MERLIN Properties SOCIMI SA

MAD:MRL

Earnings Call Transcript 2021-Q3

[Operator]

We remind you that we will not be using additional materials in today's call other than the executive summary that we published last night. Our CEO, Ismael Clemente, will walk you through the main highlights and then we will open the line for Q&A. Miguel Ollero, our COO, is also here with us for any questions that you may have. With no further delay, I pass the floor to Ismael. Thank you.

[Ismael Clemente Orrego, Executive Vice]

Thank you, Jimenez. Good afternoon, everyone. Operationally, the quarter has been a relatively short one given August, but the outcome has been very positive overall. And we also have good visibility on the fourth quarter and year 2022. The top line of the company is clearly improving, following COVID. Of course, we have a dragging effect of the first half that will only flatten a little bit towards year-end. But in this quarter, we are printing a negative like-for-like rental growth of minus 1.2%, recovering 1 point from the situation in June.Our revenue figures are not yet capturing the inflation that we see, which in Spain is significant, also elsewhere in Europe. We might be entering a period in which, for the first time in many years, we could have positive print in both indexation, occupancy growth, and really spreads in the coming months. We have continued providing some rent reliefs linked to COVID. That total now EUR 23.7 million with EUR 4 million recorded in the quarter. Again, as always, not straight line, but simply recorded as a one-off expense. This is mainly given the fact that Barcelona is taking longer than expected to recover, owing to the absence of tourism.Lisbon has been very slow in lifting the lockdown. I mean we have had restrictive measures in shopping centers still well advanced October. And we also have some lines of businesses like, for example, cinemas, which continue heavily affected by the tail end of the pandemic fears. So of course, we have continued protecting those clients, but the absolute figures, as you can see, are significantly diminishing as compared to what we experienced last year.Collection rates are fantastic. And when we see -- when we say in non-eventful levels, that means 2.3% in shopping centers, which comes significantly down from past figures, given that the level of zombification now is minimal. We have been very, very successful in replacing zombies by new healthy tenants, and we have done it in a more than 1:1 ratio because occupancy is growing in offices and logistics. When we say non-eventful, it means close to 0.So in terms FFO per share, the production in the month has been slightly above EUR 0.15, which, together with the EUR 0.13 we produced in the first quarter and the EUR 0.14 we produced in the second total EUR 0.43 as of September this year, which is a 2.3% increase compared to the first 9 months of 2020. When comparing apples to apples, you should also take into account that the figures in 2020 didn't include the staff compensation in full. So we are starting to remunerate back at least at the short-term incentive level. The middle management of the company, we cannot keep the same extraordinary measures we applied last year where everybody was simply receiving fixed salary. And in this year, people is doing an extraordinary job, and at least at the middle management level, they deserve some recognition by the company. So in the absence of that, we're comparing apples to apples, it will have been EUR 0.45 comparing to 9 months 2020.We are well on track to surpass the guidance for 2021, which we maintain at EUR 0.56 per share. I know there's been some debate regarding this. It will be simply very easy for us to update this guidance. The only reason why we don't do it is because while -- by signing contracts, we have a very good visibility and can easily forecast occupancy levels in the 3 business areas in which the company operates.In terms of cash flow, we don't know whether a new strain of the buck coming from the Far East or -- that gives us a very bad Christmas campaign or the bankruptcy of a tenant may eventually damage us on the cash flow generation capacity. In the absence of any extraordinary effects, it is clear to any observer that the final print of cash flow for the year should be more in the region of EUR 0.58. So if that serves as a new guidance, happy to provide it, no problem.We haven't conducted any revaluation in the period. So the NTA per share stands at EUR 15.69, which is 1.5% year-to-date above previous figure. In terms of business performance, in offices, it's been a relatively busy period with more than 200,000 square meters contracted. We have negative like-for-like of 2.1%, and mainly as commented, given the dragging effect of a bad first half, but the release spread is -- continues to be quite healthy at 4.8%. This is mainly a consequence of the delta between our passing rent and market as you all know, because we are just getting out of the woods in terms of weakness of the demand. I mean, as commented in a number of occasions, during the COVID period, the problem in -- at least in the Spanish market has not been a problem of oversupply, has not been a problem out of indebtedness and the stress of the office players. It's been mainly a blender demand, which, by the way, seems to be correcting as we speak because we have had a very busy third quarter. We are having a very busy fourth quarter. And the agents, the market agents are telling us that 2022 is going to be a year of very high activity in the office market. I mean, using Madrid as a proxy, if the average take-up in the city -- gross take-up because for net take-up we need to recover the pre-COVID employment figures. That for gross take-up if in a normal year we grew 450,000 square meters, next year, people is forecasting between 600,000 and 700,000 square meters. So it's going to be a year of very significant activity. And we hope to be profiting from that activity in order to continue filling up our portfolio.The final occupancy of the