Good afternoon, ladies and gentlemen. Welcome, and thank you for joining MERLIN's first half 2023 results presentation. Before we start, we ask you to please abide by the disclaimer containing the presentation available in our website. I will pass the floor to our CEO, Ismael Clemente, and COO, Miguel Ollero, who will run you through the presentation, and thereafter, we will open the line for Q&A. For those of you who want to raise questions, please press star followed by number five. With no further delay, I pass the floor to Ismael. Thank you.
Thank you, Inés . Good afternoon, everyone. Welcome to our first half 2023 results presentation. The company has enjoyed a solid semester in all business lines, better than expected, I would say. The Spanish economy is not showing signs of abatement so far. I mean, it's performing relatively strongly on increased touristic revenues and public spending for the time being. We remain prudent for the second half, a little less prudent than we were at the end of the first quarter. In terms of operating performance, as commented, very strong in all asset classes. The like-for-like rental growth for the portfolio came out at 7.7%, and the occupancy remains at, or close to historical highs at around 95%, 94.9%, slightly up versus the first quarter.
In Offices, clearly surprised us on the upside. Despite all the fears around work from home and San Francisco, we enjoyed a 7.5% like-for-like rent increase and a 3.2% respread, with a solid 92.3% occupancy. Logistics remains very strong, with a 4.3% like-for-like, 9.3% respread, and 96.4% occupancy. Although there is here a little cut-off date effect because at present, we are close to 99, 98.8, because there was just one contract that was signed following the cut-off date for the semester. The darling of the semester has been Retail.
I mean, believe it or not, after all the retail armageddon and all the bullshit that we have, you know, withstood, withstood during the last seven years, now retail is performing admirably. I mean, with a 10.5% like-for-like growth, 10% respread, which is really incredible, and record levels in terms of occupancy at 96.4%. The adding up the whole thing, financial performance of the cash flow of the company has also been very encouraging at EUR 0.31 per share, which is a 16% increase pro forma, excluding three, as compared to last year.
You know, leads us towards the belief that we are going to beat the original EUR 0.58 estimate for year-end, we are upping our guidance to EUR 0.60. Some of you may say EUR 0.31 times 2 is EUR 0.62, we are expecting a little less income for the second half and also a little more financial expense. We have experienced a overall decline in valuation across the portfolio. We have onboarded 28 basis points of yield expansion, which takes total to 72 to date, since the change in interest rate environment started. You might remember we discussed at length during the first quarter call about what would be the extent of the correction.
We have, in many occasions, mentioned to you that we expected in the region of 100 basis points. We are getting there. I mean, we will no doubt have another additional valuation correction at year-end, little by little, we are going to be at or around the 100 basis points correction we mentioned to you. Of course, whether this will continue or not will depend on the direction that interest rates will take. There are different schools of thought, people that says that they are now starting to level, some people who says that there are still a lot of rises in the horizon. Frankly speaking, I am not a macroeconomist. I'm not an expert.
I don't know. The only thing we will do is try to have the company prepared for whatever scenario of interest rates and, or, cap rate expansion we need to face in the future. The financial situation of the company remains strong, with a relatively low LTV, virtually all interest rates fixed and no debt maturities until May 2025. Liquidity, which is made up of available credit lines and cash at banks, it's in the region of EUR 1 billion, which is, you know, sufficient for what we need in terms of security cushion. I mean, we will continue doing liability management in anticipation of the May 2025 maturity. I mean, we will not for the next two years.
Expect some liability management exercises in the company in anticipation of the May 2025 maturity. Regarding minor or major value creation efforts, we have disposed of around EUR 32 million in the semester, including two non-core Shopping Centers, that you might remember, and one very small industrial asset. This will be continued during the second half. I mean, our budget for the year is between EUR 80 million and EUR 100 million disposals, so we will continue making an effort in this regard. That effort is now especially focused on non-cash flowing assets. I mean, we have basically made a significant exercise over the past years of disposing business lines and assets that didn't fit our strategy.
At present, what we are trying to do is make our balance sheet fitter. Or, in other words, have no assets in our balance sheet, which are not producing cash flow or able to produce cash flow in the immediate future. What we are doing, basically, is eliminating those assets that do not fit with those criteria. Regarding Landmark, nearing completion, with Picasso will be delivered to the anchor client at the end of the year, in November, December. It's important for us because that asset will contribute around close to EUR 16 million rental income next year. That is about, you know, EUR 0.03 per share, which is very much welcome in the times we are living.
Super, super excited about the Digital Infrastructure Plan. We are about to deliver the 3 assets we have been building for the past 14, 15 months. All of them will be delivered by the 13th of September. In two of them, the anchor client is already in, trying and testing their equipment. What initially was a concept, then a work in progress, is becoming more and more tangible and visible now. We will be welcoming some of you for rounds of visits. I know that this is not an asset class that is super transparent in the market. Very few people have had the pleasure of visiting one of these monsters.
We will be happy to welcome the ones of you that so want in Spain for visit asset visits to our Data Centers. Of course, the flip side of the coin is that this will mean a significant CapEx effort, as many of you are pointing to us in the latest meetings we are having with some of you. So far, we have incurred around EUR 200 million. By year-end, we will be more in the EUR 300 million mark, but this is already budgeted for the year.
At this point, basically, our intention is to spend another EUR 100 million next year in order to fit equipment amounting to 33 MW in the facilities so that we can-- we are not caught short of availability by the potential commercial- commercialization. This is, of course, always a fine equilibrium between you need to have the availability of power if you want to commercialize, but if you want to have the availability of power, you need to fit it in advance, because there is a significant delay between the commissioning of equipment and the, you know, when we, when you receive that equipment in your, in your facilities. This is what we, what we plan to do. Without further delay, I pass the, the floor to Miguel Ollero, who will comment on the, you know, the financial numbers.
Good afternoon, everybody. We should go now to page six of the presentation. I will be very brief on the financial performance of the company. As Ismael has been commenting, we have a very good operational performance, which has been already translated into the financial figures of the company. Consequently, on gross rents, we were increasing 6.9% with regards to the same period for the prior year, 2022, reaching the EUR 237.8 million of gross rents within the company. Important to remark that on the EBITDA basis, we were close to EUR 182 million, which implies a further increase of 9.6%, much higher than the gross rents increased during the first half of the year.
