Merlin Pptys Socimi Ord

Good afternoon, everyone. Thank you for joining Merlin's 3M26 trading update. As we always do on quarterly results, our CEO, Ismael Clemente, will briefly walk you through the main highlights of the period, and we will then open the line for Q&A. Without further delay, I pass the word on to Ismael.

Thank you, Teresa. Well, Merlin is off to a very good start of the year with total revenues up 11.2%, owing to basically three and a half percent increase in growth rents like for like and the additional revenue brought by data centers as compared to the same period of last last year the ffo however is only up 3.9 percent still better than what we predicted it was slightly lower than last year but uh only 3.9 percent uh and as warned already at the full year uh results um it's a combination of more financial expense, 10% increase, and much less financial income, because in the same period last year, we were still enjoying significant amount of cash in our bank, so 40% less income, financial income. That puts the company at 8.8% total shareholder return per share year-on-year, comparing the same periods. We have seen a very strong activity in all of our divisions, but particularly in traditional asset classes. Of course, Spain continues enjoying good macro, but I would not take out importance to the asset management effort carried out by my colleagues. The occupancy remains very high at 95%, quite stable, despite the fact that in the first quarter, about 60% of renewals can view these Spanish idiosyncratics. Everything is done either in January or February. So most of our renewals can view in the first two months of the year. But, you know, the erosion occupancy of close to 60 weeks I believe is quite acceptable. We will discuss the guidance for next year, probably in the next quarter, but what we said at the end of the financial year 2025 remains true. In offices, we said between 93 and 94, and our models are giving us now midpoint in that range. in shopping centers full stability, so between 90, around 96 and a half, something like that. Remember, in shopping centers, we are starting to yield manage a little bit the portfolio. You have seen it in the spread, so we are starting to, of fight in a good way, the occupancy cost ratio, which now stands at the lowest I have ever seen in my professional life at 10.8%. And in logistics, and some of you I know are worried about logistics because you are kind of assuming that there is some sort of underperformance in the portfolio. The truth is that simply is the GXO share, which is a big one. It's 48,000 per meters, and it will take time to list it up. I mean, because it's a relatively big deal to swallow for the taker, we are in negotiations with more than one party, so we are negotiating with multiple parties, and that will basically move the needle of occupancy as of year-end. I mean, if we cannot sign that shed before year end, occupancy will be more in the region of 96%. And if we are able to sign it, it will be 99. Anyway, I already warned you that 99 is abnormal. So please do not bang on our head every time we go down from 99, because 99 of course is not reasonable. More importantly, we continue executing the mega plan, you know, in very satisfactory manner. I think it's all the efforts under construction are on track to meet the delivery date. And the ones in which we were requesting licenses are now little by little achieving very interesting milestones in terms of construction licenses, et cetera. I will go in further detail in a minute. Non-core sales, meaningless for the quarter, 6.8 million premium to GAV. But more importantly, we have been signing $123 million for execution in 26 and 27, giving us optionality for receiving the cash flows. You know, while we continue building data centers, it is critical for the company to keep cash flow. And as such, every time we sell an asset, we try to do it in a type of contracting which we keep a lot of optionality as to what is the moment of execution and what is the moment of loss of cash flow and receipt of the money. At present, we don't need money. I mean, we are overfunded. We have too much cash at banks. So what we are trying to do is drag a little bit our feet in terms of sales. And that 122.9, it's also premium to GAF. I mean, I know some of you are I'm not worried of making that question. It's at a premium to GAF. The NTA per share, it's 1532 with no valuation or no appraisal during the quarter. Another thing that has raised the eyebrows is we have said that we expect substantial revaluation of disease in one age. This is no nuclear science. It's simply that up to now, the scope of valuation of our appraisers has been a total potential of 240 megawatts of data centers. And just with Lisbon, we move into 340. So it's a very significant jump ahead, much more scope and I'm sure this is going to have an effect in the valuation of the portfolio together with the fact that there's been a near elimination of any leasing risk in phase one and increasingly in phase two. And as a consequence, I'm sure that the valuers will reflect that in the