Merlin Pptys Socimi Ord

Good afternoon, everyone. Thank you for joining Merlin's 3M26 trading update. As we always do on quarterly results, our CEO, Ismael Clemente, will briefly walk you through the main highlights of the period, and we will then open the line for Q&A. Without further delay, I pass the word on to Ismael.

Thank you, Teresa. Well, Merlin is off to a very good start of the year with total revenues up 11.2%, owing to basically three and a half percent increase in growth rents like for like and the additional revenue brought by data centers as compared to the same period of last last year the ffo however is only up 3.9 percent still better than what we predicted it was slightly lower than last year but uh only 3.9 percent uh and as warned already at the full year uh results um it's a combination of more financial expense, 10% increase, and much less financial income, because in the same period last year, we were still enjoying significant amount of cash in our bank, so 40% less income, financial income. That puts the company at 8.8% total shareholder return per share year-on-year, comparing the same periods. We have seen a very strong activity in all of our divisions, but particularly in traditional asset classes. Of course, Spain continues enjoying good macro, but I would not take out importance to the asset management effort carried out by my colleagues. The occupancy remains very high at 95%, quite stable, despite the fact that in the first quarter, about 60% of renewals can view these Spanish idiosyncratics. Everything is done either in January or February. So most of our renewals can view in the first two months of the year. But, you know, the erosion occupancy of close to 60 weeks I believe is quite acceptable. We will discuss the guidance for next year, probably in the next quarter, but what we said at the end of the financial year 2025 remains true. In offices, we said between 93 and 94, and our models are giving us now midpoint in that range. in shopping centers full stability, so between 90, around 96 and a half, something like that. Remember, in shopping centers, we are starting to yield manage a little bit the portfolio. You have seen it in the spread, so we are starting to, of fight in a good way, the occupancy cost ratio, which now stands at the lowest I have ever seen in my professional life at 10.8%. And in logistics, and some of you I know are worried about logistics because you are kind of assuming that there is some sort of underperformance in the portfolio. The truth is that simply is the GXO share, which is a big one. It's 48,000 per meters, and it will take time to list it up. I mean, because it's a relatively big deal to swallow for the taker, we are in negotiations with more than one party, so we are negotiating with multiple parties, and that will basically move the needle of occupancy as of year-end. I mean, if we cannot sign that shed before year end, occupancy will be more in the region of 96%. And if we are able to sign it, it will be 99. Anyway, I already warned you that 99 is abnormal. So please do not bang on our head every time we go down from 99, because 99 of course is not reasonable. More importantly, we continue executing the mega plan, you know, in very satisfactory manner. I think it's all the efforts under construction are on track to meet the delivery date. And the ones in which we were requesting licenses are now little by little achieving very interesting milestones in terms of construction licenses, et cetera. I will go in further detail in a minute. Non-core sales, meaningless for the quarter, 6.8 million premium to GAV. But more importantly, we have been signing $123 million for execution in 26 and 27, giving us optionality for receiving the cash flows. You know, while we continue building data centers, it is critical for the company to keep cash flow. And as such, every time we sell an asset, we try to do it in a type of contracting which we keep a lot of optionality as to what is the moment of execution and what is the moment of loss of cash flow and receipt of the money. At present, we don't need money. I mean, we are overfunded. We have too much cash at banks. So what we are trying to do is drag a little bit our feet in terms of sales. And that 122.9, it's also premium to GAF. I mean, I know some of you are I'm not worried of making that question. It's at a premium to GAF. The NTA per share, it's 1532 with no valuation or no appraisal during the quarter. Another thing that has raised the eyebrows is we have said that we expect substantial revaluation of disease in one age. This is no nuclear science. It's simply that up to now, the scope of valuation of our appraisers has been a total potential of 240 megawatts of data centers. And just with Lisbon, we move into 340. So it's a very significant jump ahead, much more scope and I'm sure this is going to have an effect in the valuation of the portfolio together with the fact that there's been a near elimination of any leasing risk in phase one and increasingly in phase two. And as a consequence, I'm sure that the valuers will reflect that in the discount rates and also bringing the cash flows closer to present. So this is why we expect some jump in values in the first half. As you all know, in March, we executed a capital increase, an ABO, to fund phase three. It was a very good transaction, reflecting particularly your support to the company. It was heavily oversubscribed and executed at strike. Thanks for that. At the end, 100% of the paper was placed with existing shareholders. Of course, begging pardon to these super minority shareholders that, of course, cannot participate in ABOs because of their non-institutional nature. even from a legal standpoint, you cannot address them. The final distribution after the approval of the General Shareholders Meeting of 2022 will be paid on May 25th. Some of you have asked about, why the FFO goes down by 5.6%. As you know, we use the absolute number of shares of the company at the moment of reporting, which now includes the capital increase. We don't use the average. If we were to use the average, the FFO will have grown by 3.1% and the adjusted FFO by 3.5%. So, you know, but we prefer to report what we see. And what we see is that now we have 620 million shares. And as such, we have to divide the FFO by these number of