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

Good afternoon, ladies and gentlemen. Welcome, and thank you for joining MERLIN's First Half 2024 Results Presentation. Our CEO, Ismael Clemente; and CFO, Miguel Ollero will be going through the slides that you can see on the screen, which are also available in our website. We ask you please to abide by the disclaimer contained in it. [Operator Instructions] With no further delay, I pass the floor to Ismael. Thank you.

Thank you, Ines. Good afternoon, everyone. Welcome to MERLIN's First Half 2024 Results Presentation. The company has had a very good start of the year with strong operating performance overall translated in a very solid like-for-like rental growth, positively spread in all asset divisions and sustained high occupancy levels. In offices, we have enjoyed positive spreads, decent like-for-like growth and while we indicated to the market that we expect the year to be flat slightly negative as compared to last year, that meant basically going from 92.5% to something between 92% and 92.5%. Our current stance is that we will end up the year flat, but with positive tilt. So it's going to be between 92.5% and 93%, probably closer to 93%. We are experiencing -- or we continue experiencing good dynamics in logistics with a 4.1% like-for-like and a positive lease spread, the relatively low for recent standards, occupancy of 97.6% is a consequence of a cut-off date effect, a number of modules on existing parks have been left vacant during the last quarter that have subsequently been relet. So towards end of the year, we should go back to virtually full occupancy. Regarding shopping centers, they continue outperforming with a 6.4% release spread and a 96% occupancy and what is better, the occupancy cost ratio stands at a very record low 11.5%. In terms of financial performance, we have achieved $0.31 of FFO per share, flat, slightly positive versus last year, which is very important because the company is little by little normalizing after the effects of the sale of the BBVA branches and the -- it's also little by little digesting the increased overhead created by our data center activity. In terms of valuations, we were positively surprised by a significant uplift in data centers, plus 13%, that has more than compensated the value erosion, slight value erosion in the other 3 asset categories. The yields continue normalizing. Overall company yield now stands at 5.2% passing and offices, which is the one that probably concentrates all the concerns in the market at present, is now at 4.8%. I guess it will continue tilting towards 5-and-something-percent during the year or maybe next year. The financial position of the company remains very, very strong, 35.6% loan-to-value with fixed interest rates. We have no debt maturities -- well, we have 1 debt maturity in May 2025, which is already covered. So we have no uncovered debt maturities till November 2026 and are at present, holding on EUR 1.6 billion of liquidity, of which EUR 725 million is cash in advance of the May '25 bond maturity the rest is undrawn credit lines. As you all know, S&P upgraded the company to BBB+ with a stable perspective, thanks to our lower leverage and the perspective of improved cash flow generation through the data center activity over the coming years. Regarding value creation, we have slightly increased the amount of noncore disposals that are either signed or in advanced negotiations. We are indicating high single-digit premium to GAV, and we expect to materialize those towards year-end as we have tried to protect company cash flow and we prefer to execute the purchase and sales towards year-end rather than in the middle of the year. Regarding Best II and III, both plants have now been merged. So we will report to you on the basis of what is short term, medium term and long term so that you can expect what is coming from the logistics WIP. We have in excess of 200,000 square meters of land bank with pre-lets or agreed head of terms that will materialize over the coming months. So the WIP will continue adding to the logistics revenues until 2027. I mean just by heart, I mean, just those 212,000 square meters, mean EUR 10 million, EUR 15 million of extra growth rental income to our logistics division, which, of course, will be very much welcome. Regarding the mega plan at present, we are helmets on. And what we are doing is focusing on the equipment of the operating data centers pertaining Phase I and we are also doing the preparatory works for the construction of Phase II. We are, of course, working on the pre-bookings for Phase II, but as you all know, and I'm sure there will be plenty of questions during the Q&A, we first need to tackle the sources and uses, so that the funding is assured, and we enjoy enough cash at banks to make sure we build the 2 data center campuses in Lisbon and the Basque Country. The licensing of those new projects is on track. In Bilbao-Arasur, for building #2, construction permit is expected to be received in 4Q 2024. Maybe a little that -- earlier. And in Lisbon, Vila Franca de Xira, we have already received the construction permit as it is public. We are finishing the organization works by end of August. And we will start immediately compaction and piloting of the land for basements in September. As you know, this is a very special type of soil, and we need to do a lot of preparatory work. Regarding value creation of data centers stand-alone, we are in early stages of the appraisal uplift that this will bring, talking just about Phase 1. We have registered in the books around EUR 120 million of value uplift, which is between 1/4 and 1/5 of the total that we expect just for this Phase 1, which should be in the range of between EUR 500 million and EUR 600 million. So very, very interesting. As commented many, many times with many of you, very interesting secret weapon that we keep in our balance sheet in order, particularly to compensate any potential value erosion that might still affect the traditional asset classes. Regarding Phase 2, I know that some of you do not necessarily agree with the way we account, but we are keeping it at historical land cost. We will add CapEx while we progress in the WIP and start appraising upon inauguration. This is the way we prefer to do it. in order to be prudent because otherwise, that could be a very important figure. And I don't think it would keep a good image of our company. I am sure there will be lots of questions rephrased in very different manners during the Q&A session about funding. But I want to tackle upfront your potential queries. Basically, at present, the BoD, as recently as Friday, approved our BC business plan. That's it. So the data center business plan, both base case, which is the 1 you will see in the presentation, and all alternative cases have been approved by our Board of Directors anonymously and more importantly, for what it means with the full support of our 2 core shareholders and the executive management of the company. That plan requires around EUR 2.1 billion of funding that is also public information. You all know that. The management has been tasked with the planning and execution of the actions required in this regard. The idea remains to fund plus or minus 50-50 equity and debt with the equity being injected first. And therefore, by year-end in normal circumstances. Although, as you know, we tend to be prudent in our forecast of when things need to be done. Any initiatives requiring equity will certainly be carried out at MERLIN level. Why? Because we wanted to preserve as much upside as possible for the benefit of all existing shareholders of the company. We didn't want to create a leakage of upside downstairs, no matter it is possibly compensated by the pricing of a specific capital increase. You never know. I mean you could be leaving some money on the table. So we prefer to do it at the mother company level. Likewise, and in the same vein, any initiative entailing a new shareholder cannot result in granting, however, big any special rights whether of first look or co-investment or similar. So we want to be fair, other than those simply attributed by law. If and when needed, the BoD will meet and decide specifically on funding. And until such moment, it is, of course, our duty to not speculate about any potential transactions. Very different thing is to talk theoretically about funding needs in February, how can you fund this project, et cetera. And I'm talking now because everybody knows that whatever needs to happen will happen more immediately than in February when we talked about this transaction, which, by the way, the market now knows perfectly well and is perfectly anticipated all the market, I guess, is expecting it. So I leave you with Miguel Ollero, who will talk about the financial results of the semester.