quarter has been 89.4%, 30 bps above previous, and the visibility towards year-end points to around 90% occupancy. In order to go back to the 91% that we posted in 2020, we need to wait to see what happens in 2021 -- in '22, sorry, but it is clearly our goal to go back in 2022 to the 2020 figures at least.In logistics, we have contracted, again, more than 200,000 square meters with a like-for-like of only 0.6%, but this is owing to the occupancy drop we had in the first half, and we cleaned up a number of temporary contracts we had, and 1 bankruptcy that has happened in the portfolio. Otherwise, the release spread has been 3.2%. Occupancy stands at 96.5%, trending to around 97% towards year-end. So that is technically full occupancy because there's always tenants that are moving in and out of the portfolio.In shopping centers, I am very pleased to see what has happened in the quarter, which provides also some insight and gives value to the decisions that we took during the pandemic. Yes, the like-for-like has been minus 0.6%, but the release spread has been 5.9%. People is accepting the step-ups without significant problem. And the tone, the general tone with the retailers is positive. I mean the occupancy cost ratio, the OCR, is very healthy at 12.4%, I mean, which is quite comfortable compared to what we have seen all the people reporting across Europe. So people is happy, and as commented previously, is paying. So we are not having problems of collection in shopping centers, and there is peace with all retailers also on the legal front because, as you know, we have very little litigation arising out of the COVID period. And the replacement of zombies that we have commented so many times with many of you very worried about what is the level of zombification and us providing you with figures -- with an analysis of the red flag, the yellow flags, the green flags and all that. Thanks God it's becoming nothing of the past. Of course, like in normal retail activity, we continue having concepts that do not fly. And as they do not fly, they need to close. But we are replacing those concepts with relative ease and the shopping centers remain very well occupied and functioning, I would say, very close to normal run rate. Yes, when you compare September to September, you are minus 15% and minus 9% in sales. But you need to take into account that in September we still have restrictions in Catalonia and particularly in Lisbon. So when we look at these figures in the new quarter, in the fourth, they are going to be more in the mid-single-digit area. So very, very interesting to see there is the encouraging recovery of the physical commerce despite all what we have been talking for long time in this type -- in these calls every quarter.Occupancy has recovered to 93.8%. It will trend to around 94% at the end of the year. It is very, very difficult to go significantly up from this figure because, as you know, we have 1 shopping center in the portfolio, which is -- has a relatively low occupancy and drags the whole average down. I mean, in the absence of that shopping center, we should be above 96.5%, 97%, so very close to full occupancy. And we have a number of shopping centers already in the portfolio, which have waiting list in terms of tenants.Very importantly, in offices, there has been a silent effort to renew a number of big names, a number of big clients. This effort has resulted, of course, in -- has taken a toll in terms of release spread, because we have -- in some cases, we have given up a little bit in rents. But what is clear is that the office world of the company has now been extended from 3.4 years in the 6 months -- first 6 months of 2021 to around 3.7 in the -- at present in 9 months. And although these might look like minimal, when translated into office rent backlog that is a lot of money. So we have moved from around EUR 700 million backlog as of 6 months to more than EUR 900 million as of 9 months. So the effort that the office team and the office leasing team have been doing during the year in very difficult circumstances needs to be praised.Well, in terms of how the quarter has evolved, we proposed to the Board of Directors to start normalizing back a little bit the dividend policy of the company. The Board has decided that EUR 0.15 will be distributed against financial year 2021 with immediate effect. I mean that is a payment to be expected around beginning of December. And the rest of the dividend will be paid after General Shareholders Meeting next year, I mean, when the final amount of dividend is approved. We are guiding to around EUR 0.40 of dividend in total, which for us, we are shareholders of the company, is a good outcome because we have guided to 2 years of flat EUR 0.30. But this year, we do not see any longer significant pressure on valuations. So we are not too much afraid in terms of LTV. And as a consequence, given that we are generating back a lot of cash flow, it is fair that we share that cash flow with our shareholders. Also, you know that we operate under the Spanish SOCIMI Regime, the REIT regime. So for those of you who are complaining that you don't want to receive dividend, you want us to reinvest everything in highly accretive activities of the company, which is something we would love, but you need to know that it is also good and healthy that REIT distributes dividend. So we are going back to dividend distribution.I know one of the questions that you will make is on noncore divestment. As you know, we were -- relatively early in the year, we disposed of around 50% of our objectives for the year. We guided to between EUR 150 million and EUR 200 million of noncore disposals. We have already affected around EUR 109 million, but there is more to come between now and year-end. And we expect to be in the upper end of the range or probably above the range in terms of total amount of disposals, a moment in which we will move into more important disposals next year. That is basically on my side. We are open to Q&A, and happy to entertain your questions. Thank you.