shares. It's minus 5.6, which anyway, it's already below the 10% theoretical dilution. created by the capital increase. So, you know, with some probability, maybe during the year, we will continue taking a dent, eroding that dilution created by the capital increase. In terms of behavior of the different asset classes, offices, as you know, ended up the period at 93.6% occupancy, down close to more or less 60 compared to the 94.2 at which we closed the year. The like for like was 3.1% with a very interesting spread of 2.8%. So, you know, offices continue to show some strength despite the fact that we have a problem in Barcelona, a problem that will aggravate in the second quarter because the second quarter as you know we have an escaped exit of the meta fake news control center in torre gloria so that that will further diminish the uh occupancy in barcelona first of all barcelona has a relatively minimal way in our portfolio so you know no no big thing that uh barcelona is of course a complicated uh city at present because of our the relative oversupply that we are experiencing in the area of 22 at. It will take some time to recover. We have commented on a number of occasions. Barcelona is a strong market, so sooner or later it will recover, but we need a little bit of patience there. In fact, even in rents, now Madrid is about to overtake Barcelona in average rents in the portfolio, despite being more concentrated in prime CBD than one in Barcelona. very interesting the performance we have observed in Madrid in recent times. Logistics, down about 60 basis points to 95.8 from the 96.4 we were at the end of the year. The like for like is weak, 0.6, but this is mainly due to the net variation in occupancy because much to our surprise, the risk rate has been super strong at 6.2%. We still need to see what happens in the second, third and fourth quarters to check whether this is a reflection of something or is simply it has happened a little bit randomly. I mean, we need to check the consistency of this figure in the coming quarters. Shopping centers is a rocket. I mean, 6.1% rent like for like, and at least spread of 7.4%. We told you that we would start managing yield, and we are doing exactly that. Despite this, the sales have gone up so widely that at the end, the occupancy cost ratio continues going down. But anyway, we will continue pushing a little bit in rents and trying to normalize more the performance of the portfolio. If we go very quickly through the different asset classes, and I will only stop in data centers because of its importance, in offices, what strikes the eye is basically the very good performance of Madrid, now reaching 94.6%, more than 1% change in the period, and Barcelona, which has gone farther down by about 3 percentage points. Lisbon has gone down by 4 percentage points, but don't take that as a reflection of anything. It's simply that we have suffered the conjunction of the exit of BNP Paribas in the Arts Tower, and some of the consequences, delayed consequence of the exit of GALP in Torre A. But, you know, at the page, we are reliving space there. This will be somehow normalized towards year end. The local team there is doing an excellent work in rebalancing the portfolio. In terms of, well, As a curiosity, the once denied A1 corridor in Madrid is now doubling. I mean, it has moved from Cinderella into Princess. So now it's occupied above the average occupancy of the portfolio, owing to the fact that part of the infrastructure problems that were endemic to that area, particularly the traffic jams because all the residential around have been built that no changes have been made to the infrastructure. Finally, the municipality of Madrid has carried out some changes in the north traffic hub and this has reduced very significantly the traffic jams in the area. the proximity of Opera Central Martín is also enticing more and more real estate managers in companies to find a slot there because at the end it's going to be very close to where the music will play in Madrid for the coming 25 or 30 years. In logistics, well, as commented, very good risk spread and pedestrian growth in like-for-like terms owing to GXO. It's a big share. We are now negotiating with three, four counterparties, but it will take time. I mean, bear with us because it's a big share, and the market is not also in its best moment, so we need to make sure that we sign that back and go back to a super high occupancy at all Good news, however, is that we continue leasing well our work in progress. I mean, we are 178, 320 pre-led or ahead of terms. It is important to make the breakdown. It's 174 pre-led and four head of terms. So it's basically all pre-let, which is interesting. And even in the non-committed, we are working on reducing the total number 182 by about 60 because we are in conversation with a tenant. And, you know, reduce the non-committed to only 120, always with the idea that has been conveyed on many occasions to you of, you know, finishing a land bank in logistics and waiting for the next cycle comfortably full and cash flowing. This is what we want to do. At the same time in Talport, we were able to get two additional plots there and one has been pre-led to Lidl and the other one which is in the airport of Barcelona has been pre-led to Logista. So that will add capacity in the super prime location of South Port in Barcelona. In shopping centers, you know, Spain is, you know, between the increasing population, the marginal proportion to spend, and the macro, you know, it's really performing as like a rocket. The increase in sales of 10.3%, you know, will strike some of you as too high. Part of it is owing to the fact that Marinera, the extension of Marinera has been in operation in the period, and that has added about four points to the figure. If you want to do it like similar to like for like, it will be in the region of 6.2%, much more in line you know, the market statistics and what some of our peers are reporting in Spain. Footfall, however, is only plus 1.5%, and this is going through very small things, difficult to explain, like, for example, in Barcelona, we have works in Plaza España. which are complicating the access to the shopping center. In Larios, the Spanish high-speed train got suspended for a long period, and therefore, access to Malaga was completely