MERLIN Properties SOCIMI, S.A. (MRL.MC) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to MERLIN Properties Half Year Results Presentation. As usually, Ismael Clemente, our CEO; and Fran Rivas and Inés Arellano, both Directors of the Company, will walk you through the presentation that you are seeing on the screen, and it will be followed by a Q&A session. So without further delay, let's start. Ismael, the floor is yours.

Thank you, [ Fernando ]. Welcome to MERLIN Properties' first half financial results presentation. It's been a very solid quarter of performance for the company that follows also a very good first quarter. So the whole semester has been excellent from an operating standpoint. I mean, beyond the print in net results, which at the end is asset revaluation, which is paper money. The reality is that from a cash flow standpoint, we have improved margins and we have gone one extra inch in every asset class of the company. And we are starting to see a little bit merit behind the debt on the data centers. From an operating standpoint, the rental growth came at 3.4% like for like and the occupancy was also very high at 95.4%. You might argue that in the first quarter it was 96.7%, but I told you that from the 99% we were in logistics, you can only go down. So it was impossible to repeat the same print in logistics in offices. We have reached 94.2%, which is our all-time high. The rental growth is quite compelling at 3.9%. In fact as commented in previous calls, we are witnessing an acceleration of the rent negotiations with significant interest in take-up. Part of it is explained, of course, by a resilient economic performance of Spain that also part of it is the destruction of stock that I commented many times with you owing to the resi reconversion projects which are starting to be felt in the Madrid stock of offices, not so much in Barcelona because Barcelona is for residential is a disaster. And they have a disaster of regulation and it is impossible to convert an office building into resi in Barcelona. So it's more difficult to correct excesses of a stock. So the Madrid is working fine. In logistics, we went down in occupancy to 96.2%, but we still delivered good organic growth of 2.2% like-for-like. And we have continued pre-letting significantly our WIP. I mean, with a big transaction in the north of Spain, and one head of terms, very good one for the Generis Corridor here in Madrid. In shopping centers, very good like-for-like at 3.2% and what is more important we have reached an all-time low in occupancy cost ratio at 11.0% which is incredible, thanks mainly to a very strong sales evolution that keeps us absolutely amazed of 5.8% versus the same period in 2024. With all these, the FFO generation came at plus 12.8% compared to year-on-year with a very significant strong value creation as a consequence of asset appreciation, 3.2% gross asset value like-for-like growth, mainly is a data center thing, although it is important to remark that the deterioration seen in past quarters in the value of the traditional asset classes has not only stopped but also reversed a little bit. The appraisers seem to be flatishly that they seem to be compressing a little bit again the cap rate. You know my opinion about that. I would prefer to stay where we were because I believe there were healthy cap rates, but it seems that we are entering a small cap rate compression Phase 1n valuation. What is important is that with all these, the total shareholders return in the first half has amounted to 6.6% which, you know, it's clearly a good indication for the whole year, I believe is going to be a good, very interesting year from a shareholders return standpoint, this 2025. Our financial situation remains very healthy at 28.6% LTV under 9 net debt to EBITDA, 100% fixed rate with no debt maturity till November 2026, and we have EUR 1.6 billion of liquidity position. Standard & Poor's has reiterated the BBB+ with stable outlook, which is, of course, very, very good because, you know, towards the end of the year we will need to tap the market for debt and it's important to do it on a very good double rating by Standard & Poor's and Moody's. Regarding value creation initiatives, we have been very active in the sale of a number of assets that we now call noncore, but I mean it's -- we are talking now always about occupied buildings, mainly for resi reconversion. EUR 36.4 million (sic) [ EUR 37.4 million ] have been executed in that period, that we have also signed and in some cases received advance payments for another EUR 145.9 million, which basically means that we expect to comply with the 2025 budget in terms of disposals. As you know, part of the data center deployment program is financed with the capital increase that we carried out last year, but we also depend on a number of disposals that we have budgeted for 2025, '26, '27, '28 and '29 and we are very well on track to comply with those internal numbers. More importantly, it's been a very good period in terms of pre-let or leasings, so big leasings in data centers. Well, you all know that we finally placed a block of 15 megawatts in Barcelona with a big neocloud hyperscaler and then a block of another 18 megawatts in the Bilbao-Arasur data center. I won't do spoiler, so Fran Rivas will comment in a moment about the evolution of conversations with clients for the risking of Phase 2 and the rest of Phase 1. In offices, we signed 2 very large headquarter leases, one with an existing client, Tecnicas Reunidas, who significantly enlarged their position with us in the A1 corridor. And the other one with a very big energy company, Spanish Ibex-35 for a headquarter in the A2 corridor. In logistics, signed with Mercedes-Benz in Vitoria, 73,000 square meters and half signed also ahead of terms for a turnkey project in the Henares Corridor for another 55,000 square meters which is very, very interesting. In shopping centers, what is more notable is that the extension to the already big Marineda Shopping Center, it's going very well from a pre-commercialization standpoint. The opening is in principle penciled in for some around November or beginning of December and yet we are 92.9% pre-let which is a very remarkable achievement by our colleagues of retail and logistics. Regarding financial results, if we move into Page 6, where revenues have grown by 8.5% of which rent EUR 264.7 million by 6.7% compared to the same period last year. What is important is that we have improved EBITDA margin. So moving from EUR 188 million to EUR 205 million with an increase of 9% above the increase in top-line. So very good conversion. Most notable the FFO has increased from EUR 147.8 million to EUR 166.6 million which is an increase of 12.8% also very interesting exercise in terms of cost containment by the company and well -- as commented before the EPRA NTA has gone up very, very significantly, first, as a consequence of the capital increase carried out last year, which of course contributed a lot of cash to the company, but also as a consequence of the asset revaluation that we commented before. With all that, the dilution in FFO that was expectable following the capital increase that diluted naturally the FFO of shareholders by around 16.7% is now -- has been now moderated to only 6% and we will try to continue [ evolving ] between now and year-end. So in plain language, with only the traditional asset classes for the moment working in favor of offsetting the dilution, we are managing to significantly offset the capital increase carried out last year, I mean, which in theory or when in theory in practice was penciled in for the development of data centers. So without data centers yet contributing to the company on a meaningful basis, we are little by little closing the dilution caused by the capital increase, which is, I believe, a remarkable achievement. And in terms of NTA, the strong revaluation has meant that we have almost flattened the dilution caused by the capital increase and we are more or less where we were last year in the same period with minus 0.5%. On Page 7, where you have the like-for-like divided by offices, logistics and shopping centers and you see what is like-for-like growth and change of perimeter. On Page 8, you see the occupancies, 94.2% in offices, 96.2% in logistics, 96.5% in shopping centers. Later during the presentation I will give you what our estimated figures for year-end look like, which you know offices is going to be relatively flat, a little down from the 94.2%, logistics will go significantly up, I mean we know depending on a couple of contracts that we are negotiating and shopping centers will remain relatively stable because it's impossible to move it from there. And without further delay, I will let my colleague Ines Arellano explain the details of the different asset classes for your benefit.

