MERLIN Properties SOCIMI, S.A.

Good evening, everyone. Thank you for joining MERLIN's 9M25 trading update.

As we always do on quarterly results, our CEO, Ismael Clemente, will briefly walk you through the main highlights of the period, and we will then open the line for Q&A. [Operator Instructions] With no further delay, I pass the floor to Ismael.

Thank you.

Thank you, Ines. Welcome to the 9 months 2025 results presentation by MERLIN Properties.

The quarter from 30th of June to 30th of September has been pretty productive for the company. Company has performed like a Swiss clock, particularly in the traditional asset classes.

The evolution of gross rents like-for-like has been plus 3.4% with relatively neutral variation in occupancy. In fact, we have lost approximately 10 basis points.

6.4% FFO per share year-on-year as a result of a better contribution to the margins of the data center division and a 5.7% increase in the NTA per share year-on-year, which together with the dividend takes the theoretical TSR to plus 8.4% in the period. The activity in Offices, Logistics and Shopping Centers has been strong, as commented, with more than 700,000 square meters transactions during the first 9 months of the year.

The FFO increased 6.4%. This is despite higher financial expenses.

Please take into account that the bond issuance in our budget was forecast for the end of October, and we ended up doing it in the last week of August. That means an excess of cash, not so well remunerated in cash at banks, but slightly higher financial costs, which, of course, erode part of our margins.

The occupancy remains very, very high, 95.5%, and what is important, remarkably stable. I mean there are ups and downs, of course.

Now Logistics is going a little bit down, but Shopping Centers are going a little bit up. But the end result is that the overall occupancy of the company is very, very stable.

In terms of Data Centers, the Mega Plan continue deploying very successfully. The European Union is playing its usual role.

So the firm-up submission that was originally earmarked for the end of October has been postponed to December. And the decision-making, which initially was end of December, is now going to be end of April.

So the European Union is approximately 4 months delayed for now. And that has wiped out part of the competitive advantage of participating in the EU Gigafactory program that was basically to bring forward approximately 1 year the execution of Phase 3.

I mean we have wasted a little bit of time. I mean we have netted off 4 months out of the 12 that we had in mind that would eventually benefit the company in terms of bringing forward Phase 3.

The good thing, I mean, the positive of the Gigafactory program is that, if selected, 180 megawatts of Phase 2 will be let at once. That is, of course, super important for the company because it will significantly derisk Phase 2.

Out of 246, 180 will be gone in 1 second. However, with the delays, we have decided to start sounding the market for firm-ups.

I mean we don't want to depend on the EU Gigafactory program because it's a little bit too complicated. It's not probably our ecosystem.

I mean we are a private company, and it's complicated to swim in that ocean full of sharks. And so we are targeting only 48 megawatts by end of April pre-commercialized for Phase 2, which is more than we anticipated.

20 of those are now already in an advanced phase of documentation. And the other 28 for the moment is on ROFO that we will try to document between now and April that will correspond to the full capacity of the Bilbao-Arasur building #2.

And then we will move into Bilbao-Arasur building #1. And we have just started also due diligencing the lease loan facilities for just another client.

The pros and cons of the European Union program is that, as a clear con, we have restricted commercialization to only European names. So the final, let's say, client of computing has to be European.

And as you can imagine, this is narrowing a little bit the scope of our commercialization efforts. So the good thing is that if everything goes well, part of the offtake will be done by the European Union.

However, we are starting to feel that if we simply lift the restriction, we will be able to commercialize without the help of the European Union. It's probably too complicated for us.

The very important because I know some of you believe that the CapEx plan for this year was stringent. The CapEx commitments for 2025 are not only well on track, will probably be exceeded.

I mean, depending on just one thing that we need to do during the month of December, we believe we will exceed the CapEx commitments that were scheduled for 2025. So the deployment of the Phase 2 of Data Centers is well on track.

We haven't valued the assets in the period. So the NTA per share is virtually the same we used to have with the generation of cash in the period.

And in terms of business performance, Offices have achieved a like-for-like year-on-year of 3.8%, which is very, very interesting. The release spread cosmetically looks like 0.2% owing to the Tecnicas Reunidas deal we did at the beginning of the year.