complicated by the public authorities. And, you know, I mean, we have a number of other situations in the portfolio. we continue to see a very interesting footfall flow in our shopping centers. Data centers. Well, for phase one, Madrid Getafe 01, Barcelona Zona Franca, and Bilbao Alasur 03, the first building, are now fully equipped and fully led, and they will reach 97 million gross rental income in the year of stabilization, which is 27, as anticipated to you a long time ago. According to the details, Barcarona-Tanafranca has been repowered, or is being repowered. All the machinery has been received, and we are doing now fit-out, but there's been changing uh in um in layout of the client and you know it's uh the fit out is going like 15 days uh delayed that's not relevant for cash flow and we will start receiving cash flow in the third quarter of 2016. Regarding Madrid Getafe 01, well it's now fully led to one new cloud and two hyperscalers which basically host in the data center POBs, I mean cloud points of presence and are occupying an interesting part of the data center. There we are finalizing the power connection works. And we are, at present, we are digging trenches in very plain language terms. And we expect to be ready in October 26th. So by fourth quarter 26th, the main client, the AI client of the center will start paying full rent. A repowering opportunity has arised that will or should allow us to go back to the 70 megawatts of phase one that we told you in April 2022 in our Capital Market Day. So, you know, if we have the opportunity to acquire 10 megawatts of electricity, that will give us 6 megawatts extra in IT terms. I know it's a small number, but it's symbolically important for us. If we can pinch it, the repowering should be ready by fourth quarter 27. And that means that in terms of gross rental income, this year it's set. I mean, we will receive around 66 million in rent. Next year should be 97. Then in 2028, there will be a significant jump. If the repowering happens, we will go to circa 110, including the fixed step-ups of the existing contracts. So very, very interesting for the company. Then for phase two, construction is progressing, as commented, as planned. and the flow of pre-lets is promising. So, in Arasur 2, it's fully let. The first batch, 29 volts, should be, you know, producing money by beginning of 27. The second batch, 28 by mid-2027. Very cool machinery. I mean, really, you know, state of the art. Liquid, cooled. And what is more important, fully back-to-back by the client. So they have now final plans for all that power. I mean, they are already sold in that. For ARASUR 01, construction is underway. Pre-leasing is in advance negotiations. What this means, basically that we have done something special in this occasion. We have signed a reservation agreement, which has as an exhibit all the technical documentation, and the full-form legal documentation, the lease contract. However, the lease contract contains bracketed terms for the delivery dates. So, three things can happen. If nothing happens at a certain point next year, which I will keep for me, the contract will become fully binding for both parties and it will be let. If we have to change the delivery dates, and I will explain why, and the counterparty accepts, again, it will become fully binding for both parties. And if we can find a language which is sufficiently flexible for delivery dates, which will need the collaboration of the final client of our, you know, power taker and NVIDIA for the delivery of the chips. If we can find something which is amenable for the four parties, then eventually we will move into full, you know, let's say full form contract signing. So it's pretty much done. Okay. So that is the situation there. And, you know, we are working. Why are we worried? We are worried for a very simple reason, because we have our own working morale. We have our own, you know, sense of fulfillment of contractual obligations, that when you are dealing with our, you know, public administration or other counterparties, when you depend on third parties, of course, you are exposed. And what we don't want to do is screw up. We don't want to screw up not only because we are going to be imposed a significant penalty. Penalty at the end, you pay, and that's it. The problem is that we are a relatively small company, and we are just starting in the world of data centers. We do not have the goodwill of the big American incumbents. And, you know, screwing up on the delivery of one of our facilities is not going to be good for us. So, and particularly if it is owing to a third-party intervention, it would be a pity. So, what we are doing is trying to make sure that we, you know, are pretty firm on the delivery dates. Remember that in this case, the electric line comes through a photovoltaic plant that needs to be built is being built or will start soon to be built by Iberdrola, by the utility provider, really next door to the data center, but the plant needs to be built and the line will come through the plant to the data center. So, two things need to be executed. The generation assets, the solar panels, and the line, and this requires lots of authorizations from the vast country uh authorities from the central government authorities etc plus the execution of the works itself so this is why we have been a little bit uh very prudent uh in the way we have um approached these potential uh pilots Regarding Lisbon 01 and 02, well, basically, construction is advancing significantly. If any of you fly often to Lisbon, you will see that the two buildings are now with columns erected. They will start closing walls in the second half of the year and roofing. So, you know, works are advancing pretty well. after finishing all the preparation of the ground, which as you know, is a complicated ground in this one. So very happy with the way it is going. For the IT capacity, the primary plan continues to be the adherence to the Portuguese Gigafactory, however, This is now being delayed again. The ARAC team by the European Union might be sent to the different parties at the end of June or maybe July, and they expect to take a decision by year end, taking into account that we started in all this process in February 2025 with the intention to have everything decided by April, maybe May, maybe June, it's