MERLIN Properties SOCIMI, S.A.

Thank you. Good afternoon, ladies and gentlemen.

Welcome and thank you for joining MERLIN’s 9 months 2021 trading update. We remind you that we will not be using additional materials in today’s call other than the executive summary that we published last night.

Our CEO, Ismael Clemente will walk you through the main highlights and then we will open the line for Q&A. Miguel Ollero, our COO is also here with us for any questions that you may have.

With no further delay, I pass the floor to Ismael. Thank you.

Thank you. Good afternoon, everyone.

Operationally, the quarter has been a relatively short one given August, but the outcome has been very positive overall. And we also have good visibility on the fourth quarter and year 2022.

The top line of the company is clearly improving following COVID. Of course, we have a dragging effect of the first half that will only flatten a little bit towards year end.

But in this quarter, we are printing a negative like-for-like rental growth with minus 1.2, recovering 1 point from the situation in June. Our revenue figures are not yet capturing the inflation that we see which in Spain is significant, also elsewhere in Europe.

We might be entering a period in which for the first time in many years we could have positive print in both indexation, occupancy growth, and release spreads in the coming months. We have continued providing some rent reliefs linked to COVID that totaled now $23.7 million, with $4 million recorded in the quarter.

Again, that’s always not straight line, but simply recorded a one-off expense. This is mainly given the fact that Barcelona is taking longer than expected to recover owing to the absence of tourism.

Lisbon has been very slow in lifting the lockdown. I mean, we have had restrictive measures in shopping centers still well advance October.

And we also have some lines of businesses like, for example, cinemas, which continue heavily affected by the tail end of the pandemic fears. So, of course, we have continued protecting those clients, but the absolute figures as you can see are significantly diminishing as compared to what we experienced last year.

Collection rates are fantastic. And when we see – when we say non-eventful levels that means 2.3% in shopping centers, which comes significantly down from past figures given that the level of zombification now is minimal.

We have been very, very successful in replacing zombies by new healthy tenants and we have done it in a more than one-to-one ratio, because occupancy is growing in offices and logistics when we say non-eventful means close to zero. So in terms of FFO per share, the production in the month has been slightly above $0.15, which together with the $0.13 we produced in the first quarter and the $0.14 we produced in the second totaled $0.43 as of September this year, which is a 2.3% increase compared to the first 9 months of 2020.

When comparing apples-to-apples, you should also take into account that the figures in 2020 didn’t include the staff compensation in full. So, we are starting to remunerate back at least at the short-term incentive level, the middle management of the company we cannot keep the same extraordinary measures we applied last year where everybody was simply receiving fixed salary.

I mean, this year people are doing an extraordinary job and I believe at the middle management level, they deserve some recognition by the company. So in the absence of that, we are comparing apples to apples, it will have been €0.45 comparing to 9 months 2020.

We are well on track to surpass the guidance for 2021, which we maintain at €0.56 per share. I know there has been some debate regarding this.

It will be simply very easy for us to update this guidance. The only reason why we don’t do it is because while by signing contracts, we have a very good visibility and can easily forecast occupancy levels in the three business areas in which the company operates.

In terms of cash flow, we will know whether a new strain of the back coming from the Far East or that gives us a very bad Christmas campaign or the bankruptcy of a tenant may eventually damage us on the cash flow generation capacity. In the absence of any extraordinary effect, it is clear to any observer that the final print of cash flow for the year should be more in the region of €0.58.

So, if that serves as our new guidance, happy to provide it, no problem. We haven’t conducted any revaluation in the period.

So, the NPA per share stands at €15.69, which is 1.5% year-to-date above previous figure. In terms of business performance in offices, it’s been a relatively busy period with more than 200,000 square meters contracted.

We have negative like-for-like of 2.1 mainly as commented given the dragging effect of a bad first half. But the release spread is – continues to be quite healthy at 4.8%.

