MERLIN Properties SOCIMI, S.A.

Good afternoon, ladies and gentlemen. Ines Arellano speaking.

Welcome, and thank you for joining MERLIN’s Nine Month Trading Update. Today your CEO, Ismael Clement will highlight the key takeaways from the set of results, and we will then open the line for Q&A.

There is no presentation to follow, but the executive summary can be found in our website. We remind you that this call is being recorded.

[Operator Instructions] With no further delay, I pass it over to Ismael. Thank you.

Thank you, Ines. Good afternoon, everyone.

Welcome to MERLIN's nine-month results presentation. The company has performed very, very well during the quarter.

We know that this operational excellence will probably not allay your fears, which are the market fears and our own fears, that has been the reality. I mean, we need to enjoy while it lasts basically.

In terms of consolidated performance, the gross rent has experienced an increase of 7% with FFO up 11%, and we have achieved a remarkable 8.7% of shareholder return year-to-date, measured by variation in NAV plus dividends distributed. We have not conducted any revaluation in this quarter.

So, the net tangible assets figure that you will see is basically an estimate with the same annual valuation plus the cash flow generated during the period. That strong operational performance has been all across the board.

There's been occupancy increases in all asset categories. We have enjoyed attractive release spreads and sound rental growth in all of our divisions.

The FFO per share stands at €0.48, 11% increase versus same time last year. And we are on track to exceed the revisited guidance that we gave to you in the semi-annual results presentation of €0.60.

In fact, in the absence of an operational earthquake, we believe that we are going to be in the region of €0.62 at the end of the quarter, because the fourth quarter is already highly foreseeable. I mean, we can now have a good visibility on the 31st December numbers and we believe we are going to create around €0.14 of FFO during the quarter.

We have delivered around 100,000 square meters of work in progress, which is good, will help us for the cash flow this year. I know many of you are asking about data center program.

Data center program is absolutely on track. In Bilbao, we have now completely covered.

We have done the water tightening and we have closed the structure. So that data center is performing absolutely on track.

The idea will be to re-delivering the first technical room around April next year for tests and official inauguration should happen just before summer around July -- June, July, next year. In Madrid and Barcelona, works are progressing also very, very well.

Madrid is also very near water tightening, and Barcelona is slightly delayed, but foundations are ready, very peculiar foundations there given the nature of the soil. In terms of office occupancy, which we know is a reason for concern for many of you.

We are up being a little bit our guidance. We were working for a 91.5% that we have recently signed a large contract, that together within normal pipeline we have for the fourth quarter brings us to believe that we are going to be in the region of 92.5% at year-end.

With -- so far, positive dynamics in the market in terms of leads and visits, which I know is mind boggling, but this is a reality. And in fact, not yet confirmed tendency that we are starting to see a little bit more interest and better performance in the A-1 in the famous or infamous A-1 corridor in Madrid.

The rents like-for-like growth was 5.6%, 9% in logistics and 6.5% in shopping centers, with release spread of 5.18% and 5.3%, respectively. As a trend, we have to say that we are seeing relative flattening of the release spreads that not of the like-for-likes, that means basically that most clients are now a little bit more resistant to being applied a market rent, because what they say is if you are going to come next year with an inflation of 10%, I don't want to make that 10% count from a revised rent.

I prefer to use that 10% in order to catch up with the market rent. So, at the end, it will all show up in the like-for-like that it's a trade off in some cases between releases spread and inflation pickup.

In offices, the like-for-like is composed by around 40% CPI indexation, 40% occupancy growth and around 20% market [reviews] (ph). In logistics is around 50% CPI, around 30%, occupancy growth and around 20% market reviews.

And in shopping centers, it's around 40% CPI and the other 60% is performance-related, which includes occupancy, rents and the capture of variables. So, this is basically how the company has been performing operationally.

The results for our shareholders is that the Board of Directors has declared €0.20 dividend on account to be paid on the December 2 that will come on top of what we have already distributed during the year. So, the shareholder remuneration has been excellent this year, owing to the extraordinary sale of the DVA portfolio.

And this is it, basically. We are happy to take all of your questions.

I know that the tone of the questions will probably be very negative. We feel like an Australian driving down the bush and entering the outback.