Also important to highlight that the EBITDA margin was at the level of 76.4%, surpassing close to 100 basis points with regards to the prior year. On FFO basis, EUR 147.4 million, which on a like-for-like basis, taking or pro forma basis, taking into account that in this semester, we have not been enjoying the, the delivery portfolio, we should have, we have increased the, the, the FFO on 16.7% basis. What also implies an increase in the, in the margin from 56.7% to 62%. It's a great improvement in also in the EBITDA margins for the company.
On a method for basis, we were commenting is EUR 0.51 per share for the first semester, Ismail was commenting, we're expecting EUR 0.60 per share for the year end. With regard to the EPRA NTA, it has moved from EUR 15.67 by the year end to EUR 15.36. We were distributing EUR 0.24 per share during the second quarter of this year. We have been also being affected by the fact that we have a negative impact on valuation of the assets, but still, the NTA of the company continues to be robust and at a very high level.
If you, we move to the next slide, it's just a brief reminder of how our rents have been performing during the year, with a like-for-like improvement of 7.7% all across the portfolio. Being Shopping Centers, the ones who have been growing the most on a double-digit basis, 10.5% on Shopping Centers, followed by the Offices at 7.5%. Logistics is a little bit down, but it's more related to the fact that we are almost at full occupancy, so it's mostly driven by CPI indexation. In the end, we already got EUR 16.2 million of functional sales, sales or revenues or rents during the first half of the year. If you move to the next page, page eight.
In terms of occupancy, the company, as Ismael was pointing out before, is the highest historical levels of occupancy at around 95% occupancy. Highlight that Offices at 92.3 is holding up with the occupancy we were reporting by the year end. Remember that in 2022 was a year in which we were improving largely our occupancy in the office portfolio. That was the best performer in the company in the prior year. In Logistics, we are reporting 96.4. This is mainly driven by our cut-off date. There is a logistic set that got buttoned, but now is, has been relet.
Considering that this is relet in the month of July, occupancy will go up to around 98.8%, which means that we go back again to full occupancy in the portfolio. Shopping Centers, 96.4%, a higher occupancy than we ever had in our portfolio. As Ismael was commenting, Shopping Centers is not only a question of higher rents, it's also a question of very high occupancy. Finally, I should highlight that the company itself is transforming all, in all across business line, as, as, as it best. Now, we are moving on in the specific of each asset class, and Ismael will guide you through them.
Okay. Thank you, Miguel. Well, in Offices, you have here the breach of the income. We are running now at a rate for full year of around EUR 250 million of billing in Offices, which will be our historical record. I mean, inflation is clearly helping us because we have disposed of a number of buildings in the past years. Little by little, Offices is holding up as a very important contributor of the income of the company. Like for like growth has been surprisingly high in Madrid because this is of course, the biggest sample, and normally it is lower. It's been surprisingly high, very good also in Barcelona and a little less impressive in Lisbon.
It's, it's, I believe it's simply a blip. I mean, Lisbon continues performing very, very well, and you, you will, you will see it shining in the, in the second semester. Occupancy, as you can see on the bottom right of the page, is 100% at present in Lisbon. Regarding leasing activity, well, a lot of leasing activity, 160-, in excess of 160,000 square meters contracted. Very good tenants, and very good release spread, although clearly the CPI and release spread in Offices are countering forces. I mean, they are opposite forces. Because, if you want to really update to market any given contract when it comes to expiry, the tenant will request a cap on, on inflation.
If you want to apply full inflation, it will not accept bringing the contract up to date. This is something that we have commented already in past conference calls, and now it is more visible in the portfolio. In the second half, we expect the performance to worsen a little bit. I mean, for those of you, when I say worsen, go from 90% to 80%, no, it's gonna be less than 1 point. We are expecting something really meaningless. We expect a little decrease in performance. I believe also that the indexation will not be that positive in the second half, because, as you know, there is a big disparity in Spain between core inflation and nominal inflation.
We index on the basis of nominal inflation. As you know, interest rates normally trend towards core inflation. They, they try to tackle core inflation. There will be one or two quarters or maybe one or two more, in which, you know, we are not going to be as, you know, able as in the past of increasing rents via inflation, because inflation, nominal inflation, is already going, going down in Spain. It's, the July print was, like, 2.3%. It, it came out today. In LOOM, we have opened two spaces, Castellana 85 and Plaza Catalunya in Barcelona. We are now at close to 27,000 square meters and 2,700 desks with an 85% occupancy and an ADR of EUR 380.
Space by space, we have reached now positive EBITDA in all of them. At the TopCo, we are still a bit negative because the business is not able to absorb all the overheads. We believe the break-even will be reached between 36,000 and 40,000 square meters open. In the coming year, we will be in that kind of situation. We are reporting occupancy and ADR for your convenience. In Logistics, very strong quarter and semester. The like-for-like has been 4.3%. The growth has been higher in Barcelona and in other locations within Spain than in Madrid, because it's much deeper. I mean, market and more contracts. Occupancy remains super strong.
Madrid, as commented, is now close to 99. The rest of the portfolio is also virtually fully occupied. We are going to go to market with a significant amount of new offer for the coming year, so that we can, you know, cope with the demand that we are perceiving at present, in which also we are relative winners because the touristification in the logistic market is coming to an end, and most tourist investors can no longer find financing or capital. Many of the tenants that were really speculative in the past and were in doubt of whether going to your facility or any other facility that was to be built by somebody, now come to you, and, you know, it's clearly making our relative negotiating position a little better.
As you can see, for example, in the yield of the upcoming projects, which has increased a little bit versus the one we had anticipated in prior versions of what we considered best 2 and best 3 yields. These are consequence to a lesser extent, prices of construction are coming back a little bit, coming, coming down, it's more that rents continue to grow in our, at least in the important markets, in which we operate. In ZAL Port, very good period of activity. The occupancy remains, I mean, point up, point down, remains very close to full occupancy. Generation of FFO is solid, little lower than last year, is not really meaningful. Shopping Centers, as commented, super strong semester.
The visibility for year-end remains also super positive. I mean, we are seeing an incredible footfall. The footfall is now steadily above what it was in 2019. As you know, it's been so far our black spot because we, we were obtaining better sales per square meter over the past months, but we never, we never managed to exceed the 2019 footfall figures. We are also above the footfall figures of 2019. With the recent cinema blockbusters, we believe that those will increase farther towards year-end. Very, very interesting behavior of Shopping Centers. The recovery of tourism is clearly helping us.
For us, what is really, really important is that the occupancy cost ratio has set a new record low at 11.7%, so the tenants are clearly comfortable in our facilities. They are, they are not suffering to... they are not struggling to pay the rent. They are quite, they have quite a lot of room for maneuver. On Page 19, we have the different clients, and let me pass the word to Miguel for valuation and debt position.