This is mainly a consequence of the delta between our passing rains and market as you all know, because we are just getting out of the woods in terms of weakness of the demand. I mean us commenting in a number of occasions during the COVID period, the problem in at least in the Spanish market has not been a problem of oversupply, has not been a problem out of over indebtedness and the stress of the office players.

It’s been mainly a blunder demand, which by the way, seems to be correcting as we speak, because we have had a very busy third quarter we are having a very busy fourth quarter. And the agent – the market agents are telling us that 2022 is going to be a year of very high activity in the office market.

I mean, using Madrid as a proxy is the average pickup in the city gross pickup, because for net pickup we need to recover the pre-COVID employment figures that for gross pickup, if in a normal year, we do 450,000 square meters next year, people is forecasting between 600,000 and 700,000 square meters. So, it’s going to be a year of very significant activity.

And we hope to be profiting from that activity in order to continue filling up our portfolio. The final occupancy of the quarter has been at 89.4, 30 bps above previous and the visibility towards CRM points to around 90% occupancy, in order to go back to 91% that we posted in 2000, we need to wait to see what happens in 2021.

In ‘22 – sorry, but it is clearly our goal to go back in ‘22 to the 2020 figures at least. In logistics, we have contracted again more than 200,000 square meters with a like-for-like of only 0.6%, but this is owing to the occupancy drop we had in the first half and we cleaned up a number of temporary contracts we have and one bankruptcy that has happened in the portfolio.

Otherwise the release spread has been 3.2% occupancy. It stands at 96.5% trending to around 97% towards year end, so that is technically full occupancy because there is always tenants that are moving in and out of their portfolio.

In shopping centers, I am very pleased to see what has happened in the quarter, which provides also some insight and gives value to the decisions that we took during the pandemic. Yes, the like-for-like has been minus 0.6%, but the release spread has been 5.9%, people is accepting the step-ups without significant problem and the tone with the retailers is positive.

I mean the occupancy cost ratio, the OCR is very healthy at 12.4% meaning which is quite comfortable compared to what we have seen all the people reporting across Europe. So, people is happy and as commented previously is paying.

So, we are not having problems of collection in shopping centers and there is peak with all retailers also on the legal front, because as you know, we have very little litigation arising out of the COVID. Of the COVID period and the replacement of zombies that we have commented so many times, with many of you very worried about what is the level of zombification and us providing you with figures with an analysis of the red flags, the yellow flags, the green flags and is becoming a thing of the past.

Of course, like in normal retail activity, we continue having concepts that do not fly and as they do not fly, they need to grow. But we are replacing those concepts with relative ease and with shopping centers remain very well occupied and functioning, I would say very close to normal run rate, yes, when you compare September to September, you are minus 15% and minus 9% in sales, but, you need to take into account that in September, we still have restrictions in Catalonia and particularly Lisbon.

So, when we look at these figures in the new quarter in the fourth, they are going to be more in the mid-single digit RF. So, very, very interesting to see the noise the encouraging recovery of the physical commerce despite all what we have been talking for a long time in this type – in this course, every quarter occupancy has recovered to 93.8% it will trend to around 94% at the end of the year, it is very difficult to go significantly up from this figure because as you know, we have one shopping center in the portfolio, which is has a relatively low occupancy and drags the whole average down I mean, in the absence of that shopping center, we should be above 96.5% and 97%.

So very close to, to full occupancy and we have a number of shopping centers already in the portfolio, which have waiting list in terms of tenants. Very importantly, in offices, there has been silent effort to renew a number of big names, a number of big clients.

This effort has resulted of course, in have taken at all in terms of release spread because we have – in some cases we have given up a little bit in rent, but what is clear is that the office work of the company has now been extended from 3.4 years in the 6 months, first 6 months of 2021 to around 3.7 years in the – at present in 9 months. And although these might look like minimal when translated into office rent backlog that is a lot of money.