So, we have basically refueled our car, both the regular tank and the extra tank. We have accumulated as much water as we can carry.

Basically, we are carrying two spare tires on the roof rack and repair kit. We've got two GPS, but given our age, we are also capable of navigating with compass to an extent, in case of need.

And we are driving a good old Toyota, not a fancy Porsche range. So, we think we are in good shape.

But of course, we are not imprudent people and are subject to the same uncertainties and fears as you all are subject. So, happy to take all your questions, and you know start the conversation right now.

Yes, hello. So, thank you very much for this introduction.

I would have a three question. Maybe the first question on offices.

We can see that you have been able to increase your occupancy rate, which is quite positive. So, you are now at 92.5%.

So, what can we expect now in the next 12 months, for example -- so, for example, in Madrid, where is your occupancy is lower than the average of the portfolio? So that would be the first question.

Maybe the second question on shopping center. So, you have had a very strong momentum, but we can see that you have also some headwinds from a macro standpoint.

So, what do you see today in your shopping centers when you discuss with your tenants so what can we expect in the near future? And maybe the third question, you have announced an interim dividend further to your exceptional dividend of €1.00, what would be your shareholding policy for the next year?

Thank you.

Okay. Well, look regarding the occupancy at the office portfolio, what we see for the next 12 months, of course, we don't know at what point we are going to be hit by the storm, the gale or the hurricane which is gathering on the horizon.

So, if there is destruction of GDP, and more particularly, if there is destruction of employment, we’ll suffer in offices. For the moment, what I can tell you is that the tone is positive.

We are getting good leads. We are getting visits.

The market is tense. Rent, believe it or not, are going up for -- some of the market participants are upping rents.

So, we are kind of following that trend. Although no -- of course, we tend to be a little bit more industrial and do not try to play for the [indiscernible] on rents.

We have long-term relationships with tenants and we are trying to be a little bit more professional on that. As you also know, work from home adoption in Spain has been almost in existence following the former Eastern European countries.

Spain is one of the countries in the European Union with the lowest adoption rate of work from home, very different situation from the one you are experiencing in other markets, like, for example, the UK. So, we really don't know in the A-1 corridor, for example, following the execution of a number of very important roadworks by the municipality of Madrid, according to our traffic consultant, the commuting times have reduced by around 36% on average for people operating or working in this area.

So, we are starting to see not yet confirmed is not yet a trend, but we are starting to see a little bit more interest in the area by tenants and also that area is going in favor of the wind, because as you know, the MERLIN [indiscernible] the development will live all that area basically right next to the new CBD of the city. So, it is why we bet on that area.

Of course, it has costed us a lot of time and effort to fill up buildings in the area, which has been endemically low in occupancy, but little by little, we are a little bit more optimistic on what we see. It is impossible for us to make any or to give you any guidance on what occupancy might look like next year, because the number of factors that might still be affecting us is enormous, and normalcy basically the state of the economy.

So, by -- when we present the full year results ‘22 that will be around end of February, March next year, we will try to give you an idea of how we feel regarding office occupancy. In shopping centers, what we see?

What we see in shopping centers is that they continue to be full that, yes, our tenancy is slightly lower than pre-pandemic, but this is mainly owing to night traffic in the cinema. Day traffic is, I would say, above the pre-pandemic traffic.

Sales per square meter are above pre-pandemic levels. Of course, one might argue that those are notional or nominal figures, not the figures once corrected by inflation, which is true, but inflation looking backward has not been so high.

I mean it's good, it's going to be very high looking forward, but not that much looking backward. So, we continue to see a very interesting performance by tenants.

Tenants, so far, are being able to pass on the inflation to their final customers. And this is, at the end, you can see it reflected in the occupancy cost ratio, which despite the increase in supplies, nominal -- I mean, talking -- I'm talking about electricity, heating costs, despite the increasing costs, because the occupancy cost ratio, as you know, is rent plus all costs, we continue seeing that figure going down.

I mean, it's currently stands at around 12%, which is among the lowest I have ever seen in our portfolio. I think we have may have been at 11.8% at some point in the past, but not much lower than this.

So, the tenants so far seem to be reasonably comfortable. That situation might deteriorate very easily.