Good afternoon, everybody. We are moving now into Page 6 of the presentation. We are going to digest a little bit, which is the financial performance of the company during the first half of the year. As you can see in terms of rents, we were reaching the EUR 248.2 million, which means plus 4.4% with regards to the same period in 2023. In the case of office and logistics, they went up by 5.9%, each of them reaching EUR 134.6 million of rents in the case of offices and $42 million in the case of logistics. In the case of shopping centers, there was a decrease in total amount of 1.2%. It is driven by the fact that we were disposing 2 assets last year, which are now generating rents in 2024. Nevertheless, we will see later in terms of like-for-like and release spread, it has been the greatest contributor to the company itself. So it's just a one-off thing to take it out. If we look at our gross rents after incentives, I should be highlighting that incentives are lower than they used to be in the previous period. So this represents 5.5% of the gross rent whereas last year, they were 6.5%. So the company also as a consequence of being reaching full occupancy is also able to reduce the incentives within the -- in the portfolio. In EBITDA terms, we were reaching EUR 188.4 million, 3.7% ahead of the first half of last year. So in the end, all the operational performance from a financial standpoint is outstanding with regards to the previous -- first half, even FFO despite the fact, [ as we all ] have been commenting that the data center division is already in a ramp-up, and is already not performing from the operational standpoint at full as it is already understood. We have been able to maintain a similar FFO within the company, which means that we have reached the EUR 0.31 per euro per share pretty low with the previous first half of 2023. With regards to the EPRA NTA, it is 15.11%. We consider this with regards to the end of the year, we should be -- I am counting on the EUR 0.24 billion distribution carried out in June. The company has been already reaching a TSR for the first half of the year of 1.8%. Moving to Page 7. You have here the evolution of gross rent on a like-for-like basis, it is 2.8% overall and so we highlighting that logistics was at 4.1% and shopping centers at 3.3%. And moving further into Page 8, Occupancy-wise, as Ismael was pointing out, we are in a very good position in terms of offices. The GR is evolving much better than we were expecting, and that's why we are confident that by year-end should be more on the 90% occupancy. That should be the highest occupancy ever in the office portfolio for the company. Logistics 97.6%, but should be as close as possible to 100% by the year-end. Although this is something that is not common in the market to be at such high occupancy within our portfolio. And shopping centers quite stable, 96% is in line with the full year 2023. So the company itself is staying in 95% to 96% occupancy overall. Now we're moving into each asset class and Ismael will be highlighting the main topics around the different asset classes of the company.