discount rates and also bringing the cash flows closer to present. So this is why we expect some jump in values in the first half. As you all know, in March, we executed a capital increase, an ABO, to fund phase three. It was a very good transaction, reflecting particularly your support to the company. It was heavily oversubscribed and executed at strike. Thanks for that. At the end, 100% of the paper was placed with existing shareholders. Of course, begging pardon to these super minority shareholders that, of course, cannot participate in ABOs because of their non-institutional nature. even from a legal standpoint, you cannot address them. The final distribution after the approval of the General Shareholders Meeting of 2022 will be paid on May 25th. Some of you have asked about, why the FFO goes down by 5.6%. As you know, we use the absolute number of shares of the company at the moment of reporting, which now includes the capital increase. We don't use the average. If we were to use the average, the FFO will have grown by 3.1% and the adjusted FFO by 3.5%. So, you know, but we prefer to report what we see. And what we see is that now we have 620 million shares. And as such, we have to divide the FFO by these number of shares. It's minus 5.6, which anyway, it's already below the 10% theoretical dilution. created by the capital increase. So, you know, with some probability, maybe during the year, we will continue taking a dent, eroding that dilution created by the capital increase. In terms of behavior of the different asset classes, offices, as you know, ended up the period at 93.6% occupancy, down close to more or less 60 compared to the 94.2 at which we closed the year. The like for like was 3.1% with a very interesting spread of 2.8%. So, you know, offices continue to show some strength despite the fact that we have a problem in Barcelona, a problem that will aggravate in the second quarter because the second quarter as you know we have an escaped exit of the meta fake news control center in torre gloria so that that will further diminish the uh occupancy in barcelona first of all barcelona has a relatively minimal way in our portfolio so you know no no big thing that uh barcelona is of course a complicated uh city at present because of our the relative oversupply that we are experiencing in the area of 22 at. It will take some time to recover. We have commented on a number of occasions. Barcelona is a strong market, so sooner or later it will recover, but we need a little bit of patience there. In fact, even in rents, now Madrid is about to overtake Barcelona in average rents in the portfolio, despite being more concentrated in prime CBD than one in Barcelona. very interesting the performance we have observed in Madrid in recent times. Logistics, down about 60 basis points to 95.8 from the 96.4 we were at the end of the year. The like for like is weak, 0.6, but this is mainly due to the net variation in occupancy because much to our surprise, the risk rate has been super strong at 6.2%. We still need to see what happens in the second, third and fourth quarters to check whether this is a reflection of something or is simply it has happened a little bit randomly. I mean, we need to check the consistency of this figure in the coming quarters. Shopping centers is a rocket. I mean, 6.1% rent like for like, and at least spread of 7.4%. We told you that we would start managing yield, and we are doing exactly that. Despite this, the sales have gone up so widely that at the end, the occupancy cost ratio continues going down. But anyway, we will continue pushing a little bit in rents and trying to normalize more the performance of the portfolio. If we go very quickly through the different asset classes, and I will only stop in data centers because of its importance, in offices, what strikes the eye is basically the very good performance of Madrid, now reaching 94.6%, more than 1% change in the period, and Barcelona, which has gone farther down by about 3 percentage points. Lisbon has gone down by 4 percentage points, but don't take that as a reflection of anything. It's simply that we have suffered the conjunction of the exit of BNP Paribas in the Arts Tower, and some of the consequences, delayed consequence of the exit of GALP in Torre A. But, you know, at the page, we are reliving space there. This will be somehow normalized towards year end. The local team there is doing an excellent work in rebalancing the portfolio. In terms of, well, As a curiosity, the once denied A1 corridor in Madrid is now doubling. I mean, it has moved from Cinderella into Princess. So now it's occupied above the average occupancy of the portfolio, owing to the fact that part of the infrastructure problems that were endemic to that area, particularly the traffic jams because all the residential around have been built that no changes have been made to the infrastructure. Finally, the municipality of Madrid has carried out some changes in the north traffic hub and this has reduced very significantly the traffic jams in the area. the proximity of Opera Central Martín is also enticing more