But in the absence of that deal, it is 5.0%. So the thesis that we have commented with all of you in some occasions about the acceleration of rents in Madrid as a consequence of the restructuring of stock owing to the resi reconversion, let's say, wave, it's clearly proving to be right.

In logistics, the like-for-like is only 1.7%, but you might notice that the release spread is 5.7%. So the only reason why the like-for-like is lower is because we have lost 200 bps of occupancy.

But if and when we start recovering occupancy, the like-for-like will start recovering because the prospective increase of rents, which is evidenced on the release spread is -- continues to be very, very sound. And Shopping Centers, it's been a surprising quarter with a very interesting evolution of sales and footfall figures.

The like-for-like is 3.5%, but the lease spread is 4.2%, which is remarkable, given also that we have recently increased a little bit the stock as a consequence of the inauguration of the extension of Marineda in La Coruna. So overall occupancy is 95.5%, slightly worse than 30th of June, but better than the same period last year.

And basically, the performance in all asset classes is immaculate. I mean the company is really, really doing a very good job in all the asset classes.

And without further extension of the explanation, I will open the floor for Q&A because I'm sure given what has happened today in the market, you will have lots of questions regarding many aspects of the life of the company, including very probably Data Centers, which, by the way, is one of the things in which the company is not having any problems. But okay, let's open the floor for Q&A and happy to take your questions.

And Ines and Fran will be today a little bit more active than in other calls because I am not physically with them in the Madrid office. I am at my hometown, at my little village, but we -- I have had a personal circumstance, sad one, that keeps me here.

So I am attending the call on a remote basis. So eventually, Ines and Fran will take today a little bit more protagonism on the answer to your questions, but I will be here, and you can also address questions, particularly to me if you so wish.

Thank you very much, Ismael. So we have the first question coming from the line of Callum Marley from Kolytics.

I've got a few. Just to begin with, can you clarify that the comments you made now on Phase 3 being delayed for 4 months and stating that it's time wasted, what's the strategy here going forward?

Are you going to try and pre-lease those 180 megawatts of the 426 in the upsizing pipeline? Just to get better clarity there.

Okay. Look, the waste of time is a little bit that we have devoted too much time to the European Union Gigafactory program.

We are now still trying to build consensus around the creation of a single Iberian consortium, which basically will be the result of us plus another private consortium in Spain plus the public consortium of Spain plus the public consortium of Portugal. So we are trying to put together four consortiums in one.

And this is proving to be extremely stressful, very complicated, strong interest, lots of politics, and we are not very good at that. So we are a little bit losing our patience, because at the end, if we lift the restriction on European Union commercialization, eventually, we can achieve the same result with much less stress.

So this is simply what I meant when I said wasting our time, no more than that. Because if you look at the CapEx execution, we are not delayed.

We are well on track. The only other delay that we are commenting in this call today is the prospective delay we are fearing in two of the Madrid projects, Tres Cantos and Getafe, as a consequence of the fact that we have been requested a double environmental assessment in Getafe, one for demolition, one for construction, however stupid it looks.

And in Tres Cantos, one for urbanization works, one for construction. So that duplicity of environmental assessments creates a time lag that results in a time delay in the execution of the project, which is between 6 months and 1 year.

And that means it moves the tail end of the cash flows of Phase 2, 1 year further, from 2029 to 2030 to attain 100% of the cash flow of Phase 2. However, you might notice that we have been doing some preparation works for Phase 3.

We will proceed to a definition of the scope of Phase 3 that will be communicated to market in the February conference call pertaining to full year 2025 results, okay? And in that definition of Phase 3, you will see that some of the most immediate projects of Phase 3 will eventually overlap with the tail end of Phase 2.

So paradoxically enough, some of the early projects of Phase 3 will start kicking in terms of cash flow before we finish with the last tail end of projects of Phase 2. It's part of life.

I mean we are developing and developing is always complex, particularly in Western European societies, which are full of administrative rules and bulls***. So it's complicated.