Okay. Well, regarding offices, anecdotically, in this semester, Madrid has overtaken Barcelona in terms of occupancy, owing mainly to the relatively weak performance of Barcelona reflected mainly in the 22@ district. The rest of the portfolio is shining as always, but in to 22@, there are some problems of digestion of oversupply that will remain for a number of months ahead. However, the important thing is that Lisbon continues performing stellarly, with 98.8% and in Madrid, things have improved, mainly due to the performance of the A-1 corridor, which we will put the focus a little bit on it. in another slide. As for leasing activity, it's been a relatively busy semester with close to 100,000 square meters transacted. And well, release spread is modest at 1.1%, but you have to take into account, as commented on many occasions that we have been passing a lot of inflation to tenants and as such, this is the nemesis of inflation, the risk spread. But the tone of the market and the transaction activity remains very interesting, number of visits and leads remain strong, and we are experiencing a relatively healthy market for the time being. And let's see what happens in the future because the transformation into residential [ theme ] is so strong in Spain that well, let's see what happens. We like what we see in terms of stock reduction. In LOOM, we have opened 3 new spaces with a little over 250 desks. But the lion's share of the new desks will come in the second half of the year with over 700. Little by little LOOM continues trending towards 40,000 square meters, which is the point in which we expect that beyond its contribution to the services provided to clients by the company, it will also become a net revenue contributor after specific overhead expenses for the company. What is really interesting is the ADR that we have achieved close to EUR 400 per desk, which translated into a per square meter basis. We have commented on many occasions that represents 1.5x market rent, which is a very, very interesting way to commercialize space even if it is on a relatively short-term basis. Occupancy stays flat at around 82%. You know that our policy is to introduce new offer when occupancy goes very close to 100% because we need to continue providing services to clients. Anyway, this is an anecdotical part of our portfolio. It represents around 2% of our total renting offices. So nothing really to be too much bragging about. Regarding the A-1 corridor, well, you know that the company, since the acquisition of Metrovacesa has been in an uphill fight to improve vacancy or to improve occupancy. On the A-1 corridor, but now we are pretty happy to -- we are pleased to see that those measures have yielded results and occupancy in the A-1 corridor has now increased by close to 80,000 square meters since 2018. That is 18 points of occupancy, full points of occupancy gain. We have taken a lot of initiatives in the area, which represents 300,000 square meters of our total stock. And including launching the MERLIN Hub concept, which is, to our knowledge, is the largest Business Hub concept in Europe, encompassing 28 buildings with more than 75 top tier companies that are, in a way, dealt with altogether by us, by MERLIN with a special app in which at the touch of a button, the users have access to things like gym, paddle tennis, live events, food and beverage options, a shuttle service. We have even negotiated and obtained from the municipality of Madrid, a dedicated bus lane that yet moves privately our customers from Tierra to a specific communications hub in the north of Madrid, which is clearly reducing significantly the use of private cars and hence, the traffic jumps in the area. The tenancy schedule is fantastic. We have commented on many occasions that some of our most recognizable tenants are not in CBD because an average pattern in Spain and average Spanish citizen will not recognize the logo of [indiscernible] or Goldman Sachs. Most of our best tenants are located in the out-of-town locations, including you can see PwC, BBVA, Indra, Técnicas Reunidas, [indiscernible] Philips, very interesting. So vacancy in the area is now slightly above 25,000 square meters, and we will continue working on it in order to make that they can see even smaller we are being helped undoubtedly by the proximity of Operación Chamartín. We have commented on many occasions that our bet on this A-1 corridor was because at some point when the Operación Chamartín was carried out this will be kind of first line to the beach. So that is now starting to yield some results because the heads of space, the head of real estate of different multinationals are now little by little, giving more importance to this area. In logistics, well, very interesting performance, as always, and very interesting like-for-like growth. Occupancy in Madrid is flat. In Barcelona, it went slightly down that it will be recovered towards year-end. And in other areas, which is mainly [indiscernible] Barcelona, it has gone slightly down, but it will increase into a number of transactions since before year-end. So we expect to close the year at a very interesting occupancy level as close as possible or maybe exceeding the 1 we obtained last year. Leasing activity very robust with more than 60,000 square meter transacted and Zal Port in Barcelona recovering in terms of occupancy now at 97.9%, which is pretty good, really spread negative but very modestly negative at 1.7%, owing mainly to 1 big contract that dragged a little bit on the -- it was over rented and we had a little drag on the rent. We have recovered a little cut of stock because part of the third-party stock, the ground leases, 7,000 square meters have now moved into stock under management, so into operated stock. So very interesting also the performance of Zal Port in Barcelona. Shopping centers, once upon a time, the Cinderella of our portfolio, now the princess. The like-for-like has been 3.3%. And what is more important is we continue enjoying better sales per square meter and better attendance, better footfall than in 2023. And the OCR continues going down from 11.5%. You might remember that our historical averages are between 13% and 14%, but now we are at historical minimum at 11.5%. Interesting activity in lease-ups during the semester with close to 31,000 square meters. I will leave you with Miguel to discuss about valuation and debt position.