Thank you, Ismael. We are coming into valuation, debt position of the company, page 21. As you know, we conduct valuation twice per year. For the first half of the year, end 30th of June, we conducted valuation. The outcome of the valuation maybe is the negative point of our financial set of results, because we were getting a 1.4% like-for-like reduction in valuation in our portfolio. We are pointing out here that gross yields stands between 4.6% in Offices to 5.9% in Shopping Centers, and on average, gross yield of 4.9% all across the portfolio.
We should highlight that in terms of valuation, what we had was a, a 2.5% like-for-like negative evolution in Offices, which implied 24 basis points of yield expansion in the office portfolio. Logistics, despite a 20 basis points expansion in yields, we were getting a 4.1% up in valuation. This is mainly driven by the fact that, as you know, we have a land bank on Logistics, which now is advancing. Ismael will be commenting later on how advanced we are, of around 180,000 square meters, which are coming into operate, into development and operation on a periodic basis, which is driving up our valuation with regards to this land bank.
Finally, on Shopping Centers, we had a 2.9% like-for-like reduction in value and 32 basis points of yield expansion. We take a view of the last 18 months of our portfolio. In Offices, we have had a yield expansion of 63 basis points. On Logistics, 47, and in Shopping Centers, 97 basis points of yield expansion, which on a portfolio basis means 72 basis points of yield expansion in the last 18 months within the portfolio. Moving to the financial structure of the company, we should say that the company continues to be very solid from the financing standpoint. We should be highlighting that in the first half of the year, we have been first refinancing the bond that was expiring in the month of April.
For such purpose, we were entering into bank financing, guided bank bond financing with a very attractive cost, well below what you can get on the bond market. We were ending up with a net debt of below EUR 4 billion, with a gross debt of EUR 4.16 billion, which is EUR 80 million below on a gross debt basis with regards to the situation we had on year end. The company, as of today, has a loan to value of 33.9%, with the vast majority of our debt is fixed rate.
We have 98% of our debt on a fixed rate basis, with an average, with an average maturity of 5.3 years, having the first maturity only in May 2025, so close to 2 years beyond, and with a liquidity of about EUR 1 billion. We have been reducing our liquidity with regards to the one we had by the year end, 2022, this is mainly because we were advancing on the refinancing of the bond maturity in April. We have been using part of this liquidity, drawing down the bank financing that we put in place for this replacement during the first semester. As a consequence of it, it has been very useful.
However, I should be highlighting that in terms of revolving facility, we have been expanding it. We used to have EUR 700 million. We have been expanding it into EUR 740 million, and also enlarging the maturity of it. Now it's maturing in 2028, with the capacity to enlarge additional two years. Finally, from the financial standpoint, we should be highlighting that the two rating agencies, Moody's and S&P, they have been conducting their annual reviews, and both of them have maintained our current rating stance. Also, keeping our positive outlook that was set in the other quarters. I think this is it from the financial standpoint.
To remark again that we are very well set with debt on a long-term basis, normal activities ahead of 2025, May, and fixed rate all across the financial portfolio. Well, in terms of sustainability, the semester has been quite active in terms of the pathway to net zero program. We have now reduced the scope one and two footprint from, you know, the target is 85%, and we, we have achieved 71% already, so we are clearly progressing towards achieving our 85% mark, then the rest will need to be compensated. In terms of implementation of the green clause, that will take, you know, a long time before we can really change that clause in all the contracts that exist in the company.
At least in the semester, the progress has been good, with 100% of the new leases signed in the Logistics, incorporating already the green clause, and 37% of the leases signed in Offices, mainly the ones with the bigger tenants, incorporating the green clause. In Shopping Centers, we have not yet started incorporating the green clause. It will take a little bit of time to design or to implement it in the different contracts, because the contracts have different shapes in some cases, depending on where they were coming from, Metrovacesa , Testa, the ones in Portugal, and Shopping Centers we bought. We will continue doing it and reporting progress.
Value creation, we invested a little bit of money in the, in the, purchase of a, vacated, department store, in Marinera. Our intention basically is to expand the mall of, Marinera to adapt to a number of requirements we have from existing tenants that want to enlarge their, their space. We will be making use of around 18,000 square meters of the new buildability acquired. The rest will remain untouched for future use in case we, we need it. We disposed of two non-core Shopping Centers, one in, Vila dec ans, and the other in Aldaia, Valencia, near the Bonaire Shopping Center, operated by Unibail-Rodamco, and one industrial warehouse in, [Ferrol], a small one.
Plaza Ruiz Picasso, we already commented, nearing completion, by the end of 2023, it should be opened. The most important thing here is we can tell it's fantastic, and then we, we have signed with IBM for their national headquarters in Spain. Globant, which are a technology company, also for their headquarters in Spain. Willis Tower Watson, same thing. SAP, same thing. We are also putting in a LOOM that we will use to cushion the flex space needs of all the AZCA, you know, neighborhood in which we have one, two, three, four buildings. We, we will be using this LOOM as a, as a way of providing services to, to the, to the immediate neighborhood.
On a more bread and butter kind of thing, we finished the facelifting of Cerro de los Gamos , small buildings, so nothing really important. As you can see, the change of aspect was very significant. I mean, somebody should have shot the architect that designed the building you have on the, on the, bottom, left of your page. You know, the, the new design is clearly has been welcomed by the market, and, and, both buildings are now the ones that we have refurbished are now full. We will continue working on this business park because it is, it's a business park that is a top performer, always in high demand because of its close, you know, distance to the super affluent residential areas.
We will continue refurbishing the rest of the buildings of the or facelifting the different buildings of the business park. Regarding Logistics, on page 31, we will start in the semester, 180,000 square meters, 160,000 of which are already under agreed terms, and the other 20, 000 will be speculative just because they are, you know, side by side, one of the pre-lets that we are going to build. Once we pre-charge the land for one of the developments, it is very easy for us to pre-charge the land, which is closely adjacent. It makes sense for us to, to do both at the same time.
We are sure that it will be, let before it is finished, because it, it is in an area of high demand. We will be progressively starting construction during the second half, for delivery at the end of 2024. In one case, we believe it might, might slip into 2025, first quarter. Remaining investment is EUR 109 million, with a yield on cost of 7.4. I mean, we were projecting, with the rise in construction costs that we experienced over the past 18 months, we were now projecting between 6.8 and 7, 6.9, around that. Clearly, rents are helping us in this regard, and construction costs are also coming down a little bit.