Thank you, Ismael. So moving to offices in Slide 10, which they still represent 58% of our portfolio in terms of value. The momentum is quite positive, demonstrated by all-time high occupancy levels, both in Madrid and Lisbon. Barcelona is still suffering from a temporary oversupply situation, and it will take some time to be digested. The drop in occupancy, however, has mainly happened in June, and that's the reason why we still see a solid like-for-like rental growth of plus 3.4% despite the impact. On Slide 11, you may have noticed that we reached an agreement with a reputed and large tenant of ours, Tecnicas Reunidas that implies a mark-to-market on the existing space in first Q and that we've now signed an additional 21,000 square meters expansion with them in a turnkey projects to be developed in the same campus in Avenida. Excluding this impact, however, the overall lease spread would have been plus 5.1% overall and more importantly, plus 3.3% up versus the minus 3.7% in Madrid. We have contracted 165,000 square meters in the first half of the year, which is a wide enough example or sample I'd say to provide us with reliable information on what is happening in the market. And this is shown in Slide 12. As already flagged in February, Madrid office market is experiencing a very interesting trend. There is a clear need for residential amongst all our users, and there's no land available in Madrid City Center, which is driving the reconversion of certain office buildings at above current book value. Coupled with no new supply in offices, the overall office stock is shrinking, and this is benefiting the good quality assets, not just with occupancy gains, but also with sanctioning rents. In our portfolio, we have identified 13% of our Madrid stock suitable for reconversion, but please do not think that we're going to be selling off everything, it also means that there are certain users, like universities, that are compatible with the type of buildings that we have, and we can extract more value and cash flow. And a good example of it is within our portfolio, we have [ UNIE ], one of the most reputed universities in Madrid that trusted us with its 18,000 square meter campus in [ indiscernible ]. We move to logistics and what we can say is that the performance continues to be robust with a plus 2.2% like-for-like rental growth. And the overall drop in occupancy is only due, as Ismael commented, to be expected exit of the tenant in the 47,000 square meter warehouse in Cabanillas, Madrid area. And the asset, as you may imagine, this is ordinary course of business is under commercialization, and we have several visits. Hopefully, it will be occupied, if not by year-end, by the beginning of next. So the cutoff date of December should be either going up to 99% again or staying in the range of a 96% occupancy ratio. But we've also experienced a significant increase in occupancy in Barcelona, which obviously does not impact as much as Madrid does. Release spread plus 7.2% in the first 6 months with higher leasing volumes in the second Q, reaching 260,000 square meters contracted. Moving to Slide 16. This is a minority stake in ZAL Port, Barcelona, which also showed a plus 3.2% release spread with around 157,000 square meters contracted and a temporary decline in occupancy, which cannot be considered a trend, except that our Barcelona portfolio in logistics has shown more than 500 bps increase in occupancy. Shopping centers, as Ismael like to call it, our Cinderella became a princess long ago and is still showing its strength. All KPIs reported are positive, plus 3.2% like-for-like rental growth, 96.5% occupancy versus 96.1% last quarter. Sales evolution outstanding at 5.8%, footfall at plus 2.4%, record low OCR at 11% and release spread at 4.1% coming from 3% last quarter. And then let's go to valuations on Slide 21. All this good operating performance translates into valuation. GAV has increased by EUR 518 million, standing at EUR 12.1 billion as a result of a 3.2% valuation uplift, mainly driven by development gain in data centers, which have shown a 38.2% like-for-like growth. Valuations have resulted in a 5.2% passing gross yield, which implies a 4.3% net initial yield, slightly lower from the one shown in December because data centers are still not yet stabilized. The revaluation impact on P&L has totaled EUR 361 million, of which around 58%, EUR 208 million comes from data centers. Operating data centers have crystallized part of the expected value creation, and Fran will walk you through in a minute in Slide 36. And appraisers have decided to also value the assets that we started its construction after obtaining construction license, therefore, anticipating value recognition. Now it is very important to say that all the landbank remains at cost. So it's only be either operating or already into construction on a portfolio that has been given a value by the appraisers. Methodology is as follows: Appraisers assess values with a 10-year DCF, where they apply cap rates, you can see in our results that it ranges from 5.5% to 8% on the exit value and discount rate, 9% to 11%, which today still looks high for derisk assets. For the first time for a while, now we see an overall slight yield compression in average 7 bps, flat exit yields, so in all 3 traditional asset classes, obviously, being not meaningful in data centers as the assets are not yet stabilized and we'll see the ramp-up in the years to come. In Slide 23, we can show you the sound financial structure that we have. This is moving from the asset side of the balance sheet to the liability side of the balance sheet. We finished this semester with a gross debt of EUR 4.4 billion, down from EUR 4.9 billion in December after repaying the EUR 600 million bond in May. We have net debt of EUR 3.6 billion, implying a 28.6% LTV. Cash flow generation and value creation have almost offset dividend payment and CapEx efforts, and this is shown in this 28.6% LTV. As said by Ismael, net debt to EBITDA stands below 10x, 8.8x and the average cost is slightly higher than the one in December, 2.6 coming from 2.5. It obviously will increase slightly as we refinance our cheapest bonds, but all our debt is fixed with average maturity of 4.4 years. Liquidity also commented by Ismael are still high because we still have some of the proceeds obtained on capital increase. And S&P, we confirm our BBB+ rating with stable outlook, together with Moody's on the basis of sustained lower leverage and expanding cash flow. In Slide 24, very little else to add. 84% of our debt is corporate. So 75% of [ active ] bonds and 25% is unsecured bank loans and only 16% of our debt is mortgage space. Our next maturity to be faced in 2nd November 2026 -- and although we do have time to tackle it, we prefer to be prudent here as we've always been when it comes to debt and take advantage if and when we see a window of opportunity. So with no further delay, I'll pass the floor again to Ismael, who will comment on the value creation part of the business. Thank you.