I mean, in the future, if the economy starts to fail, eventually, we will immediately have notice of that in the natural thermometer of our shopping centers, but for the moment, this is what I can tell you. I mean, I know many of you will not even believe it, but this is what is happening in the -- on the ground.

Regarding the interim dividend, the interim dividend will be complemented by a new dividend to be declared by the Board of Directors following the general shareholders meeting next year. You know the indication provided to market, which is €0.42.

So that is the indication that is valid for now. The dividend policy remains or the payout policy remains more or less the same.

It's always been around 80% of the adjusted FFO. So, basically, there are no changes in that policy.

And that's basically all. I hope we have replied all your questions, but happy to take new ones.

Yes, thank you very much. Thank you.

Thank you, Florent. So, we have another question from Pieter Runneboom from Kempen.

Please go ahead.

Hi, team. Thanks for taking my question, and congrats on the results.

I got a question on the logistic segment. It seems to be still quite strong, also the demand.

Just tell me maybe a bit about demand, what are currently the drivers of this?

Sorry, Pieter, you’re cutting off.

Yes, you were breaking, Pieter. Can you repeat your question or eventually send it quickly in writing?

Because I understood it was on logistics, and you want to express our view on how we see the logistics market?

Yes. And what drives demand at the moment?

And whether the demand is still strong, or you see that maybe coming down already because of the looming recession?

What drives demand? Okay.

On logistics, what we see in the market is basically as follows. Two things have happened.

The first one is that logistic operators have finally broken the glass ceiling they have all logistic provision costs. So, in many occasions, you have heard from us that the reason why we were not predicting super big rental increases in that segment is because the online retailers were losing the shirt, P&L wise.

As a consequence, they were sending down all the supply chain out of stress. And that stress was clearly affecting the logistic providers.

So, logistic providers were operating on very, very low margins. That was the situation.

But curiously enough, the factor that brought change to that standstill to that situation was the rise in oil prices. When oil prices started going up, logistic operators said, basically, enough.

So, I wouldn't say that they did any sort of cartel. They were simply moved by their imperative need of translating those extra costs into the retailers, but they have raised prices, and they have raised prices significantly.

We can now see their numbers in much better shape they used to be. So, curiously enough, they are now in a better situation to pay rent.

So, this is what is motivating the rise -- the progressive rise in rent of the market. The second reason why this is happening is demand driven.

In many occasions, you have told us how the new entrants into the market were making up their numbers. And we said that people buying up logistic land, lately, at super high prices, and building up their shares at increased CapEx costs are going to have very stressed yields on costs.

So, what this has motivated, again, is some sort of random cartel. So, because people be so stressed in terms of yield on cost, that men have set a new tone for rents.

And we are followers of that trend. I mean, basically, rents are going up now openly and frankly going up.

So, what we are doing is piggybacking on that trend, and following it. So, these are the two things that, in my opinion, have changed in logistics.

However, the investment market, for example, I can tell you is now, I would say, much more muted than it's ever been. There are some transactions in the market [Technical Difficulty] those transactions, clearly, the evidence we are gathering is that they are happening at between 25 to 75 bps higher yields than before.

However, that is not meaning that should translate all across the board into all logistics portfolios, because when I say -- when I'm saying that, I'm talking about transactions that were happening at such low yields, in my opinion, stupid deals are 375. So, if you go up to 425 or 450 at the end, to me is a little bit more normal and more in line with the payback you can expect on an asset which is normally subject to industrial [indiscernible] around the 18th to the 22nd year of life.

So, to me, this is a normalization of the market rather than a market problem. So, this is what I see happening in logistics.

Okay. Thank you.

Thanks for your elaborated answer.

Okay.

Thank you, Pieter. The next question comes from Clara de la Fuente from Kepler.

Clara, the floor is yours. Thank you.

Hello, good afternoon. Thank you for taking my questions, and thank you for the presentation.

I was wondering if you could give us any insights about the non-core asset divestment strategy going forward? I mean, you have seen any transaction float on for the moment in the market?

Thank you.

Okay. The non-core divestment strategy for us should remain relatively similar to what's been so far -- I mean, till now.