The, the latest construction quotes we are getting are much more moderate than they were in the past. On the Digital Infrastructure Plan, where there is being a lot of construction, of course. Bilbao-Arasur nearing completion. In this data center, we asked for the license in February last year. The Basque government was clearly the one that reacted quicker and faster to the need for data storage, so they were very quick in giving us the license. We started development in April 2022. The client will be granted early access on the 15th of September, and the final delivery date, and well, opening date to follow immediately, will be 29th of September, 2023.
The facade is already completed, general construction, around 90% completed, interior of the Office is 85%, and the equipment has been now delivered. 3 MW are already live in the interior of the building. The fiber connections are now being, as present, as we speak, are now being connected to the data center. In Madrid- Getafe, we obtained licensing in July 2022. This license cost us, you know, almost 1 year, we finally started development on the same date. We are now in finishing touches. We, the client is already in, it's already been granted early access and has started paying, let's say, half rent.
The final delivery date will be 29th of September 2023. In terms of key milestones, the facade is 95% completed. We are now, you know, cladding it with photovoltaic panels that will be capable of delivering up to 0.5 MW peak. The building construction is 85%, interior of the office is 80%, and the equipment is already in the premises, with fiber being connected as we speak. Barcelona Parc Logistic, the licensing also happened in July 2022, and we started construction immediately thereafter in August. The tenant is already in, the final delivery date is on 29th of September 2023. The facade is almost completed, this one is also being cladded with photovoltaic panels.
Building construction, 85%, and interior of the Offices is a little bit delayed because the priority here was to grant the early access to the client. What really was the priority for us was the technical room, so we left the Offices a little bit on the side. Equipment delivery already in, completed, and connecting to fiber. On page 36, you will see a number of images of the interior of our Data Centers. One of the data holes, which is already receiving final touches. The AirBlox, the cooling system, which is made in the U.S. by ThermalWorks. The generator sets, big ones, made in Germany by MTU Rolls-Royce. The hot aisle, although this one is still with the cables and, you know, it's a little bit under construction.
The cooling system and the meet-me rooms, of which we have two in every data center, you know, which are also now with the cable trays and everything, almost in final, final status. Regarding CapEx, we have incurred already in around EUR 200 million, we expect to incur another EUR 90 million before year-end. You know, expect around EUR 300 million to be spent in Data Centers for the three fully built shells, plus the initial 9 MW of equipment. We will continue procuring equipment. It is important to do so because you cannot offer to hyperscalers what you don't have, there is a significant delay between commissioning and receiving the equipment. We have already launched a procurement for another 6 MW.
In the second half of the year, we will be, probably, procuring another 6 MW of equipment, up to 21. The whole thing will continue in 2024, with the idea of finishing 2024 with around 33 MW of installed capacity. That, of course, is important in terms of commercialization. Commercialization, in our demonstration phase, we are now topped up as compared to the power that we have installed in our data center. We have currently 9 MW and have launched the commissioning for another 6, and we have pre-commercialized 4.2, 6.8, between 8.8 and 11.8, so we are already topped up with the current 9.
Hence, why we have gone for another 6, and we with the intention also to accommodate the options of the existing clients. Two of them are hyperscalers, and the other one is a, is an industrial client with a technology integrator, it's a different type of breed as compared to the others. What we feel is that the phases that we initially designed, 2027 and 2035 and beyond, should probably be shortened a little bit. We, we are seeing significant demand. Generative artificial intelligence is clearly the driver in the market now for demand of the data center storage. Very, very interesting. Although from a cash generation standpoint, we are slightly delayed owing to the delay in obtaining the construction licenses.
For 2023, we will only be invoicing meaningless figure, EUR 1 million, and for 2024, we are going to be invoicing in the region of our, our, let's say our scenario is that we are going to be invoicing in the region of EUR 11 million. This will very quickly ramp up immediately thereafter. Outlook for 2023, beyond the fact that we up our guidance from EUR 0.58-EUR 0.60, the idea continues to be to propose an ordinary dividend of EUR 0.44 to the board, which corresponds to around 80% of the adjusted FFO. You know, before today, we were a little bit more in doubt of being able to reach that point of cash flow.
We will be using a little bit of cash at banks in order to distribute the dividend. Now, we believe we are going to be comfortably generating the cash flow in order to pay the dividend, so that the company doesn't incur in any usage of cash or re-leveraging in order to pay the dividend. Dividend will, will be comfortably covered by the cash flow generation of the company. That is basically it. Strong performance in all key operating metrics. We are very happy, I mean, with the way the first half ended up evolving. We had a little grimmer picture at the beginning of the year, but clearly it's been a very good semester.
Occupancy remains strong in all asset classes, and Offices in particular, is probably more resilient than many people think. Even ourselves, we had a lower projection for occupancy of Offices in this quarter. We are happy with the way it has resisted. Logistics continues to rock. We are going to play the wave by putting in the market 160,000 square meters, fully pre-let, plus another 20 spec. Current occupancy is close to 99%, and the demand remains very, very strong. Shopping Centers, as commented, super impressive performance. What is more important, with relatively modest effort ratios.
We are, we are happy with what we see, and we believe the second half will be also very strong because the tourist season in Spain is expected to be very strong this year. Also the household spending remains high for reasons probably difficult to understand from an economist mentality, but remains very, very strong at present. In terms of value creation, as commented, we have been doing some little adjustments in our, in our asset inventory. The idea is to recommend a dividend of EUR 0.44 to the board for the fiscal year 2023. As you know, we normally distribute part of it in the fall around October.
The idea will be around EUR 0.20, and then the rest of the dividend is paid after the annual shareholders meeting approves the dividend in the following year, normally in the month of April or May. Immediately thereafter, we distribute the remainder of the full year dividend. That's it for now. We are at your disposal for Q&A. Please start making your questions, and we will do our best to to respond to to your questions.
We remind you that for those of you who want to raise questions, please press star, followed by number five. We have a first question coming from Ignacio Dominguez from JB Capital. Ignacio, hello. The floor is yours.
Good afternoon. Thank you for the presentation. I just have one question regarding the evolution of the office market at the outskirts of Madrid. Do you see any difference in yield expansion between Offices located in prime CBD versus those located in secondary areas? Thank you.
Okay, Ignacio. At present, not, not significant. The difference in the two markets is basically huge in terms of rents. The prime rents now in the prime CBD area revolve around EUR 37-EUR 38 per square meter per month. In the secondary areas, you just commented, oscillate between EUR 15 and EUR 17. You know, basically, there's already a huge difference in rent. Also there is a significant difference in yields. While in the city center, the market is revolving around yields of, I would say, 4%, in the outskirts of the city, the yields are 5% and above.
