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

Good afternoon, ladies and gentlemen. Thank you for joining MERLIN Properties' 2024 Results Presentation. You can find all the materials that will be covered in today's call available in our website. I will please ask you to abide by the disclaimer contained in it. Our CEO, Ismael Clemente; and our Directors, Ines Arellano and Francisco Rivas, will walk you through the main highlights of 2024. [Operator Instructions] With no further delay, I pass the floor to Ismael.

Thank you, Teresa. Good afternoon, and welcome to MERLIN's Financial Year 2024 Results Presentation. As commented by Teresa, the call today will be joined by my colleagues, Ines Arellano and Francisco Rivas, in order to avoid monological exposition from my side. Our CFO, Miguel Ollero, cannot join today. He recently underwent surgery, and he's still at the hospital. So it will be Fran, Ines and myself taking the call today and the questions afterwards. Regarding the operating performance of the company, the operating momentum during 2024 was exceptionally strong with a very good rental growth, combined with record occupancy, which for the overall portfolio now reaches 96.7% is very, very successful. The offices continue to perform very, very well with a positive like-for-like of 3.9% and a release spread of 2.3%, which is affected by some little weakness in -- particularly in Barcelona because otherwise, it will be even stronger. Madrid is performing very well. We have reached full occupancy in the real sense of the term in logistics with 99.4%, historical record too, with a positive organic growth of 2.8% like-for-like and a good performance in terms of pre-let of existing development pipeline. Shopping centers delivered an incredible year with a very good like-for-like of 2.7%, but more importantly, with strong sales and footfall reflected in a very affordable level of occupancy cost ratio of 11.2% which, again, is our historical minimum. So our tenants are really doing very well. And what we hear from them regarding '25 is positive, too. I mean they have started the year with a very positive tone. The [ brightest ] sales campaign in January have gone very well. And they are all operating under the assumption that the year is going to be very positive as compared to 2024. In terms of financial performance, the company generated a very solid FFO. Clearly, there was also some boost by the capital increase carried out in midyear because that increased our financial balances at banks. And that interest income, of course, helped the performance of our FFO. But a very significant part of it is purely operational. The valuations remain broadly stable. I mean we continue depreciating a little bit, logistics, shopping centers and offices in order to be as close as possible to what we believe are reasonable passing yields in order to stabilize the valuation of those assets. But that devaluation has been offset by a solid gain in the appraisal of data centers. Our financial situation following the capital increase, of course, is super strong with a 28% LTV, everything at fixed rate and no additional maturities till November '26. We are repaying with existing cash with the bond maturing in May, which is yielding 1.75%. So of course -- and this will become a recurrent, I guess, theme over the next years. We are facing a steady increase in our financing costs, and that will continue through 2025 and '26, and I guess will reach stabilization towards the end of '26, '27. Both Moody's and S&P have upgraded our company. The interesting thing about that upgrade in debt rating is not only financial standing, it's also a testimony of our ability to continue generating or to grow our cash flow profile in the coming years through our data center activity. And well, as you all know, we carried out a successful capital increase midyear in order to fund the Phase 2 of our data center development program. Regarding value engineering, we sold EUR 73 million of noncore and left some EUR 53 million signed for this year. So our objective of EUR 100 million for the year was missed just because of the year-end cut-off date. But in general terms, we exceeded that objective. In our Landmark plan, we are basically finished. I mean we have delivered Ruiz Picasso 11 with incredible tenants. And for those of you who are familiar with Madrid, if you have visited the asset, you will see that it has become a landmark of quality in the AZCA area. And not only in AZCA, I believe in all Central Madrid is a building which now is praised by everybody. Regarding the plans Best II and Best III for logistics, we have finished our capacity to develop in Portugal by leasing close to 135,000 square meters to a Portuguese end client. And those square meters will be delivered in several phases, mainly during '25 and '26, although there will be 1 shed that will be delivered end of '27, beginning of '28. But with that, we have basically finished with our land development capacity in the Lisbon Logistics Park, taking into account that we have reserved, we have booked one of the pieces of land there for expansion of our Lisbon-VFX data center in the future. And regarding data centers, there will be a specific explanation by Fran during the presentation. But the main highlights of the year is that we signed a block of 15 megawatts IT in Barcelona at the very end of the year that started cashing in, in January 2025. And we are in very advanced negotiations for the lease of another 18-megawatt block in the Bilbao-Arasur data center with more than one client. And we are now at the point of exchanging drafts of contract and helping the clients with the prices of electricity and the construction of a feasible PPA in order to ensure competitive cost of electricity over the coming years. Regarding the results on Page 6 of the presentation, you will see that gross rents jumped by approximately EUR 25 million. That EUR 25 million difference remained true after incentives. Regarding EBITDA, we lost a little bit of margin as compared to last year. But in FFO, you can see that we recovered through the exceptional performance of the cash remuneration at banks following the capital increase. So it's been a lucky coincidence that we had a period -- we track a period of high interest rates for the last second part of the year. In terms of magnitude per share, our EUR 0.61 of last year converted in EUR 0.55 this year as a consequence mainly of the capital increase. But you might remember that the capital increase implied the issuance of 20% new shares. So post money, the dilution was 16.7. So that means we have recovered approximately half of the dilution caused by the capital increase by organic growth during the year. And also importantly, because I know some of you ask us to specifically stress the idea, we count the number of shares as number of shares at present. If we were to count the number of shares as weighted number of shares during the year, then the cash flow will be EUR 0.61. So absolutely flat compared to the year before. In terms of NTA, the EUR 15.08 moved to EUR 14.32, again, as a consequence of the dilution caused by the capital increase, corrected partially by the increase in value created by the data centers during the year. For 2025, you will immediately notice, I mean, it will be mentioned, I guess, during the Q&A session that we are giving a relatively flattish number. There are 2 reasons why we are doing that. One is because we still do not know which month of the year will be impacted by the new lease in the Basque Country; and second, because we continue to onboard more financial expenses. So particularly after repaying the May maturity of the bond, we will continue increasing our cost of finance. We hit a minimum of 1.98% in 2022 that has now moved to 2.46%. We believe we are going to finish the year at around 2.6%, and that number will move to around 2.9% by 2026. So as you can imagine, I mean, we are onboarding 1 full point of extra interest cost, which is around EUR 50 million of cash flow that we need to generate in order to simply kill the increase in interest expenses. There is another reason why our guidance for 2025 cash flow may look like weak for many of you, which is that we don't capitalize interests. We have had some internal discussion regarding that. I know there are different schools of thought. We know that some of our peers do it. At some point, if we are obliged by either the regulator or the auditor as it happened with the linearization of the fit-out contributions, at that point, we will, of course, abide by whatever rule is imposed on us. But for the moment, we believe it doesn't reflect a good practice to pro forma your cash flow by kind of capitalizing your interest expenses because in reality, you are showing stronger image of yourself today but at the cost