Okay. Regarding valuation on Page 22, valuation for all this first half was pretty flat. But if we're going into the different asset classes, it was slightly negative, in the case of office was 0.4% down. In terms of yield compression, we are taking about the yield expansion of 11 basis points. We look at the logistics, it was 0.6% down and 7 basis points of yield expansion. And in shopping centers, it was 0.3% down and 14 basis points yield expansion. This means that in the case of offices, we are not on a passing yield of 4.8% coming from 4.7%. In logistics, we are flat, 5.6%. And in shopping centers, we are 6.2%, whereas we used to be 6.1%. The big counterbalance of this negative but we assume that it was, nevertheless, very small in the trade and asset classes was [ 3-percentage ], whereas 15.3% valuation increase in the first half. This is as a result of as Ismael was already commenting this is a asset class on which we have bet on a very interesting deal on cost and is becoming a reality as it is becoming a reality, we are enjoying the valuation uplift attaching to it. Overall, we have a 5.2% passing deal for the whole portfolio and with 12 basis points of yield expansion within the first half of the year. If we go now into the financial structure of the company. In the first half of the year, we have been able to keep our net debt pretty in line with the 1 we had by the year-end. A loan-to-value of 55.6%, average maturity is 4.8 years and we keep a liquidity, which is even some debt that it used to be by the year end is at EUR 1.6 billion of liquidity within the company. The company has been active in the debt market in the first half of the year. As a matter of fact, first, we were putting a tap of EUR 100 million on the bond expiring in 2029. We have also been placing 2 mortgage loans in the market, 1 with Caixa of EUR 150 million, another 1 with NOVO BANCO in Portugal. So we have been able to finance our assets for the first time in Portugal, putting financing into it with Portuguese banks. This is the first time ever we have deal -- we have done so far. The 2 of them are on 7- or 10-year basis. So pretty compelling financing as well that has to result in a maintenance of our net-debt and loan-to-value. Important to highlight that we got from S&P, the BBB+ rating on a stable basis [ before guarantee ]. We are just waiting for Moody's to provide us the annual review that we should be expecting either by the end of this month or early September, not yet sure when that will be coming to -- with their annual review. If you look at Page 25, you can see here that with the different financings that we have been putting in place in the first half of the year and 2 ones that we were putting in place in the last quarter of last year. We have -- being able to tackle the refinancing of the EUR 600 million bond maturing in May 2025. So the company now has started to work on the refinancing of 2026, since November 2026 for our EUR 800 million bond expiring at the moment. So the company is very well set. We have almost all of our debt is hedged, 97.2% is already hedged. So we're not hoping to interest rate evolution. And 85.6% of our debt is unsecured. So we only have 14.4% of our debt on a mortgage basis. So I think this is it from a financial standpoint. The company [indiscernible] now on expansion, as we have been talking about on data centers.