From there, you need to adjust, and this is because, or this is the reason, because there is no significant discrepancy between one adjustment and the other. They are similar because they start, they start from a very different basis. Another thing that we are seeing is that prime versus non-prime is also a question of the building. I mean, a given building can be prime in its own location. If the building is, is the right building, is modern, is well designed, with a good gross to net, and particularly it ticks all the marks in terms of sustainability, that is super important because that building will fill up, you know, with preference to the rest of the surrounding buildings.
This is why, I mean, in, in the last 12 months, I believe, with a market share of around 4%, we have made more than 20% of the, of the take-up in the city. Because our portfolio is, generally speaking, is of better quality, and together with Colonial and GMP and very few others, our portfolios are better quality than, than the generality of the rest of the players in the market. With a relatively modest market share, we, we have a very significant presence in the in the take-up. Before somebody else ask, you know, in, in, in this same line of thought, there is clearly a trend that we are seeing in the market of reconversion into residential.
The, the browner buildings that cannot be adapted to green, basically, in some cases, are being bid by people with intention to redevelop into residential. That is important because that is setting the base for a future reequilibrium of the market, in case, you know, occupancy for reasons related to economic performance of the country or higher degree of adoption of work from home, which so far we don't see. You know, if something happens in the market, clearly a reduction in the supply owing to the conversion into residential, will clearly help long term. This is something we have already seen in Lisbon. We, in Lisbon, in CBRE measurements, we used to be talking of around 4.7, 4.8 million square meters of office stock.
Following the tax, the new tax regime enacted by the Portuguese government and the boom in residential prices, it meant a lot of Offices were transformed into residential, and the office stock sank to a new, to a new low of around 4.3 million square meters. Now, it is at 4.4, and the forecast is that over the next three years, it will raise again, it will increase again to something in the region of 4.7. You know, that blip in the stock and that, that decrease of supply caused the Lisbon market to go really crazy, and this is why, in terms of rent, we are already well beyond the peak rents that we experienced in 2007 in Lisbon.
In Madrid, for example, we are still at around 80%-85% of the peak achieved in 2007.
Okay, the next question comes from the line of Ignacio Carvajal from Cartesio. Ignacio, the floor is yours.
Yes. Hello, can you hear me?
Yes.
Hi. Well, thank you very much for, for the presentation. I have two questions. The first one was on there seems to be a mismatch between what your share price is telling us and what sell side analysts seem to be inputting in their models, and then your presentation, no? Especially in terms of rental growth in 2023, but especially in 2024 and 2025, because of your development CapEx, no? I mean, you've given some data points in the presentation. You mentioned EUR 11 million office building, rents from office buildings coming into stream in 2023. You mentioned EUR 11 million from the Data Centers in 2024, and then a ramp up.
If I add to that, all your logistic assets were coming on stream, more office space that you are building, and the release spreads plus inflation, it seems that the, the, the, at least the cell size, as, as Bloomberg states it, is, is not considering your, your potential growth. So I, I was wondering if, if you could give us some sort of indication of future rental growth, at least in the near term, 2023, 2035-2036. I don't know if you're comfortable there. Maybe then later, I'll, I'll, I'll make the second question.
Okay. Well, Ignacio, look, it is clearly beyond our attributions, particularly from a legal standpoint, to, to give a very precise five-year business plan in terms of what we are going to achieve in, in rent, the information is there. You know, it is very easy to calculate that under 80,000 square meters of Logistics, once fully let, maybe December 2024, maybe January 2025, we'll be producing a monthly rent that multiplied by 12 will be EUR 11 million. That is one data point. Ruiz Picasso, that will be another EUR 16 million. That's another data point. Data Centers, while not a super big contributor, they will contribute a little bit also in 2024.
What is more important, it is clearly the line of growth of the company over the coming years. I mean, the way the demand works in this segment is quite exponential. Once your guinea pig clients have come into your facilities and they have tried and tested the technology, normally they funnel every extra demand they get in the market through your data center. You know, we have great expectations in Data Centers, although predictability of cash flows here is a little bit more complicated because you need to know that when you say that you have let 2 megawatts, in reality, you haven't let 2 megawatts. You have let 0.3 in until October, another 0.3 till December, but then 0.4 till March. It's already staggered.
Normally, in no less than two years, because given that the norm in this market is that those dates that you negotiate with your hyperscaler client entail the immediate payment of money. What they do normally is be relatively prudent in their assumptions regarding the usage of power. You have to have the power ready, but they will start paying you only in the agreed date. It's a little bit more difficult to calculate the, the, the, the, you know, stream of, of cash flows. Of course, we will continue having inflation. I mean, occupancy cannot improve that much, I mean, only in Offices, but it's going to be a little bit counter stream, because the, because the generally speaking, the literature for Offices is, at present, is completely busted.
You know, all clients are thinking that they can save even more space in Offices because somebody told them that in the U.S., they are, all of them are, you know, empty in San Francisco. Because of that, the climate for office is going to be negative over the coming years. We need to know that. To reach much higher occupancies in office is not going to be easy, but I will be happy with, you know, a relatively modest reduction in occupancy, as the one we have in Shopping Centers since 2017. Remember, all the bad literature we had in Shopping Centers, starting in 2017, and we had 89.3% occupancy in 2017, and we have since been able to increase it little by little.
You know, those are the, those are the, let's say, the building blocks of a model in which you can see the evolution of cash flow of the company over the coming years. To give you the exact projection that we have presented to our board in the five-year business plan, it is beyond our capacities, I mean, even from a legal standpoint. We, of course, we, we like what we see. I mean, remember, you are talking to a group of people that keeps faithful on the company and buying shares every semester. We, we are happy compared with what we see.
Okay, that's, that's, that's great. Thank you. There's a lot of people in that. Just, just as a, a second follow-up question on Data Centers. There's been a lot of talk lately about water shortages, and of course, Data Centers need a lot of water to cool down the facilities. I was wondering if you could give us just a little bit more, more insight on, on how that is being done and, and if it is a problem going forward.
Well, look, we are very lucky in this regard because, like, you know, given our complete lack of experience in this field, we established a technology, technological joint venture with a American partner with a lot of experience in the development of Data Centers. Like many underdeveloped countries, we have moved from no phone into iPhone. We have jumped generation 1 and generation 2 data center designs. Our Data Centers are born, since we started talking about this with our partner in 2018, are originally born waterless. We do not use water in the refrigeration circuit. I mean, in, in technical terms, I am no an engineer. They are not adiabatic, they are adiabatic, so non-adiabatic. That means basically, we don't consume water in the refrigeration.