of prejudicing your future cash flow machine. So we prefer not to do it. I mean we told you in the last call that we will do an exercise in order to give you the pro forma. The pro forma is basically EUR 0.05 more. So instead of EUR 0.54, we will be at EUR 0.59, EUR 0.60 for the year, but we prefer to do it that way because this is the cash that we actually have at banks as of end of the year. The rest is simply a linearization or a pro forma, which is good, but it's not a true image of your accounting. So we prefer to stay that way and continue giving you the actual FFO, including the interest expense incurred during the year in the development of our CapEx in data centers, and data centers and some other business lines, but many data centers. On Page 7, you will see the GRI bridge with the performance of offices, logistics and shopping centers. On Page 8, you will see the evolution of occupancy, including also different asset classes, reflecting what I commented, which is that we have reached a new maximum of 96.7%, increasing close to 60 bps during the year. As you all will immediately notice, I mean, these figures will be very difficult to exceed in the coming years. I mean we can add a little bit of occupancy in offices. We believe the growth in offices will come more in rents, but we can add a little bit of occupancy in offices. But there is very little we can do now in shopping centers or logistics because in shopping centers, as you know, those of you who are familiar with the business, there is a significant rotational vacancy, which always strikes you every month end, and December is not an exception. Regarding offices, as commented, a little weakness in Barcelona reflected in the loss of more than 1 percentage point in occupancy, but a very reasonable release spread of 2.7%, which is remarkable taking into account that in the past years, we have been eating significantly in our reversionary potential by applying inflation. That we -- the market seems to be digesting that and the market rents are growing, and we are growing together with the market. In Madrid, we have very, very active year with more than 130,000 square meters contracted. We have a release spread of 1.9%. It's a market which is much more stable because it's significantly bigger than Barcelona or Lisbon. Regarding LOOM on Page 12, LOOM is now reaching maturity with 35,000 square meters now in operation and an 82% occupancy in 14 spaces. The ADR that we are charging at present is allowing us for the first time this year to obtain positive EBITDA at all levels, including the overhead of the, let's say, management of the division. So LOOM has been a clear contributor to MERLIN since its initial creation by providing the company with a service that our clients demand. Then it moved also into a good contributor in terms of rents, although the LOOM rents represents only around 2% of the total rents of MERLIN in the office division. But recently, we are now making money with the business. I mean besides paying market rents for the properties we use, the company or the division is making money on its own and attracting very interesting clients. I mean this year, Microsoft, Sanofi, OneTrust, I mean, those are incredible brands that have entered the MERLIN universe through LOOM. So it's very interesting because in many cases, those companies then end up expanding into other assets of the portfolio in regular lease contracts during their business lives in Spain and Portugal. On Page 13, we simply wanted to bring your attention to the fact that, that little trend, which is just emerging of transforming office into residential, it's clearly making us hopeful that some tension will be created in the rental market in the coming years because that distraction of supply that is happening, particularly happened in 2024 in a very clear way. I mean depending on the source you follow, I mean, whether it's Savills, JLL, CBRE or Colliers, between 200,000 and 300,000 square meters have been distracted of offices in 2024 and moved into residential. And for those of us who have been working in Portugal for many years, this is a very similar wave to the one we saw in Portugal following the impatriation law, when the Portuguese government enacted the high value-added professional impatriation law. The residential prices in Lisbon went to the roof. And as a consequence, the highest and best use of many buildings was residential, and many buildings in the Baixa, in the Chiado and in Rossio were moved into residential. And as a consequence of that, in only 3 years, the little stock because Lisbon is a relatively small market of less than 5 million square meters counted by CBRE because probably the residential use as offices can take that number to close to 10 million. But the offices looking as offices, which is 5 million, all of a sudden went down by 600,000. I remember that perfectly. And the immediate consequence of that is that today, we are trading in Portugal at rents of EUR 28 and above. And we believe that in our Liberdade building, we can reach higher rents than that. We are probably going to hit the mark of EUR 30. And in the peak before the great financial depression in 2007, the maximum rent in Lisbon were in the region of EUR 22. I mean that was what McKinsey paid for Marqués de Pombal 3, which currently is a building of ours. If you compare that to Madrid, you will see that the rents that we obtained in the 2007 maximum were EUR 46 to EUR 48; in Castellana EUR 64, Japan Imperial Tobacco and Goldman Sachs and UBS. And those rents have evolved 17 or 18 years later to only to EUR 40 to EUR 41 at present in true terms. I mean a very different thing is the facial rent that some people is bragging about. But then you need to do the fit-out contributions, the free rent periods, et cetera. But when you calculate the real rent, we are at present at something between EUR 40 and EUR 41 in true terms in Madrid. And we believe that given the a fourth rate of our clients, which is very low in offices, there is some room for future growth. in the rents of city center in Madrid, particularly if the current, let's say, hyperdevelopment of the city continues. I mean Madrid is now a 7-million-people city, including metropolitan area, and is set to continue growing and reach very close to 8 million people by 2030. Madrid is at present economically is clearly a rocket. It's an island in Spain. So simply wanted to bring your attention to this because I know there has been a lot of bad-mouthing about offices, and many of you are influenced by the problems in San Francisco and the U.S., et cetera. But for the moment, I think the office market in Madrid has been -- has coped very, very well with work from home, which has been negligible in terms of real effects in occupancy. And also with the densification wave, which, by the way, now is returning. It's coming the other way around. I mean the pendulum has clearly shifted, and many companies now that they are a little less concerned about ESG and a little bit more concerned about the quality of life of their own employees. So we are seeing some of our clients now re-densifying for lower density rather than for higher density within our portfolio. Logistics, Page 15, a very good year. I mean with a good like-for-like, a little drop in Barcelona, which is not a trend, it's simply a consequence of 2 modules in the Parc Logístic Zona Franca that couldn't be re-let on time for the year-end cut-off date. But very interesting year in logistics, resulting in that 99.4% occupancy of the portfolio, which is absolutely remarkable. On Page 17, you will see that our investment in ZAL Port continues to perform very satisfactorily, although it is clear that it has become now a completely mature and stable business following the development of more than 370,000 square meters since we joined that were vacant. I mean we're in land status. So we developed a lot in that area. And now we have reached full occupancy and full development, and there is very little we can do in order to continue growing ZAL in its current framework. Shopping centers, Page 19, again, super strong year, which is continuing through 2025. Good evolution of footfall despite, of course, the drag that we have had since 2019, which is the cinema industry which, by the way, now seems to be resuscitating a little bit. But despite the drag of cinemas, very good footfall evolution and very remarkable tenant sales evolution. It's incredible how strong product consumption is. As those of you who know me, you know my opinion is we are a little bit doped by a lot of public spending. But one way or another, this is going into consumption, and at the end is reflecting in the performance of our shopping center portfolio. And then I will pass the floor to Ines, who will talk to you about valuation and debt position of the company.