[Ines Arellano, Co]

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

[Operator]

[Operator Instructions] Our first question comes the line of Fernando Abril from Alantra.

[Fernando Abril-Martorell]

I have 3 questions, if I may. First is on occupancy in offices. So I don't know -- so you improved your outlook for the year. I would like to know the drivers behind this. I don't know if existing clients are wanting to increase their lease space or new clients or any specific market that is outperforming, I don't know, and the drivers would be very helpful. And also linked to this, just to clarify. So you are forecasting occupancy to grow in '22 from 90% levels? So that is the first question. Then the second question is on retail. I don't know if you have any update on how rent renegotiations are going. You provided some detail in the previous quarter. I don't know if is there anything new.And then last question is with regards to inflation. So I don't know if you can comment a bit on this topic, both on the top line and cost side. I don't know if you have rental caps or not. And also, I don't know if utilities, you normally tend to recharge those costs to clients or not. And I don't know if you have any forecast of -- at NOI level for the next year, considering current inflation?

[Ismael Clemente Orrego, Executive Vice]

Okay. Fernando, regarding office occupancy, the main drivers that we see is basically increases of space by existing clients and a number of new fill-ups that we have done during the quarter. Notably, and it will be more visible next year, we see some increased activity in the so much demeaned A1 corridor. Why is that? Is this a mystery? No, I believe there is people who is already acting in advance of the major infrastructure works, which are being carried, as we speak by the municipality of Madrid. So the A1 corridor is clearly improving.I mean, just in this year, we have been able to sign close to 4,000 -- 14,000 square meters in the A1 corridor. So it's quite encouraging because this is an area which has caused us many headaches in the past. We have always bet on that area because we thought the future of Madrid was revolving around that area when the Operación Chamartín was carried out. The future of the Operación Chamartín is closer and closer in the horizon. The municipality has started to reinfrastructure the area. And this is provoking much more tenant interest in the area because it is evident to any external observer that this is the area in which there is more office concentration around Madrid, and office concentration is an attractive point in itself because it provides the possibility of meeting all the people that works in other offices. So it's being completely dispersed in the city is not necessarily what tenants like.In terms of retail, well, the rents that we are renewing forward 2022 to 2025, as we commented, and the situation remains the same, that the gross to net had worsened. I mean we used to have a gross to net of 4%. That has been relatively stable historical average. And as of today, the contracts that we are signing forward '22 are starting with -- already with some incentives that have taken those contracts to a gross to net leakage of around 14%. So this is why we are recommending on a number of occasions that we see a real rent reduction in the region of 10% as we speak, but in the form -- not of lower nominal rent, in the form of bonuses which, as you know, if you are familiar with shopping centers, those can be withdrawn over time. So we like what we see because remember in many occasions when we have been discussing about what would be the effect of e-commerce on the physical retail. We have in many occasions talked about future or new normal in the future of around minus 20%. It looks -- at least for now, it looks that this new normal is more in the region of minus 10%. And in the form of bonifications of rent, which may point towards a lower number, as the tenant sales stabilize, and they are stabilizing. I mean, we are seeing a number of our shopping centers, 4 in this quarter, but more to come in the next quarter, which are already selling more than in 2019, which is extremely positive.It looks like the lion's share of effect of the bigger e-commerce penetration is being taken by high-street retail. So shopping centers, particularly good urban shopping centers or good dominant shopping centers, are defending themselves reasonably better than we all expected from the threat of online commerce.Regarding inflation, top line versus cost, look, in a company like this, I don't want to be too