Thank you, Ines. Well, regarding capital recycling, the investments in the first semester were very few. We acquired one coworking space that we operated, but didn't own around 2,000 square meters in Barrio Salamanca in Madrid. And we bought a landbank for 2 data centers, one in the North of Madrid, Tres Cantos, with 30 megawatts of IT capacity confirmed. And then a potential expansion of up to 130 in the future, which is requested but not obtained yet. And in the case of Madrid-Getafe, we bought a former industrial manufacturing facility in which we have 48 megawatts of existing, I mean, confirmed IT capacity given the electric power that we enjoy in the export. Regarding divestments, we are at EUR 183.2 million of, which EUR 37.4 million executed and EUR 145.8 million signed all above GAV. There are some adjustments still pending in some of the cases, and we execute later in the year and in 2026 as you can imagine. The reason why we operate this way is, because we want to keep cash flow as long as possible. I mean at present we are a company, which is excessively financed. I mean, we have a lot of -- or we have had a lot of cash. We are running out of cash very quickly, but we have had a lot of cash, and of course what we need to keep now is rent rather than cash. So when we sell assets we don't rush. We prefer to keep them in the balance sheets for longer and enjoy the cash flow. Those sales are mainly concentrated in offices in the resi reconversion play that we have commented with you on a number of occasions. And those assets sold contributed EUR 8.9 million -- or will contribute EUR 8.9 million gross rental income in 2025. Hence, the average disposition yield is 4.9% gross, which is interesting from a capital recycling perspective if reinvesting in data centers. Regarding the Marineda extension, the size of the shopping center has significantly increased by about 25%. I mean, total size at present is 126,500 square meters, which is a lot. It was already the third largest in Spain and now it's the second. But what is more important, despite the diversity and quality of the existing tenants, we have been able to find further tenants for the extension. We are almost 93% pre-let and with a CapEx of EUR 41 million, which in part was defensive because what we wanted to do is protect the shopping center upon the exit of El Corte Ingles in the area. We didn't want any undesirable neighbor to come near our shopping center, which is of course one of the big cash flow producers in our portfolio. So what was once a defensive movement, has turned into a decent offensive movement, because we are obtaining a yield on cost of 6.5%, which is not great, but is not bad. Regarding Adequa 4, this is a large pre-let, one of the largest signed in Spain since the great financial crisis. We have signed 10 years contract with more than EUR 70 million backlog added to our office division, and 21,000 square meters with delivery at the beginning of 2028. CapEx is close to EUR 53 million. The yield on cost is 6.2% on historic cost of land, including historic cost of land. So if you do just the yield on CapEx is 10.4%, which at the end explains why we are doing this, because in reality what we are doing is moving idle office land that we have in the A1 corridor in Madrid, which is now performing very, very well in terms of occupancy. We are moving, that let's say, landbank into WIP and that WIP into product in operation, hence bringing more cylinders to fire together in favor of the performance of the company. Together with this building, we will assess the convenience of building the remaining buildability in the complex, which is a little tower, it's a low-rise tower of around 100 meters with circa 25,000 square meters of total GLA in order to optimize first construction signages and also capitalize the momentum in the market, we believe that if we add that capacity in A1 corridor, we believe, I know it's a bold movement or may look like a bold movement, but we believe we will fill it up in due time because I know the corridor now with the proximity of Operacion Chamartin starting to perform very, very well. And it's our opinion that we will be able to make good use of our money by bringing the tower together with pre-let, fully pre-let building. In logistics, we are building, or we are building or adding project or will build in the short- to medium-term, 291,000 square meters. The last modules will be delivered in Lisbon in the first half of 2027, but the rest is mainly 2026 business. Total investment will be around EUR 156 million and the expected gross rental income is EUR 17.2 million. That will move our logistics -- our visible logistic income beyond the EUR 100 million mark, which is important, although as you know, there is invisible income in logistics that comes from the Sal Barcelona, which is accounted for as equity method. And you don't see the cash flow, but cash flow, of course, is there. The yield on cost is 7.5% and the yield on CapEx is 11.1%, so I believe it's an interesting move to put that also into production. We need cash flow in order to continue feeding our little base of the data centers. And with that, the noncommitted pipeline will be only 190,000 square meters mainly in Madrid, Valencia and a little bit in Sevilla with a pending CapEx of EUR 101 million and stabilized GRI of EUR 11.5 million. So a yield on cost in the region of 8% and a yield on CapEx in the region of 11.4%. So looking forward to mobilize also this pocket of value in the coming future so that we do not keeping our balance sheet any assets, which are noncash flowing other than the land of Operacion Chamartin, which of course will take more time to become productive. And Fran will comment on the digital infrastructure plan.