The idea will be to be rotating around €150 million per year in our portfolio. But if we enter at clearly bear market, we are going to be no tolerance.

So, we are not going to sell assets on a rush or stupidly, because the market can stay irrational for probably longer than you can stay solvent. So, you have to be mindful of that.

We have done our homework already. We have sold a lot of non-cores.

We have the company that in very good financial standing. So, while we believe it is healthy to rotate a number of assets every year, because that allows you to perform a review of your portfolio and identify those assets which are not as good as the others for long-term holding, which is very healthy, but we also need to collect rent.

So, we will continue playing with that. We will continue making an effort to rotate around €150 million in assets per year equivalent to 1% to 1.5% of our portfolio, because this is what we believe is healthy from a policy standpoint.

We have exceeded the number in the past. We have sold to €250 million or more in a number of years already.

So, we have like -- we have some room for maneuver. And we will act according to that room for maneuver.

What we've seen in the market? The market, believe it or not, remains active.

I would say, it is less active for big assets that either require the participation in the transaction of large international funds, which of course, they are out of the market, because they are all of them subject to uncertainty, and in some cases, even redemptions for the case of the core funds, so those are not very active in the market. Private equity is also not very active in the market, because their naturally-leveraged structures are no longer working, because the cost of that is not accretive.

But core, core plus and [some value-added] (ph) are still active in the market. We see also family offices strong in the market.

So, if you sell relatively small ticket assets, there is demand attention. And you might well see -- even on our site, you might we'll see still some activity in the near term, whether by year end or beginning of next year.

We don't know. But certainly, we're still negotiating a number of assets.

So, we will -- it is still possible that you see us participating in that market on the seller side. Some people are asking whether we have now shifted from a net seller position to a net buyer position.

No. I mean, we have bought a very selective asset in Lisbon, because our portfolio there is 100% occupied, and we need product, and also because that product was the best available in the city, so the three-facade building in the main of the Lisbon.

So, we decided to buy that asset because it was highly complementary to our existing portfolio that we have not shifted from being net seller to be a net buyer. We will continue to be net seller by that limited amount that we referred, I mean, it's the goal around €150 million.

Perfect. Thank you very much, Ismael.

Welcome.

Thank you, Clara. There's another question from Fernando Abril from Alantra.

Fernando, the line is open for you. Thank you.

Hello. Thank you very much for the presentation.

First -- a couple of questions, please. First, you've mentioned a good commercial activity in the A-1 corridor.

I was wondering how much of your good vacancy is there? And whether you see further occupancy growth in this area going -- in the coming quarters?

And then second question is with regards your position in Lisbon. I don’t know, if you can elaborate a bit more on this?

Whether this is the best market right now in terms of dynamics, the implied [indiscernible] for this asset, the recessionary potential? I don’t know, any reasons behind this transaction would also be very helpful.

Thank you.

Okay. On the A-1, Fernando, as commented, it is not that we have a confirmed trend, it is not that we can make any predictions on absorption or vacancy, but we see slightly more positive tone.

And the reason -- well, you live in Madrid and you know the reason is very clearly is the new road not on that area of the city has significantly improved the exit and entering into the city and some people are identifying already that, particularly the professionals in the market. So, the counsel to tenants by the tenant representation is now a little bit more positive on the area.

So, let's see how that evolves in the future. We still have around 18,500 square meters in the area vacant that will certainly help us significantly.

We also know that there is some -- it is the only area in the city where there is some new supply. [indiscernible] is bringing another 16,000 square meters and [indiscernible] is already bringing 5,000 square meters that, to the best of my knowledge, is already pre-lead to AstraZeneca.

So, this is the only area in the city in which we are seeing some activity, which is positive. It means we are not the only ones in the market, but it means there is a market.

So -- and also geographically speaking, you know how this is located related to the new Madrid Nuevo Norte development and the covering of the Castellana from Plaza de Castilla till the M-30. So, the construction of the fifth tower and the new redevelopment of this existing area of Madrid, I mean beyond what will happen in Madrid Nuevo Norte.

So, very hard to make any prediction, but we are slightly more positive on the area. And regarding this one what we see is, first, an incredible tension in demand.