Thank you, Miguel. Well, moving to logistics. As commented, we have emerged the best #2 plans so that because we are reaching an end basically on [indiscernible] and so that it is clearer for the market what we are trying to achieve with the different locations and construction activities. In short term, basically, we have 33,000 square meters pre-let and the other 73 square meters are in legal under a great head of terms format, and will little-by-little be transformed into full pre-lets in most of the cases before starting construction. The other 57,000 square meters are still under commercialization with good prospects. All these products will be delivered during the second half of 2025, so between summer and Christmas '25 with a remaining investment of EUR 91 million and expected stabilized GRI of EUR 9.5 million. So the yield on cost, including the land is 7.5%, but if you calculate the yield on CapEx at present, and this is why we are rushing to put it or to move it from web into operation is in excess of 10%. It spans throughout 5 different locations, Cabanillas Part 2, where we will be putting into the market a 60,000 square meter shade, San Fernando 3, where we are going to be putting into the market 11,000 pre-let and another 32,000 which are under commercialization. Lisbon, where we have 33,000 square meters. Sevilla Zal is just 1 module, 2,000 and Valencia-Bétera where we are creating an inaugural shade in the new park of 25,000 square meters. Regarding the mid- and long term, we will still have 350,000 square meters in our belly, of which 106,000 are with agreed ahead of terms. Part of them or most of them are located in Lisbon, where we have reached an agreement which is phased over time with just 1 tenant for the full takeout of our logistic capacity in the Vila Franca de Xira Industrial Park. I guess it will be public in the coming months, except the land that we have reserved for data center use. And then there is another retail model in Sevilla that will be also built and is under agreed HoT. The rest is topping up our capacity in Cabanillas II, Azuqueca III, San Fernando 3 and the Valencia-Bétera Industrial Park. But commercializing all these mid- and long-term pipeline would eventually bring another close to EUR 20 million of additional rents to the company. We have commented on many occasions that our intention was to bring logistics to total income, the 1 visible in our P&L because nobody sees, of course, the income coming from PLZF in Barcelona, given the accounting method, but on the visible income to go as close as possible EUR 110 million, EUR 120 million. That is the objective of the company. So logistics will little by little compete with data -- with shopping centers, sorry, for being -- becoming the second income source of the company. I know all of you are flashed by our data centers, but for the moment, logistics and offices and shopping centers continue paying the bills in MERLIN. So it's important that we pay attention to this. They look like little initiatives, but they are very important initiatives in our case in order to continue extracting value for the benefit of our shareholders. Moving into digital infrastructure plan to the so-called mega plan. Well, you know the snapshot of that plan. It consists of deploying 260 megawatts of IT capacity in Spain and Portugal. Phase 1 is already operating, although not fully equipped. And I will comment the details about the deployment in terms of equipment. And what is now on the table is the Phase 2, which entails 200 megawatts of new IT capacity development mainly in Lisbon and Bilbao-Arasur, although there is a little repowering that we can achieve in the Barcelona PLZF data center because we have received an extra injection of power from the distributor, from Endesa. Okay. Regarding Phase 1, well, basically, in Barcelona, we are fully supplied in terms of electricity, total maximum design of this data center is 16 megawatts, pending the expansion that I just commented. We have received and installed 10 megawatts of equipment at present, and we are pending to receive and install another 6 megawatts of equipment that will be ready by the end of first Q 2025. We are 100% booked in this data center. And in Bilbao, it's basically 24 megawatts, of which we have received equipment and installed 10 megawatts or will be installed by the end of the year, sorry. And the remainder, up to 14 megawatts will be installed up to second Q 2025. In Madrid--Getafe, 20 megawatts, the electricity is supplied, but we are having problems now with the transport of that electricity. As you know, Madrid is not the favorite destination of investment for our [indiscernible]. So we have 6 megawatts in place. And the remainder, we will go and find them in a different substation so that will require a number of works and we will obtain them on a phased way until first Q 2026. That 1 is 70% booked, and we cannot continue commercializing because we have no full certainty on the moment of reception of all the electricity. Regarding the financings of the financials of this Phase I, where we are running or we continue on approximately 6 months late, as commented on past occasions. We haven't been able to catch up yet. And we haven't rushed also because 1 of our clients is also late on the reception of their own supplies, particularly GPUs. So we wanted to have 42 megawatts installed by end of '24, and we will only finish the year with 26 and 44, 2 more will be only achieved by second Q 2025. Regarding CapEx, accounted CapEx has increased to close to EUR 300 million as of first half. We have another EUR 55 million that will happen before year-end and the rest has been moved into '25 and beyond. So basically, we have, in a way, saved a little bit of CapEx, EUR 50 million or less that has been moved into '25 and '26. The stabilized gross yield on cost remains the same. The net yield on cost remains the same as commented that is mainly dependent on the transfer price of the land, which was relatively cheap at the time. And the gross to net margin remains in the region of 70%. This is basically what we are doing in Phase 1. We expect to receive more than EUR 80 million of rents when stabilized in 2028 with rent signing mainly in 2026 and '27 because in '24 and '25, there will still be affected by deployment delays that will not affect the backlog or total value of contracts will remain the same. And we might also benefit from a number of bookings moving into full format leasing during this period. Regarding Phase 2, the campus of [indiscernible], what we call Arasur in the North of Spain is now set to host 118 megawatts of capacity in 2 new buildings. We have 1 building existing with 24. So we will be adding 94 megawatts of IT capacity, of which 48 megawatts will happen in building #2 and 46 megawatts will happen in building #1. The construction teams are in place. We are waiting for the construction license momentarily. So hopefully, construction can start in this location by end of the year. Regarding Lisbon, we are good for 100 megawatts for now distributed