Thank you, Ismael. Good afternoon, everyone. So as commented with Ismael, we'll go to Slide 22. Valuations are pretty much in line with 2023, which stands at EUR 11.5 billion, reaching a 5.3% passing yield for the entire portfolio coming from a 5.1%, which is derived or it implies a 4.5% net initial yield. In terms of how we come to this flat valuation, you see that in the existing portfolio, we've had a 21 basis point expansion in yield, that's on a gross basis. But on a net basis, it's been absolutely negligible for office and for shopping centers, slightly more impact for logistics. But this said, about EUR 16 million of impairment has been netted off by the 17% uplift in data centers. As you know, data center, we carry Phase 2 and everything that we have in land bank as cost. So this is just part of the valuation that will be created, and valuers are taking a conservative approach in this new asset class for us. Moving to Page 24. Well, as you know, we have a very sound financial structure. Thanks again for the capital increase that we carried out in July. That was a great achievement. And obviously, that was very well supported by you, by our own shareholders. But as well, this position has been strengthened or there's been a big achievement as Ismael commented before, having an upgrade from S&P and Moody's on the basis of sustainable lower leverage and expanding cash flow generation. We stand at a EUR 4.9 billion gross debt coming from EUR 4.5 billion, as you know, and we've commented this many times in the year because this happened throughout the first half of the year. We raised almost EUR 284 million of mortgage debt, and we also did EUR 100 million tap on the September '29 bond. Those are the main actions that we've taken -- that have taken place on the debt side. And the implied LTV, the 28.3%, it's about less than 10x net debt-to-EBITDA. We are at 8.8x net debt-to-EBITDA, which is a ratio that more and more creditors and shareholders care about. We've also commented about the average cost and that we are -- this average cost is going to increase definitely because we are refinancing our cheapest terms -- bond, sorry. 14% of our debt, and we are on Page 25, as you can see is mortgage based, but we remain with more than 85% being corporate. And again, our maturity for on the 26th of May, the bond, the EUR 600 million bond maturity, that's done. We did the homework back in 2023. And the next maturity only comes in November '26, so we still have a lot of time ahead of us. We'll probably start to calculate at the end of this year and on an opportunistic basis. Moving to investments and divestments. So I'm going on Slide 27. Well, again, you see there's been a modest activity both on investment and noncore divestments in the traditional asset classes. A little bit more active in data centers, but Fran will comment on that in a minute. And in terms of what we've done is basically consolidated the ownership of the adjacent building of our landmark Plaza Ruiz Picasso office building in the primest of Madrid, so that's only 4,500 square meter building. And regarding divestments, again, EUR 73 million disposals are double-digit premium at 10.8% to GAV. That's below our EUR 100 million target just because some of those transactions have moved to '28 -- to '25, sorry. We've been very focused on reconversion opportunities to residential, either selling land, office land or noncore office buildings to be reconverted by next buyer. And we're talking about 33,000 square meters in '24, and we have identified another 15,000 square meters in our own portfolio that could be reconverted in the future. In terms of value creation for logistics, as you all know, our pillars of growth comes from data centers mainly and from logistics as well. Data centers again will be explained by Fran, but I'm going to walk you through very, very briefly through the logistics. So our total land bank amounts to 511,000 square meters, plus we have a refurbishment in the Vitoria-Jundiz warehouse. It's 73,000 square meters, for which we are already in negotiations, advanced negotiations for pre-let. So overall, we have 40% of our portfolio with either pre-let or ahead of terms. We ran out of land in Lisbon, as Ismael commented before. And out of the committed pipeline, we are expecting to deliver all these warehouses, except for 68,000 square meter warehouse in Lisbon. We're expecting to deliver this on the first half '26. And the rent that will be generated, they're around EUR 20 million, EUR 19.6 million, which entail a 7.5% yield on cost and obviously, a double-digit yield on CapEx by investing EUR 171 million. For the future, we have another 244,000 square meters of land that could generate around EUR 13.8 million, also implying a 7% yield on cost or an 11% yield on CapEx. And with no further delay, I'll pass the floor to the most interesting part of the presentation that will be carried out by Fran. Thank you.