I mean, if we had 20,000 square meters more in Lisbon, we will have them full. Occupancy is very, very low.

Occupancy for Class A building is 100%. So, Class A buildings do not exist in the city, very few Class A buildings.

So, what we have done is basically captured the opportunity to clinch one asset of that type of assets that trade once every 10 years. So, we have captured one asset at around 4.5% yield, which is not good, but it is better than a kick on the teeth, that we believe that when the current tenant exits, we can redevelop to around 6% yield.

That -- all that looks now low in the new context that we believe if there is indexation, and there is growth in rent in Lisbon, this is precisely the people -- the type of assets in which it will be captured. So, we are happy to have added that kind of building to our broad portfolio.

We believe it will significantly complement our offering in Lisbon. And we thought the opportunity was right, because we were competing with hotel transformation and our residential transformation, both of them in need of significant financing.

So, we knew our competitive edge was basically our capacity to perform at the date of closing. So, I think we have done a nice acquisition of a building that doesn't exist in Lisbon with also incredibly high-quality prime retail on the ground floor.

I mean, Avenida da Liberdade, as you know, is the best location in Lisbon for retail. So, we believe it, from a real estate standpoint, is a good addition to our portfolio.

The other one, the one in Madrid is [indiscernible]. I mean it simply a potential way to add another 120 to 150 parking slots to our existing with -- because of [indiscernible] development plus some build availability on top of it which can be redeveloped into very prime retail, particularly after taking into account their [indiscernible] development in that area and some offices based which is going to be always in good demand in that area.

And the yields, of course, are much better in that situation because we have paid around €5,000 per square meter of buildable office space in that location is being -- that one is more an opportunistic acquisition.

Thank you very much.

Thank you, Fernando. Another question from Ana Escalante from Morgan Stanley.

Ana, the line is open for you.

Good afternoon. Thank you very much for taking my questions.

I have three, if I may. So, the first one is related to data centers.

In the six months presentation, you provided us with some information regarding the pre-lead status of the three data centers currently under construction. Could you please provide us with any updates, if available and if possible, please?

Okay. You want to make the three questions in a row, and then I reply or do you want one by one?

Whatever is better for you?

No, as you prefer. I mean, I am here for you.

So...

Okay, yes. Okay.

I'll do the other two, and then you can reply them in the order you prefer. So, the second question is on the yield on cost of data centers, you gave guidance of around 11%.

So, I wanted to check if you're still confident in achieving those deals? If you have seen any pressures from rising construction costs?

Or you will see any future pressures on rents? And third question is a little bit broader.

You have -- Ismael, you have already commented something on investment yield in logistic market. But I would like to hear your opinion on the investment yields in other sub sectors too.

In UK, we've have already seen a correction of 50 basis points on average across all sectors year-to-date. So, I was wondering what's your view on that?

And what are you seeing in the Spanish and, of course, the Portuguese markets too.

Okay. Well, starting by the data centers, the pre-lead figures you have are the ones we are currently running.

Those are contract signed, I mean, pre-lead contract signed. What I can tell you is that we have signed another four MOU on the three data centers.

So, we continue counting the market, and I am absolutely confident that there will be very positive surprises in that field, in that asset class in the future. But you need to understand that it's quite complicated to achieve a pre-lead in data centers, because people normally only enter into contracts when they see the data center tested, technologically speaking, and it works for the purposes.

So, it's already, I would say, miraculous that we have done some pre-lead, the only reason has been that we have been developing specific rooms, specific modules of those data centers, on the specifications of the people with whom we have signed the pre-lead. But for the rest, what we are doing is simply, let's say, standard DC equipment and you will start seeing that demand flourishing post completion and opening of the facilities.

Regarding the yield cost. So far, we are holding to it.

I mean, the construction is performing bang on, exactly on budget, both in terms of time and in terms of cost so far. The most sensitive part of the cost of our data center is mainly equipment.

And you might validly say that, that equipment is going up in price. Yes, but we commissioned it about one year ago.

So, what we are receiving now is a piece of equipment that we commissioned one year ago. So, this is why we haven't experienced significant problems in terms of cost variation.

Regarding -- that is valid, of course, I mean, for the first nine megawatts of that we are going to commercialize, then the rest would -- rent and equipment on cost will go hand in hand. And then, regarding rent, what we have found so far has been slightly above our forecast.