Many thanks, Ismael, and good afternoon to everyone. I'm glad to cover now the update on our project MEGA and the main achievements completed over the first half of 2025. So as you can see in Page 32 and 33, we have summarized the current positions of our data center division that we internally call the MERLIN Edged within the Iberian Peninsula. Precisely in Page 33, you can find a table with an overview of different phases. Phase 1, which comprises our 3 assets in operation; Phase 2, which includes our working progress, our WIP; Phase 3 or the upsizing of the former 3 locations; and finally, the pipeline which represents the future growth of our data center division. Starting with Phase 1 and as a snapshot. After we complete letting of all Barcelona including the 6 megawatt of repowering in Arasur, depending capacity of Madrid and the fact that the advanced conversations we are holding with one specific client has given us to update the stabilized GRI from the former EUR 88 million to the current expected EUR 92 million, which also improve as well the gross yield steel on cost up to 15.1%. In our WIP category, Phase 2, the total IT capacity has grown from the former 210 megawatts to the current 246 after the inclusion of a second building in Lisbon. Consequently, the stabilized GRI that we are estimating in 2029 achieves EUR 379 million with a gross yield on cost of 14.2%. The reason of including now a second building in Lisbon and as compared to former calls we have had is due to 2 reasons. The first one is the fact that the U.S. government has finally decided to do not implement their Artificial Intelligence Diffusion Rule, which classified at the time Portugal as among other countries as Tier 2. And that rule basically was impeding the Portugal to import the latest technology in terms of chips. Secondly, the fact that in light of the performance and also the revaluation seen in Phase 1, we have considered that we can stretch a little bit more the funds raised last year in our capital increase and the debt attached to it. Of course, without affecting our target LTV and the net debt to EBITDA that we have agreed with our rating agencies. In the upsizing category, we have included now a new repowering of building 1 in Bilbao-Arasur, power that has been already been requested and we will be answered in the following months. Same applies to building 6 in Arasur within our pipeline category with 30 meg potential additional capacity. Entering now in more detail in Page 34, we can see the current status of our operating assets. In Barcelona, within the 22 meg of maximum IT capacity, we have already equipped, as you know, 16 meg which are currently in operation and additional 6 meg of the repowering will be commissioned during the first months of 2026 with ready for service set for first half of 2026. As a curiosity, this additional 6 meg of repowering will be with liquid cooling systems while the first 15 meg are air cooled equipment. In Bilbao-Arasur, what we call building 3, which was the first one we have built, the 22 meg already equipped. 10 of those, 10 meg will be air-cooled and 20 -- sorry, 10 meg will be liquid-cooled and the 12 originally is air-cooled. We are now working on the fit-out of the client, which from now in June, we have already given the first rooms and there are different branches until they are in fully operation by the end of Q4 2025. Finally, in Getafe 1, as of 6 months, as of 30th of June 2025, as we described here in the slide, we have 4 meg equipped. Right now, this figure has jumped to 6 meg, is what we have equipped right now, with the remaining 14 meg to be commissioned by the end of this year. In terms of commercialization of Madrid-Getafe I, we are in well-advanced conversation, as I was commenting before with one client. This is what we define booking, considering the level of both technical and commercial involvement that we have already achieved with this client. For the available capacity that we have of this original 6 meg, which in this case is 5 meg of lease, and regarding the second phase of power, the initial 14 that we will get next year, we have also booked for them another 5, and you know that will increase basically that letting with the client up to 10 meg in Madrid-Getafe I. And then finally, also we give them basically the option that if when or when the repowering of 6 meg that we are foreseeing in this asset, once we get it, they have also booked that capacity as future growth in the next years. As you know, we have been holding this capacity in Madrid-Getafe I, until we have some visibility on the power delivery but now we are seeing a bit more clarity on the timing to get the power in the recent week. So we have included this in the negotiations of current availability. Now moving to Page 35, we are showing you on a year-by-year the expected GRI generation of our operating assets until 2027, whereas mentioned before, we forecast EUR 92 million of GRI. Out of this EUR 92 million, EUR 66 million have been already contracted so far. And with Madrid-Getafe, once it's fully let, we will jump to this magnitude. In terms of value creation of Phase 1, which is in Page 36, the total investment remains at EUR 608 million, valued as of June at EUR 719 million implying basically for the capital already invested another EUR 255 million of value capture as of June and considering the expected value of the assets after our appraisals, there will be another EUR 293 million of estimated value to be captured, which if you add also the rent that is being generated all over the period, this will convert this Phase 1 investment in a very profitable project for our shareholders. Moving into the update of our WIP, Phase 2 in Page 37, both the Bilbao-Arasur building 2 and Lisbon data center campus, buildings 1 and 2 are already under developing. In the case of Lisbon, we will see this again at an early stage. In the case of Bilbao-Arasur, we will -- see in the following slide the progress in construction, which is evident because the building is already almost raised. All equipment regarding this building has been already ordered, to guarantee that each delivery date by Q4, 2026. And regarding building 1, which is the third building that we are constructing in Bilbao-Arasur, which is the largest one once the pre-powering is obtained, we expect it to start construction by the end of the year and also equipment orders are well on progress to guarantee as well the delivery date by the end of 2027. The particularity of this building is its connection to an on-site photovoltaic type project that we will feed renewable energy into the site, which also include even more the sustainability character of this development. In terms of commercialization we have 2 initiatives launch, one with a client interested in taking most or with different ramp-ups even all of this capacity of building 2 and another one, another initiative that I will give you more details at the end of this section, which could comprise both building 2 and 1. In Lisbon, although its construction started last September, right after the capital increase, the conditions of the Lisbon area of light us as commented several times in several calls, to carry out soil compaction and special piloting works, as we will see later on the presentation. News in this project is now inclusion of building 2 in the same first phase of construction for the 2 Lisbon sites commented before, also taking advantage of the power availability we have on site, which covers the first 180 meg of IT in one of the feeds. And then we have also secured the second step to reach, maximum capacity of the first phase without the upsizing. In addition to this power availability we have also signed an agreement with [ EDP ], to provide in the same case like Arasur another on-site photovoltaic plant of 200 meg, which will be physically connected to the data center campus and also will generate a significant part of the energy consumption of this building. In terms of commercialization, it's still a bit too early to enter conversation with future customers, as the target completion date is the end of Q4 2027. But we have included this capacity as well in the European initiative that we will cover at the end of this section. Regarding Madrid-Getafe II, we are awaiting to have green light from the administration to start the demolition works on the site. Those works will be carried out by the seller of the land, and we are finishing our design project to submit it to the municipality in the following months. Finally, on Madrid Tres Cantos, the licensing process is advancing and urbanization of the land should start within the first half of 2026. Regarding the CapEx of this WIP on page, I'm just jumping to Page 38. We are showing you the updated figure of the total CapEx expected for this Phase 2, which has increased from our former EUR 2.1 billion to the current EUR 2.5 billion, due to the incorporation of building 2 in this new campus. We highlight here that the CapEx in our data center, as we have several times commented, is around 20% to 25% on civil construction, where payments usually are more linearized, while the remaining 75% is equivalent, where payments are more back-ended. That's the reason why we always present CapEx commitments, because when the timing of payments is a little bit different from what we show here. The pace, as you can see basically, is that we expect to commit EUR 836 million in 2025, out of which 49%, EUR 411 million, has been already signed, committed as of 30th of June, 2026. In Page 39, you can see some pictures of the construction works in Bilbao-Arasur, building 2, and also basically on the top right photo, you can see in the background the building we have in operation, which is our building 3. In Page 40, we are showing different photos, where you can see the soil compaction and piling process at different stages. And the final one is on the right, on the bottom one on the right side of the slide. And as I said, basically construction above ground will start right after the summer break. Regarding Phase 3 or upsizing projects in Page 41, the news there are the update of the remaining capacity in Lisbon campus, as they're -- including building 2 in the first phase of construction. And in Bilbao-Arasur, we have included the potential repowering of 12 meg IT in building 1 that I was commenting before, and also in Getafe we have maintained the 6 meg of repowering and upsizing until we confirm timings of this power upgrade. And then going back to one of these initiatives in terms of commercialization for Bilbao-Arasur and Lisbon campus, is the possibility of being selected as one of the giga-factories that the European Union have launched in April 2025. As you can see in Page 42, the European Union aims to become an AI continent with large-scale AI data and compute infrastructure across Europe, by setting up at least 13 AI factories. There are some existing ones like the supercomputing center in Barcelona, but also establishing 5 AI giga-factories to which the European Union want to devote EUR 20 billion through different loans and grants. With this objective in April 2025, the EU published its call for expression of interest of AI giga-factories and MERLIN Edged submitted to this EU a consortium capable of delivering what we believe is a unique AI gigafactory and the reasons why we believe this is unique is for different reasons. Now the first one is that we have not only permitted land with power access, but that land is currently under construction and it fits with [ EU ] objectives of having capacity ready for service in years '26 and '27 and to achieve these timings unless you have already started is almost impossible that you can meet those deadlines. And as you have seen before both of our Arasur -- Bilbao-Arasur and Lisbon campuses meet these deadlines and will provide 180 meg of IT capacity. Also they are looking for projects with capacity of expansion within the same sites and again both Bilbao-Arasur and Lisbon offers additional 358 meg of fighting capacity to go there. And finally, they are seeking for technical capacity of buildings to support the levels of densities, make sure as KW per rack that the artificial intelligence type of computing is requiring. And this need to, of course, maintain sustainable parameters. In our case, as you know, we don't use water consumption and we have a very low PV, which basically matches to what they are looking for. After this expression of interest, the different consortia across Europe, because I said this is a European competition, will need to submit binding proposals by October, and the European Commission expects to decide the final locations of their gigafactories by the end of December 2025. As said before, this is an initiative from a commercialization point of view, and of course we're competing with other countries and with other projects. But after seeing that the timing that the EU is looking for and we're ready for service capacity and the resources I mentioned before we decide to apply to it. Unfortunately, I'm not allowed to provide you with much more details of the natural order structure or members of the consortium, first because due to confidentiality reasons, but also because we are in a competitive process. And so of course, if there is news regarding this potential initiative, we will keep you posted. And yes, that's all from my side. Ismael closing remarks.