So we have moved from around €700 million backlog as of 6 months to more than €900 million as of 9 months. So the afford that the office team and the office leasing team have been doing during the year in very difficult circumstances needs to be praised.

Well, in terms of how the quarter has evolved, we proposed to the Board of Directors to start normalizing back a little bit the dividend policy of the company. The Board has decided that €0.15 will be distributed against financial year 2021 with immediate effect.

I mean, there is a payment to be expected around beginning of December and the rest of the dividend will be paid after the shareholders meeting next year, I mean, when the final amount of dividend is approved, we are guiding to around €0.40 of dividend in total, which for us, we are shareholders of the company is a good outcome because we have guided to 2 years of flat €0.30, but this year, we do not see any longer significant pressure on valuations. So, we are not too much afraid in terms of LTV, and as a consequence given that we are generating back a lot of cash flow, it is fair that we share that cash flow with our shareholders.

Also, that we operate under the Spanish so similarly regime, in the rate regime. So, for those of you who are complaining that you don’t want to receive dividends, you want us to reinvest everything in highly accretive activities of the company, which is something we will love that you need to know that it is also good and healthy that our rate distributes dividends.

So we are going back to dividend distribution. I know one of the questions that you will make is on non-core divestments.

As you know, we were relatively early in the year we disposed of around 50% of our objectives for the year, we guided to between €150 million and €200 million of non-core disposals we have already affected around €109 million. But there is more to come between now and year end.

And we expect to be in the upper end of the range or probably above the range in terms of total amount of disposals moment in which we will move into more important disposals next year. That is basically on my side.

We are open to Q&A and happy to entertain your questions. Thank you.

Thank you. Operator, can you please open the line for Q&A?

Hello, thank you very much for the presentation. I have three questions, if I may.

First is on occupancy in offices. So I know.

You’ve improved your outlook for the year. I would like to know the drivers behind this.

I don’t know if existing clients are wanting to increase their laser space or new clients or any specific market that is outperforming I don’t know and the drivers would be very helpful? And also linked to this and just to clarify, so are you forecasting occupancy to grow in ‘22 from 90% levels?

So that is the first question. Then the second question is on retail.

I don’t know if you have any update on how run the negotiations are going. You provided some detailing in the previous quarter.

I now, is there anything new? And then last question is with regards inflation.

So I don’t know if you can comment a bit on this topic both on the top line and cost side. I don’t know if you have rental cups or not.

And also, I don’t know if utilities, you normally tend to recharge those coasts to clients or not. And I don’t know if you have any forecast of at an OEI level for the next year considering current inflation?

Thank you.

Okay, Fernando. With regarding office occupancy, the main drivers that we see is basically increases of space by existing clients and a number of new fill ups that we have done during the quarter.

Notably, until will be more visible next year, we see some increased activity in the so much demeaned A1 corridor. Why is that?

Is this a mystery? No, I believe there is people, who is already acting in advance of the major infrastructure works, which are being carried as we speak by the municipality of Madrid.

So, the A1 corridor is clearly improving, I mean, just in this year, we have been able to sign close to 14,000 square meters in the A1 corridor. So, it’s quite encouraging, because this is an area, which has caused us many headaches in the past.

We have always bet on that area, because we thought the future of Madrid was revolving around that area when the was carried out. The future of the is closer and closer in the horizon.

The municipality has started to re infrastructure the area we see is provoking much more tenant interest in the area, because it is evident to any external observer that it is the area in which there is more office concentration around Madrid and office concentration is an attractive point in itself, because it provides the possibility of meeting other people that works in other offices. So, it’s being completely dispersing the city is not necessarily what tenants like.

In terms of retail, well, the rents that we are renewing forward to processing on ‘22 to 2025, we commented and the situation remains the same that the gross to net had worsened. I mean, we used to have a gross to net of 4%.

That has been a relatively stable historical average. And as of today, the contracts that we are signing forward ‘22 are starting with already with some incentives that have taken those contracts to a gross to net leakage of around 14%.