That is super important because we could only, you know, guess that water would become a very important social topic for discussion in Spain, and now it's becoming a reality. We are finding that some of our clients, in fact, are now turning to us because they had designs for Data Centers in other parts of Spain, in which water is a problem, and they are turning to us and asking whether we can replace their design by our design so that it doesn't consume water and is accepted by the authorities in terms of licensing. That is creating a very, very huge opportunity for us. I believe the other big feature, which is important for us, is that all of our DCs are powered primarily by renewable energy.
The, the one in, in, in the, in the, Basque Country by a ground installation and the ones in Madrid and, and Barcelona, by a mix between, the, photovoltaic panels of the own, of the buildings and roof-mounted panels in our, logistic sheds close by.
Okay, that's great. Thank you very much, Ismael. Thank you.
The next question comes from the line of [Peter Gunebone from Canton]. Peter, the floor is yours.
Hi, team. Thanks for taking my question. I got one question. If you look at the like-for-like rental growth of 7.7%, could you maybe give a split of how much of that is driven by indexation? Could you also give per segment maybe a detail, how much of the like-for-like rental growth is driven by indexation.
Okay, Peter, I'll take this question. Overall, it's about 63% of, of the 7.7% like-for-like that we've released and by segment. If you take a look at Offices, about 60% of the 7.5%, so that is a 4.5%, comes from CPI. Logistics is, it's actually 140%, okay? Because as you know, occupancy is negative. It's about 6% the increase that we've had from CPI. In Shopping Centers, it's out of the 10.5%, it's 6.5%, so that makes for 62% of, of the whole thing, coming from CPI.
Okay. That's very clear. Thanks a lot.
You're very welcome. The next question comes from the line of Florent Laroche from ODDO. Florent, the line is yours.
Yes, hello. Thank you for the presentation. Maybe, yes, I would offer maybe two question. The first one on the guidance and the indexation. What would be the indexation that we could expect or you have taken into account in the guidance for H2 2023? At the end, why should we consider this guidance, the upgraded guidance as a wide one and not a conservative guidance? Maybe my second question on Data Centers. Could you please remind you what would be the yield on cost for the data center that you will deliver shortly, and what would be its market share?
At the end, should we expect some value creation in to be recording in H2 with the delivery of this Data Centers? Maybe a third question on the Shopping Center, we can see that you have a very dynamic activity in Shopping Centers. What is the project today at MERLIN Properties with the Shopping Centers? Thank you.
Uh, okay. So, uh, regarding the second half, uh, CPI, of course, we, we don't have a crystal ball, but we believe it's going to be between two and three percent. Up to now, we have been able to pass around six and a half percent, uh, in the first, uh, half. But in the second half, uh, we believe, uh, the nominal CPI should, uh, come down significantly. Although we remain hesitant because the base effect of the energy prices may soon, uh, let's say, expire. So let's see what happens towards October, November, because that will be very important. But at least in August, September, we believe, like in July, the inflation will remain rela-- let's say, nominal inflation will remain rela- relatively low because core inflation is super high in Spain, 6.7.
Regrettably, our contracts are not indexed to core, are indexed to nominal, okay? So expect a lower indexation for the second half. Regarding whether the forecast is conservative or not, I will, you know, give the word to Mr. Conservative, who is our Chief Financial Officer, Miguel Herrero.
Florent, in the end, first half of the year has been on the cash flow standpoint, has been above our predictions. Even by the fact that we had, as Ismael was pointing out, a very high inflation attached to the, to the contracts that we were renewing on an annual basis. Also on top of it, as you were already seeing in the first quarter, we had a very good impact from variable rent coming from Shopping Centers. Something we cannot be counting on for the second half of the year, as also on inflation, it will be softer, as Ismael was pointing out. In the end, I shouldn't qualify the, the guidance for the year as a conservative one.
We would like to be as much as realistic as possible, considering that also for the second half of the year, there are already, clouds in the horizon that you never know how it is gonna be. For sure, we don't think it's gonna be multiplying first half of the year by 2. We are thinking that it's gonna be on the EUR 0.60, for sure.
Regarding the Data Centers yield on cost, at present, the ones we are opening, we remain faithful of the 11.2. Remember, that 11.2 is once fully occupied, it, of course, will not happen at the beginning. At the beginning, it will be a, you know, a disastrous yield on cost because, you know, it will be the whole box built and just 3 MW fitted. It's, it's gonna be a piece of shit. Then, when the whole thing is, is, is finished and, and fitted, you know, the, the yield on cost, we are faithful it will be in the region of 11.2%.
Remember, the land cost is very modest in our case, because that land was already in our belly, it was already in our balance sheet, and we had not updated costs. In fact, that land was valued very close to zero. In reality, part of what we are doing is simply revaluing our own land. That is, that is why it's a, it's a relatively meaningful yield on cost and slightly above what other people is achieving in other parts of Europe. Market yields, I don't know, and particularly, I don't know, when applying to Spain. My guess, in the region of 5.5%, is ballpark figure. Yes , if, if, if you believe in Santa Claus, then reappreciation should be double. You know, should come down from 11% to 5.5%.
The theory is that they should be worth double as much. I don't know, and the market is, as you know, these days, the market is crazy. People will probably take cushions, and the cushion they will take is 100%. You know, if the yield is 11%, so be it, 11%. I don't think they will, they will mark down the yield to 5.5%, and, and recognize the value creation. However, that value creation will little by little be recognized by the appraiser. At least it will help us a lot in the future with our gross asset values.
Which is important because precisely in, at, at the times we are now, you know, this semester, having our Logistics reappraised up was a big help because they offset part of the fall we had in, in, in Shopping Centers and Offices. In the absence of that help, the negative valuation posted would have been bigger. You know, Data Centers will clearly, at least on the GAV and NAV consequently basis, they will be of great help for us. Regarding what is our project, regarding our, our Shopping Centers, well, we don't have a project as such. I mean, it is a valuable business line for this company.
We told the market we had six Shopping Centers that because of having assembled our portfolio as a, let's say, set of purchases from existing companies like Metrovacesa , Testa, we inherited a number of Shopping Centers that we didn't consider core. We have been very open to you in saying that we have six Shopping Centers that we consider non-core. Initially, we disposed of three of them, the three biggest, that because they represented around 2% of the rent of the company. Then there were another three that we continued considering non-core, that represented only 0.9%. We have already sold two, and one remains to be sold. Once we sell these remaining non-core Shopping Center, the portfolio will be already the one we like.
