Merlin Pptys Socimi Ord

Good afternoon, ladies and gentlemen. Welcome and thank you for joining Merlin's first half 2024 resource presentation. Our CEO is Matt Clemente and CEO Miguel Aguero will be going through the slides that you can see on the screen, which are also available in our website. We ask you please to abide by the disclaimer contained on it. After the presentation, 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, Ines. Good afternoon, everyone. Welcome to Merlin's first half 2024 results presentation. The company has had a very good start of the year with strong operating performance overall, translated in a very solid like-for-like rental growth, positively spread in all asset divisions, and sustained high occupancy levels. In offices, we have enjoyed positive release spreads, decent like-for-like growth, and while we indicated to the market that we expect the year to be flat, slightly negative as compared to last year, that meant basically going from 92.5 to something between 92 and 92.5, Our current stance is that we will end up the year flat but with positive tilt. So it's going to be between 92.5 and 93, probably closer to 93. We are experiencing or we continue experiencing good dynamics in logistics with a 4.1% like for like and a positive spread. The relatively low For recent standards, occupancy of 97.6 is a consequence of a cut-off date effect. A number of modules on existing parks have been left vacant during the last quarter, but have subsequently been re-let. So towards end of the year, we should go back to virtually full occupancy. Regarding shopping centers, they continue outperforming with a 6.4% release spread and a 96% occupancy. And what is better, the occupancy cost ratio stands at a very record low, 11.5%. In terms of financial performance, we have achieved $0.31 of FFO per share, flat, slightly positive versus last year, which is very important because, you know, the company is little by little normalizing after the effects of the sale of the VBA branches, and it's also little by little digesting the increased overhead created by our data center activity. In terms of valuations, we were positively surprised by significant uplift in data centers, plus 13%. that has more than compensated the value erosion, slight value erosion in the other three asset categories. The yields continue normalizing. Overall company yield now stands at 5.2% passing, and offices, which is the one that probably concentrates all the concerns in the market at present, is now at 4.8%, I guess, it will continue tilting towards 5% and something percent during the year or maybe next year. The financial position of the company remains very, very strong, 35.6% loan-to-value with fixed interest rates. We have no debt maturities. Well, we have one debt maturity in May 2025, which is already covered. So we have no uncovered debt maturities till November 2026. and are at present holding on 1.6 billion of liquidity of which 725 million is cash in advance of the May 25 bond maturity and the rest is ungrown trade lines. As you all know, S&P upgraded the company to BBB Plus with a stable perspective thanks to our lower leverage and the perspective of improved cash flow generation through the data center activity over the coming years. Regarding value creation, we have slightly increased the amount of non-core disposals that are either signed or in advanced negotiations. We are indicating high single-digit premium to GAV, and we expect to materialize those towards year-end as we have tried to protect company cash flow and we prefer to execute the purchase and sales towards the year end rather than in the middle of the year. Regarding best two and three, both plans have now been merged, so we will report to you on the basis of what is short-term, medium-term, and long-term so that you can expect what is coming from the logistics WIP. We have in excess of 200,000 square meters of land bank with pre-let or agreed head of terms that will materialize over the coming months. So the WIP will continue adding to the logistic revenues until 2027. I mean, just by heart, I mean, just those 212,000 square meters mean $10 million, $15 million of extra gross rental income to our logistics division, which of course will be very much welcome. Regarding the mega plan, at present we are, you know, helmets on, and what we are doing is focusing on the equipment of the operating data centers pertaining to phase one And we are also doing the preparatory works for the construction of phase two. We are, of course, working on the pre-bookings for phase two, but as you all know, and I'm sure there will be plenty of questions during the Q&A, we first need to tackle the sources and uses so that the funding is assured and we enjoy enough cash at banks to make sure we build the two data center campuses in Lisbon and the Basque Country. The licensing of those new projects is on track. In Bilbao Arazur for building number two, construction permit is expected to be received in 4Q2024. maybe I alluded to that earlier. In Lisbon, Villafranca de Xira, we have already received the construction permit as is public. We are finishing the organization works by the end of August and we will start immediately compaction and piloting of the land for basements in September. As you know, this is a very special type of soil and we need to do a lot of preparatory work. Regarding value creation of data centers standalone, we are in early stages of the appraisal uplift that this will bring, talking just about phase one. We have registered in the books around 120 million of value uplift, which is between one-fourth and one-fifth of the total that we expect just for this phase one, which should be in the range of between 500 and 600 million. So very, very interesting. As commented many, many times with many of you, very interesting secret weapon that we keep in our balance sheet in order particularly to compensate any potential value erosion that might still affect the traditional asset classes. Regarding phase two, I know that some of you do not necessarily agree with the way we account that we are keeping it at historical land cost. We will add CAPEX while we progress in the WIP and start appraising upon inauguration. This is the way we prefer to do it in order to be prudent because otherwise that could be a very important figure and I don't think it will keep a good image of our company. I am sure there will be lots of questions rephrased in very different manners during the Q&A session about funding, but I want to tackle upfront your potential queries. Basically, at present, The BOD, as recently as Friday, approved our DC business plan. That's it. So the data center business plan, both base case, which is the one you will see in the presentation, and all alternative cases have been approved by our board of directors. And more importantly, for what it means, with the full support of our two co-shareholders, and the executive management of the company. That plan requires around 2.1 billion of funding. That is also public information. You all know that. The management has been tasked with the planning and executions of the actions required in this regard. The idea remains to fund plus or minus 50-50 equity and debt with the equity being injected first. And therefore, by year end in normal circumstances, although as you know, we tend to be prudent in our forecast of when things need to be done. Any initiative requiring equity will certainly be carried out at merit level why because we wanted to preserve as much upside as possible for the benefit of all existing shareholders of the company we didn't want to create a leakage of upside downstairs no matter it is possibly compensated by the pricing of a specific capital increase you never know i mean You could be leaving some money on the table, so we prefer to do it at the mother company level. Likewise, and in the same vein, any initiative entailing a new shareholder cannot result in granting, however big, any special rights. whether of first look or co-investment or similar. So, you know, we want to be fair other than those simply attributed by law. If and when needed, the BOD will meet and decide specifically on funding. And until such moment, it is of course our duty to not speculate about any potential transactions. very different thing is to talk theoretically about funding needs in February, how can you fund this project, et cetera, than talking now because everybody knows that whatever needs to happen will happen more immediately than in February when we talked about this transaction, which, by the way, the market now knows perfectly well and is perfectly anticipated, or the market, I guess, is expecting it. So I leave you with Miguel Ollero, who will talk about the financial results of the semester. Good afternoon, everybody. We are moving now into page six of the presentation. We are going to digest a little bit, which is the financial performance of the company during the first half of the year. As you can see in terms of rents, we were reaching the 248.2 million euros, which means plus 4.4% with regards to the same period in 2023. In the case of office and logistics, they went up by 5.9% each of them, reaching 134.6 million euros of rents in the case of offices. 42 million in the case of logistics. In the case of shopping centers, there was a decrease in total amount of 1.2%. This is driven by the fact that we were disposing two assets last year, which are not generating rents in 2024. Nevertheless, as we will see later, in terms of like-for-like and release spread, it has been the greatest contributor to the company itself. So it's just a one-off thing to take care about. If we look at gross rents after incentives, I should be highlighting that incentives are lower than they used to be in the previous period. So this represents 5.5% of the gross rents, whereas last year they were 6.5%. So the company also as a consequence of reaching full occupancy, is also able to reduce the incentives within the portfolio.

In beta terms, we were reaching $188.4 million, 3.7% ahead of the first half of last year.