Merlin Pptys Socimi Ord

Good morning, ladies and gentlemen. Ines Avellano speaking. Welcome and thank you for joining Merlin's 2022 results presentation. Before we start, we ask you to please abide by the disclaimer containing the presentation. The materials are available in our website, and they will be also shown on screen if you've dialed in. Today, our CEO Ismael Clemente and COO Miguel Ollero will walk you through the main highlights of our set of results. Thereafter, as always, we will open the line for Q&A. To raise questions, please press star followed by number five. And with no further delay, I pass the floor to Ismael. Thank you.

Thank you, Ines. Good afternoon, everyone. Thanks for joining Merlin's Financial Year 2022 Results Conference. It is particularly difficult for me to address an informed group of people like all of you in a year like this. It's difficult because I necessarily have to feel very proud about a fantastic 2022 in which solidity of our operations has surprised even us on the upside and where we have achieved all of our key objectives in terms of non-core sales and strengthening of our balance sheet in anticipation of a period of quantitative tightening with action of monetary mass and increased cost of funding, both debt and equity. It's difficult, too, because I am also confident in 2023. Despite all the uncertainty surrounding us, not only because two months are already behind us and nothing has happened, but also because given the highly stable nature of our business, we have already very good visibility on the financial year 2023 results. And we know that we will grow like for like in all of our key P&L magnitudes. But the main reason why it's difficult is because we also need to report that nominal valuations of our assets have started to come down in 2022, and as a consequence of yield expansion, induced by higher interest rates, and will continue to do so in 2023. We are happy to take that pain because we knew it would be coming and have prepared the company balance sheet to absorb it. In fact, we would prefer appraiser's permitting to accelerate this value adjustment now that we have a solid operational performance that allows us to partially offset it. Because learning from other cycles, if the value adjustment phase is followed sometime in the future by a weaker operational market in our traditional asset classes, we know that we count on a sacred weapon to compensate income and values through additional income and value creation for shareholders brought to the table by our digital infrastructure plan. After many years of silent, invisible capex spending, in a new asset class that today is not yet identified by the market in our balance sheet and valuation is not yet impacting our P&L. We are not yet reflecting any income after so many expenditures incurred. Well, let me explain in greater detail how 2022 evolved in all of our divisions, and we will be glad to address the Q&A afterwards to talk about the future, whatever is of interest to all of you. In terms of operating performance, 2022 was a year of fantastic alpha. We obtained outstanding performance in all three asset categories, 7.3%. and the occupancy grew 60 basis points to 95.1%. Many of you may think that the like-for-like rental growth of 7.3 is all attributable to inflation. Far from being the case, because the effect of inflation is less than half, and the rest has been nominal variation of rents and nominal positive valuation of occupancy. Offices surprisingly delivered excellent operating behavior with a 6% like-for-like rental growth and a 5.8% release spread reaching a 92.5% occupancy at the end of the period thanks to a big lease we signed in the A1 corridor towards the end of the year. In logistics, we experienced a strong dynamics with an 8.6% like-for-like growth fueled by indexation and the reversionary potential captured. And we are currently in virtually full occupancy across our portfolio. In shopping centers, again, surprisingly to most of external observers, we obtain a 7.5% like-for-like growth with a 5.2% release spread, and we have reached 95.0% occupancy. The sales, which started showing a solid trajectory starting in June approximately, exceeded the pre-COVID levels, plus 2.7%. I know some of you will compare on a real basis. If you want to have that data, it's minus 4.4% incorporating average inflation since 2019. So we are still slightly behind 2019 in real terms. but it is also noteworthy to explain that after a hesitant beginning of the year with double digit differences in footfall compared to 2019, we started seeing a sharp recovery during the end of the spring and the summer, and we ended up the year at minus 8.6% in terms of footfall, but with months like December already exceeding 2019, which is a trend that we are also seeing in January and February across our portfolio. Our occupancy cost ratio reached a historical low of 11.8%, showing the relative comfort of our tenants with our rental and common expense costs in our different shopping centers. In terms of financial performance, we ended up producing $0.62 FFO per share, 6.4% year-on-year variation, positive, and we were able to beat guidance because you all know that we left it at 60, although we had already verbally indicated to you that we were hoping to get to around 62. Simply was a prudency stance, the one we took in terms of FFO. We experienced a slight decline in valuation across the board, minus 1.5%, but very importantly, we absorbed a very significant yield expansion of 44 bps. I have read in some of your analysis that it is in the upper range of what has happened in Europe. happy to be in that group and we will continue absorbing yield expansion during the year to see at least the yield expansion portion of the value adjustment behind us as soon as possible. We netted off most of this yield expansion with operational strength. Our balance sheet reflects a very strong financial situation with 32.7% loan-to-value calculated in the old-fashioned way. Calculated according to EPRA standards is 35.8, which is a 6.5% reduction versus 2021. 100% of our interest rates are now fixed, and 98% of our debt is unsecured. And we, as you all know, we conducted a requalification to green of our bond portfolio during the year. The 2023 bond maturity was refinanced. We got a very good cost, mid-swap plus 126, but mid-swap of the time we did it. So it was around 250-something. compared to the 320 it is now. So this is why you may have noticed that we have a difference between spot and hedged pricing of our debt because now we have a positive value in our derivatives. We have no maturities in the horizon until May 2025. Despite the value adjustment of our portfolio, we achieved a positive total shareholder return of plus 4.7% and distributed 1.20 euro per share of dividend in that period, amounting to in excess of 560 million, which is very, I think, very good news. In terms of value creation, beyond the 2.1 billion VBA portfolio disposal that was affected at a 17% premium to gross asset value, we also ordinarily disposed of ancillary real estate assets amounting to 112.8 million at an 8.7% premium to gross asset value. Landmark plan, which we had already flagged to you, was finalizing. The Great Picasso building will be delivered to clients in the month of December, November, so end of this year. And it's now virtually fully lit with only one little space remaining which is optioned by one of the existing clients. And we have achieved top rents. In fact, above the advertised average prime rent for Madrid. In the Mega Plan, we are glad to report that the works in Bilbao, Arasur, in Madrid, and in Barcelona are absolutely on track, both in terms of time and costs. And all the three assets will be delivered in the second half of 2023, somewhere between October and November, more or less, and some of them being already accessed by clients earlier than that date in order to start making their own installations, plugging in their own equipment. Without further delay, I pass the word to Miguel Ollero that will talk about the financial results.