So, this is why we were commenting on a number of occasions that we see a real rent reduction in the region of 10% as we speak, but in the form not of lower nominal rent, in the form of bonuses, which as you know, if you are familiar with shopping centers, those can be withdrawn over time. So we like what we see, because remember, in many occasions, when we have been discussing about what would be the effect of e-commerce, on the physical retail.

We have in many occasions talked about a future or new normal in the future of around minus 20%. It looks at least for now, it looks that this new normal is more in the range of minus 10%.

And in the form of bonifications of rent, which may point towards a lower number as the tenant sales stabilize and they are stabilizing. I mean, we are seeing a number of our shopping centers fall in this quarter, but more to come in the next quarter, which are already selling more than in 2019, which is extremely positive.

It looks like the lion’s share of the effect of the biggest – bigger e-commerce penetration is being taken by high street retail. So shopping centers, particularly good old run shopping centers, or good dominant shopping centers are defending themselves reasonably better than we all expected from the threat of online e-commerce.

Regarding inflation top line versus cost, look, in a company like this, I don’t want to be too positive because of course inflation is not a nice thing in itself. In a company like this, inflation has a big effect.

Because on the top line, one thing I can tell you is that 100% of the rents of the company are indexed to inflation. Many people these days, is now starting to ask, what is the elasticity of the tenant to accept inflation hikes, these are the same people that thought, we will only collect 50% of our rents and the same people who probably thought work from home will be 50% and retailer market will hit hard.

I mean, the reality is that it is much more dangerous to get inflation in your top line when you are operating in a city, where rents are already significantly inflated. So in Madrid, as compared to base 100 2007, we are currently at 75, 80, taking time as a proxy of the average of the market.

So being at 75, 80 most of the effect of inflation will be a catch-up effect compared to the previous peaks. In the cities where rents are already at 130% of the previous peak, I would worry more about inflation, because that will create very significant effect in the rental levels.

But we think it’s going to be at least we are going to enjoy for the first time in many years, we are going to enjoy a positive effect from indexation. In the coming months, we have been always obtaining real growth in rents with positive really spread that almost for the last 2, 3 years we have always posted negative inflation prints.

So for the first time, we are going to start let’s say enjoining, if I can use the word inflation was in the case of the BBVA contract, which is also the subject of many questions by analysts. Will you have seen the inflation print of the advanced indicator provided by Eurostat of the HICP of October, which is 4.1%, I mean, unless the figure is changed, when they release the final data on the 17 of November, that we mean an adjustment in grant to the BBVA in the region of 6.1%, 6.15%, which is moving from €79 million to around €84 million which is €0.01 of extra cash flow for the company next year.

In terms of how this is affecting our costs, yes, there has been a big problem with utilities, but utilities are 100% rechargeable to tenants. So, in reality, the net effect you suffered is only the effect of your vacancy.

So, of course, the utilities applied to your vacant space, you have to swallow that effect, but this is minimal as compared to the fact that for the rest of your space and remember a portfolio overall, because you always tend to focus only in offices, but the portfolio overall is occupied and 94%. So, we tend to recharge the extra energy costs to clients.

There is also inflation in CapEx, but and this is just by chance, I mean, it’s not that we saw that inflation coming, but we are lucky because most of the CapEx, we have to do is already behind us, I mean, we have finished with a very expensive flagship program, we have finished CapEx in all of our shopping centers, we have finished with most of our office building refurbishment, there is only one which is being done at present and yes, in logistics, we were a little bit scared, because we saw hiking pricing in steel, but since the peak they have significantly receded and now you know the cost of construction in logistics is back to more normal levels. So, that is not very highly intensive in man hours.

So, if there is salary inflation, there will not be so much translation into the logistic construction costs. So, we are in principle, okay, in terms of inflation, the top line of the company will clearly grow and we will create a very significant cushion as compared to our debt service because our debt service as you know is flat printing.