positive because, of course, inflation is not a nice thing in itself. But in a company like this, inflation has a big effect because on the top line 1 thing I can tell you is that 100% of the rent of the company are indexed to inflation. Many people these days is now starting to ask what is the elasticity of the tenant to accept inflation hikes. These are the same people that thought we will only collect 50% of our rents and the same people who probably thought work from home will be 50% and the retailer armageddon will hit hard. I mean the reality is that it is much more dangerous to get inflation in your top line when you are operating in a city where rents are already significantly inflated. So in Madrid, as compared to base 100, 2007, we are currently at 75, 80, taking prime as a proxy of the average of the market. So being at 75, 80, most of the effect of inflation will be a catch-up effect compared to the previous peak. In the cities where rents are already 130% of the previous peak, I would worry more about inflation because that will create a very significant effect in the rental levels. But we think it's going to be -- at least we are going to enjoy. For the first time in many years, we are going to enjoy a positive effect from indexation in the coming months. We have been always obtaining real growth in rents with positive release spreads. But almost for the last 2, 3 years, we have always posted negative inflation prints. So for the first time, we are going to start -- let's say, enjoy, if I can use the word, inflation. Well, in the case of the BBVA contract, which is also the subject of many questions by analysts, well, you have seen the inflation print of the advanced indicator provided by Eurostat of the HICP of October, which is 4.1%. I mean, unless this figure is changed when they release the final data on the 17th of November, that will mean an adjustment in rent to BBVA in the region of 6.1%, 6.15%, which is moving from EUR 79 million to around EUR 84 million, which is 0.1% of extra cash flow for the company next year.In terms of how this is affecting our costs, yes, there's been a big problem with utilities. But as you know, utilities are 100% rechargeable to tenants. So in reality, the net effect you suffer is only the effect of your vacancy. So of course, the utilities applied to your vacant space, you have to swallow that effect. But this is minimal as compared to the fact that for the rest of your space, and remember the portfolio overall, because you always tend to focus only in offices. But the portfolio overall is occupied at 94%, so we tend to recharge the extra energy cost to clients.There is also inflation in CapEx, but -- and this is just by chance. I mean, it's not that we saw that inflation coming, but we are lucky because most of the CapEx we have to do is already behind us. I mean, we have finished with a very expensive flagship program. We have finished CapEx in all of our shopping centers. We have finished with most of our office building refurbishments. There is only one, which is being done at present. And yes, in logistics, we were a little bit scared because we saw hiking price in steel. But since the peak, they have significantly receded. And now the cost of construction in logistics is back to more normal levels. So it's not very highly intensive in man hours. So if there is salary inflation, there will not be so much translation into the logistic construction cost. So we are, in principle, okay, in terms of inflation. The top line of the company will clearly grow, and we will create a very significant cushion as compared to our debt service. Because our debt service, as you know, is flat. I mean we have it hedged for the next 6 years. And we will create a very significant buildup in the top line that will help us overcome whatever happens with rate 6 years down the road.So not so bad, of course. You need to take into account that, at the end, rents tend to be linked to productivity. So when there is a high inflation period, normally, there are some rental adjustments following that inflationary period, but we have managed those situations in the past. I mean, we know that all in all, net-net-net, you normally end up being winner in those situations. And there is abundant -- well, particularly very good research in this regard. I was recently reading Morgan Stanley's Bart Gysens providing some clarity on the behavior of companies in the last 50 years with very interesting data collection of the last 50 years. And yes, you have a problem at the beginning, but normally, people gets accustomed to the new situation.