You have to understand that it is complicated sometimes to deal with the public administration, okay? So this is what I meant, okay?

That's clear. Can I just confirm if there's any more environmental reviews for the other data centers under construction in Phase 2?

Or is it just those two Madrid sites?

In Phase 2, we are clear on all environmental studies, including the latest one we have received is Arasur building #1. So we are clear in Portugal in full.

We are clear in the Basque Country for Arasur 2 and Arasur 1, which is the next two buildings we are doing. So it's only in Getafe and Tres Cantos where we are clear in the first environmental assessment, but we need to do a second because it's like that in the legislation.

It's however stupid it might look to you because you are a private person and you try to do things in life with common sense that however stupid it might look, it is how it is. So we need to abide by the rules and do everything by the book, okay?

So that is for Phase 2. And what we are doing regarding, let's say, the nonmoney-related activities of Phase 3, what we are trying to do now is advancing some of the red tape -- administrative red tape of Phase 3, things which do not require cash flow or do not require a lot of cash flow.

We are already advancing that trying to anticipate the possibility of further delays when we start executing Phase 3. So it's part of life, okay?

That's clear. Two more questions.

One on the Gigafactory and one big picture. On the initiative, there doesn't seem to be anything concrete from the EU about how the public partnerships might work.

Just hypothetically, could you clarify if you were to be successful on your submission, how the partnership might work? So let's say, the partnership covers the 180 megawatts that you submit.

And if we assume that costs, I don't know, EUR 1.8 billion to build, how much would the EU contribute to this?

Very good question. Look, the modality that we have chosen in the EU submission, I mean, after talking to the EU, there are two ways of obtaining the help of the European Union.

One is via CapEx and the other is via offtaking, and we have chosen via offtaking. That means that 35% of the offtaking is guaranteed by the European Union in JV with the local government.

So what this means basically is that out of the 180, okay, 60 megawatts will be offtaken by the European Union and the local government, be it Spain, be it Portugal, depending on which data center we are talking about. And the rest, it is our responsibility to commercialize with final clients, for which we have already lined up two GPU operators together with their corresponding end clients, which in all cases are European.

So if the EU Gigafactory program goes forward or if we are selected, the 180 megawatts are commercialized, 60 as a consequence of the intervention of the EU, the other 120 as a consequence of our own bilateral agreements with our own clients, okay? The only nuance is that this is subject to being selected.

What we are trying to do now is obtaining the same back-to-back agreements with the same clients irrespective of EU, okay? And in that regard, we expect to have 48 megawatts at least committed for April.

So out of the 120 that we are doing on our side, a little less than 50% of that. And we will continue working.

Remember, we are in the initial phases of construction. So our perspective of having pre-lets at this moment in construction was zero, okay?

So we are trying to celebrate, to enter into pre-lets to cover that capacity irrespective of the outcome of the EU Gigafactory program because it might well be that the EU Gigafactory program is delayed again to the summer or to end of the year or it might also happen that the EU Gigafactory program ends up modified. For example, moving 1 year further the termination of the facilities, which is at present our main competitive advantage.

It is very clear that we are not the poster child of any member state, but our competitive advantage is that we do have the IT capacity, which no one else has at present. So if the contest rules are modified by European Union, we might all of a sudden lose that competitive advantage because if instead of deciding that the gigafactories have to be ready by '27, '28, they decide that they can be ready by '29, '30, eventually, many other people will be able to, let's say, comply with that prerequisite.

And as a consequence, we will lose our main competitive advantage because clearly, our competitive advantage is not lobby capacity, is not, let's say, soft influence capacity in -- with political powers.

That's clear. And just one more big picture and to get your thoughts.

In the U.S., we see Sam Altman and his big tech peers investing trillions of dollars into data centers and AI on the basis that maybe in 10 years' time, there's a significantly more demand for compute than there is today. Just be interesting to hear what your thoughts are on this strategy, whether European countries should be potentially following suit at a faster rate than what we are or whether you think that there's potentially an excess supply risk there later on down the road?

Well, the U.S. and Europe are completely different realities.