a year and a half delay, which is sometimes not compatible with private activities. I mean, we cannot do things in that way. So, we are advancing some, you know, alternative conversations, pretty similar to what we did with Arasur, that you will need to bear with us long while because those happen to be hyperscalers, and that means basically very, very long conversations, very slow processes. It will take a lot of time to really get to a happy end. That, you know, statistics are in our favor. We are talking to multiple counterparties sooner or later. one of them will end up concluding negotiations. So, we are happy with the way it goes. Plus, if at all possible, if we can enter a full lease of the whole campus, you know, it's paradise for us. So, you know, if we can really lease the whole campus and accelerate the construction of 0304 and 05, that will be perfect. So, this is why we are taking relatively long in Lisbon, but the demand is very satisfactory. In Madrid Getafe 02, the demolition works are underway, should be finished by year end. Very happy with the way they are going. And the construction license has been submitted, the request to the municipality, and we expect to have it or to get it immediately after demolition works are finished. So maybe with a little bit of luck early next year. We want to rush in this case again, because this data center enjoys a couple of bookings highly credible, so we believe it will go very well. The current finalization target, which is the first 1H29, it's about one half in advance of the one we told you about, you know, it's like two quarters ago. when we feared that this would go to end of 29 with full cash flow in 30. With a little bit of luck, it should go to more like first half 29 and full cash flow, well, again, for 30, full cash flow for 30, that, you know, part, partial cash flow already in 29. And regarding Madrid-Tres Cantos, this is a small data center, but, you know, planning, has been completed, we got organization permit, and we are now moving around. And that's it, because we expect to have these ready in the first half of 2029. And we haven't started commercialization conversations because first is very small, second is in Madrid. So I think it will lease relatively well. And then for phase three, We're just starting in Bilbao 4 and 5. Well, we are waiting for the execution of the power infrastructure by our electricity provider, which as you know is Solaria. We have requested the construction license to the municipality, which in turn will put in motion the different favorable reports that need to be received from the Basque government. But, you know, we are already readying the project in case we need to accelerate it. I mean, in our presentation of phase three, we said first half 30, first half 31. This is simply an estimate. If we need to accelerate, Of course, eventually we want to be ready in case for some reason the client or one client wants to get this slightly earlier. I mean, we want to be ready. Regarding Lease One 345, the construction license has been granted by the municipality. And we have started, you know, doing the groundworks very quickly. I mean, we are piloting already. And, you know, we will go fast here. So, again, we have delivery dates of 1H29, 1H30, 1H31. If we get a client, that can be significantly accelerated, but we prefer to keep. the existing dates and the guidance provided to you in our investor day in Arasur because we still, we don't know what the future might hold. And if we end up selling or leasing 01 and 02 to different clients on a retail basis or wholesale collocation, then eventually we will not rush in starting three, four, and five. But if we do just one single lease, campus lease, then yes. And then Saragossa Wind, well, we have submitted already the DIGA, the Declaration of General Interest for the Community of Aragon. And we are now moving into the PICA, the Project of General Interest of Comunidad de Aragon. It might sound like Chinese to you, but the interesting thing about the PICA is that it moves the land from rural status into full construction license in as short as between 9 and 12 months, in theory, unless, you know, something happens or you find skeletons from the Stone Age in there. The idea is to continue progressing hand-in-hand with the local Aragon authorities, which are highly collaborative, and, you know, have the PICA submitted before summer for readiness of the project in 4Q29 and the second building 2H31. But again, it depends on, you know, whether we can find a client, and we have a need for this one. So, which is the, because Bilbao and Lisbon will probably have the same plan, that we have a lead, and we are working on the technical design specific to that lead. Outside the phase one, two, and three, we got the declaration of project of regional interest for our Naval Moral project in Extremadura, for building one only. And we have obtained a little bit of power in there, around 30 megawatts utility, which are good for about 20 megawatts IT. Remember, for those of you who attended the Capital Markets Day in Nara Sur, that was called Phase 4, okay? But interestingly enough, we got some electricity, not a lot, but given that civil construction is not the lion's share of the budget of a center, we might perfectly start the construction of building one, being ready to equip 20 megawatts IT on it once finished, because it's the only way to have an earlier ready for service date in case we get clients. And this Extremadura project is raising a lot of interest in the market because of the sheer size it has. Of course, during the civil construction period, we might get the real electricity, the one that we have requested from the local authorities, from the central government authorities. We requested 2.0 gigawatts and, you know, good for around 1.4 IT. whatever they give to us is going to be good. So we, you know, if we can electrify the first building and if we can electrify the second, because they are twins from a technical standpoint, we might start also the second if we get the electricity from the central government. And that's basically it. LTV, bone maturities, and this is all relatively plain vanilla stuff. So let's move into Q&A, and I'm sure it's going to be much more interesting. I mean, I'm sure you will have interesting questions.