And rent in a completely virgin market like Spain, I know some of them -- some of you are thinking about the U.S., but rents in Spain are not subject to any pressure, because whoever needs capacity needs the capacity now, and the number of people who is capable of delivering that capacity is almost inexistent. People talking about building data centers are legion.

People actually building data centers, no freaking body. So, there is a technological barrier that, of course, will reward the pioneers.

And the pressure you see -- well, that you saw in the past -- because at present, they are going up again. But the pressure that you saw over the past three years in the U.S.

are mainly owing to the fact that there was significant product available in the market. There was temporary overbuilding in the market, and that gave -- that moved the negotiation power into the hyperscalers.

But that is has now corrected in the U.S. after significant correction in market rent.

But in Spain, we are staying where the U.S. was 20 years ago, probably not now.

So, you need to make the assumptions and the calculations based on that. I mean, there are 100 megawatts of installed capacity in Spain so far.

All the cables are arriving to market by right now as we speak. And the different hyperscalers are now, just now, announcing the opening of their availability regions in Spain.

I mean, the different cloud providers are only now starting the cloud operations in Spain. So, it's a completely different ballgame as compared to the U.S.

Anyway, I wish we were trading at the multiples the DC companies are trading in the U.S. even after the fall in their stock prices.

So, I am not super worried about that. And regarding investment yields, what I see in offices, so far, I would say that for cash transactions, for full equity transactions, they are holding up pretty well for small tickets for more assets.

And there's some tension for transactions that require financing, which is normal, because the cost of financing is going up. The total amount of movement that we expect in yields in office is 50 basis points, yes, why not?

But as you know, I know the UK is slightly faster than other European markets. But this is not going to happen overnight.

So, it will take time to -- it will take time to see that in the market. You saw that in our semi-annual appraisals, we already experienced relative use expansion, that can also be expected for the year-end valuations.

However, that is the negative vector. There is one positive vector playing in our favor, which is the CPI indexation.

So, we are obtaining more income in the different buildings. So, the reality is that we don't expect a massacre in valuations as of year-end.

Of course, next year, there should be a downward trend in nominal values. And this is something that I believe all the market knows and expects.

And regarding shopping centers, well, I believe most of the yield shift for worse in shopping centers happened during COVID. So now, shopping centers, what we see in the market, and there are a number of them in the market, and there are transactions that have recently been concluded.

So, what we see now is that shopping centers transacting in the market, are transacting at very similar yields than they were transacting three months ago. It's not that we are seeing massive worsening of yields.

What we have seen is that there’s clear bipolarization between good performing shopping centers and bad performing shopping centers that can make an asset to trade at 5.5% yield for the case of ultra-prime well sought-after shopping centers and can go as wide as 7%, 7.5% for the crap of the crap. So that is a significant market discrepancy, but nothing has changed for the last three months.

In fact, if something has changed is that we clearly see that the interest in that segment is back. I mean, more people is trying to buy shopping centers in the market.

So that is, of course, good news, because market liquidity will bring price discovery, and price discovery will eventually bring peace of mind and stability to the perception that the market has about the activity of the people who participate in that market like us. Even though, in our case, it’s only 18% or about 18%, 20% of our balance sheet, but we are still perceived by many shopping centers related companies.

And of course, we are the first interested party in having, let's say, more stable perception of value of shopping centers as commented. Good interest, interesting price gap as compared to other asset classes, and this is attracting investors into the shopping center market.

Thank you very much. Everything was super clear.

Thank you.

Thank you.

Thank you, Ana. We have another question from Mariano Miguel from Santander.

Mariano, the line is open for you.

Thank you, Ines, and good afternoon, everyone. Thanks for taking my questions.

I got a couple of them on my side. So, following on the one area, where you have signed a couple of very good contract this year, my question would be kind of in that area or other areas in the city in the flight to quality trends we are seeing is benefiting you or in some way simply a matter of a strong demand can lead to supply for bigger spaces?

And then, the second one on the liability side of the balance sheet, I was wondering if you could give us some color on the future cost of debt assumptions for the refinancing of the bonds maturing in the coming years. And that's all on my side.