in 5 buildings with 20 megawatts capacity each. It is true that after conversations with market and mainly driven by the fact that AI occupies less space than cloud and co-location. We are thinking about repowering each building to 36 megawatts that will result in 180 megawatts capacity just in this location. But this will happen over time. I mean it won't happen in 1 shot. But it is important, particularly because we already have electricity in order to fuel that IT capacity, which is obviously very, very good news. So going one by one on Phase 2, there is the 6 megawatts repowering in Barcelona, having received 15 megawatts extra utility power from Endesa. Many of you are -- will probably question why 15 megawatts of utility do not give at least 10 megawatts of IT. The reason being that it is a separate fee with a separate electrical circuit. So -- and there are a number of inefficiencies in the use of that electricity. And we have a lack of space at the rooftop for additional chillers. So we cannot use all the electricity of this new feed and converting into IT capacity. But anyway, those 6 megawatts will be very much welcome because the current share is already built. Regarding Arasur, 94 megawatts for which 140 megawatts of utility supply have been obtained. In the case of the first 70 megawatts for the first building for the Arasur 2 building. Those will be supplied up on construction with no further infrastructure needed. They are already on site. The other 70 megawatts still need some infrastructure works, works in terms of aerial lines and some infrastructure in the substation that will make the connection works only to be completed by 4Q 2026. But this is no problem because although both constructions will be overlapped, the people doing the structural works of Arasur II will then move into Arasur I that the finishing touches in Arasur I will only happen more or less simultaneously to the reception of the power at the end of 2016. Arasur II will be finished before. Regarding Lisbon, well, we are projecting for the moment, 100 megawatts of capacity in 5 buildings of 20. We have been granted 250 megawatts of power and 10 megawatts from EDP in medium expansion and the other 140 by Rede Elétrica Nacional [indiscernible] in super high tension. So very interesting also the way that Portuguese government is reacting to the data center wave very proactively and trying to help the different operators that are entering Portugal and taking positions there. In terms of the CapEx plan, well, you have here a time line, which is our -- at present our base case, which is basically to do the bulk of the works during '25, '26 and '27. Start receiving some rents in '28 and be stabilized in terms of GRI in 2029 with very similar parameters, 4.2%, stabilized GRI, more than 10% net and around 70% gross to net margin. This is our current BP, and this is the assumption that -- with which we are working at present based on conversations with the counter parties with the clients. In case we go little by little because we only have partial bookings. Then eventually, we will develop only building 02 in Arasur and 2 buildings in Lisbon. So that will mean between 48 in Arasur and 40 to 72 in Lisbon. So total power will be between 88 and 120 more or less. So this is what we will start doing in case we cannot do an agreement for a full takeout of our existing data campuses. On Page 37, we simply wanted to introduce the fact that there is more capacity in those 2 sites only. I mean, without talking about further eventual pipeline locations. In just those 2 sites, there is extra land. We have been buying a number of plots in Arasur in order to make sure that we have extra land for a full development of the data campus with what the Americans call Visibility 300. So of course, we have full visibility up to 300 megawatts. More than 80% of the electricity required has already been granted, and we are waiting for the rest, and we'll try to obtain it during the coming months. And in Lisbon, we have reserved for sure, 1 additional plot of land, which is Plot #23, and contingently we also have another plot of land, which is earmarked for reserve in case we needed in the future. Again, with the idea of having visibility 300 in case of need. Power for these will be requested. And of course, I guess, it will be obtained in the long-term, but it will be requested in [ your ] time. On Page 38, you can see the exact location of our -- of the different plots that will give rise to the extension of the Arasur data center campus. Out of the approximately 450 megawatts of power that would be needed for 300. IT around -- as commented around 375, 80% is already rented and the rest is under request. And in the case of Lisbon, leaving aside the 80 megawatts potential repowering of the existing 5 buildings. We have land for an extra 120 megawatts IT in an adjacent plot, for which around 200 million -- 200 megawatts of utility power need to be requested from Rede Elétrica Nacional, which will be done momentarily. So in order to sum up and finish. Very strong performance in all key financial and operating metrics, whether like-for-like rental growth, occupancy release spread or FFO generation, very healthy occupancy levels in our 3 asset classes -- traditional asset classes with the offices performing very, very solidly. And of course, I know it is a little bit strange in the current world that for some reason, the market in Spain has commented on many occasions were managing equilibrium, but there is no big problem of oil supply, at least in Madrid and Lisbon. So very good performance. And virtually fully occupied in logistics, we will end up the year around 99 and shopping centers where we will end up the year around 96%. The FFO guidance for 2024 is confirmed at EUR 0.59 per share. I know that many of you are already wondering why don't we raise the guidance. Our guidance is a guidance, and we try to be prudent. We know for sure that the second part of the year is going to be heavier in terms of overheads. Why? Because we have now set up commercial offices for our data center division in the Netherlands and in the U.K. because all the equipment that we are installing needs to be maintained, so that affects, of course, our FFO. So we have drawn on a number of credit lines recently that we create more financial expenses that will drag also on FFO. So we prefer to be prudent towards year-end, and we are just confirming our guidance of 0.59 and then only God knows what will happen at the end of the year. In terms of maturities, no problems til November '26 and our intention is to recommend to the Board of Directors a total dividend of EUR 0.44 for the fiscal year 2024, which, of course, should entail a payment before year-end on account as we have done in many occasions, and the rest will be paid next year following the General Shareholders Meeting approval of the full year accounts. That is all. Let's move into Q&A. Let's see -- I expect a lot of questions about the capital increase that you are all capital market professionals. So please. Okay?