[Operator]

[Operator Instructions] We have a new question, and it comes from the line of Bart Gysens from Morgan Stanley.

[Bart Gysens, Managing Director]

I just wanted to follow up on your comments on the bank branches. You highlighted how you'll be able to increase the rent probably by more than 6% in January. This must be the most opportune time that we've seen for a long time to sell these assets. And if they are indeed not very core to your portfolio and you haven't really spoken much about it in the release, they are not very core to you, as you've highlighted in the past. You've mentioned before that you've had received some interest from potential buyers. What is your -- what is MERLIN's strategy around those assets for the next 6 to 12 months?

[Ismael Clemente Orrego, Executive Vice]

Okay, Bart. We have been receiving now sufficient and very credible interest on the portfolio. So yes, we are going to get serious. I mean, we are finishing a number of disposals between now and year-end. There is some work to do in order to make sure we achieve the disposal -- total disposal's goal of 2021. And following that, we are going to move into full focus regarding this portfolio. As you know, that portfolio, vocationally, because these bank branches is not 100% core to us. We have received significant interest and very serious on this portfolio. And we now have enough data points to know more or less where the pricing could be.We have been working also on a number of things that might be too much of a detail. But in reality, one thing we discovered is that the people who is very good at discounting cash flows, very, I would say, competitive at discounting cash flows, normally has no clue of what to do with the real estate at the end and vice versa. The people who does want the real estate, because they think the real estate is great, normally is not very competitive in terms of discounting cash flows.So now we have -- besides, let's say, the normal way of execution, which is fire and forget, which is sell the whole thing and go fishing. We have also created a structure, which allows a certain decoupling of both situations. So the entity that buys cash flows from the entity that wants the real estate, so they can team up in one single buyer and buy it from us with each party taking what they need. So with that, now fully developed and tested, tested with tax authorities, tested with the auditor, and tested with the market, we are going to move into execution mode. I won't nail down myself by providing any date of execution and/or figures because we have painfully learned in the past that this creates a lot of tension. And in all calls, people is discussing whether we should be getting these -- or these plus 3% or these minus 5%. And we don't want to entertain such discussions. It is a very important sale for the company on the positive and on the negative side because we are saying -- we will be saying goodbye to a very significant source of stable income. But on the other side, it is a fantastic opportunity to deleverage the company to the levels absolutely unseen by us in the past and more in line with our U.K. peers, which I believe, makes sense in the current environment because it will also provide the company with the freedom and the flexibility to execute on any project it might need to execute in the future. Most notably, we will have enough muscle to develop all of our data center program, which is a lot of money, but a very hefty returns. And it will provide us with the possibility to continue developing our greenfield logistics program till the end, till we run out of land bank for -- suitable for logistics. So we are now seriously considering this. We should be expected to move into execution at some point. I will not provide any date or target figures because it will be simply suicidal on my side, so -- but I know that this is very important for you. I know your stance regarding this, and I know your critics about the glacial pace at which we take decisions, but be assured that the only reason why we take decisions at glacial pace is because we want to ensure the best execution possible. We cannot run this company, you know, now left, then right, then center, then forward. I mean we need to make sure that we obtain the best possible execution from this asset, which is a very, very important asset for the company.

[Operator]

Next question comes from the line of Clark McPherson from Clearance Capital.

[Clark McPherson]

I also had a question on BBVA. So it's already being answered very clearly. Perhaps just leading on from that, you mentioned leverage or potential to deleverage the business. I'm just wondering if what's your aspirational leverage level would look like. And if that would also, in your mind, feed into the credit ratings?And the last point -- last question I have is, in the early 2022, you have a maturity on the bond structure of EUR 600 million in April. Just wondering, putting aside the potential disposals, what's your -- what's your plans for that would be? Would you look to refinance that or just repay it out of existing liquidity?