Thank you, Fran. Well, just closing our part of the conversation today, I mean, opening the Q&A simply to stress what I commented at the beginning. We are seeing strong organic rental growth at the company. We are seeing a strong momentum in offices in Madrid, a little bit of weakness in Barcelona, and good performance continued in Lisbon. We are generating significant FFO in the company. I mean, the company continues to be a highly cash flowing one with very healthy margins, which is always a nice thing to see from a managerial perspective that we don't lose attention and we don't become gigantic and sporadic like happens in many -- all the companies. We continue stressing our teams to work towards high occupancy levels and also well, we are enjoying a certain tailwind because Southern European economies seem to be having a good momentum and Spain is clearly not an exception. Regarding value creation, what is, to me, particularly satisfactory is that we are generating a lot of alpha basically by moving projects into WIP and WIP into assets in operation, and we are meeting that with a very significant success in commercialization. In data centers, well, you know what we have been doing with CoreWeave. In offices, we led 2 big headquarter leases to Tecnicas Reunidas and another big energy, Spanish energy company. In logistics, we delivered 33,000 square meters just 2 weeks ago to Wharton and Naotum in Lisbon Park B. And we let almost 73,000 square meters to Mercedes Benz in Vitori Jundiz. And what is important, the long-term noncommitted CapEx GLA is only 190,000 square meters. So we keep reducing the landbank that we acquired in '16, '17, '18 at very good prices. We keep reducing that landbank and adding cash flowing assets to our inventory. And in shopping centers, I believe the Marineda extension is a remarkable achievement. I mean the leasing teams have done a fantastic job and by pre-letting in record time, close to 93% of the very significant GLA addition, which is close to 27,000 square meters is a lot. So as a very quick outlook, we see an improving investment market. We see also an improving underlying market in leases, particularly in offices. In shopping centers, a little bit business as usual for the moment. The evolution of private consumption in Spain keeps us absolutely amazed. I believe it's a mix of very low household indebtedness, a little bit of doping from fiscal deficit. But clearly, spending capacity of people continues to surprise us. As a consequence well, we have decided to raise a little bit the FFO guidance for 2025 to EUR 0.56. Many of you will take the EUR 0.30 of the first semester and multiply by 2. Please don't do that because we will have less 700 and change million working in cash at banks for 7, 8 months of the year because we repaid the bond on the 26th of May. So that will subtract about EUR 0.02 of that theoretical calculation of EUR 0.60. And then we are also counting on tapping the bond market between end of August and October. I mean, we will, of course, be quick and benefit from the very good momentum we are seeing in pricing in the market and in volumes and also in maturities. And that additional cash will, of course, drag FFO because the remuneration we will obtain in cash at banks will be 1.5 points lower than the cost of that money to us. So that will subtract another EUR 0.02 easily of cash flow to the theoretical calculation of EUR 0.60. So I mean EUR 0.56 is okay. I know some of you are now expecting EUR 0.57. Please, bear with us. I mean I don't believe it's super important that sense that we will, of course, do whatever is in our hands to excel the guidance that we are giving to you, but it's pretty much accurate at this point is what we see. And regarding translation into dividend, well, as you know, we were a little bit below the 80% payout ratio. So going back to 80%, that increase of EUR 0.02 in cash flow per share allows us to recommend to the Board another EUR 0.02 of extra dividend per share. So we will propose to the Board raising the dividend from EUR 0.40. That was our initial estimate at the beginning of the year to EUR 0.42. And that is basically it. So we can move into Q&A. We are here to answer your questions.

[Operator Instructions] So the first question comes from the line of Marios Pastou.

I've got 3 questions from my side. Preference to ask them one by one or all in one go.

If you make one by one, as you wish, I mean, we are simply -- I mean, we will take note.