[Operator Instructions]. The first question comes from the line of Jonathan Kownator from Goldman Sachs.

So the first question I wanted to talk about the timing of the data center phasing in particular, Phase I, also thank you for having provided the CapEx on Phase II. Is the timing on Phase 1 aligned to what you had said earlier, like Q1? I mean, obviously, we've talked about 6 months delays. Now you're talking about CapEx that is a bit more spread around to '26 and '27. So just trying to understand if there is any change here? And also how are your discussions are progressing with customers and this [ effectively ] deployment and the feeling of their own capacity, is that on time? Or is that just taking time because it's complicated to get equipment? That will be my first question, please.

Okay. Look, Jonathan, clearly, there is a mix of situations regarding the delay of Phase 1. On 1 side, it is true that our clients are now finding increased difficulty in getting their supplies, particularly in terms of flow, GPUs. So in 1 particular case, they have already told us that they are going to be delayed on the deployment by about 6 months. The bad news because that will have an effect on the year-end cash flow, even though it's going to be minimal. And in 2025 cash flow because we were counting on having the cash flow from the very beginning of the year, and it will only happen in the second quarter. However, the good news is that the backlog remains the same, length of contract and escalations, everything remains the same. And eventually, we might move the booking into a full format leasing towards year-end. So that, that will be also very important for us because it will provide a lot of visibility to the market regarding that income. In Europe, as commented on many occasions, so far, the problems are minimal as compared to the U.S., talking about MEP equipment, the equipment that pertains to us, data center operators, not talking about GPUs because GPUs, there's virtually 1 -- monopoly of just 1 maker other than the GPUs that Google is making for themselves that the rest are normally bought from NVIDIA. But in terms of MEP in the U.S., there is clearly a problem. In Europe, we are starting to see some hints of problems. We have been late in receiving a number of generators and a number of skits that should have arrived at the end of June, beginning of July and will now only be received in October. So this is happening. I know for some people, this could be a big problem. I believe this is part of life, happens all the time in development. So we take it with a little bit of cold blood and simply live with it.

We see it's a developing area. Just following up on that, do you have any penalties on any of the sort of delays that can happen? Or is it just that you're receiving the income late?

You have or you might have penalties that you have to be very careful. So probably better than the penalties, what you have is alternative sources of income. I mean you might decide not to wait for a certain booking and make use of your booking in order to bring an additional -- an alternative source of income that you need to wait the quality of the client because not everybody in this industry is the same trade work, okay?

Okay. And generally speaking, like the interest from clients and the bookings, I mean, obviously, you're saying, I think, pre-bookings for Phase 1 is something like, I think, 80%, if I remember correctly -- sorry, 90%, so that's quite high. So the interest from clients is developing according to your plans? And is there any time where you convert to leases already? How many are converted to leases and any clients you're able to talk about already?

Yes. Well, the amount of bookings and the interest in the market is clearly surprising us on the upside. New companies are appearing every day. Those are, in most cases, beefed up by private equity money. So in many cases, they are in a well capitalized or willing to take significant blocks of power. But you have to be a little bit particularly because this is an activity in which we plan to stay forever. So you have to be a little bit selective in what you get because you want an activity that lasts forever. We want to occupy many other blocks of IT power. So you have to be careful with that. I mean it's like in logistics. I mean, we, of course, tend to favor existing clients and people have a relationship with. So this is the situation. Another thing that is surprising us is evolution of rent. Clearly, rents are subject to certain tension. And nothing -- I mean, compared to what we originally in the road is radically different. But anyway, I mean, we don't want to be too positive about it until the cut is on the back. Let's wait. And then regarding moving bookings into leases. The biggest obstacle remains as commented on many occasions, financial legislation, but yes, I believe, generally speaking, you will see most of those bookings moving into full format leases during the year because it is in the best interest of both parties because people want to reserve IT power. And in our case, we want certainty of income, which given the other booking is certain that you prefer to have it in writing in a full format contract.

Okay. Very clear. One final question on timing. How long can you go effectively given your plans without delay -- without raising equity?

For the Phase 2, well, the maximum until year-end, but it's a chicken and the egg situation. I mean, of course, you want to wait as much as possible in order to avoid, let's say, the cash drag, call it that way, I mean having money in the bank account. But on the other side, you want certainty of funding as soon as possible because your clients are also looking to you. I mean, they want to make sure that you are able to deliver in full what you are negotiating with them. So they don't want to -- yes, they know you are a listed company, they know you can do many things. that the sooner the better, they want to see, of course, certainty of funding so that you can do what you need to do.

So the next question comes from the line of Florent Laroche from ODDO.

So maybe I would have first a question on the valuation of the assets. So first on the current operating classes. We have seen that offices, logistics and shopping centers are quite more -- are quite stable and we see a strong increase in data centers. So is it possible to have maybe more color on how it has been valued? And is there any potential still uplift to come on that portfolio? Then maybe on data centers for Phase 1. I would have a question. So would it be possible at the end due to the delay to have maybe more visibility on what do you expect in terms of revenue in 2024 and in 2025 for data centers? And then maybe on Phase 2 for the funding. So we understand that maybe you are working on different options. So would it be possible maybe to have an overview of these different options that you could develop of -- depending on the interest that you can find from third-party investors.