Many thanks, Ines, and good afternoon to everyone. So I'm glad to cover now our project, Mega, focusing on the achievements completed over 2024, but also giving some guidance on our expectations from an operating point of view for 2025 and following years. So as you can see on Page 31 and 32, we have summarized the current positions of our data center division that we internally call MERLIN Edged for the Iberian Peninsula. And it shows both the original 2 first phases that we have that we named Phase 1 and Phase 2, but also the former Phase 3 and Phase 4 now remain upsizing for that capacity that is located in the former 4 locations that we selected, which are Madrid, Barcelona, Bilbao-Arasur and Lisbon and the future pipeline. So in particular, I would like to drive your attention to the fact that this division has significantly changed over 2024. As you know, basically, we have full speed the equipment of the current 3 assets already built. But also, we have started the construction of Phase 2 following the capital increase completed at the end of 2024. In Page 32, we are updating the information on a phase basis and on an asset basis, that we will comment in more detail in a second. The first point you will notice is related to the fact that now Phase 1 comprises 64 meg as compared to the 60 meg we had before, and Phase 2 comprises 203 meg instead of 200. And this is due to the fact that this division has now entered into a, let's call it, industrial dynamic where we are not more -- anymore comprised by phases, but just focus on projects and the demand driving those projects. So we need also to consider that in this asset class, we benefit from the fact that all the equipment and construction we are doing is modular. So basically, we can move from one side to the other if needed. So it means that probably for next presentations, instead of allocating everything to Phase I and Phase 2 and then have these type of movements that we will explain in a second, probably makes more sense to have in line with other asset categories, operating assets with work in progress and pipeline. So if we go to the low part of the table, which is describing basically on an asset-by-asset basis, the first thing that you are seeing is that, that increase in Phase 1 is due to the fact that now the 6 meg of repower in Barcelona is, let's say, moving ahead. We got confirmation from the energy company that we will be having connectivity to this increase of power in the first half of 2026. So meaning that we move that capacity comprising this in the full building for Phase 1. Also, with regards to building 3 in Arasur, we have now, let's say, achieved maximum design capacity at 20, 20 meg. Originally, we thought we could go to 24 by best of the different level of density that the client is requesting. Basically, we have some limitation on the route. So we will fix that at 20, 22. In exchange, that power coming from the same service station, we are using it in the other buildings of Bilbao-Arasur of building 2 and building 1 that we have in Phase 2, reason why basically that capacity is increased now to 96 meg in total. Also, we are getting -- following a little bit, and we will describe this in a second regarding Madrid-Getafe, the possibility of increasing a little bit the power there, which also we are setting now in Phase 2. But as soon as we get confirmation, probably we'll move as well to Phase 1. That's the reason that probably going forward makes more sense to talk about operating assets with a pipeline. In terms of just upsizing, the news there, as we will talk in a second is the inclusion of a new project called Madrid-North with 30 meg immediate and 130 capacity -- upsizing to 130 that we have allocated to pipeline as well as the 2 projects in Extremadura. So going to more detail on a phase basis, I'm Page 33 right now. We have seen basically that we have changed a little bit this slide as compared to the previous one. The reason why is that during this year, we have advanced negotiations for several assets. And with that, and we have -- we are allowed basically to reduce the expected stabilized year from the regional 2028 into 2027. In terms of equipment, we ended the year as reported at 26 meg fully equipped, that will jump into 32 by the end of this first half, and we will achieve 58 meg by the end of 2025 in fourth quarter. We are taking -- we'll comment in a second as well that we are taking a bit of equipment in advance of the power that we will receive for Getafe in 2026. And the only part basically that for Phase 1 that is pending to be equipped in 2025 is the 6 meg of the repowering of Barcelona. And basically, the reason why is that we order now. But as this implies basically some equipment linked to generators, the timing of receiving that equipment matches with the time we are getting basically the supply as in first half of 2026. So as compared to previous slide, 2027 has disappeared, and now 2025 and '26 will, let's say, capture all the equipment that we need to deploy in that phase. That basically has moved us to EUR 88 million in terms of stabilized rent and just went a little bit up to 14.5% stabilized gross yield on cost for this Phase 1. Moving to Page 34 and in terms of commercialization. As Ismael described before, for Barcelona, we were able to fully let the assets to an AI hyperscaler at the end of last year. So the only capacity we will have there is the repowering the 6 meg as soon as they come. And by the way, we give a high probability that the client, which is the largest client we have in that asset, will take as well this capacity when ready. Regarding Bilbao-Arasur, we commented in last presentations that we were -- we have 2 options here because we were in conversations with a large hyperscaler for building 1, and so for building 3, the one which is already built, you see there and the second building. As our CEO commented at the time, this was basically something that we thought a lot because on one side, you can let 2 assets in a row, of course, in exchange of some -- sacrificing some level of rent. But in the other possibility, let's say, was going to continue with other clients and letting little by little with higher rent, but not basically with such amount of commercialization in one spot. So we decided to go with the large client over 2024. We passed all their onboarding technical homologation successfully, which basically comprises not only the equipment, but also operations and even financial capabilities to provide this type of services. But we knew both parties that basically, this building will be fully equipped by mid-2025. On top of it, they require some level of investment, additional investment on special fit-outs of the rooms. And in order to make or to comply with this date, we set a deadline in which basically the client need to decide whether they go binding with us, so we can guarantee this ready for service date or not. The deadline basically or the time basically elapsed, and the client was not in a position to be binding for that. So what we did basically is just to resume the previous conversation we have with the other 2 clients that are right now basically competing for that space. And we are open to them that they are not in exclusivity, okay? Close enough, one of these clients is requesting -- by the way, both clients are going for the full capacity for the 18 meg that are available right now in this building, which is constructed. And one of those is requesting us similar requirements to the one large hyperscaler that we were commenting a minute ago and also asking from our side, basically an option for building 2, which basically give us a little bit of hint that probably, the former client is still around. Here is an important thing, which basically we are seeing and we have received several questions on in that sense, which is basically the amount of projects that are being announced globally and in Europe and of course, in Spain, which basically do not show -- they show a lot of capacity and a lot of access sometimes to power. But reality is that there is not clear ready-for-service date, which is what is important for this type of clients. We need to make sure that when they receive the equipment, which are a large investment, we have commented several times that it's sometimes between 2 and 4x the amount of money that we are investing in equipping all these assets. So these guys, when they get all of these commitments, they need to make sure that once they receive that equipment, there's a place to put them in service. So all of this noise is, what it's doing is that at the end, they are super reluctant to commit to certain dates if they're not seeing that the landlords can deliver that space. This has provoked that a lot of -- and of course, this situation provoke that new clients come into the scene. In this case, basically, there is a new concept, which is AI as a Service of companies which are getting a huge amount of capital invested because they -- what they provide is not only the space, but also the servers already connected, which makes that these large hyperscalers at the end, they use these type of providers to secure or to enter into areas which are already fit-out and ready for service. And probably this is what we are having right now, which are in front of us. Regarding Madrid-Getafe, we have -- here was a mistake, we have 70% booking. In reality, we have 100% booked for the capacity which is available right now. It's the same client that we were reporting time ago, and the fact that it basically is not converted into let space is because this client wants the additional capacity of power that will come in the first half of '26. So we were holding that conversation now that we are approaching that available capacity is what basically is making more probable that we can convert this booking into that space as soon as we have a certain date. We are prudent people. So what we don't want is to commit to a date if we don't have certainty and consider we have suffered several delays for different reasons to get supply of that power as soon as we have a certain date, then it's when we will transmit this to the client and sign it. Moving now to phase -- what we call Phase 2 in Page 35. Following the capital increase, basically, we have started works in the sites, mainly Bilbao-Arasur and Lisbon. We have first paying, of course, the municipal tax, initiated the construction. We'll start compacting the land. We have tendered the construction works, issuing the purchase orders for equipment. We're incorporating new staff for these assets. So all of this has been started right after the summer, once we were in a position to make this type of commitment. That's the reason why we are reporting here CapEx commitments here in this asset class, there is also something which is specific regarding the equipment where you normally do not pay a lot of amount of money upfront. You normally limit that to 10% to 25% of the total investment. And then once you commission, once you receive and put it in service, the equipment is when you pay another -- most part of the payments. And of course, you leave some percentage basically for several months as a guarantee of that good performance. So what we are reporting here is the CapEx commitment. Of course, in order to [ incur ] in this CapEx commitment, we need to have the counterbalance of associated funding. And now that with the capital increase we have it is when we have launched all of these orders that are basically drafted here as in those amounts. In Page 36, starting with Madrid-Getafe and taking advantage of the experience we saw in Barcelona, where we are repowering that building. We have also asked for the same type of increase of power. There is a particularity here in case of Madrid as compared to Barcelona. In Barcelona, basically, the new power is coming from a second substation, not for the regional one, which is from a technical point of view, is a little bit more complicated in order to isolate one part of the building to the other. In the case of Madrid, it's a little bit easier because it will come through the same line which, in other words, means that the delay we are suffering in getting that power supply could be partially compensated for the fact that we could get a little bit more power and basically improve a little bit the numbers once we are in full operation. Regarding Bilbao-Arasur, we have completed the preparation work for the land for the second building. We have started piling on site at the beginning of February. And once we have finished already the tender of the construction companies, we are starting as well construction there. And regarding the equipment, in this case, we are ordering for building 2 full equipment, the 48 meg in one shot and not in different phases as we did in the past. For third building, we are progressing with the construction license, and we expect basically to be ready to start construction by beginning of 2026. And finally, Lisbon, we have started compacting the land right after the summer, which is progressing as expected. We are incorporating the piling as soon as the preparation of the land is being completed in the different phases. And in this case, as you know, it's a little bit different to Bilbao-Arasur, where -- and this is just because of the proximity we have to the Tagus River, which basically means that we have a longer period of time of compacting and piling as compared to what we have experienced in Arasur. We expect to have by last quarter of this year, all the works completed, not only for the first building but for the full campus. And what we can do basically is start a little bit before on the construction of substations and generator building and first building as soon as the areas basically are completed. In parallel, what also is a change that is interesting to comment is that seeing that the clients are requiring a higher density that the original projected. Remember that here, what we have for this 100 meg is 5 buildings of roughly between 18 and 20 meg each. What we are doing right now, what we have already requested and is looking very good, is to increase the density per building, increasing it to the 36 meg, which basically would mean that we will basically absorb that capacity of the 100 in a couple of buildings, and then we can move what we have commented for Phase 3 upsizing into the same plot. We are -- in commercialization, we are advancing with one particular client, but we need to be conscious basically that we need to confirm at some point in time the ready-for-service date. So as soon as we are advancing will be more -- we have more clarity on these conversations. And finally, as well as we did for the campus in Arasur that where we are basically, as you know, setting on-site photovoltaic plant very close to the site. We are doing the same in Lisbon, which is basically another of the requirements that normally the big clients request, which is basically to have energy production very close to the data center. Moving to Page 37, the former Phase 3 that we call now upsizing on Lisbon. As commented, basically, this 80 meg on repowering will be using the same in the first 5 buildings, the 120-meg extension links to the adjacent plant that Ismael commented at the beginning of the presentation. And the news here basically are the inclusion of Madrid-North, which is a project that we have closed, I mean, just this week with an initial amount of capacity of 30 meg. But very interesting, this -- as these lands allow us basically to go with further capacity, that we are planning for 130 meg more. And basically due to something, which is pretty interesting, which is that the substation that provides this capacity is completely adjacent to the plot we are talking about. It's a big plot, above 200,000 square meters of buildability. So there is capacity there to grow. And so what we are seeing right now in Phase 3 is an upsizing of another project in Madrid-North of 30 meg, in a way basically to cover as well the city with Getafe could be converted in the future into a data center campus as we have in other parts of Spain. And finally, moving to Page 38. This is Phase 4 with 2 projects that -- 2 of them basically we announced already, which is the one in Navalmoral de la Mata and Valdecaballeros in the region of Extremadura. So as commented in our announcement, the reason of selecting this area is because this is the region in Spain where there is more sustainable energy generation area, as compared to the consumption levels of the region. So in terms of capacity, this area comprises roughly like 30 gigawatts of capacity installed and only close to 5, not even 5 gigawatts of capacity is the one that the current region is using, which means that it exports 25 gigawatts of capacity. So taking that in consideration, we have been looking for a while of projects that could be -- makes sense in that region. And we found 2 of them, 1 is Navalmoral, which especially of this project is that this is a very well-connected area, is very close to the motorway, which means that it's basically next -- adjacent to the fiber cabling that connects Lisbon and Madrid. And also because it's urban land, so it's ready to be built as soon as basically we have to find clients for the project. We have announced that a little bit ahead of a big conference that we're holding -- were held in the U.S. at the beginning of the year, PTC. And after sharing this with the big hyperscalers and clients that they were taking part of that Congress, we received, I mean, a considerable interest of several parties and in particular, one, which is very interested on the 2 sites. Navalmoral is more immediate, but Valdecaballeros still need to be done some urban approvals maybe through the connections to the site. So I mean this timing encompasses very well the needs of that client. So we will basically comment in future calls as soon as we progress with that. So in summary, 2024 has been a game changer for our MERLIN Edged division, Phase 1 at full speed of capacity. Phase 2 already started. And with a lot of work in terms of construction, delivery of capacity and commercialization during 2025, but we think that we are very well positioned as one big operator in the sector in Europe.