Thank you very much. We'll now move on to Q&A. Remember, to ask a question, you have to press star five. We have a first question coming from the line of Marius Pastu from Bernstein. Marius, go ahead.

Right. Thank you very much. Good afternoon. Thanks for taking my question. So just firstly, just on the broad FFO growth.

Marius, you are breaking off. Your voice is metallic. Can you check your line or eventually if you want, if you send us in writing the questions, I will read in loud voice. your question and reply to it. Do you agree with that method?

Yes, that's perfect. Apologies, my line is already funny. Thank you. Okay.

Okay, so questions. Yeah. FFO growth, circa 4% in the first quarter. We appreciate that it is early days, but is there upside potential to the flat guidance? Yes, there is upside potential. Don't do this to me every year. I mean, the 58 cents pre-capital increase are 53 cents post-capital increase. Let's stay with the 53 for the moment. We will review the guidance in the second quarter. And in case we see that we are, you know, fine, yes we will we will change it but for the moment let's uh let's keep the the 53 because it is it is not easy i mean this year from uh uh interest rate perspective is being a roller coaster but it's a roller coaster that only goes up i mean you know the the 10-year swap rate is going up significantly and let's see i mean financial expenses uh might give us a headache the good thing however is that However quick, however fast financial expenses grow in the coming years, the top line is going to run much, much faster. So that puts us in a very good situation. compared to what I see around me, I think it's a very good situation. The company, I mean, it's been fantastic. It's been a big luck to find this vector of growth of the data center because it will simply send our top line to the roof, and this is going to go much faster than any potential increase in the financial costs. an update on Portugal, how the dual-track discussions are ongoing with tenants versus Gigafactory project. I have already referred to that. I mean, we are holding like a dual track, too, and we might perfectly end up going through a private solution. The third building in Bilbao under advanced negotiation rather than booking, able to provide details. Yes, well, I have already giving you the details. I will not be specific on who is the client, although it's relatively easy to guess. And then, Naval Moral, what this means for phase three. Well, Naval Moral is phase four. As we commented in Narasur in the Capital Market Day, phase three, it's a little bit flexible at this time around could be increased by some things coming from phase four, some things coming from tier one pipeline, or eventually if we see that, for example, in Crescantos, if we see that it's going to be impossible to meet the deadlines given to market for phase three, we will move it to phase four. We need to get accustomed a little bit to the fact that having so many balls in the air, so many things in execution, some things will happen. So, you know, you need to be prepared for that. Let's be adult in that respect. I mean, if something happens, I will inform all of you that we sometimes might need to do some adjustments.

Okay, thank you. So, the next question comes from the line of Celine from Barclays. Celine, the line is yours. Hello, Ismail, can you hear me?

Yes, Salim, how are you?

Okay, cool. Yeah, very good, very good. Can I ask you two questions, please, on data centers? The first one is, can you give us an update on where you stand with the EU on your Portuguese scheme? And then secondly, what does that mean that Navamora has been declared a project of regional interest? What does that mean effectively for you in your day-to-day? Thank you.

Okay. Regarding the EU, as commented, Celine, the problem is permanent delays. I mean, as you know, the program was launched by the European Union. They called it Gigafactories because they were trying to replicate the Stargate program in the U.S., trying to find one gigawatt project across Europe. Then somebody raised their hand and said it's impossible. Then they reduced to 200 megawatts, then to 100 megawatts. So finally, it's a 100 megawatt program. Locations moved from four to five in order to please more countries within the European Union. Now they have moved from five to seven. So little by little, it's starting to look like the lottery of the parish in which I go to mass on Sundays. So, you know, the boys... do a run, and then the one that ends up last still gets a medal because, you know, he's super sympathetic and has a very good smile. So, you know, sooner or later, this program is going to be launched. Apparently, it's going to be launched around June, July for decision-making before year-end. Okay. we can no longer be super faithful on that. So, you know, in Spain, we are completely out of these. I mean, we were told that we were not needed. So we found our way in the private market. And in Portugal, we have remained loyal to the agreements, verbal agreements reached with the Portuguese government. We remain there to provide them with digital infrastructure. in case they need it. If they tell us they don't need it or the situation continues being delayed, we might move perfectly into a private execution because at the end, we have to manage, you know, your money. I mean, and, you know, we cannot play with that. Then, regarding Extremadura, the declaration of regional interest basically means technically that all periods for licenses are reduced to half, and therefore everything gets some sort of like a fast track, you know, and it moves significantly quicker. But in practical terms, more importantly is that, you know, the Junta de Extremadura is now clearly trying to help the project, and they have, you know, allowed us to get some power, which is testimonial, it's not significant, on 45 kVs, so it's not super high-quality power, but it's okay. And, you know, we give us the possibility to illuminate one block out of the five if we do a B100, if we do a W96, the blocks are 24, so partially one block, four blocks or five blocks. I mean, depending on the type of building we finally build there. But we will have some electricity. And as such, we can start serving clients there, which is important because clients normally deploy system engineers in the site, et cetera. And once they are building, they are working with you in a building which is occupied only by 150. then the second fifth, third fifth, fourth fifth, and fifth is normally much easier to place with the same client. And it's raising a lot of interest among the clientele.