Well, regarding the appraisals of the different asset classes, we have recently had our audit committee and the appraisers came and explained their valuation methodologies. In the traditional asset classes, as you all know how those assets are valued in offices. All what we can say is that we saw more pressure, more downward pressure on the values in Barcelona. A little bit more peaceful regard to Madrid. And of course, a very bullish with regard to Lisbon. In shopping centers, they are starting clearly to stabilize. I mean they are starting to like them. The trend has clearly reversed while they continue adjusting because there is transactional evidence that, in principle, yields are higher, et cetera, while they continue adjusting but in shopping centers, regarding operational metrics, it is clear that they like them a lot. On logistics, the tone is flat on the existing assets. I think the yield expansion probably ended in logistics. And in terms of WIP, very positive. I mean we have already experienced a significant uplift on the WIP that we have moved into operation, and we continue to have the same effect as we bring more and more products into operation over the coming years. I mean you have seen our numbers. I mean, around 200,000 square meters already under held terms. So as they come into operation, we will enjoy a significant valuation uplift. Regarding data centers, I was curious as you are, about how they value them. I saw that they discount cash flows for the next 7 years. And they only assume stabilized cash flows in 2028. I'm talking about Phase 1. The exit yield that they're assuming we are 7%, I believe they are conservative between 6.5% and 6.75%. So I think it's okay, talking about net yields. The GRI -- the projections grow GRI by around 2%. So nothing galactic. I think everything is more or less reasonable in my view. Then the discount rate is very high, in my opinion, that I will not disclose it. And that is the reason why we little by little increase the value recognition of this asset class, which at present has only meant around EUR 120 million of added value in our balance sheet. But just for the 60 megawatts of Phase 1, we are expecting between EUR 500 million and EUR 600 million net impact in terms of value creation just from those 60 megawatts of capacity. So that is basically the way they value Phase 1 for which we have little intervention, if any, I mean, they value as existing assets, okay? So the only point of contention is basically the discount rate. Then regarding the 200 megawatts of powered land for Phase 2 and further expansion capacity, this is the only part of the equation in which we have assessed and I'll say basically is no value. So the existing land is to be valued at cost. We will continue incorporating CapEx and we will basically start valuing if and when inaugurated. So little by little, and the value recognition will take place really on a staggered basis. And then for further expansion capacity, which, of course, will be very attractive to bring forward that valuation and fuel a little bit share price, et cetera, our instructions it is out of scope, and therefore, it is carried at historical cost, which is very, very, very, very minimal. And that is the way we prefer to keep it. We have received also a lot of questions from some of you and particularly analysts regarding why don't we capitalize expenses -- financial expenses, interest on developments, what we prefer to expense them. We prefer to do it that way. And we believe this is a better picture of where we are in the company. Of course, there are many schools of thought regarding this. but up until we are not obliged by either our auditor or the accounting authorities, as we were in the case of some examples of linearization of expenses, the vast majority will continue not to linearize but we were obliged in loan contracts. We were obliged to linearize some expenses by the auditor. But other than that, until we are obliged, we prefer to simply expense as they happen. We believe it is more prudent to do it that way. Then you wanted color on the funding options as commented, I think it will be to no avail at present to enter into what funding options we have. We shouldn't speculate. The Board at some point will be convened and will take decisions, and we will simply execute. So stay tuned. And regarding income for '24 and '25, later during the year, we will provide more accurate numbers. For the moment, we only know that, of course, our income in 2024 is going to be significantly hit as a consequence, anyway it was an irrelevant income and don't be afraid, but it's going to be hit by the delay in the deployments. And part of that impact will also be felt in 2025, nothing during '26, '27, '28, '29. But of course, in '25 and -- '24 and '25, we will have an impact, that we will quantify towards the end, depending on how things evolve regarding the recognition of net income and eventual upfront payments. Okay?

The next question comes from the line of Celine from Barclays.

I just have 1 question very quickly. On your OpEx, nonoverheads, what is driving the fact that will increase compared to last year? And how do you expect us to model this going forward? And also, you mentioned something around U.K. Dutch offices. Why is this for?

Okay. Well, U.k. Dutch is basically commercialization offices for data centers. We -- the decision-making of most of our clients is located in those 2 regions. So we need to have a permanent sales representative in those regions. So that, of course, has an impact in expenses, okay? So we now have personnel employees working in those locations. And regarding OpEx, Miguel?

In terms of OpEx, it is clear that we have 9 megas in operations for the first half of the year. So that has an impact on low income so far because of the -- how we are already evolving in commercialization. There will be -- I'm sorry, you meant the nonoverheads?

The nonoverheads.

Yes, the OpEx nonoverhead.

Sorry, sorry about that. I didn't follow the question. No, this is a one-off, and it's related to the financing we have been putting in place in the first half of the year. As you know, we have been putting in place to mortgage financing, 1 in Portugal, 1 in Spain. And this has a cost attached to the mortgages. So we are talking about EUR 4.4 million, which are attached to this specific financing that is a one-off. That's the rationale behind the increase in nonoverheads with regards to the prior year, whereas the nonoverheads were more or less recurrent, more attached to a purely rating and things like that.

So that's a one-off?

Yes, sure.