Okay. Thank you, Fran. Well, basically, just to summarize and close today's exposition. The company has clearly delivered a very strong performance in all key financial and operating metrics during the year, like-for-like growth, occupancy, lease spread, FFO generation. So it's been a great year, a year that started a little bit dubious in the first quarter, but at the end, ended up being very, very good year for the company. We have reached historical maximums in occupancy. Our traditional asset classes are very close to full optimization, which goes hand in hand with what we have been telling you for many years now, which is that the reason why we decided to move into the data center business is because we felt that following the digestion and honing of the Metrovacesa's portfolio, there will be a point in which the company will have no significant further growth to offer to the market, and we wanted to find a new area of activity that was sufficiently enticing for the market in order to continue growing the company and convert it into a significant player in the European arena. In terms of value creation, we will continue during 2025 to develop logistic land. We have a wonderful portfolio distributed in key locations in Madrid, Lisbon, Valencia, now the refurbishment in Vitoria and Seville. And the yields on cost that we can achieve on the development of our own product are very significantly above what those similar assets trade for in the secondary market. So we will continue insisting in that route of growth. And the main route of growth will continue to be our Mega plan, as Fran was commenting. This is an important year for us because even logistically, we are receiving about from 26 and about 32 megawatts of equipment before year-end that we need to store and install in order to have it ready for receiving the power during the first half of 2026 in the cases of Madrid and the repowering of Barcelona. We need to start operations with whoever the final client is in the Basque Country during the second half of the year. We have only included in our cash flow operations a couple of months of cash flow in the Basque Country data center. If we can change a contract a little bit earlier and we can obtain some extra cash flow, that would clearly add into our guidance for the year. We continue beefing up our options and properties in -- with a view to honing our Mega plant portfolio in anticipation of what we believe is going to be a very significant wave of speculation once the available energy positions of the different substations across the national territory are made public during the year. I mean that will clearly spark a wave of brokers and traders trying to assemble land with electricity in order to basically flip positions. And we are one of the few real off-takers that exist in the market. So instead of simply waiting for traders and intermediaries and brokers to come here and offer us position with electricity at gold prices, we are taking a more proactive stance and accumulating some land bank similarly to what we did in logistics in 2016, '17 and '18 in order to enhance a little bit the profitability of our project because, yes, land is not super relevant for -- as a cost for the total cost of a given data center project. But better get cheaper land and more expensive if you want to extract that little extra profitability that we want to extract in everything we do. Of remark, the agreement with the regional government Extremadura in that respect, the first plot in Navalmoral de la Mata is fully permitted and infrastructured and electricity is within close proximity. So it is a location in which we could eventually start had we closed an agreement with an existing client. But this one is relatively ready and available. The one in Valdecaballeros will take more time because we need some road infrastructure to be done by the authorities, and we also need to bring the dark fiber from -- we are deciding which route are we going to take in order to bring the fiber to the location. But it's also a very interesting location with a sea of renewable power immediately around our site, I mean, 1.3 gigawatts of photovoltaic thermal solar and hydraulic plants in very close vicinity together with direct line to the new plant of Navalmoral, precisely, which is the one that is also giving us the backup for the same project. And well, regarding outlook for the year. As commented, 2025 will be a hard goods and helmet year, I mean we will be building. Data centers will continue draining resources from the company during its buildup. So it will be a negative contributor of cash flow during the year despite the fact that this year, at least the income figure is going to be much more meaningful. The one we have in the budget is around EUR 25 million. So it will be much more meaningful. But still, cost will outweigh income production in the data center division. And this will continue basically through stabilization. I mean we will clearly be positive in 2027. But during 2026, plus or minus, maybe we'll get into positive territory, but it will not be meaningful for the company. The year will be uneventful in terms of debt maturities. The next one we have is in November '26. So towards the end of this year, beginning of the next, we will start moving in the market and with the bank community trying to prepare in advance for the November '26 maturity. Clearly, if we move too early, we get extra cash, which is not good for the company because at present, the cash remuneration is not good and the extra cost of taking additional debt on the balance sheet is not good. But we are prudent people, so if we need to sacrifice a little bit of cash flow, we will do it because we want full safety and make sure that in November '26, we repay our existing bond. We are suggesting to our Board to pay another EUR 0.22 per share dividend on account of the 2024 financial year. That should be recommended by the Board and approved by the General Shareholders' Meeting that we will be holding in April and paid during the month of May, more or less. The estimated FFO for 2025 will be around EUR 0.54 per share, flattish as compared to last year. I mean I beg your pardon, but as commented, we have significant increased financial costs that we are digesting into our P&L and also the data center division is growing, but growing means also staffing it up and taking a number of expense decisions which are, for the moment, detrimental to our P&L, but I'm sure will bring very significant growth in the future. The data centers, many people asked us this morning how dilutive we expect them to be during 2025, in the region of EUR 0.04 per share. So in the absence of data centers, so we will be at EUR 0.58, around EUR 0.59 in terms of guidance of FFO. But of course, we need to continue paying for that division until it is mature and a big contributor to the P&L of the company. And this is basically it. I mean I see that the market didn't like what we did in 2024. So I took the opportunity to buy some additional shares this morning. Thanks God. I mean market volatility is always good for people who is in the know, understanding by in the know that we -- I mean, technically, we are out of blackout period since 8:00 this morning. So I bought after that. But I fully believe in what we are doing. We are not here in the data center business looking for extra hype in our share price. We are not here simply to brag about the fact that we are now part of the AI noise. We are here in order to look for cash flow. I mean we are trying to build a significant revenue contributor to the company. We are here in order to double up our cash flow generation and, if at all possible, also double up our dividend payment capacity. So that will take time. It requires a lot of patience. Patience is something that the markets normally do not have. So I know it's going to be a bumpy road between now and 2027 when people start to see that there is something behind the data center name. It will be a bumpy road, but I am fully confident on what we are doing, and I'm sure that you will all enjoy the fruits of what we are seeding today a couple of years down the road. Some of you have requested some remark on what is happening in the world. Of course, I am not a geostrategic expert. I have no f****** clue of what lies in the mind of Mr. Trump. I only know that we operate in Spain, Portugal. Both countries bear a very significant deficit with the U.S. in terms of trade. So if tariffs are imposed on Europe, it will not be the guilt of Spain and Portugal. I mean Spain particularly carries a EUR 10 billion deficit in trade with the U.S. I know that Europe, in general, bears like a EUR 50 billion superadded, mainly in the export of goods because we are deficitarian in the import of services. But clearly, not Spain, Portugal. Spain has been put on Tier 1 in terms of import of technological products from the U.S., which is very good news because that was really a reason for concern. So we can enjoy here or our clients can enjoy here the state-of-the-art technology in terms of GPUs, CPUs, TPUs and everything, which is very, very good news for us. And we will continue trying to make sense of our relationship with our current U.S. and European clients in the future in our data center division. So without further delay, I think we can move into Q&A. I pass the floor to Teresa, who will organize the Q&A session. And we are -- we will -- we are here to respond to your queries and questions as best as we can.