Despite all the noise, in Spain at present, as we speak, there are 70, 12 and 48 megawatts being built at present to which we will add 60 of Arasur #1. So less than 200 at present and less than 250 in 1 year time.

This is what is being built in Spain, which is virtually nothing. However, the U.S.

wave is already reaching Europe in the sense that we are seeing a lot of interest from a lot of very significant accounts to commit into very large projects. Hence why we are trying to secure power for all the remainder of Arasur, okay?

Remember in Arasur, we have one building, #3, which is already operating; building #2, which is built that we are starting equipment and will be ready for service at the end of '26; and building #1, which we should start building at the end of this year, should be ready by end of '27. But we have land reserved for another 3 buildings, building 4, 5 and 6.

And we are now fighting to get the electrification for those three plots so that we can take the total capacity of the Arasur campus to something between 300 and 350 megawatts. This is what we want to achieve.

And why we want that kind of scale because scale matters. We are seeing that some of the clients really want big scale.

They want to have what they call power visibility. So we need to be able to give them power visibility because Spain and Portugal, for argument's sake, is one of the few corners in Europe where you can do that.

I mean, in many other countries in Europe, you have either generation problems in many, distribution problems in some, or generation and distribution in many others. In Spain, we have a distribution problem because nobody has put one penny on the distribution network for many years, on the grid.

But we have no problem of generation. We have a clear excess generation as compared to consumption.

And as a consequence, in theory, there are pockets of electricity, of power that you can find still if you are local and you can dig deep into the current grid organization. There are places where you can find abundant electricity.

So this is what we are trying to do at present. Likewise, in Portugal, where we have received 250 megawatts from both EDP and the National Grid Authority, REN.

And those 250 megawatts correspond to 180 megawatts of IT power, which is building #1 and 2, which are the ones we are already building. And this is the reason we have -- why we have started preparing the ground for building 3, 4 and 5.

because, first, we cannot do it later because we cannot do micro-piloting when two data centers are already working on the site because we will create vibrations that will not be good for the machinery of those two data centers. As a consequence, we have started preparing the compaction and the micro-piloting of that land in order to be able to host the three next phases of that campus, which are already electrified.

But on top of that, we have also started moving with the Portuguese authorities, which are smarter, and they are offering you electricity rather than denying electricity to you. And we are -- we have started moving to obtain electricity for buildings 6 and 7, okay, for which we will have the next year to -- in order to try to close some sort of agreement with that.

And then regarding our star project, which is Navalmoral de la Mata, in that one, of course, having 1 gigawatt today in Europe is a luxury. So we have now very, very strong interest that we are trying to document in the corresponding HOTs.

And if we can get the electricity from the Spanish authorities, the electricity is there, we know, that if we can get the electricity from the Spanish authorities with a very high degree of probability, that is a project that will be born already, let's say, committed, booked or pre-let eventually as you, like all investors, probably wish, okay? So this is what we are doing in terms of preparation of Phase 3.

But as aforesaid, we will -- I mean, it's been a very fast movement in the last months. We are a little bit digesting our own success.

Sometimes we feel like sitting a little bit, taking a rest and enjoying. But of course, this is not a real possibility.

And between now and February, we will prepare a definition of what we consider Phase 3, including a funding plan, okay, which in this occasion might entail particular agreements in some mammoth projects with external partners in order to develop because otherwise, they are a little bit too big for the size of our company at present.

Okay. Thank you, Callum.

So the next question comes from the line of Thomas Rothaeusler from Deutsche Bank.

Yes, also I have a question on Data Centers. I mean you say your competitive advantage is that you have ready-to-use product while there is hardly any competitive product available in the market currently.

By when do you expect this situation to change? So by when do you expect more product from competitors?

So it sounds like well beyond 2028. And how could that impact your Phase 3?

Very good question, Thomas. I mean, I believe not earlier than 2030 because at present, there is a lot of noise, but very few people really putting a shovel in the ground.

You only have a construction yard in Alcala with ACS. There is some construction in the site of Iron Mountain in San Fernando de Henares.