Okay. But they're all related to data centers. So I think maybe we'll do them in one go. But maybe we start with Slide 35, where you've now provided the GRI buildup of Phase 1. Can I just check how you're including Madrid-Getafe in there and how this has been included in the buildup of, say, 2026 and into 2027 based on the discussions you're having? And then secondly, on the data center values, I think you've mentioned that you're now revaluing both operational assets and those under construction. So can I just check, has there been upside taken across Phase 2? And if not, when will this likely start? And then finally, on the timing of the value creation of Phase 1 that you provide in Slide 36, how should we think about it in terms of the remaining EUR 293 million to be captured split, say, between the second half of this year and into 2026?

Okay. Well, regarding the timing of value creation, in principle, we should be running at full cash flow around 2027, end of '27, if you multiply December by 12, probably we will already be at, let's say, cruise speed. So starting from that point, I believe the appraisers will start, let's say, normalizing the appraisals of those data centers in Phase 1. And I believe they will start lowering significantly the discount rates because at present between 9% and 11% looks to me a little high. I mean, if you can buy data centers in the market at between 9% and 11%, give them all to me. Because we wouldn't take the risk of building if we were able to buy data centers in the open market at those rates. I mean, I believe that if you calculate the gross rental income, which is EUR 92 million and you multiply by NOI margin of, say, 70%, 70 change percent you will be at an NOI of between 60% and 65%. And it looks very clear to me that, that warrants a valuation in the region of EUR 1.2 billion to EUR 1.25 billion, even EUR 1.3 billion given the hype in the market and the fixed escalations, which, of course, play a role, particularly on very, very long contracts like the ones we are signing. So I believe, let's say, starting end of '27, being prudent, starting end of '27, probably in the valuation of end '27 or in '28, we will probably be able to reap the benefits of most of those EUR 300 million that we believe are still pending to be recognized in Phase 1. Then regarding the value of Phase 2, at present, the only thing that has been recognized is a little bit of value in Bilbao 2 because it's already with construction license and being built. And the 2 buildings -- first building because we have not yet taken the decision to start the second building. The first building in Lisbon. So this is the only thing that has been appraised and has captured a very little value because the discount rates, which are applied by the appraisers are very high and also the cash flow projections are also very high. So the PV, as you can imagine, suffers as a consequence of that and very little value is recognized. But we have a doctrinal discussion with the auditor. And their stance is that it's good to be prudent. But if you are too prudent, sometimes you are not transmitting to the market the fair image of value of your company. So we came at kind of a middle ground, which is, okay, we are not going to reappraise our landbank as such, even though we might have obtained power, we will only start appraising when we start building. So upon obtention of the license of construction, when we start building, when we start erecting columns, we start appraising or reappraising that building, which up to then is carried out in our books at cost, including land cost plus whatever CapEx we have incurred as a consequence of land compaction or foundations or similar. Okay. And then regarding the data center in Madrid-Getafe?

Yes. As commented, basically, we are in discussion with a client for taking in different steps capacity within the building. Right now, what we have available is 5 meg of capacity. As we commented several times, the clients when they were coming, they want to see growth. So 5 meg used to be a very decent amount. Now normally, type of clients want to have capacity to expand within the same asset. So we were waiting and holding a little bit those conversations until we have more clarity on the additional jump in power up to the maximum capacity of the 20 IT that we designed originally. So out of that additional capacity that we expect to receive in the first half of 2026, if you add several months of the fit-out for the client until this is ready for service. So probably we will be by the end of '26, beginning of '27 ready for service for the client. So that's exactly what we were mentioning, so, like 5 meg would be like '26, 5 meg will be beginning of '27. And then they are also reserving the option to take the capacity in case of repowering that, of course, at the time that comes, we need to equip that, that we are not equipping in advance. So once it comes, there will be other option as well to complete that. So that's basically the current status of Madrid-Getafe 1.

The client is a cloud operator, which is bringing not only pure IT capacity, but also telecommunications or interconnection equipment. So that is, of course, important because that normally drives further expansion of capacities in the future. So it's very, very important to make the initial movement. And then normally, you are blessed with additional extensions of capacity. So this is what we are negotiating at present.

Next question comes from the line of Florent Laroche.

I would have 2 questions. Maybe the first one, a follow-up question on data centers and maybe the Slide 35. So you have provided an expectation in terms of revenue for the next 3 years. So in which way this is very accurate or in which way maybe you could be able to improve the expected revenues in the coming months. So that would be my first question. And my second question would be on logistics. So we can see that your occupancy rate can be very high, sometimes at 99% and come back lower at 96% today. So have you any major lease that would come to end shortly and for which you could expect departure of tenants?

Okay. Well, regarding the question about logistics, the reason why we went down from 99% to 96% was due to the departure of a big client, GXO, former XPO in Cabanillas at 47,000 square meters, which is, of course, it is a big shed. It's a very significant shed. So of course, now what we are doing is, first, waiting for the effective exit of the client, which will still take some time to clear up completely the shed. Then we will take possession. Then, of course, we will repair in case there are little damages or things that need to be looked after, and then we will start the commercialization. So for the moment, it's business as usual. I mean some big leases that can depart in the coming months, we have 1 or 2 negotiations identified, but it's part of our, let's say, portfolio -- the usual portfolio management. I mean we don't see anything which is noteworthy that requires calling your attention. If we can replace the GXO departure before year-end, which is not super likely that we are working on it, but it's not easy. Then the occupancy, as commented by Ines will go to the region of 98%. But if we cannot replace, the occupancy will stay flat at around 96% as of year-end. But probably next year, we will replace the tenant and life goes on. And on improvement cash flow of Phase 1.

Of Phase 1? I mean, considering that we have building of Barcelona repowering already let and we have Arasur already let. The only capacity we have in order to improve that is Madrid. The only thing basically that if you want to have some hope basically of improvement is the fact that part of this capacity in Madrid will come as well not only air cooled, but also liquid cooled. And normally when liquid cool is entering into normally -- we normally charge a little bit of a high rent. But I mean, it would be pretty accurate. I mean there's no little range of movement to improve that. And then as I said, either because of liquid cool or the part that we are not discussing this capacity we are not discussing with this client, which would be basically 9 meg of this jump of additional until the 20, on that line, of course, we are more or less forecasting that we will obtain similar rents to the one we are obtaining in the building. If somebody comes, of course, at last minute, then we have probably some sort of negotiation capacity, but we'll be pretty in line with the numbers we have shown you.