I mean, in fact, at present, given the fact that this non-core Shopping Center is, is a performer, is a very good performer, the only reason why we consider non-core is because it is in a relatively small city, and we only want to be present in cities above 500,000 inhabitants in catchment. You know, you can see in this presentation that the 96.4% occupancy across the portfolio materializes in no less than 95 in any of our existing Shopping Centers, which means basically, we now have a bunch of very good performing assets, of which, you know, we are happy with. They, they are chosen by the public, people like them, and what is more important, we have already CapEx most of them.
Because remember, in the past years, we engaged in the so-called Flagship Plan, and we spent a lot of money in CapExing some of our Shopping Centers in order to bring them back to, to life, or particularly modernize a little bit their features in order to make them more compatible with an omni-channel strategy. At present, those Shopping Centers with CapEx are the ones that are shining the most in our portfolio. We will still be doing some CapEx in some of our Shopping Centers. It will not be that big, and it will also, in most cases, mean an expansion in the number of square meters of GLA. Our idea is to continue operating our Shopping Center portfolio.
We have demonstrated to market that it is absolutely competitive with our rivals. I mean, there is nothing we should envy about the way we operate compared to when or how Klépierre [uniwide] operates. You know, we are, we are coping with them perfectly well. The idea is what I commented, basically, continue enjoying the rents. That's around EUR 130 million of rents for the company. When we finish the value adjustment cycle towards the end of this year, the yields, the gross passing yields in Shopping Centers will be trending towards something in the middle of 6%-6.25%. At present, I believe they are like 5.9% already.
You know, I don't see many reasons, if, if your question is, why don't you dispose of them? I, I don't see many reasons, why we should dispose of a perfectly performing portfolio of assets yielding 6.25% in an interest rate environment like the one we are.
Okay. No, no, that's, we need to, to understand your project. Of course, I understand, you are not the willingness to dispose them and maybe to, to, to keep them in, in the company to, to, to have some cash flow from, from this, this, Shopping Center.
Yes. Yes, because remember, we are now in a much bigger bet. I mean, what we are trying to do now is to, little by little, move the company from analog to digital. At present, we have, you know, 18% of our rents stem out of stem from Logistics, which is e-commerce Logistics in its entirety, because we have already disposed of all the light industrial assets. So all, all of our Logistics buildings are related to e-commerce, so that is kind of digital related money, and the one we will be getting from the data center will also be, be digital related. So by 2030, believe it or not, the growth of Data Centers and Logistics will mean that the, a change in the, let's say, contribution of the different businesses to the P&L.
In reality, e-commerce, logistics, and Data Centers will end up meaning more than 50% of our income by 2030 or say, beyond, but we believe it will be by 2030. That will mean a very significant change for the company because, simply by not growing, those business lines, Shopping Centers and Offices will start, you know, shrinking or diminishing their importance in the P&L of the company, while, of course, keeping up with our diversified credo. Which because, you know, in small countries like Spain, and COVID demonstrated it very clearly, being diversified is super, super important. Otherwise, you know, when you have a problem in one of your business lines, eventually you are hung up.
Okay, the next line-
Okay. Thank you very much.
You're welcome. The next question comes from the line of Fernando Abril-Martorell from Alantra. Fernando, the floor is yours.
Hello. Thank you for, for the presentation. I have a few questions. First is with regards to like-for-like JV fall. I don't know if you can break down a little bit the different moving parts, the rates, the project release that you've mentioned about logistics revaluation, and also the rental prices, no? Yeah, that would be my first question. Second question is on, on Data Centers. Just to confirm that none of the CapEx that you've, you know, you've incurred so far has been revalued in the GAV. I found out that this is basically the EUR 200 million is what appears in JV as of June.
Also linked to the Data Centers, I don't know what are you assuming for the Lisbon asset in your, in your medium-term projections? Thank you.
Okay. Okay, the first one, Inés?
Yeah, Fernando, I'm not sure if what, what breakdown do you, do you expect. I mean, you have in page seven of the executive summary, which is available in our website, you have the like-for-like growth per category of assets, okay? You see that the like-for-like growth in GAV for the entire company is -1.5%, sorry, -1.4%, that you have the breakdown per, per asset. If for Offices, it's -2.5%, and logistics is actually an increase of 4.1%, as commented by, by Miguel. Shopping Centers come down 2.9%, then other, which is, you know, is not irrelevant, but it's a decline of 10.1%.
In that same page number six, sorry, I said seven, it's page number six, you also have the yield expansion compression per asset class.
Okay. Regarding BCE, Fernando, we haven't, we haven't revalued anything so far. I mean, neither land nor the CapEx incurred. It will only happen at the end of the year because they will move out from width into inventory, and as a consequence, they will be valued by our appraiser. We have already moved them into the appraising lot of one of our three valuers, and they will be in charge of valuing those assets as, let's say, finished product. They will be, I guess, doing it on the basis of DCF, and, you know, that will deliver a certain amount that will compare positively or negatively with our existing figures. I hope positively. Although, if it was my particular taste, I wouldn't like it.
I, I wouldn't like to push too much the valuations of Data Centers so far. I mean, let's go little by little, and let's demonstrate to market that, you know, they are capable of generating the cash flow we believe they are capable of generating, before starting to, to sell, too much the bears, skin. Lisbon, a very good question because I had forgotten completely. In Lisbon, in our models, we have, forecasted the start of works by end of first quarter next year. We are fighting hard to try to shorten this because, you know, owing to the slowness of authorities there, we have already lost one lead to Ireland and another one that we moved into Spain.
The demand for Lisbon is very high, and we don't want to lose a third lead because of slowness in the start of works. We are trying to push as much as we can, and we are hopeful that eventually by end of 3Q, 4Q, maybe we can start. That will be a milestone. I mean, we will really love to do that because we filed our license request in February this year. We have projected more than 1 year based on our unhappy experience in Spain, in Madrid and Barcelona.
We have projected more than one year, but we are, you know, making every effort we can in fact, with the idea of starting the works before, because the demand for Lisbon, particularly for artificial intelligence, is super high. Super high! Because all U.S. engineers, once they are deployed abroad, and they are sent to Europe, they want to live in Lisbon. Because it's a very nice city to live in, and also because the tax regime is second to none. You know, compared to Barcelona is, you know, is incomparable.
They, of course, people wants to live in Lisbon, and we believe this is a data center that eventually could start already with a significant, let's say, pre-let or agreed terms, demand, if we are able to start before year-end.