We have it hedged for the next 6 years. And we will create a very significant buildup in the top line that will help us overcome whatever happened with rates 6 years down the road, so not so bad.

Of course, you need to take into account that at the end rents tend to be linked to productivity. So when there is a high inflation, period, normally there are some rental adjustments following that inflationary period.

But we have managed those situations in the past and we know, that all you know, net-net, you normally end up being winner in those situations and there is abundant what particularly very good research in this regard. I was recently reading Morgan Stanley providing some clarity on the behavior of companies in the last 50 years with very interesting data collection of the last 50 years.

And yes, you have a problem at the beginning, but normally people gets accustomed to the new – to the new situation.

Thank you very much, Ismael.

It’s our pleasure.

Hi, Ismael. It’s from Morgan Stanley.

Thank you for the presentation. I just wanted to follow-up on your comments on the bank branches you highlighted how you will be able to increase the rent probably by more than 6% in January.

This must be the most opportune time that we’ve seen for a long time to sell these assets. And if they are indeed not very core to your portfolio, and you haven’t really spoken much about within the release, they are not very core to you, as you’ve highlighted in the past.

You’ve mentioned before that you’ve had received some interest from potential buyers. What is your – what is MERLIN strategy around those efforts for the next 6 to 12 months?

Thank you.

Okay, Barth. We have been receiving now sufficient and very credible interest on the portfolio.

So, yes, we are going to get serious, I mean, we are finishing a number of disposals between now and year end, there is some work to do in order to make sure we achieve the disposal total disposals goal of 2021. And following that, we are going to move into full focus regarding this portfolio, as you know, that portfolio vocationally, because it’s bank branches is not 100% core to us, we have received significant interest, very serious on this portfolio, and we now have enough data points to know more or less where the pricing could be, we have been working also on a number of things that might be too much of a detail.

But in reality, one thing we discovered is that the people who is very good at discounting cash flows very, very, I would say competitive or discounting cash flows normally has no clue of what to do with real estate at the end and vice versa. The people who does want the real estate because they think the real estate is great normally is not very competitive, in terms of discounting cash flows.

So now we have besides that say the normal way of execution, which is fire and forget, which is sell the whole thing and go fishing, we have also created a structure which allows a certain decoupling of both situations. So the entity that buys cash flow from the entity that wants the real estate so they can team up in one single buyer and buy from us with each party taking what they need.

So with that, now, fully developed and tested, tested with tax authorities, tested with the auditor, and test cases with the market, we are going to move into execution mode. I won’t nail down myself by providing any date for execution and/or figures, because we have painfully learned in the past that this creates a lot of tension, and in all calls people is discussing whether we should be getting D-ish or D plus 3% or Ds minus 5%.

And we don’t want to entertain such discussions. It is a very important sale for the company on the positive and on the negative side, because we are saying – we will be saying goodbye to a very significant source of stable income.

But on the other side, it is a fantastic opportunity to deleverage the company to the levels absolutely unseen by us in the past and more in line with our UK peers, which I believe makes sense in the current environment, because it will also provide the company with the freedom and the flexibility to execute on any project it might need to execute in the future. Most notably, we would have enough muscle to develop all of our data center program, which is a lot of money, that have very hefty returns, and it will provide us with the possibility to continue developing our greenfield logistics program, till the end, till we run out of land bank suitable for logistics.

So, we are now seriously considering this. We should be expected to move into execution at some point.

I will not provide any dates or target figures, because it will be simply suicidal on my side. So, that – I know that this is very important for you.

I know your stance regarding these. And I know your critics about the glacial pace at which we take decisions.

But be assured that the only reason why we take decisions at glacial pace is because we want to ensure the best execution possible. We cannot run this company, now left, then right, then center, then forward.

I mean, we need to make sure that we obtain the best possible execution from these assets, which is a very, very important asset for the company.

That’s very clear. Thank you very much.

You’re welcome.

Hi, there. Good afternoon.

I also had a question on BBVA. So, as it’s already been answered very clearly.