and more real estate managers in companies to find a slot there because at the end it's going to be very close to where the music will play in Madrid for the coming 25 or 30 years. In logistics, well, as commented, very good risk spread and pedestrian growth in like-for-like terms owing to GXO. It's a big share. We are now negotiating with three, four counterparties, but it will take time. I mean, bear with us because it's a big share, and the market is not also in its best moment, so we need to make sure that we sign that back and go back to a super high occupancy at all Good news, however, is that we continue leasing well our work in progress. I mean, we are 178, 320 pre-led or ahead of terms. It is important to make the breakdown. It's 174 pre-led and four head of terms. So it's basically all pre-let, which is interesting. And even in the non-committed, we are working on reducing the total number 182 by about 60 because we are in conversation with a tenant. And, you know, reduce the non-committed to only 120, always with the idea that has been conveyed on many occasions to you of, you know, finishing a land bank in logistics and waiting for the next cycle comfortably full and cash flowing. This is what we want to do. At the same time in Talport, we were able to get two additional plots there and one has been pre-led to Lidl and the other one which is in the airport of Barcelona has been pre-led to Logista. So that will add capacity in the super prime location of South Port in Barcelona. In shopping centers, you know, Spain is, you know, between the increasing population, the marginal proportion to spend, and the macro, you know, it's really performing as like a rocket. The increase in sales of 10.3%, you know, will strike some of you as too high. Part of it is owing to the fact that Marinera, the extension of Marinera has been in operation in the period, and that has added about four points to the figure. If you want to do it like similar to like for like, it will be in the region of 6.2%, much more in line you know, the market statistics and what some of our peers are reporting in Spain. Footfall, however, is only plus 1.5%, and this is going through very small things, difficult to explain, like, for example, in Barcelona, we have works in Plaza España. which are complicating the access to the shopping center. In Larios, the Spanish high-speed train got suspended for a long period, and therefore, access to Malaga was completely complicated by the public authorities. And, you know, I mean, we have a number of other situations in the portfolio. we continue to see a very interesting footfall flow in our shopping centers. Data centers. Well, for phase one, Madrid Getafe 01, Barcelona Zona Franca, and Bilbao Alasur 03, the first building, are now fully equipped and fully led, and they will reach 97 million gross rental income in the year of stabilization, which is 27, as anticipated to you a long time ago. According to the details, Barcarona-Tanafranca has been repowered, or is being repowered. All the machinery has been received, and we are doing now fit-out, but there's been changing uh in um in layout of the client and you know it's uh the fit out is going like 15 days uh delayed that's not relevant for cash flow and we will start receiving cash flow in the third quarter of 2016. Regarding Madrid Getafe 01, well it's now fully led to one new cloud and two hyperscalers which basically host in the data center POBs, I mean cloud points of presence and are occupying an interesting part of the data center. There we are finalizing the power connection works. And we are, at present, we are digging trenches in very plain language terms. And we expect to be ready in October 26th. So by fourth quarter 26th, the main client, the AI client of the center will start paying full rent. A repowering opportunity has arised that will or should allow us to go back to the 70 megawatts of phase one that we told you in April 2022 in our Capital Market Day. So, you know, if we have the opportunity to acquire 10 megawatts of electricity, that will give us 6 megawatts extra in IT terms. I know it's a small number, but it's symbolically important for us. If we can pinch it, the repowering should be ready by fourth quarter 27. And that means that in terms of gross rental income, this year it's set. I mean, we will receive around 66 million in rent. Next year should be 97. Then in 2028, there will be a significant jump. If the repowering happens, we will go to circa 110, including the fixed step-ups of the existing contracts. So very, very interesting for the company. Then for phase two, construction is progressing, as commented, as planned. and the flow of pre-lets is promising. So, in Arasur 2, it's fully let. The first batch, 29 volts, should be, you know, producing money by beginning of 27. The second batch, 28 by mid-2027. Very cool machinery. I mean, really, you know, state of the art. Liquid, cooled. And what is more important, fully back-to-back by the client. So they have now final plans for all that power. I mean, they are already sold in that. For ARASUR 01, construction is