[Ismael Clemente Orrego, Executive Vice]

Okay. Fantastic. Look, regarding the LTV goal, our true LTV goal, the one that we were ambitioning to get, was something below 36% more or less. This is what we were trending to when we were caught by the COVID-19 pandemic. We were going little by little. Of course, this transaction would allow us to get there in one split second. But certainly, we would like to be leveraged between -- at this point, in the cycle between 35%, 36% max. Certainly, with the transaction, we will go below, but that would give us also some extra muscle to do some other things, which in turn will generate new value that will also help reduce our leverage.In terms of what would be the effect on rating, frankly speaking, I have no idea. I mean, we live in Spain and rating agencies tend to be a little racist in that respect. So with similar KPIs to us, we have many peers in Europe, which score BBB+. So I hope that with the injection of capital that, that sale will provide, we should go at least to BBB+, but you never know. Because in reality, blaming the Spanish macro, blaming the sovereign cap or blaming, I don't know, sometimes you get where you want, sometimes you don't get there. But in any case, whether rating or not rating, at least I believe the market will appreciate the fact that our debt-to-EBITDA level goes down very significantly, LTV goes down, interest cover will significantly improve. So at the end, this is always important for the market. Regarding the debt maturity in May 2022, it will be paid in cash. I mean, we have the cash ready at the bank account and are also piling up cash for the upcoming one in 2023. So we told the market that we will be paying those maturities. In the case of '22, we will pay as soon as we can because cash today is costing us money. And the one in '23, eventually, particularly, if we improve our rating, we would certainly look to refinancing it because the last refinancing that we have done, even in the middle of the pandemic, has represented an advantage of more than 100 bps in financial cost, which is already noticeable in this quarter. I mean, many people is asking us why the financial burden has gone so low. And one of the reasons is because our cost of debt now is lower than it was in the past.

[Operator]

And our next question comes from the line of [ Ignacio Carvajal ] from [ Carthesio ].

[Unknown Analyst]

My questions have now been answered. So thank you very much.

[Operator]

And our next question comes from the line of Alvaro Soriano from Exane BNP Paribas.

[Alvaro Soriano-De-Miguel]

Thank you for the presentation, Ismael. Thinking in 2022, what sort of CapEx quantum is budgeted for next year, also including investments. That would be my first question. And then can we have some color on the bidding process of the logistic plots adjacent to Madrid airport? And also I wonder if the BBVA portfolio disposal will wait until MERLIN is potentially awarded with that leasehold in the airport or you plan to dispose BBVA even if you don't get those plots.And also linked with the BBVA disposal, what sort of buyers are interested on that asset in terms of our pension plans or what sort of money is looking for those assets, having in mind that BBVA also has the right to match the offer that any potential buyer will make on the portfolio?

[Ismael Clemente Orrego, Executive Vice]