Thank you very much, Ismael. [Operator Instructions] The first question comes from the line of Marc Mozzi from Bank of America. No, sorry. So the first question comes from the line of Florent Laroche from ODDO.

I would have 3 questions, if I may. So my first question would be on the advanced discussion that you have for 18 megawatts in Bilbao. So I understand that you have -- you don't know when it will start, but maybe could you please tell us what you have taken in your guidance if you have taken something for 2025? My second question would be for offices and shopping centers. So we understand that you have optimized notably occupancy. So what kind of dynamics can we expect for 2025? And my third question would be on data centers. So we can see that you increased a lot the potential IT capacity in terms of megawatt. So all the development cost a lot of money. How do you manage your development risk on this data center before starting development of new building, of extension of new works? So that would be my 3 questions.

Okay. Right, Florent. Look, regarding the first one, I will let Fran respond to you. Basically, I guess you were referring to the fact that we had conversations during 2024 with a certain client for building 3 and 2 in Bilbao, which is now has been replaced by conversations for building 3 and then an option on building 2. You can explain, Fran.

So the 18 meg basically for building 3 will be ready, so what we call ready for service by the end of second quarter 2025, so end of June, beginning of July. Once you basically -- if you have a contract signed, you need to count basically, you have a couple of months where the client normally do their fit-out or we do the fit-out for them, which is normally what we are doing so far because of the nationality of the client. And then once you have that ready, it's basically when they start paying. So that's reason why Ismael was counting. I was saying before that we were counting for a couple of months for -- of cash flow during this year for this asset. Things can change depending on the level of fit-out that finally they convert, but this is basically the visibility we have right now. So that's basically the impact. So the guidance basically is based on that assumption.

Okay. Well, regarding offices and shopping centers and the dynamics that we can expect in 2025. I think that in shopping centers, increasing occupancy will be a hard thing. So occupancy will remain more or less flattish. We are going to continue capturing some reversionary potential mainly through variable rents and more income because the centers are better attended. I mean there is more footfall. And as a consequence, our tenants are selling more. So the marginal propensity to pay rent increases. And as such, we could capture part of it in the rent renewal plus inflation. So the like-for-like will not come by positive variation in occupancy, will come mainly through release spread and a little bit of inflation passed on with maybe a little income from mall spaces and the boot into operation of Marineda if and when it is finished. I mean we are finalizing the construction works. It will mainly hit 2026, but there will be also some contribution, very little in 2025. In offices, in principle, we are projecting a relatively flat year, 2 in terms of occupancy. It is not easy to grow occupancy significantly with a big portfolio like ours. But I know that during the year, we will also be negotiating a number of big leases that eventually, if you hit one of those, you can add a little bit of net occupancy to your portfolio. So very interesting dynamics in that market. Rents are clearly going up slightly but steadily. So I like that. We are passing on inflation without a problem. So the like-for-like in this case, occupancy, we cannot bet on it, but we could add a little bit of occupancy. Clearly, rents release spreads will little by little recover. I mean we have had a period of relatively low release spreads as we -- because we run too fast by applying inflation following COVID in the high inflation period and took up significant dent into reversionary potential. But now little by llittle, we are again creating a cushion between passing and reversionary, and we should be getting some release spread during the year with positive inflation. And regarding data centers and money funding, two things. One, Phases 3 and 4, don't even bother about them because physically, logistically, we will be occupied building Phase 2 till 2029. However, I would also like to introduce another concept, which is fungibility. So don't be surprised if in Phase 2, we decide to run faster with the first building in Navalmoral and slower on the third building in Lisbon. If that happens, don't be surprised. I mean as Fran commented, most of our equipment now is on purpose is in modular. So the gensets are exchangeable from our different skids, the UPSs, the transformers are now exchangeable among our different sites. And depending on demand, we could adapt by moving that demand to one or another particular place. But in summary, we will be building 200 to 200-and-change megawatts of capacity between now and 2029. Don't be led to believe that we are going to be building 1 gigawatt of capacity between now and 2029 for one very simple reason, because it is impossible. You need to send project managers, engineers, you need to have purchasing managers. You need to -- you need a lot of logistics we, on purpose, chose to do second phase mainly in 2 existing locations. Had we decided to do second phase through 10 different locations across Europe, I would have perceived much more significant risk of execution in that plan. So we wanted to be strong in the locations that we know and where we have already a lot of personnel deployed. So playing with that, think about this concept, which is fungibility. We will -- eventually, we can exchange or move parts from here to there, but we are going to be building exactly the number of megawatts for which have been funded, through the capital increase and with the eventual bond tappings that we will be doing during 2025 and '26.