And then it's us in Barcelona, at the end, in Cerdanyola del Valles, they haven't put a shovel in the ground and Goodman has not put a shovel in the ground in Parc Logistic de La Zona Franca. So in reality, this is what we have -- I mean Aragon, despite all the noise, nothing which basically is 0.0 new construction at present.

okay? Although we believe that the QTS project, for example, is for real, and it will be done that probably ready for service 2030 with luck.

So as commented in some occasions, we have commercialized Phase 1 on a clear market basis. Phase 2, we were pointing or thinking that we will also be in clear market basis.

It's probably now confirmed we are going to be in clear market. And it looks like the vast majority of Phase 3 will also be commercialized on a clear market basis because the first ready for services of Phase 3 could start not later than 2028 and will expand to 2030, '31 maybe for stabilization in '33 -- end of '32.

So this is what we are expecting for Phase 3. And as a consequence, the market will not be very, very active.

And this is Spain. But also, if you look at the rest of the European panorama, leaving aside what is built as a consequence of the EU Gigafactory program, very little activity is observable in the rest of the core European markets.

I mean it's very hard to get power in Europe these days, and there is not a lot of activity. And contrary to the stance of the U.S.

government, except for the Nordics, which have abundant generation capacity at very small grids, very, very small grids, the most significant competitors for the future, I believe, are going to be the U.K. and France because their governments are smarter.

And they will -- they are already moving into extra nuclear generation capacity, and they are already entering into grid reinforcement regulations. They are now trying to reinforce and make better their existing grids.

So I believe long term, they are going to be competitors, but it will take many years because Europe is very complicated from a red tape standpoint. We have shot our foot in terms of environmental regulations.

Many of our regulations have probably been designed in China. And we have -- as a consequence, we have curtailed completely our economic activity.

And as a consequence, it takes many, many years to do or to convert in real a project which entails some sort of construction or, let's say, CapEx activity. So this is the competitive panorama we see for the coming years.

Thank you, Thomas. So the next question comes from the line of Florent Laroche-Joubert from ODDO.

I would have a first question. So you seem that you have taken into account significantly the program from European Union in your plans.

I would like to understand so why European Union should select an operator, a player operating in Spain and Portugal. So why do you think that you can be selected with a high probability?

Yes. Thank you for the question.

What we are hearing first is that the number of people presenting options to the European Union has been massive, about 75 options possible over the European countries. So what they are appreciating is that if there are certain regions that they can offer a combined projects, of course, there need to be some linked to the two options.

In our case, not only from a connectivity point of view, not only from a client perspective point of view, not only about -- from an ownership of infrastructure point of view, but also on the energy side, as you know, basically both Spain and Portugal, they have a unique grid system, although, of course, managed by different entities, but it's the same structure. All of that is basically helping us to propose a combined option with more capacity, with more size, with more companies that could use our facilities, and this is something that European Commission appreciates and sees a positive advantage as compared to isolated request or isolated offers from other countries.

This trend that we presented at the very beginning is being followed. So we are not the only ones that are putting together different consortiums, different countries to get a more powerful offer.

And as you know, the objective for European Union with this project is to incentivize that there is capacity available out there and also with this offtaking, offer companies, not big large model companies and software companies that normally take that space anyway, but also all the institutions, governments and finally European entities and in the U.S. that can work with capacity within the European region.

So that's basically what we see. As Ismael was commenting before, and commission has been very clear about that, there is two ingredients to be considered from the assignments.

One is from a technical point of view. So in a way, like 50% of the decision is based on technical reasons, technical reasons meaning, as Ismael explained before, ready for service dates, capacity from a technical point of view, how efficient you are, renewable sources from the power, et cetera.

And the other 50%, let's call it, is not right percent, but you understand what I mean is from a political decision, which means that what they also try to do is to incentivize penetration of this AI, not only in the region, but also in certain areas within the European Union. So this is, as Ismael was pointing out before, out of our control.

So we know that we -- our grade from a technical point of view is pretty high, if not the best, mainly because not only all the assets are new, but also because our ready for service is '26, '27, which is pretty immediate, and this basically are our advantage. So far -- if, of course, the project is being delayed or the rules are changed, of course, then we are losing a bit of grip there.