Thank you. Thank you very much.

Pleasure.

Thank you, Philippe. The next question comes from the line of Florent Laroche from Model. Florent, the line is yours.

Hi. It's myself. Thanks for all these details and explanations. I would have two questions, if I may. Maybe the first one, you mentioned the variation of data centers, saying that maybe we can expect some substantial revaluation. I understand this is maybe because of changing in the scope with this one. So, but maybe can you give us maybe more on how we can anticipate that impact on the variation for your data centers in H1?

Let me wait for one quarter. I mean, as you know, we were carrying that land at cost. Cost in Lisbon was as close as you can get to zero. So yes, it will be a significant impact. It is not for me now to evaluate the impact. It will be the appraisers. The appraisers will do their job. they will tell us how much they believe. But yes, there is clearly going to be an improvement compared to current situation because current situation is zero. So very, very interestingly. And I believe also there will be some revolutions in existing assets because of certainty. I mean, clearly the certainty now is full. And as such, I'm sure the discount rates, et cetera, might be modified in our favor. regarding other asset classes, you know, remains to be seen because the performance is very good, which is, you know, should move valuations up. However, interest rates are going up. So, I don't know which of the two will prevail. I mean, only God knows. We will wait. But as commented with you on some occasions, whatever, for the next seven years. Whatever happens to the traditional portfolio is going to pay in comparison to the value creation that you are about to witness in data centers. So don't be too worried about the traditional asset classes.

Okay. And thank you for that. So maybe my second question would be on phase two and phase three. about the speed on how you spent the CapEx today. So you have provided us a very detailed review on all the assets. But in terms of CapEx spending, so how is it? Are you spending this faster or in line with your initial plans?

At present, faster. I mean, last year, 25, I think we executed, like, 900 and change million compared to 800 we had in our budget. So we were slightly, slightly faster. And in 20, talking very importantly, talking about committed, which again, we have explained in some occasions, we consider committed topics like already spent because we don't want to run into the risk of insufficient funding. We don't want to make an equipment request from Vertiv and then discover that we don't have the money at the time it arrives to pay for it. So we kind of block the money of every equipment request we make and hence why we have a relatively significant amount of cash. What we expect for 26, it's a little bit of the same. I mean, we expect 26 to be also fast in terms of CapEx deployment. The cash advance we have at present, which is like 1.75 billion. If you take out the bond repayment, 850 change or less. And the speed of deployment of CapEx in data centers, we are going to finish the year If you talk about committed, more or less at zero. If you talk about real money at the banks, we will have money at the banks because part of it will be committed but not yet spent. But yes, we are spending pretty fast. And in that respect, the arrival of David Martinez is helping us a lot because he's making a significant effort of industrialization of the construction processes, which is important in many aspects. One of them is, of course, speed of execution. But the other one is comeback to potential cost inflation episodes we might see in the future. At present, Europe is relatively tranquil for the moment because there is a lot of bullshit, a lot of noise, that very few people is really building things. But sooner or later, that situation will change. And that might strain a little bit the, you know, the commitment cues with the main supplier. So you need to be mindful of that and try to make sure you slot your things in the right moment and you get your equipment. And you might need to equip part of your things in advance for which we are prepared. And, you know, we have lots of sheds everywhere in Spain, so we have a lot of storage capacity for equipment that we might receive.

Okay. Thank you very much.

It's a pleasure.

Thank you, Florian. The next question comes from the line of Veronique from . Veronique, go ahead.

Hey, good afternoon, all. Thank you for the presentation and taking my questions. Maybe first, I was hoping you could give any color on your stance towards the balcony portfolio. You mentioned you're not mentioned anymore in the last four bidders, but you were quite vocal in the past on your interest, so I'm happy to hear if you can give any color on it.

Well, in principle, we couldn't agree on pricing, so we are technically out, and that's it. I mean, they are... running an investment banking process with long leads, short leads, et cetera, and we are not participating.

Okay, that's very clear. And then maybe second question, just curious given what's currently happening in the Middle East, have you identified any new potential risk or already encountered delays or cost inflation for the data center pipeline?

Not for the moment, as I was commenting. The fact that most, virtually all, our supplies come from OECD countries, and the only thing that comes really from far supplier is Japan, but it's made in Spain, in Zaragoza, the transformers. You know, it's going well so far. things, I mean, collateral effects we are seeing from the Gulf crisis is more interest in Europe by hyperscalers because, you know, a number of data centers in the area have been hit. Data centers are, of course, center in any crisis because, you know, they host data which are vital for today's society. So, One, two, like three data centers have been hit. So, you know, nothing serious has happened. But that has sparked even more interest now in European locations. And that's basically it. I mean, I think we are okay for the moment. Of course, we are not okay. I mean, I hope the situation there is resolved sooner rather than later and we can go back to our normal life.