Okay, just a follow-up on this. Basically, on your EUR 11 million revenues, you are assuming no contribution from Lisbon yet, so anything could come on top of that? Also about the 2027 megawatts projection, could be a good share of the total or not?
Yes. Well, look, in regarding next year, no, we haven't considered Lisbon, zero.
Okay.
Regarding 2027, we were, let's say, negative on starting Lisbon, because we know we have worked in, in the country for many years, and we know how fast processes can be. In reality, in the 70 MW, Lisbon was not really meaningful, was really small. Now we are starting to believe that Lisbon could be a big chunk of the, of the 70 MW, hence why we are prudently enlarging the 70 MW figure to 82 MW.
Okay, okay, okay. Thank you, Ismael.
Thank you, Fernando. The next question comes from the line of Ana Escalante from Morgan Stanley. Ana, the floor is yours.
Thank you very much. I have a question also on Data Centers, please. I think Ismael mentioned AI as one of the tailwinds for the rising in the data center demand. Some reports have recently pointed out that the outbreak of AI will mean that tenants will need higher latency and more storage capacity per megawatt, more power. As a result, some of the existing Data Centers in the main European locations could become obsolete. I would like to ask you whether you think that's a good thing for you, given you are starting the construction, or whether you think that will mean you will have to increase your, your CapEx forecast to, to get better technology or, you know, improving the original plan for the Data Centers?
Okay, Ana, very good question. Look, generative AI is clearly the main driver for the data center industry at present. In the U.S., as you know, they are light years ahead of us in terms of data center industry. While at the beginning of the eclosion of Data Centers, there was a clear boom in construction and rent, there was subsequently a blip in rent because hyperscalers detected that they had a significant negotiating power as compared to the owners of the facilities, so they started imposing their own rules, and in some cases, building their own facilities, which is, by the way, something that is not longer the case.
As a consequence, there was a, a blip in the industry, and now we are back into a boom situation because people is, is, is moving very quickly or, or, or trying to block IT power very quickly in order to serve their AI capacities. Look, our Data Centers have been designed with AI already in mind. In fact, both the Lisbon and the Basque Country facilities are already AI campuses and they are being commercialized already to hyperscalers as AI campuses, because remember, they are landing stations of submarine cables in the case of the Basque Country. At present, Marea, in the future, Marea plus Grace Hopper.
In the case of Lisbon, at present, Ella Link and to Africa, and in the future, it will also be the, the landing station of Equiano and Medusa. Those are already AI campuses, capable of holding more than 100 MW IT power. The ones in Madrid and Barcelona can unfold, as, you know, hyperscaling Data Centers, if they are taken by just one user, or they can simply serve as wholesale colocation if we need to do that. I mean, if we don't find enough demand, then we can also use them as a wholesale colocation and sell to find, to find our clients. In reality, they are prepared, they are prepared for that. Effects that the current fever on AI might have on the way we are deploying our data center plan?
There could be a need here in Madrid to build two extra Data Centers in other, let's say, corners of the city, in order to back up with latency inferior to 1 ms, our data center in Getafe. That, that could mean some extra CapEx, of course. We are thinking about how and when to do it in order to be capable of holding, let's say, or more efficiently holding AI activities in our trio of Data Centers. This is so far the only, let's say, effect, and it's just at present in planning status. I mean, we are thinking when and how and where it makes sense to do it, and this is the main effect of AI so far.
Okay, thank you very much.
You're welcome.
Thank you, Ana. The next question comes from the line of Ignacio Romero from Sabadell. Ignacio, the floor is yours.
My question has already been answered. Thank you.
Thank you, Ignacio.
Thank you, Ignacio.
The next question, and for the time being, the last one, comes from the line of Adam Shapton from Green Street. Adam, the floor is yours.
Thank you. Just, just one question from me. Back on Shopping Centers, very pleased to see the OCR remaining stable with such strong, quite a lot growth. Are you able to comment on the profitability of the retailers? There have been several headlines about wage growth in that segment. Are they managing to maintain margins in this environment? Sort of on a look-forward basis, is there confidence in that?
Adam.
Just had it.
It was breaking up a little bit, I don't think I got it perfectly.
Financial situation.
Financial situation of retailers. Financial situation of retailers.
And margins.
Okay.
And margins.
Financial situation of retailers and margins, particularly because I, I heard wage growth, growth. Okay. Great.
Yeah. Thank you.
Okay, no, don't worry. What wage growth in Spain is the subject of a nationwide negotiation between the trade unions and the associations of industries. So far, basically, they have been showing significant moderation. I mean, save error, the last, the last negotiation that was carried out, that was at the end of last year, the agreement was 10% in three years, so that leaves around 3% per year compounded what resulted out of that negotiation. The wage growth for, let's say, normal wages in Spain, is the one I just commented. What has significantly increased is the minimum wage.
The minimum wage has been now elevated or has been ascent to around EUR 1,000 per month, and is on the way—it continues to be on the way up, with the idea of reaching EUR 1,100 soon. Well, this of course, this has an effect on real salaries because that pushes up the market, that is clear. The negotiation between the trade unions and the industries was the one I just commented. We are... Energy prices in Spain, as you know, are not, I would say, as wild as they have been in other European countries. We haven't seen any significant protest from our clients regarding the slight increase in common expenses.
It is true that in, in, in Shopping Centers, we have increased a little bit the, the amount of common expenses, which is, you know, charged to the, to the different shops, it has not been significantly rejected by tenants. As you know, the occupancy cost ratio, the OCR, keeps going down and down. That means basically that they are, so far, they are being able to pass on more inflation into their sales than the costs they are picking up from us in terms of common charges and rent. They are not really stressed in the, in the margins at, at present. Anyway, because through artificial intelligence now we have a much better view of their performance, because now we can do individual count per shop of attendance.
In some cases also we, we can audit and check into their sales. We, of course, we, we have a periodical, monthly review of what we consider the red, yellow, and green situations. Whenever we detect that a certain tenant is starting to operate on narrower margins or, you know, we, we believe that, you know, they are, they are in dire straits, of course, we try to either help, if it is important for the Shopping Center, or eventually try to get to an agreement if we believe the best option is to retenant. That is, that is what we are, what we are doing in that, in that regard.
That's very clear. Thank you. If you can hear me.
You're welcome.
All right. It seems there are no further questions, so we thank you all for joining today's call. As always, we remain at your disposal for any further questions that you may have, and we wish you a happy weekend or a happy summer break if you, if you're about to leave. See you and see you soon. Bye-bye. Thank you.