But right now, from a technical point of view, we can say we are top in the list. But then this is a political decision, not only from the local government, but also from the commission to decide whether they want to implement this type of services and offering in which regions they want to help there.

And that is basically what explains why from a technical point of view, we are pretty confident we can get it, but there are elements which are out of our control and it's complex how we can influence on them.

Okay. And maybe a second question.

So we understand that you work a lot on this program for the European Union. So do you consider it as a central scenario?

And do you work also maybe on an alternative scenario where you're not selected at the end?

Yes, Florent, this is clearly something that we planned from the very beginning. Probably it's not even the plan B, it's the plan A.

So this is why now we are concentrating in obtaining firm-ups from the clients irrespective of the European Union because European Union is like a Monte Carlo option, is binary, is 0, 1, and there are elements beyond our control. I mean, we are a relatively young company.

We are a very operational, very active company. We are not the typical public contractor.

So we have zero experience in dealing with public authorities. Lobbying them, influencing them is not our cup of tea.

So technically speaking, we were ranked the first out of the five options that existed in Spain. But that is only part of the equation, as Fran was commenting.

So from the very beginning, we prepared for a life without European Union because it is beyond our control. And eventually, imagine they say, well, it's no longer December.

It's going to be now -- the firm-up submission is going to be May. And then final decision moved from April to December next year.

So by the time the whole thing unfolds, we might be completely commercialized on Phase 2. So if that is the case, why continue spending or wasting more time with the European Union if we can do our things on a completely autonomous basis.

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

I just have one question on the EU project. So we've heard you mentioning how frustrating the whole process is, which I can understand.

So what is the cutoff date for you to move on from the project and the consortium? Are you willing to wait until end of April?

It is a very good question, Celine. And to be absolutely frank, we haven't yet made an internal decision.

Probably we are going to wait till April. But if in April, we see that the submission is delayed to December or if we see that there is even more administrative red tape or more lobbying capacity or more bulls*** that we cannot control, eventually, we will pull out.

But Fran may have different thoughts on that.

Yes. It's -- I mean, for us as well, it's a little bit commitment to the country in the sense that we believe that in addition to the fact that we could have some offtaking from that project, yes, we are pushing this because we believe that this decision, if it comes to vis-a-vis the construction will create -- will basically push ecosystem from an NII perspective.

And we believe this is good. As Ismael said, any delay that we are suffering is in a way reducing the value of that option because if we are fully commercialized, if we don't need money for the CapEx, if we are -- if there is any help that could, let's say, accelerate our implementation because we are -- we'll be done.

In that case, of course, it's losing how attractive the program is. And by the way, the Europe Union has already achieved the objectives without even putting a dollar on us, which is good.

But also it's interesting for us to continue trying to bring that ecosystem into Spain and Portugal. And that's the reason why we will continue pushing.

As said, there are other decisions that are not on our control and if it is decided that the offer is not selected and they decide another country or another alternative, then we have done from a Spanish/Portuguese point of view, wherever we can, what was in our hand, trying to bring that capacity and that help and ecosystem into our region.

I have a second question on Phase 3. So you're going to talk about it more in February, but are you going to mention how you are planning to finance it as well?

Yes. This is objective #1 for February.

We will present the definition, the scope of Phase 3 together with the funding plan because the Phase 3 might be significant in terms of size. And particularly, it might signal the start of one of our really, really big projects, which is Navalmoral de la Mata.

And that project alone eventually warrants a separate analysis on how are we going to fund that because it's a very, very big project. And eventually, we will need to check how we can do that, whether we continue simply running through the mother company from MERLIN or eventually for this particular case, we take a partner, which brings some other value eventually in the form of offtaking and/or financial capacity, which helps us in reaching an end in that very, very important project for the company.

So you will have all the details in February.

Okay. So there are no more questions.

We thank you all for being with us during this 9-month '25 trading update call. And as always, we remain at your disposal for any questions that may arise.

Have a nice weekend. Thank you very much for being here.

Bye-bye.