Okay. Well, regarding the 2022 CapEx, we are currently in the process of defining the exact amounts that will be budgeted for next year. I can tell you that it will be matched exactly with the proceeds that we expect to receive from sales of noncore. In some cases, the negotiations are already underway. So we will make sure that our sources and uses match as we have always done. In fact, this year, we are going to have slightly more sources than uses. So we will carry onto the next year a certain extra amount that can be employed in further CapEx for the company.Regarding the Aena plot, the process is highly competitive. And for us, in reality, it has nothing to do with the BBVA decision. I mean the BBVA -- maybe you are referring to DCN to Madrid Nuevo Norte, which is somehow linked also to BBVA. In the case of Madrid Nuevo Norte, there are no news. I mean on the operational side, we continue to work hand-in-hand with BBVA to our satisfaction. I mean, the underlying business is going very well. In July, we obtained the signature of the infrastructure convention with the framework agreement with all the public authorities, which are involved in the development. So after that, which was the second condition precedent, according to the contract with the National Railway Authority, we moved into formally requesting the transmission of the land from the National Railway Authority. The term to obtain the transmission of the land will be by year-end. However, with a high probability, we believe the National Railway Authority will request a little extension till May next year. And if that is the case, the transmission of the land would operate in May next year. As soon as we receive the land from the National Railway Authority, the process or the project will start.And at our current participation level, which is 14.5%, CapEx in this project, as we have demonstrated in a number of occasions, is relatively meaningless to us. So shouldn't be a concern for investors because the transmission or the purchase of the land needs a CapEx usage on our side of EUR 40 million, more or less -- a little less with soft costs, et cetera, the capitalization of the vehicle company should be EUR 45 million, EUR 47 million more or less, which is something that we have in our budget, and we'll take into account, of course, when considering CapEx for next year. And this is completely not linked to the decision on the branch portfolio disposal. Because at the end, both things are not necessarily related. I mean, the only reason why we wanted to increase a little bit our percentage in the transaction is because we feel we are bringing some value added to the table, and we thought it will be good in view of that value added to have a certain more outsized return. I mean, so bringing a lot of value added and getting 15% return, is one thing and bringing value added to the table and getting 35% return is a completely different thing. So that was all of our, let's say, ambition in that regard. The -- many people ask us about the arbitration process or the arbitration process is changing the final appointment of an arbitrator. And when this happens, which will happen before year-end, the arbitrator will have 5 months to issue the decision.So by end of first half next year, this will be resolved, whether in favor of BBVA or in favor of us is a luck, so we will abide by whichever decision is taken by the arbitrator. For the time being, at least, we obtained the injection, so at least the modification of the bylaws couldn't be inscribed in the mercantile register. So we are protected for the time being, but we will wait until the finalization of the arbitrage to see what is the final outcome. The situation or the relationship with BBVA remains professional. We continue working together in the subject matter, which is the one that really matters in the development of DCN, and we continue working with them to our satisfaction with them and with the company in which the investment is vehicle. So this is what I can tell you. And then you asked me about potential buyers for the BBVA. Look, expanding on what I told Bart, we will not enter into this kind of discussion. You can imagine which kind of investors we are talking about, particularly when I said about separating the cash flows from the ownership, so you know why we are doing this, to obtain the best execution possible of the transaction because we know the intrinsic value of the real estate. And if need be, one of the potential outcomes that we have, in some cases, considered is simply keeping the ownership of the assets ourselves because we have no problem with that. It will be a gift to whoever manages this company in year 2040. But the reason why we have separated is precisely to facilitate execution by a certain type of investors who are particularly competitive in terms of cash flow discount.

[Alvaro Soriano-De-Miguel]

Okay. Maybe I didn't ask the question in the right way. Regarding BBVA disposal, I was trying to understand how MERLIN will recycle the proceeds from that portfolio when it eventually comes. And the 3 options to me are Aena plot, increasing your stake on DCN or going full speed in the data centers. So between those 3 options, leaving aside the debt repayment, which one is our preferred one?

[Ismael Clemente Orrego, Executive Vice]

Data centers and greenfield logistics. I mean, basically, our biggest yield on cost fields of activity. Temporarily, of course, that lump sum will be used to reduce debt. But over time, as we can start deleveraging a little bit, the ultimate use of that money will be mainly the data center program, which, for us, is crucial for the future of the company.There will also be some external distribution to shareholders. Because, as you know, there is -- the Spanish REIT legislation, the Spanish SOCIMI Legislation is clear in that respect. So there will also be some extraordinary dividend to shareholders arising from that disposal.

[Operator]

[Operator Instructions] I think we have a follow-up question coming from the line of Fernando Abril from Alantra.

[Fernando Abril-Martorell]

No. Sorry, my question has already been answered.

[Ismael Clemente Orrego, Executive Vice]

No problem, Fernando.

[Operator]

Our following question comes from the line of Beltran Palazuelo from SANTALUCÍA.

[Beltran Palazuelo Barroso, Equity Analyst & Equity Portfolio Manager]

Congratulations for hard work and the nice numbers. Just regarding -- I think you were answering, Ismael, regarding capital recycle. You said -- there was a question, Aena or Distrito Castellana Norte, data centers or greenfield logistics, maybe seeing that your -- let's say, the values of all your assets are resisting quite well and put in place, so maybe will start going up some time. It's no questions about buybacks. It's -- you're talking about greenfields and the logistics and data center, and that's very good. But how about buying your share at 40% discount? Really showing that your assets are not going down, but maybe up? And then, let's say, it's a no-brainer, when is this company going to start talking about the share buybacks?