Next question comes from the line of Adam Shapton.

Just one from me, just thinking about development pipeline and funding. So you obviously raised equity a good way below where the share price is today. How are you thinking about funding the remaining data center CapEx over time in terms of the mix between equity and debt, let's say? And also just wondering if you've taken any lessons from what Equinix has experienced with the public market in its own funding of its pipeline.

Okay. Well, look, for the moment, our preoccupation is basically concentrated in debt. Because we need to raise a significant amount of debt over the coming 24 months to continue funding our CapEx effort. And we have, in principle, no need for equity. I mean being completely frank and open, I believe we are -- we'll have our tank full until at least second semester end of '27. So we shouldn't be needing equity until then. There are -- the recent things that we have seen with Equinix, there is very little similarity between Equinix, which is a very big company and a very serious company. And us, we are an absolute beginners. A little nuance, a little difference is also the business in which they are, which is they are more colocation. We are more hyperscale and that being hyperscale allows us to reduce a little bit the lag between spending the CapEx and obtaining some returns and an impact on our earnings. More notably, we are now working from a research and development standpoint in a new technology that could come to market at the end of '27, beginning of '28 that will allow us to be even more modular in the way we construct our data centers in order to fine-tune even better the time lag between spending and obtaining returns because with traditional construction, of course, we build, we equip and there is always relatively reduced or more significant, I mean, compared to the new construction technique time lag between spending and obtaining the returns. We with the help of endeavor, we are working on a new way to construct that will allow us to obtain a little cost efficiency, which is very much welcome, plus particularly more accuracy in the way we spend. What can I say? I mean, of course, in retrospective terms, I feel sorry for having raised money at [ 10 ], that what could I do? I mean, at the time, that was my only option was basically raise money in a market exercise at the prevailing -- at the then prevailing market price because some of -- we had CapEx commitments that were about to be ordered. And our main 2 shareholders were not very much in favor of incorporating a big shareholder or a new big shareholder into the company in one shot. They prefer to do a market exercise. So we raised the equity at the price we could. Through performance -- underlying performance of the company, now we have closed a little bit further the gap between our stock price and our NTA per share. As you can imagine, I feel only half happy that our NTA is running so fast because although, of course, I love the value recognition that this implies and the fact that we are working in your favor as shareholders that, that increases again a little bit our -- the gap between stock price and NTA per share. So our endeavor now, our obsession is to try to continue closing the gap between stock price and NTA per share because that opens -- that would open a brand-new world in terms of options to finance our continued CapEx like, for example, convertibles. Convertibles these days are couponing very, very low and are paying very significant premiums upon conversion that paradoxically enough, the premium and the coupon do not vary a lot between being trading at minus 30% to NTA and being trading at minus 10% or at NTA spot. So of course, the closer we can come to NTA, the more options we will have in terms of raising additional equity if and when the situation comes. One important piece of information is that we have been now advised by our 2 main shareholders that they will support capital raising or further capital raising exercise in their pro rata share. So that is always very, very important because that gives you a very significant support when you go to market. When you go to open market, if you have 33%, 34% of your placement already secured that gives, of course, a lot of confidence to the market. And if you look in retrospective to the capital raising exercise we did last year, at the end of the day, we placed 84.5% of the capital increase with existing shareholders. So that, of course, allay the fears a lot of dilution, more dilution, less dilution because at the end, the same -- the people who is buying your stock are the same that are already your shareholders. I mean the new shareholders that you bring into the book are very, very minimal, and in fact, in many cases, people that were already shareholders a number of months ago, et cetera. So this is what I can tell you. I mean, of course, I know what has happened with Equinix. I take note of it. Anyway, I wish I was Equinix. I mean, Equinix is a monster company. We are no fucking body in the world, and we are just starting. And despite the -- what has happened, I would exchange my position for their position any day of the year because they are an incredible company that can fund as much CapEx as they want.

Next question comes from the line of [ Veronique Meertens ].

Maybe first one question on Phase 2. You mentioned that you upped Portugal on the back of probably leaving less funds due to the higher valuation gain. What's holding you back on not fully restoring the full megawatts? Is that purely funding? And a follow-up question on that is that what kind of development gains do you now still take into account for Phase 2?

That's a very interesting question. And the very simple explanation, Veronique, is that we didn't dare. We didn't dare. I mean we have construction license for the 5 buildings, and we could develop the 180 megawatts in one go. But we only raised 36 megawatts because otherwise, we will be stretching too much our financial capacity. So if we were rich, if we were Equinix, we could do the 180 megawatts in Lisbon in one go, which, of course, would bring to the surface very significant value because that land was acquired many, many years ago. All the value was attributed to the logistic land plots. So the residual value for that land in our books is very close to 0. So if we were to reappraise all that land now with power, of course, we would obtain a very interesting value appreciation in that project. But we want to be prudent. I mean, we are new kids in the block. We have to be very, very prudent in what we do. This is why we decided to do all Phase 1 with our own self-funding capacities. We only dare to raise money in the market when we saw that we were meeting commercial success in the market, sufficient commercial success to predict a successful commercialization of Phase 2. But we have always tried to reduce the number of construction sites. I mean it will be very cool on our side to tell you that we are opening 20 data centers in Spain in every possible province or region and another 20 across Europe, that will be very cool, but not very realistic because then you need to send construction managers, procurement managers, a lot of staffing to all those data centers is not easy. So we have decided to be relatively concentrated in very few construction sites. And we want to keep that relatively prudent stance. If by any chance, imagine we are awarded the European Union gigafactory status, then it's a different thing because with the advancements and the grants awarded by the European Union, we can realistically think about building the whole ship because that extra money, of course, is a very welcome help to our financial stance. But this is what I can tell you. We did it out of prudency.

Maybe one question. Did I understand correctly that you get clarity on that EU part before the end of the year?

In principle, yes, although with the public clerks, you never know. I mean, in principle, by the end of October, we should firm up the proposal from the consortia. And then the decision should be taken towards year-end. End of December, in principle is the date in which the European Union has decided to meet and take the decisions regarding the location of the 5 gigafactories.

And then one question on logistics. You're also working obviously on your pipeline. There's still some pre-letting to do. Can you elaborate a bit on how your discussions in terms of pre-lets are going and how the appetite is in the market for these logistics assets at the moment?