underway. Pre-leasing is in advance negotiations. What this means, basically that we have done something special in this occasion. We have signed a reservation agreement, which has as an exhibit all the technical documentation, and the full-form legal documentation, the lease contract. However, the lease contract contains bracketed terms for the delivery dates. So, three things can happen. If nothing happens at a certain point next year, which I will keep for me, the contract will become fully binding for both parties and it will be let. If we have to change the delivery dates, and I will explain why, and the counterparty accepts, again, it will become fully binding for both parties. And if we can find a language which is sufficiently flexible for delivery dates, which will need the collaboration of the final client of our, you know, power taker and NVIDIA for the delivery of the chips. If we can find something which is amenable for the four parties, then eventually we will move into full, you know, let's say full form contract signing. So it's pretty much done. Okay. So that is the situation there. And, you know, we are working. Why are we worried? We are worried for a very simple reason, because we have our own working morale. We have our own, you know, sense of fulfillment of contractual obligations, that when you are dealing with our, you know, public administration or other counterparties, when you depend on third parties, of course, you are exposed. And what we don't want to do is screw up. We don't want to screw up not only because we are going to be imposed a significant penalty. Penalty at the end, you pay, and that's it. The problem is that we are a relatively small company, and we are just starting in the world of data centers. We do not have the goodwill of the big American incumbents. And, you know, screwing up on the delivery of one of our facilities is not going to be good for us. So, and particularly if it is owing to a third-party intervention, it would be a pity. So, what we are doing is trying to make sure that we, you know, are pretty firm on the delivery dates. Remember that in this case, the electric line comes through a photovoltaic plant that needs to be built is being built or will start soon to be built by Iberdrola, by the utility provider, really next door to the data center, but the plant needs to be built and the line will come through the plant to the data center. So, two things need to be executed. The generation assets, the solar panels, and the line, and this requires lots of authorizations from the vast country uh authorities from the central government authorities etc plus the execution of the works itself so this is why we have been a little bit uh very prudent uh in the way we have um approached these potential uh pilots Regarding Lisbon 01 and 02, well, basically, construction is advancing significantly. If any of you fly often to Lisbon, you will see that the two buildings are now with columns erected. They will start closing walls in the second half of the year and roofing. So, you know, works are advancing pretty well. after finishing all the preparation of the ground, which as you know, is a complicated ground in this one. So very happy with the way it is going. For the IT capacity, the primary plan continues to be the adherence to the Portuguese Gigafactory, however, This is now being delayed again. The ARAC team by the European Union might be sent to the different parties at the end of June or maybe July, and they expect to take a decision by year end, taking into account that we started in all this process in February 2025 with the intention to have everything decided by April, maybe May, maybe June, it's a year and a half delay, which is sometimes not compatible with private activities. I mean, we cannot do things in that way. So, we are advancing some, you know, alternative conversations, pretty similar to what we did with Arasur, that you will need to bear with us long while because those happen to be hyperscalers, and that means basically very, very long conversations, very slow processes. It will take a lot of time to really get to a happy end. That, you know, statistics are in our favor. We are talking to multiple counterparties sooner or later. one of them will end up concluding negotiations. So, we are happy with the way it goes. Plus, if at all possible, if we can enter a full lease of the whole campus, you know, it's paradise for us. So, you know, if we can really lease the whole campus and accelerate the construction of 0304 and 05, that will be perfect. So, this is why we are taking relatively long in Lisbon, but the demand is very satisfactory. In Madrid Getafe 02, the demolition works are underway, should be finished by year end. Very happy with the way they are going. And the construction license has been submitted, the request to the municipality, and we expect to have it or to get it immediately after demolition works are finished. So maybe with a little bit of luck early next year. We want to rush in this case again, because this data center enjoys a couple of bookings highly credible, so we