with rental potential and pending capital and so on. Do you have same figures for the office pipeline? You have... several buildings, you know, you're working on several buildings like in Lisbon or in Madrid. Yeah, any color on that would be also helpful. Thank you. Okay.

Well, starting by the second, we don't have it handy, but we will prepare it for you. We will prepare it for you and respond. The only to the best of my knowledge, and I'm just talking by heart, the only two buildings which we are developing without a prelet are Libertade 195 in Lisbon and Alfonso 11 in Madrid. In the case of Libertade, I can tell you that at present, we have already signed a head of terms for all the ground floor space. That means around close to 30% of the building space at rent that did our existing underwriting. And in the case of Alfonso 11, we have just started conversations exactly for the same, for the retail. And we normally start by the retail and then we start filling up the different floors as we progress in the refurbishment. We don't want to be engaged in serious conversations with tenants while we progress in construction because then you incur significant risk of delay. But be reassured that we trade lots of square meters of offices on a daily basis and I don't see any big leasing risk in those two projects. So anyway, we will make sure that you get, let's say refresh on how the commercialization of these two projects is evolving as we progress also on construction. So in the coming two years, we will tell you how everything is going in case you are afraid. Then regarding Navar Morales versus Bilbao, The key is very simple, Fernando, and probably is something which is not easy to understand. You need to be where the power is. It is the vast country cannot take for granted that producing 7% of electricity of the one they consume, so having an electricity deficit of minus 93%, then grid will continue providing them, happily, all the electricity they request. However, if you position yourself in a region where the, you know, what is a fraction is the consumption compared to generation, like Extremadura where, you know, Extremadura consumes around 15, 16% of the electricity it produces, Then eventually, if you are right there where the electricity is produced, you can plug into that electricity and that electricity will not get transported, losing 40% of the generation capacity to the vast country. If you add into this equation, fiscal solidarity, you cannot take for granted in certain regions that the grid will be solid, we'll be solidary with you if you are not fiscally solidary with the rest of the country. So you have to be where the generation is. In the Basque Country, thanks God, we have our supply granted. So, you know, we are in good shape. We have a fantastic location because this is where the cable lands. So we have direct access to Marea, Grace Hopper, and now Anjana in our site. So great location from a cable standpoint, better than Extremadura, because in Extremadura, if you take into account that the cable enters through Lisbon, more or less, you still have like, you know, 250 kilometers of cable, land cable, you know, lower efficiency than the C cable into our site. So slightly less efficient than our data center in Lisbon. But again, our data center in Lisbon, it has been very hard for us to get 250 megawatts of electricity that will be good for around 180 of IT capacity. It will be very hard to get to 450, which is what we need to get of electricity in order to top up our capacity at 300 IT. Imagine trying to get to 1.5 gigawatts in Lisbon. That is overly impossible. Trying to get 1.5 gigawatts of electricity in Basque Country is impossible. Trying to get 1.5 gigawatts of electricity in Aragon with 180 coverage generation versus consumption is impossible. You have to get where the electricity is. So the engineer might be happy or unhappy that if you create enough critical mass, there will not be just one engineer, sad and lonely. There will be 2,000, 3,000 engineers that eventually will be living in El Gordo, in Isla de Valdecañas. They will be playing golf when they are not on duty. And eventually they will have a very happy life, very cheap life. They will be the kings of that region. And, you know, they will be where the electricity is.

Okay. And Ismael, the strategy with this, with Navalmoral, is to be more prudent and not to start any development until there is certain pre-letting or certain demand, at least on your books or, I don't know, Yes. More speculative. Oh, yes.

I mean, we don't have funding for 10 billion development, so don't worry. I mean, the idea there is to, if you want to do the whole thing, to do it hand-on-hand with a partner, with a hyperscaler. If you do just one building, it's because you have a specific demand. So if one of our clients says, rather than being in Lisbon, I prefer to be in Navalmoral because I have better visibility for expansion, then why not? I mean, instead of building one of our modular buildings, the A60 or the A100, instead of building them in Lisbon, we bring the plans to Cáceres and build it in Cáceres, no problem. But, you know, it will always go hand in hand with our clients.

Thank you very much.

You're welcome.

Thank you. The last question comes from the line of Celine from Barclays. Celine, the floor is yours.

Hi, Ismael. Just one question. So obviously the 2025 SSO guidance is not what we expected. So how can you make us think about 2026 in a more positive way, especially on your earnings trajectory? Thank you.

Hi, Celine. Thank you. Thanks for your question. Look, I... It's very hard to predict 2026 at present. There are many moving parts that can provoke an effect in our P&L and our FFO generation capacity. The most important of it all is basically interest rates, so if for some reason interest rates – if you really believe that interest rates are going to go down in the European then eventually we will be able to replace our existing debt or add existing debt at a less meaningful cost, in which case clearly this will have a beneficial effect. Second, if we are faster in leasing up our data centers, either in the Basque Country or in Madrid, eventually that will also provoke an increase in our cash flow. there are a number of things that can wait in the final result of 2026. However, in order, I know you don't like realistic views, but in order to be realistic here, I would assume that 2026 will be positive compared to 2025, but relatively flattish because take into account that in our assumption, the debt course in 2026 goes from the 2.6 at which we expect to close 2025 to around 2.9. So those 30 extra bits of cost in debt will significantly erode our cash flow generation capacity, let alone with the fact that we are going to be onboarding significantly more debt as a consequence of the data center development. You know, we have to be realistic, and this is what I can tell you at present. However, of course, we will do our best to make 2026 as visually attractive as possible for you all, but we have to be very, very prudent and realistic.

Thank you.

You're welcome.

Okay, thank you very much, Zeno, for the question. Thank you for bearing with us for almost two hours. If you have any further questions, don't hesitate to contact us. We'll be happy to call. Have a good weekend. Thank you very much.