I have to just leaving on from that you mentioned leverage, or potential to deleverage the business. I am just wondering is what your aspirational leverage level would look like.

And if that would also in your mind feed into the credit ratings. And the last point, last question I have is in early 2022, you have a maturity on the form structure of €600 million in April, just wondering, putting aside the potential disposals, what’s your plans there would be, would you look to refinance it or just repay that out of existing liquidity?

Okay. Fantastic.

Look, regarding the LTV goal. Our two LTV loans, the one that we were ambitioning to get was something below 36% more or less.

This is what we were trending to when we were caught by the COVID-19 pandemic. We were going little by little, of course, this transaction would allow us to get there in one split of second.

But certainly we would like to be leveraged between at this point in the cycle between 35%, 36% max. Certainly with this transaction, we will go below.

But that will give us also some extra muscle to do some other things, which in turn will generate new value that will also help to reduce our leverage. In terms of what would be the effect on rating, frankly speaking, I have no idea.

I mean we live in Spain and rating agencies tend to be a little racist in that respect. So, with similar KPIs to us, we have many peers in Europe, which score BBB+.

So, I hope that with the injection of capital that, that sale will provide, we should go at least to BBB+, but you will never know. Because in reality, blaming the Spanish macro, blaming the sovereign cap or blaming – I don’t know.

Sometimes you get where you want, sometimes you don’t get there. But in any case, whether rating or not rating at least I believe the market will appreciate the fact that our debt, really the level goes down very significantly, LTV goes down, interest cover will significantly improve.

So, at the end, this is always important for the market. Regarding the debt maturity in May 2022, it will be paid in cash.

I mean we have the cash ready, the bank account, and are also piling up cash for the upcoming one in 2023. So, we told the market that we will be paying those maturities in the case of ‘22.

We will pay as soon as we can, because cash today is costing us money and the one in ‘23, eventually, particularly if we improve our rating, we will certainly look to refinancing it because the last refinancing that we have done even gets in the middle of the pandemic has represented an advantage of more than 100 bps in financial costs, which is already noticeable in this quarter. I mean many people is asking us why their financial burden has gone so low.

And one of the reasons is because our cost of debt now is lower than it was in the past.

Okay, great. Thank you very much.

Good afternoon gentlemen. My questions have now been answered, so thank you very much.

Okay. Thank you.

Hello. Thank you for the presentation Ismael.

in 2022, what sort of CapEx quantum is budgeted for next year also including investments? That will be my first question.

And then can we have some color on the bidding process of the logistics plots adjacent to Madrid Airport. And also I wonder if BBVA portfolio disposal will wait until MERLIN is potentially awarded with at least in the airport, or you plan to dispose even if you don’t get those plots.

And also linked with the BBVA disposal, what sort of buyers are interested on that asset in terms of our pension plans or what sort of money is looking for those assets, having in mind that BBVA also has a right to match the offer that any potential buyer will make on the portfolio? Thank you.

Okay. Well, regarding the 2022 CapEx, we are currently in the process of defining the exact amount that will be budgeted for next year.

I can tell you that it will be matched exactly with the proceeds that we expect to receive from sales of non-core, in some cases, the negotiations already underway. So, we will make sure that sources and uses match as we have always done.

In fact this year, we are going to have slightly more sources than uses. So, we will carry on to the next year asserting extra amount that can be employed in further CapEx for the company.

Regarding the INR plot, the process is highly competitive. And for us in reality, it has nothing to do with the BBVA decision.

I mean maybe you are referring to DCN to Madrid Nuevo Norte, which it’s somehow linked also to BBVA. In the case of Madrid Nuevo Norte, there are no news.

I mean on the operational side, we continue to work hand-in-hand with BBVA to our satisfaction. I mean, the underlying business is going very well.