believe it will go very well. The current finalization target, which is the first 1H29, it's about one half in advance of the one we told you about, you know, it's like two quarters ago. when we feared that this would go to end of 29 with full cash flow in 30. With a little bit of luck, it should go to more like first half 29 and full cash flow, well, again, for 30, full cash flow for 30, that, you know, part, partial cash flow already in 29. And regarding Madrid-Tres Cantos, this is a small data center, but, you know, planning, has been completed, we got organization permit, and we are now moving around. And that's it, because we expect to have these ready in the first half of 2029. And we haven't started commercialization conversations because first is very small, second is in Madrid. So I think it will lease relatively well. And then for phase three, We're just starting in Bilbao 4 and 5. Well, we are waiting for the execution of the power infrastructure by our electricity provider, which as you know is Solaria. We have requested the construction license to the municipality, which in turn will put in motion the different favorable reports that need to be received from the Basque government. But, you know, we are already readying the project in case we need to accelerate it. I mean, in our presentation of phase three, we said first half 30, first half 31. This is simply an estimate. If we need to accelerate, Of course, eventually we want to be ready in case for some reason the client or one client wants to get this slightly earlier. I mean, we want to be ready. Regarding Lease One 345, the construction license has been granted by the municipality. And we have started, you know, doing the groundworks very quickly. I mean, we are piloting already. And, you know, we will go fast here. So, again, we have delivery dates of 1H29, 1H30, 1H31. If we get a client, that can be significantly accelerated, but we prefer to keep. the existing dates and the guidance provided to you in our investor day in Arasur because we still, we don't know what the future might hold. And if we end up selling or leasing 01 and 02 to different clients on a retail basis or wholesale collocation, then eventually we will not rush in starting three, four, and five. But if we do just one single lease, campus lease, then yes. And then Saragossa Wind, well, we have submitted already the DIGA, the Declaration of General Interest for the Community of Aragon. And we are now moving into the PICA, the Project of General Interest of Comunidad de Aragon. It might sound like Chinese to you, but the interesting thing about the PICA is that it moves the land from rural status into full construction license in as short as between 9 and 12 months, in theory, unless, you know, something happens or you find skeletons from the Stone Age in there. The idea is to continue progressing hand-in-hand with the local Aragon authorities, which are highly collaborative, and, you know, have the PICA submitted before summer for readiness of the project in 4Q29 and the second building 2H31. But again, it depends on, you know, whether we can find a client, and we have a need for this one. So, which is the, because Bilbao and Lisbon will probably have the same plan, that we have a lead, and we are working on the technical design specific to that lead. Outside the phase one, two, and three, we got the declaration of project of regional interest for our Naval Moral project in Extremadura, for building one only. And we have obtained a little bit of power in there, around 30 megawatts utility, which are good for about 20 megawatts IT. Remember, for those of you who attended the Capital Markets Day in Nara Sur, that was called Phase 4, okay? But interestingly enough, we got some electricity, not a lot, but given that civil construction is not the lion's share of the budget of a center, we might perfectly start the construction of building one, being ready to equip 20 megawatts IT on it once finished, because it's the only way to have an earlier ready for service date in case we get clients. And this Extremadura project is raising a lot of interest in the market because of the sheer size it has. Of course, during the civil construction period, we might get the real electricity, the one that we have requested from the local authorities, from the central government authorities. We requested 2.0 gigawatts and, you know, good for around 1.4 IT. whatever they give to us is going to be good. So we, you know, if we can electrify the first building and if we can electrify the second, because they are twins from a technical standpoint, we might start also the second if we get the electricity from the central government. And that's basically it. LTV, bone maturities, and this is all relatively plain vanilla stuff. So let's move into Q&A, and I'm sure it's going to be much more interesting. I mean, I'm sure you will have interesting questions.

Thank you very much. We'll now move on to Q&A. Remember, to ask a question, you have to press star five. We have a first question coming from the line of Marius Pastu from Bernstein. Marius, go ahead.