Okay, thank you. And one last question. So you now see the 30 megawatts of power for Exxon Madura. Is it somewhat linked or does that give you any view on when you can obtain the remainder that you requested or is it something completely separate?

It's completely separate. It's completely separate, Veronique. It's a pity, but it's completely separate. This is electricity obtained through the distribution network. through Iberdrola, who is the electricity supplier there. And the one we have requested in Arañuelo 400 KV is electricity requested to the transport system, to the national grid authority, to Redella. So two different sources of electricity, and one thing has nothing to do with the other. We hope the power contest is called sooner rather than later. We provoked it. I mean, we are ranking first. There is enough electricity in the substation, so we are hopeful that we are going to get a very significant chunk of electricity there. But the truth is that, you know, we deposited the bank guarantees on February 25, and we are still waiting. And, you know, hopefully, you know, during the year, we should, no more or the power content should be called upon. Because, you know, it would be paradoxical that we end up receiving a lot of electricity earlier in Portugal than we are receiving in Spain. In Spaniard, excuse me, but it is probably, it's the situation.

Okay, that's clear. Thank you.

Thank you very much. The next question comes from the line from Ana Estelante from Morgan Stanley. Ana, the line is yours.

Hello, thank you. I'd like to ask a question specifically on construction cost inflation. I know that, Ismael, you've said that so far there's nothing especially that you're seeing or that you think is mentioned, but you're thinking maybe a bit more long-term. I was wondering if we were to see that inflation in oil prices filling into construction costs, how does that impact your CAPEX plans? Would you rather... increase that CAPEX because probably you would be able to transfer that to higher end for data centers and meaning, or would you rather just do less megawatts and keep to your original CAPEX commitment?

Well, it depends on the relative impact. I mean, so far, first, phase one is completed. Phase two, I would say 80% to 85% is ordered at fixed price and being received as we speak. And in phase three, of course, yes, it will have an impact. That impact in our opinion for the moment is confined to steel, but not significantly concrete. And then the oil costs, I mean, or fuel costs for, you know, ground works, et cetera. You know, as you know, the civil construction is around 25% of the total budget of a data center. So unless the movements are gigantic and, you know, we move into a 20% deviation, you know, it shouldn't impact that much our total figures. And rents continue playing in our favor. I mean, we are seeing our rents in the markets. above what we have underwritten for phase three. So rents might give us a hand if that happens.

Thank you very much. That's super clear. And maybe also on kind of supply chain bottlenecks. Based on the conversation that you're having with your prospective tenants, would you say that they are a little bit worried about not receiving their equipment in time or maybe, you know, the market has not been able to supply to all the demands for equipment that all these companies are placing in?

Not for the moment. In fact, NVIDIA, if any, they have normalized a little bit the delivery times that at some point were really, really long, particularly with the initial deliveries of GB200 there was a significant bottleneck but now they are little by little normalizing they have increased their production capacity so this is good what the clients are not getting is IT I mean IT power data center capacity so we are seeing now that in some cases they are trying to push for longer term contracts which is a clear sign that they are under certain stress to secure IT capacity. You know, I don't surrender. I believe at some point in the future, we will be able to charge back some of the common expenses. At present, as you know, the system is they pay you a lump sum, and they forget. So there is a gross to net conversion, which is significant and much higher than in other asset classes. I believe this is eventually, this is one of the things that could change in the future because unless the rent inflation continues going up and up and up at some point, maybe the rent inflation stops, but they start accepting some charge back of part of the expenses, It's the same. I mean, the net effect is an increase in NOI, which, you know, would be good for all parties. But from what we see, there are no signs of abatement of the demand. In fact, up to now, everyone was saying, what do you have ready for 26? Because 27 and 28, I still need to see whether I get clients or not. Now, people are starting to ask, what do you have ready for 27, 28? Because they already have visibility on back-to-back clientele up to 28. And I'm sure next year, that benchmark is going to move to 30 and eventually 32. Because, you know, particularly in Europe, we are not building capacity at enough pace to cope with the current demand.

Thank you. Thank you very much.

My pleasure, Anna. Thank you.

Thank you, Anna. The next question comes from Stephanie, from Jeffrey. Stephanie, the line is yours.

Hello, everyone. I would have a couple of questions, actually. The first one would be a follow-up question on shopping centers. We clearly see that there are great spots currently in Spain. I was wondering about your strategy for this segment going forward. Do you contemplate more acquisitions, so more opportunities outside of the balcony portfolio there? And what about disposal in front of that? Do you have disposal budgets?