Well, the part which is what keeps us more occupied at present is Valencia. In Valencia, conversations are going well. I mean it's a city and it's a region which is now experiencing very significant strength and industrial activity. So we are happy with what we see there. Then in San Fernando III and Azuqueca, we are significantly pre-let and its mainly Lisbon Park fully pre-let. Sevilla ZAL is 8,000 speculative that there is only 2 little modules. I mean, we believe that we will be okay. And then at the end is Cabanillas Park II, which is, we are entertaining conversations for a 25,000 square meter shed in there out of the 58,000. So, for the moment, business as usual. I mean, I know the reason for your question because elsewhere in Europe, logistics is starting to cool off a little bit. For the moment, we don't see that in the market. And if that happens, of course, we will be happy to report that this is why we are pretty much concentrated in killing of our landbank before the tide turns. So this is what keeps us busy at present.

Next and last question comes from the line of Stephanie Dossmann.

Actually, I have a couple of them. Maybe the first one is a follow-up on the valuation of data centers. It's a bit tricky to understand how it's -- how the appraisers approach it. So just to clarify, could you maybe give a bit of breakdown of how much is the value taking into account in the -- so on the GAV currently related to the land and construction and how much is equipment? As I understand that you start to revalue the land when you start the work and so on. But could you give a bit more of what pace they recognize the value of a typical development and -- and what is included currently in the 780 -- sorry EUR 720 million? And the second one would be, you mentioned disposal program all over the plan. So how much would you target to sell in total and maybe next year, for instance, please?

So I'll take the valuation one. Again, just to remind you how methodology operators use for data centers, it's a 10-year DCF. So basically, what they take into account is the cash flow, the estimated cash flow before now for Phase 1 is the contract, okay? So that has moved, obviously, those cash flows to a sooner time, which derives in a higher valuation. So they take this 10-year DCF. They use to calculate an exit value, they use a cap rate. Again, the ranges that we provided you with are also in the accounts. It's still a range. They don't value yet Madrid the same as they are valuing Barcelona or Bilbao. Remember, we are in a ramp-up mode in Phase 1. And so for that exit value, they discount all those cash flows with a discount rate again, they use a range. And as Ismael was mentioning, for the operating ones, so the 3 data centers that we already have in operations, one providing rents from January 1, which is Barcelona. The one in Bilbao that will be providing rents at the 4Q of this year and then Madrid, which is the latter. The values are different. They're using different discount rates, but that's exactly what they're doing. So for the operating data centers, still value to be captured, as Fran mentioned before. Obviously, as the commercialization stage in Madrid comes, they will be using different discount rates, we hope because obviously, once you've derisked completely an operating asset, it makes no sense to be using discount rates that are not market prevailing rents, let's put it that way. So that's for the operating side. And then for the work in progress side, which, again, before it was not valued, we've always maintained a very, very prudent approach to valuing work in progress. So for anything that is already under construction, and obviously, your -- something is in under construction because it has a license. Otherwise, you cannot start building. So whenever anything is already under construction, then the appraisers come and do give a value for that particular site. Now they don't do a valuation as if this was already fully done and then they did fund the CapEx, so on and so forth. They just say in this land that before was at cost, it has a higher value because it has power, it has license and you're already starting with all of this. So they do provide you with a value. Now is it a big value that they provide you with? No. It has a longer lease -- longer time period. In the DCF, the cash flows are much -- they're delayed within the cash flow statement, if you wish, like the line. And so, again, Fran mentioned about this, the exit value is one thing, but even the cash flow that you will be receiving once you finished with this development is not expected for the near-term. And so all that cash flow put it in the future, discounted at a higher discount rate, much higher discount rate to today brings you obviously higher value than what you have in books, but still negligible, I would say, compared to what you are generating in an operating asset, okay? So this is a bifurcation of valuation, and that's why we are providing you, and this is in the executive summary, the valuation table, you have the value for the operating one, EUR 719 million, and then you have the value for what we call data center with a land, again, land at cost with an appraised value.

Regarding disposals, Stephanie, in 2025, we had an internal objective of reaching around EUR 110 million to EUR 120 million more or less, and it will be done. And then for 2026, our objective was a little higher, I mean, EUR 120 million plus, and we believe we are also going to be there comfortably. I mean, because of the -- what we have already signed and what now is in PV or in advanced negotiations, I believe we will be there. I don't have yet a lot of visibility on 2027. But I mean you can rest assured, I mean, we are no longer selling low-value kind of things or empty buildings. We are now selling things which are a good one. And we will make sure that we obtain the funding needed in order to comply with our capital increase plus internal capital recycling objectives towards funding the data center expansion and delaying as much as possible capital raising exercises.

There is an additional question coming from the line of Eleanor Frew.

A quick one from me. Thinking about next year's FFO per share, you previously said you thought that 2026 will be positive compared to '25, but relatively flattish. Is that still true? Or is the strong performance so far this year giving you more confidence next year will bring good growth too?

I think that guidance we provided in February, right?

The guidance for this year and next.

So the guidance for this year has been revised [indiscernible] for next year, we --

A little bit, but it, I mean --

We will provide guidance in February.

We will provide guidance in due course next year. But Eleanor for -- in all frankness, next year is going to be relatively flattish. I mean, we will do whatever we can in order to improve it, but it's going to be relatively flattish because the reality is that we don't start seeing a jump in the income from data centers Phase 1 until 2027 because in 2027, we will have 2 tailwinds that will be absolutely differential, which is full year of the new logistics development, which is another -- will add another EUR 17 million, EUR 18 million to the cash flow of the company. And then full cash flow from data centers that will jump from 60 million to 90 million, so another EUR 30 million and no significant increases in cost. So that will be the beginning of the good thing because some of Phase 2 will also be kicking in. Particularly if we are lucky with the commercialization of Bilbao 2, we could also kick in a little bit of cash flow in '27. And then, of course, the party starts in '28, '29 when we start reaping the benefits of Phase 2, which is the really game changer, the real game changer for the company. The volume that Phase 2 will bring of additional rent to the company that will, of course, make a big difference in terms of cash flow per share and DPS.

Thank you, everyone. So the IR team will remain at your disposal for any further clarifications that you may need. And in the meantime, enjoy the summertime. Thank you.