Good afternoon, everybody. First of all, I should remind you that the ENLC, as we are showing right now, even for 2022 and for 2021, all of them are restated in the sense that they are not considering the net leases or the video portfolio income and results for the two years, in order to make them comparable. So we're talking about top line for 2022. It's only considering the ongoing business life lines of the company, not considering what has been generated during the year by the portfolio that was sold on the 15th of June of 2022. If we look at the range, 452.8 million euros, that is a 7.9% increase with regard to 2021. real increase that has been all across different asset classes. For example, for office was plus 6.2%, in logistics, 11.5%, and shopping centers, 7.8%. So all business lines, now comparing to 2021, were very well performing during the year with regards to the prior year. We look at gross rents after incentives, which are 428.2%. This implies a growth of 13.5% with regard to 2021. The main reason behind is that incentives were used largely. 2022 is a year in which there was no COVID expenses recorded. There was no incentives to our tenants, something that was happening in 2021, especially in the first half of the year. So that has implied that We have moved from a 90 percent margin in 2021 to a close to 95 percent margin in 2022. So it's not only that top performance at the top line level, it's also that incentives were highly reduced during the year. If we look at FFO, that is 290.5 million euros. This FFO is counting on our business lines, and also the FFO contributed by VBA in the time period in which it was already in our portfolio. So this 290.5 million euros, which in per share terms is 0.62 euros per share, is including around 7 cents which are coming from VBA portfolio during the year. So in the end, business lines that continue within our portfolio were generating around 55 cents out of the 62 that we were generating during the year. This should be also considered the starting point looking forward because VBA will be no longer with us in the future as we were sending it down in the year that's in 2022. Finally, as Ismael was pointing out before, from ETA MTA, we were at 15.67, a reduction of 2.7%. But it's important to remark that, for example, it was a year at which we had a big amount of dividend distribution, more than 560 million of dividend distribution to our shareholders, especially due to the 75 cents of euros that was an extraordinary dividend attached to the BBVA disposal transaction. So that implies that within a year we will receive it in 1.20 euros per share. That's why the CSR for the year is 14.5% despite the fall in MTA with regards to the prior year. Moving forward, in terms of top line, as we were commenting before, all the business line were improving. We are left for like a 7.3% in DRI. I'm very positive all across the different asset classes, 6% in offices, 8.6% in logistics, and 7.5% in shopping centers. This has been the main driver of the growth of the company. As Ismael was pointing out, half of it is related to CPI indexation. And then there is more link to renewals with a positive spread. And also, we have been enhancing the occupancy of the portfolio . On page eight, we have here our occupancy. Occupancy of the portfolio ended up in 95.1. with growth in every single asset class, especially it's remarkable that we were achieving 92.5% occupancy in offices, whereas our guidance for a year was 91.5. So we've achieved. All the other asset classes are approaching or even at virtual full occupancy, as it is the case for logistics. And also in the other activities, we are also very close to 100% occupancy. I should also remark that we were not growing more than 60 basis points with regard to 2021 because in 2021 we were counting on the 100% occupancy of the BVB portfolio. So, like for like, this would be, if BVB should be with us, this would be more than 95.5%. So, in the end, it was a 100 basis points increase on a long-for-life basis in our portfolio. The average goal of the company is 3.2 years. We have introduced, especially because DBA is not with us anymore. It was an asset class with a very long term lease agreement. So we will not enjoy that again. But at the same time, we continue to have a very healthy average life in our contracts. Now it is nice to review in further detail on the business line during the year. OK, thank you, Miguel. I will do it very quickly.