The next question comes from the line of Marc Mozzi from Bank of America.

I have 3 questions. The first one is regarding your 2025 FFO guidance. Can you give us a bit of more color around what are the moving parts, specifically on the financial cost, net financial costs, including potential income from your cash on hand, which is EUR 1.5 billion, if I'm correct. And if you were to give us a high range, what could it be? Because if I understand you correctly, your EUR 0.54 of FFO in '25 is kind of a very, very conservative guidance and you're going to easily beat it. So just give us a little bit of color on that one. That's my first question.

Okay. All right. So are you...

So basically, on the moving parts, Marc, as Ismael commented before, our data center ramp-up is going to -- it's costing us -- let's put it this way. Even though we are increasing our top line in data centers by EUR 23 million, roughly in '25 from EUR 2.2 million to EUR 25 million, that's been eaten by the profits and the overhead in the division plus the financing costs that we need to bear. As you know, the homework that we did in 2023 was great because it enabled us to pay the bond in May, the EUR 600 million bond in May with available cash. That's great, but it's also costing us more financial expenses. So these are the 2 moving parts, the data center drag and the huge financial interest that we're having, which on a net basis is even higher because as Ismael commented before, in '24, we've been benefiting from nice financial income coming from the deposits. But unfortunately, we cannot get that remuneration anymore for the cash flow that we still have. So cash -- having a lot of cash is great, especially for rating agencies, but it's not very efficient, if you wish, as we move forward with the data center rollout.

If you want, let's say, a range or a bracket, I can tell you that it's complicated to provide at present. I mean particularly without knowing the date of operation of the Arasur lease and the hedging and the evolution of the interest expense during the year. In a good day, we can move to EUR 0.55, but don't expect, I mean, EUR 0.58 or something like that. Be mindful of one thing, which is that we, again, as commented, we don't capitalize expenses. So if we were to capitalize expenses, which is probably the figure that many people have in mind, that EUR 0.54 will be EUR 0.59 and that EUR 0.55 will be EUR 0.60. So cosmetically, the figure will look much higher. But the reality is that we are spending a lot of money. Just last year, we grew the gross financial debt by EUR 400 million. This year, the gross financial debt will continue growing as we continue spending in the different CapEx lines. And as a consequence, there is a significant interest cost that we need to swallow and we need to digest till we reach stabilization. The bond that we are killing now in May had a coupon of 1.75%. Our current cost of financing for long term, something between 7 years and beyond it's well above 3.5%, I mean between 3.5% and 3.75%, depending on the tenor. The bond that we are going to be killing next year in November has a coupon of 1.875%. So all that needs to be accommodated into our P&L. However, at some point, we will reach a standard that will not be exceeded. And once we are there, our P&L in terms of financial expenses will be absolutely stable. But for the moment, we are still adjusting to the new environment in interest rates.

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

Look, Marc, in reality, we are not cutting. I mean the figure we are distributing is exactly the same. And we also continue adhering to the same policy, which is basically 80% payout based on our existing adjusted FFO. We have taken into consideration your reflection and your commentary. We have been thinking about what to do because it will be very easy for us to increase the dividend and pay EUR 0.44. As you rightly commented, it's only EUR 20 million more, but two things. First, there is people in our shareholding base who is, of course, dividend seeker, and we need to clear those. But we also have people in our shareholding base who reason in a different way and say, "You have raised money from the market in July and are giving back money to the market in the following 2 years. Why?" I mean I prefer that you spend that money in more generator sets for your data centers. I mean don't give it back to me because it is not very sensible from a purely financial standpoint to be asking money with one hand and be giving back the same money to shareholders with the other hand. I mean -- so we prefer to be a little bit orthodox. I know we run the risk of looking idiot. We run that risk in many decisions we take, but we prefer to be a little bit [indiscernible] and make sure that we do things by the book and hope for the market to understand that when you do a capital increase, your EPS gets a little bit diluted and hence, your DPS gets a little bit diluted and take it as a normal thing and then hope for a better cash flow and DPS generation in the future. That has been our reasoning. But I -- we don't have the revealed truth in our hands. So it might well be that you are right. And giving EUR 20 million extra this year and EUR 20 million extra next year and keeping the dividend at EUR 0.44 is better understood by the market. I mean I can tell you we still struggle with our Spanish media and the regulator to explain that we pay dividend twice per year. Because in most newspapers, we are purported as paying 1.9% dividend because it's twice per year, and they take the last figure reported and they only take half. So sometimes with your best intention, you take decisions and then the market doesn't even f****** understand what you are doing. So I know it's hard and you could be perfectly right, Marc. But we have taken this decision, and I beg your pardon, and I hope you understand that there is no big difference in giving EUR 20 million more payout to our shareholders while we are still spending heavily in data centers.

Yes, fair. It's just sending the wrong message. That's the only point. And my last question is regarding your NTA. How much of your data center capital gains -- potential capital gains for Phase 1 has been yet recognized in the NTA? Or let's put it differently, how much you still have to recognize on your Phase 1 in terms of capital gains in 2025 and '26, of course?

Sorry, you're talking about that -- how much has been the uplift...

No. No, no. How...

Equity gain.

Yes. What is the expected equity gain in the future. I mean to me...

Or how much on the other side -- I mean, I don't want you to give us how much you're going to expect, but give us how much you have recognized already as capital gains in your Phase 1.

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

Just for Phase 1?

Just for Phase 1, yes. And then you have, of course, all Phase 2 and all the land that we are accumulating which, as you know, we carry it at cost.

The next question comes from the line of Thomas from Deutsche Bank.