In July, we obtained the signature of the infrastructure convention with the framework agreement with all the public authorities which are involved in the development. So, after that, which was the second condition precedent according to the contract with the National Railway Authority, we moved into formally requesting the transmission of the land from the National Railway Authority the term to obtain the transmission of the land will be by year-end.

However, with a high probability, we believe the National Railway Authority will request a little extension till May next year. And if that is the case, the transmission of the land will operate in May next year.

As soon as we receive the land from the National Railway Authority, the process or the project will start. And at our current participation level, which is 14.5% CapEx in this project, as we have demonstrated in a number of occasions is relatively meaningless to us.

So, shouldn’t be a concern for investors, because the transmission or the purchase of the land needs our CapEx usage on our side of €40 million more or less, a little less with soft costs, etcetera, the capitalization of the vehicle company should be €45 million, €47 million more or less, which is something that we have in our budget. We take into account of course, when considering CapEx for next year.

And this is completely not linked to the decision on the branch portfolio disposal, because at the end, both things are not necessarily related. I mean, the only reason why we wanted to increase a little bit percentage in the transaction is because we feel we are bringing some value added to the table and we thought it would be good in view of that value added to have a certain more outsized return.

I mean, so bringing out the value added and getting 15% return is one thing, get – bringing value added to the table and getting 35% return is a completely different thing. So, that was all of our let’s say ambition, in that regard.

The – many people ask us about the arbitration process. Well, the arbitration process is pending the final appointment of an arbitrator.

And when this happens, which will happen before year-end, their withdrawal will have five months to issue the deficiency. So, by the end of first half next year, this will be resolved whether in favor of BBVA or in favor of us, is the law.

So, we will abide by whichever decision is taken by the arbitrator. For the time being at least we obtained injection.

So, at least the modification of the bylaws could then be inscribed in the mercantile register. So, we are protected for the time being.

But we will wait till the finalization of the arbitrage to see what is the final outcome, the situation or the relationship with BBVA remains professionals. We continue working together in the subject matter, which is the one that really matters in the development of DCN.

And we continue working with them to our satisfaction with them and with the company which the investment is vehicle. So, this is what I can tell you.

And then you asked me about potential buyers for the BBVA. Look, expanding on what I told, we will not enter into this kind of discussion.

You can imagine which kind of investors we are talking about, particularly when I said about separating the cash flows from the ownership. So, you know why we are doing this to obtain the best execution possible of the transaction, because we know the intrinsic value of the real estate and not if need to be one of the potential outcomes that we have in some cases considered is simply keeping the ownership of the assets ourselves.

Because we have no problem with that, it will be a gift to whoever managing this company, we have to present 40. But the reason why we have separated is precisely to facilitate execution by a certain type of investors who are particularly competitive in terms of cash flow discount.

Okay. Thanks.

Maybe I didn’t ask the question in the right way. Regarding BBVA disposal, I was trying to understand how MERLIN will recycle their proceeds from a portfolio when it eventually comes.

And the three options to me are iron upload, increasing your stake on DCN, or going full speed in that data centers. So, between those three options, leaving aside the debt repayment, which one is your preferred one?

Data centers and greenfield logistics. I mean, basically our biggest yield on cost piece of activity.

Temporarily, of course, that lump sum will be used to reduce debt. But over time, as we can start deleveraging a little bit, the ultimate use of the money will be mainly the data center program, which for us is crucial for the future of the company.

There will also be some extraordinary distribution to shareholders, because as you know, there is the Spanish legislation or Spanish senior legislation is clear in that respect. So, there will also be some no extraordinary dividend to shareholders arising from that disposal.

Perfect. Now, very clear.

Thank you very much.

Thank you.

No. Sorry, my question was has already been answered.

Thank you.

No problem, Fernando.

Hello, good afternoon, everybody. Congratulations for the hard work on the nice numbers.

Just regarding I think you were answering, Ismael, regarding capital recycle. You said, it was your question INR district of Barcelona data centers or greenfield logistics?