Okay. Look, one thing in reality is pretty much tied to the other. In terms of shopping center, our strategy is very simple. It's to try to manage our yield through rents. We are trying to push a little bit of rents in order to send back the occupancy cost ratios to, let's say, more normalized levels. So we are trying to basically extract a little bit more cash flow from that portfolio, benefiting from the current trend. terrible situation in conceptions. Regarding acquisitions, very difficult. I mean, it's very difficult to find portfolios that really make sense for us. Balcony, there were two, three, four assets that were really interesting for us. But this is just one opportunity that we looked at on an opportunistic basis. I'm not sure there will be many more like this. in the immediate foreseeable future, which again brings the question some of you make to me sometimes that, you know, why don't, why didn't you buy, only buy leftovers, et cetera? Because we run a listed company, and in a listed company you can be contrarian, but only this much contrarian. Because if you are super contrarian, people will kill you in a public place. Because you all, shopping centers, they are about to disappear in the U.S. And, you know, sometimes you need to take decisions a little bit delayed in time because, you know, you need to be cleaner than the cleanest. So, but yes, I mean, we will, if there is an acquisition opportunity in the market, we will have a look at it. If not, we will simply enjoy our portfolio. And there will be many more cycles in the future. There will be other situations in the future. You know, 10 years from now, the online sales will start, you know, going up again. Now they are completely stalled. Single-digit growth figures that, you know, maybe in 2035, online sales start to rocket again and people start being afraid of shopping centers disappearing. Then maybe we venture into some acquisitions and I will remind you of what you told me about buying more shopping centers because that would have been a good idea had we executed it like three years ago. Anyway, and then disposals. We will continue disposing of around 1% of our portfolio per year. I mean, the budget for this year is like 130 or something like that. We will try to comply with our internal disposal budget. And we will have accelerated a little bit in case we have bought the balcony portfolio. If we don't buy the balcony portfolio, then why selling income? I mean, we will keep it. I know some of you say, why don't you sell all the traditional assets and become a mono asset class pure play data center company that will be super cool, will be the coolest managers in Europe for the next 10 years. But then one day when data centers hit the wall, because at some point there will be maturity and there could even be oversupply, then, you know, what do we do? You get out of our shareholding list and our share price plummets. And, you know, it would be a pity because, you know, the company at present is pretty well balanced and we will endeavor to continue keeping that sort of balance in our income streams.

Okay, thank you. And my second question relates to logistics. So clearly we can see that one departure can weigh much on operating KPI. So I was wondering if you have any other tenants like GXO that will leave in the coming quarters. And actually I will have the same question on offices. What are your main leasing challenges in the coming quarters in terms of tenant departures?

Okay. One very important point in this respect, Stephanie, is that we calculate occupancy based on GLA, square difference. So, as a consequence, any departure in logistics, of course, is meaningful for the total occupancy of the company. However, from a rent perspective, it's like leasing 1,000 square meters of offices. Okay, so don't be carried away by what happens in logistics in square mid-range terms. We do not expect to have any further departures, particularly this year, but, you know, at some point, Of course, the portfolio is a moving portfolio and that could be in the future. Departures in logistics that we will try to replace. When the cycle is helping us, it's easier to replace. When the cycle doesn't help you, it's more difficult to replace. But remember always, we calculate occupancy is not economical occupancy, is not financial occupancy. It is space occupancy. We calculate based on the space. In fact, as of year end, we will start reporting the occupancy in data centers, and believe it or not, it will not move the needle that much, because in the square meterage terms, the data centers are relatively meaningless. So, even though we bring into the equation at the end of the year Barcelona 1, Arasur 3, and Madrid Getafe 1, that is like 60,000 square meters, 100% occupied. They will make up for the GSO share, but that's it. However, financially speaking, it is super important, okay? So, likewise with offices. I think in offices, the team did wonderful preemptive work in the past years Securing extensions of the biggest leases we have in the portfolio, because we still have like 70% of our portfolio is multi-tenant, but 30% of our portfolio in offices is headquarters, headquarters leases. And of course, you know, they can mean a lot in case you lose the client. But most of that job has been already done. I mean, we renewed Pride Waterhouse. We renewed Tecnica Remedias. We renewed INRA. We renewed, in due time, Endesa. So we are in a relatively comfortable position, and we are pretty mindful of the fact that for some of those headquartered leases, there's a bilateral relationship with clients, So, you know, we highly value the bread and butter nature of their cash flow. So, you know, if at all possible, our first idea is always to renew unless, you know, we want to vacate the building for conversion into residential or things like that. We normally, our first intention, our first idea is always to renew. But we don't expect any exits this year in offices in our portfolio. for next year, we'll need to check the forward office reports, but that's not for this year. I have been checking everything recently on the occasion of our board yesterday, and there is nothing significant going out this year, neither in offices, nor in logistics, nor in shopping centers. I think the year as commented on the two year results should be a year of relative continuation of the performance of 2025, in which you will see a significant hike in top line that will not be matched by a significant hike in cash flow or into the financial expenses line. But other than that, it's okay. Then next year, you will see a much more significant jump in the top line that will be accompanied by some cash flow growth.

Thank you so much.

It's a pleasure.

Thank you very much. No more questions. We thank you all very much for being here with us in this 3M26 training update. You know where we are at your disposal if you have any additional questions. Thank you very much.