MERLIN launches its data centers operations, with traditional asset classes proving a solid operational strength

MERLIN launches its data centers operations, with traditional asset classes proving a solid operational strength

• • Gross rents: € 475.6 million (+5.0% YoY)
  • EBITDA: € 367.0 million (+9.7% YoY)
  • Operating profit (FFO): € 284.2 million (+9.6% YoY PF exc. Tree)
  • Gross asset value: €11,270 million (-3.4% LfL vs. FY22)
  • Net asset value per share: € 15.08 (-3.8% vs. FY22)

• The good operating profit results (FFO PF +9,6% vs. FY22) offsets the yield expansion (+42 bps vs. 2022), limiting the drop in valuations to -3.4%
• Operating profit above €284 million (€61 cents per share), exceeding guidance provided to the market at the beginning of the year
• Growth in all key financial and operating metrics such as occupancy (96.2% +110 bps vs. FY22) or like-for-like rents (+6.5% vs. FY22)
• Net asset value according to EPRA recommendations (EPRA NTA) stands at €15.08 per share, after deducting €44 cents of dividend paid in the period
• The company maintains a solid financial structure, low leverage (35% LTV and debt maturity stands at 5.1 years.

Madrid, 28^th February – MERLIN Properties has reported FY23 results, with total revenues of €488.3 million (including gross rents of €475.6 million), EBITDA of €367.0 million and FFO of €284.2 million (€61 cents per share).

Gross asset value (GAV) of the portfolio amounts to €11,270 million, affected by a significant yield expansion (+42 bps) with a limited impact on valuations (-3.4% vs. 2022) thanks to an extraordinary operating performance, based on rental growth and higher occupancy as well as the value created in the new logistics developments and Data Centers. Net asset value amounts to €7,083 million (€15.08 per share), down 3.8% vs. 2022.

Negative net earnings (-€83.5 million), as the decline in valuations (€336 million) is deducted from the operating profit.

After the distribution to shareholders of €207 million (€0.44 per share), the loan-to-value stands at 35%, with a liquidity position of €1,309 million and an average debt maturity of 5.1 years.

All maturities have been covered until November 2026 with a mix of bank debt and bonds, with an implicit margin of MS+125 bps.

Offices

• Business performance

Significant increase in like-for-like (+6.1%) thanks to indexation and positive release spread. The occupancy guidance given to the market has been beaten, reaching 92.5%.

• Landmark Plan

First tenants in Plaza Ruiz Picasso 11 began occupying the asset in the last quarter of the year, while others are occupying it throughout 2024. These are best-in-class tenants, at prime rents, in line with the high standard set by the building.

Logistics

• Business performance

Excellent performance in the logistics portfolio in the period, with like-for-like rental growth of +4.8% thanks to improved occupancy, indexation and rental increase in renewals. Outstanding year in commercialization, with more than 297,000 sqm signed. Virtually full occupancy both in MERLIN (99.0%) and in ZAL Port (96.9%).

• Best Plan II & III

Development in Best II & III plans continue, having delivered to-date 478,000 sqm at an average yield-on-cost of 7.8%. The Company has delivered and let to Pepco in 1Q24 the only warehouse developed in 2023 (A2-Cabanillas Park II B) with 47,000 sqm.

MERLIN counts with more than 550,000 sqm of additional landbank to develop, which enables the Company to support the future expansion of its tenants. In the coming months, we will start the construction of another 140,000 sqm for expected delivery in early 2025, with a very high level of pre-commercialization (+80%).

Shopping Centers

• Business performance

Occupancy in shopping centers (96.2%) has increased in +122 bps in 2023 with a solid operating performance. Tenant sales are above pre-Covid levels (+14%), footfall levels are also above 2019 figures (+1.2%) and continue improving vs. 2022 (+5.0%), with the effort rate at historic lows (11.7%).

Mega Plan (Data Centers)

The Madrid-Getafe, Barcelona-PLZF and Bilbao-Arasur data centers have been operational since September 30^th 2023, with only 9MW IT installed out of total 60 MW IT capacity.

MERLIN has decided to accelerate the reception and installation of equipment due to the strong demand in commercialization, derived from the surge of generative artificial intelligence. In this regard, pilot technical modifications have begun in Barcelona-PLZF to adapt our cooling systems to the high densities required in this industry, and we are working on repowering those assets that allow it, capitalizing on the space savings generated by these densities.

This category of assets will come to represent a very relevant share of the Company’s gross rental income in the medium term, with long term leases and credit worthy tenants, leaders in the technology sector.

Portfolio valuation

The Gross Asset Value (GAV) of MERLIN amounts to €11,270 million as of December 31^st, 2023, according to valuations carried out by Savills, CBRE and JLL.  The general decline in valuations in the real estate sector as a result of the rising in interest rates, has been mitigated by the excellent operating performance, which has largely absorbed the yield expansion. Likewise, the value created in the new logistics developments and Data Centers has played a key role in moderating the net impact on valuations.

 Investment and divestment activity

Investment activity in the year has been moderate, with only the acquisition of the department store in Marineda and the final payment of a logistics land plot in Valencia for €22.8 million.

In terms of divestment activity, the Company has sold, in 2023, non-core assets for a total amount of €38.3 million, including 2 secondary shopping centers, 1 residential unit, 1 supermarket and 1 industrial asset.

Sustainability

MERLIN’s excellent year has been strongly endorsed in sustainability ratings, improving its score compared to 2022 in 6 out of 7 indexes (GRESB, CDP, S&P Global, Sustainalytics, Bloomberg, ISS, and Vigeo Eiris). Two milestones are worth highlighting: MERLIN’s inclusion in one of the world’s most prestigious sustainability ratings, the Dow Jones Sustainability World Index with only 5 European real estate companies present, and for the third consecutive year in a row the inclusion in the Dow Jones Sustainability Europe Index.

2024 Outlook

In the absence of externalities, occupancy levels in the three main asset classes (offices, logistics and shopping centers) are expected to be maintained, while rents will continue to benefit slightly from inflation as leases are indexed to the CPI.

Data centers will contribute negatively to the company’s operations, harming 2024 operating profit (FFO). This is a consequence of the time lag between expenses (practically those corresponding to an ordinary year, as the assets are already operational) and revenues, which will gradually increase as we are provided with electrical power and IT equipment installed in the different locations until reaching its maximum potential, planned for the end of the second half of 2025.

The estimated operating profit (FFO) for the financial year 2024 is 59 cents per share and targeting 68 cents per share in 2025. The final dividend, in addition to the interim dividend of 20 cents distributed in December 2023, will be proposed by the Board of Directors in the near future, subject to approval by the AGM and distributable in May 2024.

About MERLIN Properties

MERLIN Properties SOCIMI, S.A. (MC:MRL) is the largest real estate company trading on the Spanish Stock Exchange. Specialized in the acquisition and management of commercial property in the Iberian region, MERLIN Properties mainly invests in offices, shopping centers, logistics warehouses and data centers, within the Core and Core Plus segments, forming part of the benchmark IBEX-35, Euro STOXX 600, FTSE EPRA/NAREIT Global Real Estate, GPR Global Index, GPR-250 Index, and MSCI Small Caps indices and DJSI.

Please visit www.merlinproperties.com to learn more about the company.

 For further information please contact:

Nuria Salas, nsalas@tinkle.es, +34 629 56 84 71

Sarah Estébanez, sestebanez@tinkle.es, +34 636 62 80 41