Maybe, I have seen that your – let’s see the values of all your assets are resisting quite well with inflation. Maybe they will start going up sometime.

It’s not – no questions about buybacks. It’s you are talking about greenfields logistics and data center.

That’s very good. But how about buying your share about 40% discount really showing that your assets are not going down, but maybe up?

And then let’s say it’s a no-brainer, when is this company going to start talking about share buybacks?

That’s okay. Look first, this is a decision of our Board of Directors.

But the problem is that in Spain, it is not irrelevant like it will be in an Anglo-Saxon country to do a special dividend for a buyback. So, in our case, the eventual sale of a large number of assets like for example, the portfolio we were commenting will generate the need to distribute to shareholders a certain amount of money.

If we were to use that certain amount of money to do a buyback, it will be a monster buyback, fantastic, but it cannot be done legally. So, we will need to distribute that amount of extra dividend to investors by way of law.

So, it is arguable whether it is better to distribute a lot of money to your shareholders, loyal shareholders who are with you in the shareholder list of the company or it is better to do a share buyback to the shareholders who want to exit the company. So that yes, you are correct, the figures of the one who remained, yes.

But legally it’s not – I mean there is no point is we cannot do it. We have to distribute an extra dividend.

Yes, but not only about the divestments when your loan-to-value will go down. Of course you have to give back a certain amount of material divestments, but you also could – I see no – our gross cash position of the intended medium why don’t start a little while back and that shows the market value of your assets are there, but there is never and probably about share buyback?

Welcome. Look our non-core disposals have already shown to the market, that assets are fairly valued, because even in the middle of the pandemic, and even in the worst moments, we have been disposal at or above JV figures.

So, the market for some reason is refractory to that information. Even if we dispose now a large amount of assets of the company, and we do it above the value, do you think the market will really care maybe they don’t care.

So, we can’t continue cannibalizing the company till we end up with zero assets, and selling everything above NAV. And still, I don’t know whether the market will notice or not notice.

So, what we are trying to – frankly speaking, if I have to give you my opinion, the share price rating will be immediate. I mean there will be no need to artificially increase the price, which is at the end what you are referring to.

But you are asking me, why don’t you artificially raise the price of the shares through a buyback? And look, what I tell you is that I believe that if I do what I am telling you, we should be capable of doing, the rewriting in the share price will be immediate, with no need to do it through a buyback.

In my opinion is all the shareholders pay the management team money to add value to let’s say the investor way, as you always have done, but also to add value in a financial way. So, I really do not agree that this is creating artificial value because it creates all of the value to buy let’s say shares, let’s say 40% discount to amortize that, and let’s say maybe in 10 years, instead of probably let’s say, a 1.5%, maybe have a 3%.

So, it’s I don’t know, maybe you want to pause for really loyal shareholders have been supporting this company through the tough times. I think that maybe sure to really, really, let’s say a more piece of the cake without putting more money.

So really, I don’t know who decides that. But it will be like a little buyback component that’s not reflecting the share price, more buyback.

Look it’s really a no-brainer.

Beltrán, I have all my net worth invested in this company. And I have been a financial investor for many, many years.

So, I have – I know the business of depleting the capital figure of companies. I know the business.

But I believe it will be a necessary. Anyway, it is obtainable like everything and we can, I am happy to discuss with you.

I know you particularly like the buybacks. I am happy to discuss with you one-on-one whenever you want, because we live in the same city so we can meet and discuss.

And probably there is no need to enter into a theoretical discussion about buybacks in this volume, because it will be – I think it doesn’t make sense.

Okay. Thank you.

Thank you very much for the answers. I appreciate the hard work.

Thank you.

You’re welcome.

Operator, can you please let us know if there is any other question in the line.

Okay. Well, in that case, we thank you all for joining today.

It’s nine months 2021 trading update. As always, we remain at your disposal for any further questions.

And if somebody needs one-on-one meeting, please don’t hesitate to come back to us. Thank you very much.

Have a good weekend.