[Ismael Clemente Orrego, Executive Vice]

Beltran, look, first, this is a decision of our Board of Directors. But the problem is that in Spain, it is not irrelevant like it will be in an Anglo-Saxon country to do a special dividend or a buyback. So in our case, the eventual sale of a large number of assets like, for example, the portfolio we were commenting, will generate the need to distribute to shareholders a certain amount of money. If we were to use that certain amount of money to do a buyback, it will be a monster buyback. Fantastic, but it cannot be done, legally. So we will need to distribute that amount of extra dividend to investors by way of law. So it is arguable whether it is better to distribute a lot of money to your shareholders, loyal shareholders, who are with you in the shareholding list of the company, or it is better to do a share buyback to the shareholders who want to exit the company. So that, yes, you are correct, the figures of the one who remain, yes. But legally, it's not -- I mean there is no point. We cannot do it. We have to distribute an extra dividend.

[Beltran Palazuelo Barroso, Equity Analyst & Equity Portfolio Manager]

Yes, but I'm not talking about the divestments when your loan-to-value will go down. Of course, you have to get back a certain amount of, let's say it otherwise divestments, but you also could -- I see gross cash position of nearly EUR 800 million. Why don't you start a little buyback and then show the market that the value of your assets are there, but it's -- never talking about the share buyback?

[Ismael Clemente Orrego, Executive Vice]

Beltran, look, our noncore disposals have already shown to the market that assets are fairly valued because even in the middle of the pandemic, and even in the worst moments, we have been disposal at or above GAV figures, so -- but the market for some reason is refractory to that information. Even if we dispose now a large amount of assets of the company, and we do it above book value, do you think the market will really care? Maybe they don't care. So we can continue cannibalizing the company until we end up with 0 assets and selling everything above NAV. And still, I don't know whether the market will notice or not notice. So what we are trying to -- frankly speaking, if I have to give you my opinion, the share price we are rating will be immediate. I mean there will be no need to artificially increase the price, which is at the end, what you are referring to. You are asking me, why don't you artificially raise the price of the shares through a buyback, and look, what I tell you is that I believe that if I do what I'm telling you, we should be capable of doing the rerating in the share price will be immediate with no need to do it through a buyback.

[Beltran Palazuelo Barroso, Equity Analyst & Equity Portfolio Manager]

In my opinion, Ismael, all the shareholders pay the management team money to add value to, let's say, the industry way as you always have done, but also to add value in a financial way. So I really do not agree that this is creating a very artificial value because it creates a lot of value to buy, let's say, shares -- let's say, 40% discount to amortize that. And let's say, maybe in 10 years, instead of having, let's say, 1.5%, maybe have 3%, so it's -- I don't know, maybe you want to -- for us, for us, really loyal shareholders have been supporting this company through the tough times. I think that they deserve to really, let's say, have more piece of the cake without putting more money. So really, I don't know who decides that, but we would really like a little buyback, and if the company does not reflect in the share price, more buyback. EUR 15.17, against EUR 9.6, it's really a no-brainer.

[Ismael Clemente Orrego, Executive Vice]

Beltran, I have all my net worth invested in this company. And I have been a financial investor for many, many years. So I have -- I know the business of depleting the capital figure of companies. I know this business. But I believe it will be unnecessary. Anyway, it is opinable like everything, and we can -- I am happy to discuss with you. I know you particularly like the buyback. I am happy to discuss with you one-on-one whenever you want because we live in the same city so we can meet and discuss. And probably there is no need to enter into a theoretical discussion about buybacks in this forum because it will be -- that would be -- I think it doesn't make sense.

[Ines Arellano, Co]

Operator, can you please let us know if there's any other questions in the line?

[Operator]

We appear to have no further question at this point.

[Ines Arellano, Co]

Okay. Well, in that case, we thank you all for joining today's 9 months 2021 trading update. As always, we remain at your disposal for any further questions. And if somebody needs one-on-one meeting, please do not hesitate to come back to us. Thank you very much. Have a good weekend.

[Operator]

Ladies and gentlemen, thank you for your participation today. This concludes today's conference. You may now disconnect your lines. Thank you.