Okay. Look, Mariano, on the A-1 corridor and the flight to quality, I think we have commented it on a number of occasions that quality is many things, quality is quality of location, but quality is also quality of the building itself.

Most of the Class A buildings of Madrid, currently, believe it or not, are not located in the CBD, are located in the outskirts, because they are -- they have been recently built, they are more modern, they comply with the most modern standards, and in some cases, they are certified sustainable, et cetera, et cetera. So, flight to quality in reality is applicable to the different areas of Madrid.

And what is different is the level of rent. So, in reality, the quality of location is already taking into account in the rental levels.

People who need to sit lots of workers cannot normally afford to do it in prime CBD. So, industrial companies, large headquarters are normally located in the surroundings.

So, the alleged or the so-called flight to quality that everybody's talking about in reality works both ways. Quality of location, so people, if they can afford it, of course, they love to be located in prime CBD, but only if they can afford it.

And in the future, less companies will be able to afford it. So that is the -- let's say, the demand -- that creates the demand tension for CBD.

As for the surrounding the demand tension is created by the quality of your building. So, this is why we have been embarking in an ambitious program of CapEx-ing and bringing back to state-of-the-art quality of different buildings, particularly the ones that we inherited with companies with some different CapEx, like for example, [indiscernible].

On top of that, as you know, we have been trying to overcome or compensate some of the setbacks of those locations, which normally are traffic commuting, that has been resolved or partially resolved or at least improved by the municipality with a new connection in Madrid Nuevo Norte that we have been also trying to counter that feeling of second class location by offering services in our initiative that is called Merlin [indiscernible], which is a cost center within our company in which we offer to clients lots of services starting from commuting services, [indiscernible] was the name of -- shuttle. We offer shuttles to them to the communication hubs, shared -- car sharing, we offer them bicycles, we offer them lots of mobility solutions.

In fact, we offer to their employers, the elaboration of the transport plans for their employees. So, we prepare the transport plans -- we have -- we offered the transport plan to the employers for the benefit of the employees.

We have been pioneers in that and it is working quite well, and generating quite a lot of loyalty in our client base. So, this is why we are confident of what we see on the demand characteristics we see now in the A-1 corridor.

But of course, rents are completely different, I mean completely dissimilar from CBD rents. I mean, the closest you are to the four towers area, of course, the highest your rent is.

But if you go to the second tranche of the A-1 corridor, the one from beyond [indiscernible], rent there in that area are significantly low. I mean, very, very low, in some cases, for Class C buildings, in some cases, similar to logistic rents in the prime area of Madrid.

It is not the case in the first tranche, where rents are stable between around 14 and 17 years. But in the second tranche, of course, they tend to be much, much lower.

Regarding liability management, the change in interest rates is undeniable. The change in credit spreads is more obtainable, because on one side, you have the bond market, which has gone completely mad probably, and it is completely dislocated, as we speak.

It's very, very difficult to access -- not difficult because of liquidity, you can access the bond market tomorrow, but prices are a little bit wild in the bond market. However, the good thing about a real estate company is that you can finance your company at the parent level, whether it's secured or unsecured, at a subsidiary level, whether it's secured or unsecured, or at an asset level, whether secured or unsecured.

So, at the end, you have multiple financing options. We are performing an assessment of what is best for us at present.

The bond market is at present is highly unlikely because of the prices. The bank market is much more interesting for unsecured financing.

And there is still the possibility of doing some secure financing ring fencing three four assets that you choose within your perimeter, because at present, we are almost 100% unsecured, and rating agencies allow up to 25% secure financing. So, we are relatively privileged in the current conditions.

I mean, most market participants do not even have access to the financing market. We have relatively abundant access to financing markets, of course, at worsened price conditions.

But still, I mean, you will know relatively soon from us in terms of the liability management regarding the May 2023 bond. And we think, it's been well executed by our finance department.

So, in due time, you will know about what we have done in that respect.

Okay. Thank you, Ismael.

Okay. All right.

Well, there are no further questions. We thank you all for joining today's call.

And as always, we remain at your disposal for any further questions. Have a great evening, and have a great weekend as well.

Thank you very much for joining.