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

Okay. Well, of course, we were concerned, like everybody else, when we saw the DeepSeek news. However, what we did is basically consulted with our own engineers and with our clients. I mean we are in the middle of a certification project with NVIDIA as preferred partner. And we asked them and we asked the hyperscalers and we asked the Artificial Intelligence as a Service operators. And we saw a little preoccupation. And the truth is that we saw little preoccupation. What they tell us is that neural networks exponentially consume more energy as you add one layer of complexity. So once you have a neural network, which is already working, you add one extra layer and the consumption doesn't increase by 10%, increases by significantly more every time you make more complex your model. So together with that, we haven't seen one client even blinking about in the current conversations. I know you are all concerned about a certain TD Cowen report stating that Microsoft let go 2 leases in the U.S. amounting to 200 megawatts, et cetera. Well, all I can say is that I don't know what were the specifics and the circumstances of those negotiations and what was the reason, specific reason why Microsoft left those contracts though. But I don't see any abatement in the demand at present in the market. What I do see is that, particularly with hyperscalers, is that as much as they are wonderful magic organizations technologically speaking, and they do wonders in what they do, organizationally, they are complicated. They have grown very, very big. And in some cases, the administrative, the admin that accompanies that growth hasn't grown at the same speed in terms of efficiency, et cetera. So they tend to be very, very, very complicated animals. The infrastructure people can be very eager to take a certain position. They might drive you mad with different iterations of equipment layouts. Now I want liquid cooling. Now I want air. Now I want 130 refrigeration. Now I want only 60. Now I want larger hacks. Now I prefer shorter hacks. So they can drive you mad with all that, and you have a frank and open dialogue with infrastructure people. But then when the technical conversations are finished and they go for approval to California, sometimes it is quite complicated. So to fill that void, what we have seen is that they are using the AI as a Service guys. Because the AI as a Service guys are younger companies, much lighter, much leaner in terms of structure. They are full of cash, and they are taking blocks of capacity as if there was no tomorrow. And in many cases, at the end, they end up putting that capacity at the service of the same hyperscaler who couldn't get the approvals on time in California. This is what we see. We see also some Chinese demand in the market, which is new, very interesting. And we are starting to see some hints of European demand, which is a very, very promising circumstance, particularly because by operation of the EU data sovereignty act, starting 2026, about 3 gigawatts of IT capacity needs to be repatriated to Europe, which is at present is European capacity, which at present is completely spread throughout the world, so needs to be repatriated into Europe. So for the time being, we are not super worried. We will grow with the market. Of course, our long-term ambition is simply to have a fair market share of a tiny market like the Iberian Peninsula. So at present, in Spain, the total installed capacity is like 140 megawatts. Come 2030, the estimates are that it should grow to something between 600 and 800 megawatts. All what we want to have is a fair share of that, which is between 200 and 300 megawatts, which goes hand in hand with our Phase 1 and Phase 2 deployment. So not overly concerned about the worries that are now isolating the market regarding DeepSeek and et cetera. We believe that there is enough space for us to continue growing in our home market.

So the other question is on pricing power in the data center business. I mean how would you assess the situation? I mean it seems like pretty strong on your side. Maybe also what was the reason momentum of market rental growth and what do you expect ahead? I think currently, it's the EUR 120 level per kilowatt per month. If you could provide some color on this.

Pricing power, Thomas, at present, even we are talking only in abstract because very few leases are being signed, but even in abstract, we see that the rents continue to go up. Average rents now for a 7-year lease oscillate between EUR 120 and EUR 130 more or less, and this is significantly above what we initially underwrote when we built our DC model down in 2020 and updated in 2022. I mean just to give you an example, the updated Phase 1 average rent for us was EUR 112. And regarding Phase 2, we underwrote EUR 118, and we are comfortably exceeding those rents at present in all of our leasing conversations. So the pricing power remains. It is true that if you want to lease 120 megawatts in one block to a hyperscaler, then you better be prepared for some price tension. I mean they will stab you to death, I mean, on the back. But precisely what is new in the market and provides you with some difference in that regard is that 3 years ago, the only counterpart you could have in order to lease more than 20 megawatts was a hyperscaler. Today, you can lease more than 20 megawatts to 15 or 20 different counterparties in the market. So -- and what is really scarce is IT capacity. So you are the holder of a good, which in the market is scarce, which is IT capacity immediately deployable. And the number of procures, number of offers for that capacity has grown significantly. So generally speaking, the fundamentals for offer or demand/supply in the market are good for the owner of the capacity. Anyway, I mean, the only thing which is certain in life is tax and death. So we will see how the thing evolves in the coming years.

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

Okay. I guess, I mean, we can talk about our home market, which is Spain, Portugal in general. As my colleague, Fran was a little bit hinting some time before when he was presenting his data center rollout, the biggest problem we have at present is the amount of noise that has been created. So my mother believes that everyone is doing data centers in Spain. Then the truth is that if you take a car and go travel Spain in secondary roads and big conservations, periphery of big conservations, the number of machines that you will see breaking holes on the ground in order to build a data center is exactly 0 at present. In fact, there was one little data center being built in Cerdanyola del Vallès in Barcelona that was originally started by Panattoni. Panattoni flipped into AQ. AQ flipped into somebody else. So the truth is that nothing has started, yet it has already flipped like twice. And like similar to that, everything. I mean many people is in this business in order to heat up its share price or brag about the fact that they are super modern and they are working together with the AI models. I don't know that the truth is that there is a lot of noise, very, very little reality at present. So competitive landscape, as we speak, in Spain. If you, Thomas, you come to Spain and you require 20 megawatts immediate, understanding by immediate, before end of 2025, you will have one counterparty to talk to. And that counterparty is talking to you now. And then for 2026, I think virtually the same, maybe 2. If one of our colleagues finishes what we believe they are into, maybe 3 in a good day. But very, very, very little competition at present in our market. I don't know in the rest of Europe, and I'm not super familiar with what is happening in the flaps. I really don't know. I cannot be very specific about it. But in our home market, very little competition. And importantly, since you decide that you fancy to do some data center, why not? Till the moment you erect, open, equip, source electricity and start operating with blinking red and green lights in your data center, if you are Superman 3 years. But more normally, it will be by 5 years. So time to market is of the essence. And I don't really see many people even starting development at present. I guess they will start in the coming 2 years, a number of new developments will start. But for the moment, there is nothing.

The last question comes from the line of Fernando Abril from Alantra.

I have 2 or 3 questions, please. First, with regards to the -- from a data center tenant, besides the beauty of Extremadura, why do you think a tenant may opt to go to Extremadura or to Navalmoral de la Mata instead of Bilbao? I would like to understand the drivers behind it. Is it lower rental cost, lower or cheaper energy cost? Or I don't know, the close -- the proximity to networks. Your views on this would be very helpful. Then second, you provided a very good color on the logistics pipeline with rental potential and pending CapEx and so on. Do you have same figures for the office pipeline? You have several buildings. You are working on several buildings like in Lisbon or in Madrid. Yes, any color on that would be also helpful.

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

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

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

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

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

Celine, thank you. Thanks for your question. Look, it's very hard to predict 2026 at present. There are many moving parts that can provoke an effect in our P&L and our FFO generation capacity. The most important of it all is basically interest rates. So if for some reason, interest rates, if you really believe that interest rates are going to go down in the European Union, then eventually, we will be able to replace our existing debt or add existing debt at a less meaningful cost, in which case, clearly, this will have a beneficial effect. Second, if we are faster in leasing up data centers, either in the Basque Country or in Madrid, eventually that will also provoke an increase in our cash flow. So there are a number of things that can weigh in the final result of 2026. However, in order -- I know you don't like realistic views, but in order to be realistic here, I would assume that 2026 will be positive compared to '25 but relatively flattish because take into account that in our assumption, the debt cost in 2026 goes from the 2.6% at which we expect to close 2025 to around 2.9%. So those 30 extra bps of cost in debt will significantly erode our cash flow generation capacity, let alone with the fact that we are going to be onboarding significantly more debt as a consequence of the data center development. So we have to be realistic, and this is what I can tell you at present. However, of course, we will do our best to make 2026 as visually attractive as possible for you all, but we have to be very, very prudent and realistic.

Okay. Thank you very much. There are no further questions. Thank you for bearing with us for almost 2 hours. If you have any further questions, don't hesitate to contact us. We'll be happy to call. Have a good weekend. Thank you very much.