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Introduction & Market Context
Merlin Properties (BME:MRL), the leading REIT in the Iberian Peninsula, presented its corporate strategy on May 14, 2025, highlighting strong financial performance and an ambitious growth plan centered on data center expansion. The company’s stock rose 3.26% following the announcement, contributing to an impressive 70.42% return over the past year, as investors responded positively to the company’s strategic direction and Q1 2025 results.
With a gross asset value of €11.5 billion and a diversified portfolio spanning offices, logistics, shopping centers, and data centers, Merlin maintains a dominant position in key Iberian real estate segments. The company’s presentation emphasized its solid financial foundation and strategic pivot toward high-growth data center development.
As shown in the following snapshot of Merlin’s key metrics:
Quarterly Performance Highlights
Merlin Properties reported strong Q1 2025 results, with gross rents increasing by 2.7% year-over-year and funds from operations (FFO) growing by 17%. However, FFO per share decreased by 2.6% due to a capital increase. The company maintained an impressive 96.7% average occupancy rate across its portfolio, demonstrating resilience in the face of market challenges.
The company’s asset rotation strategy yielded €37.4 million with a double-digit premium, reflecting strong demand for quality assets. Management recommended a final dividend of €0.40, with €0.22 to be paid on May 26, representing an increase from the €0.18 per share paid during FY24.
The portfolio breakdown reveals a strategic allocation across different property types, with offices representing the largest segment by both asset value and rental income:
Detailed Financial Analysis
Merlin’s gross asset value totals €10.82 billion, with an additional €720 million in minority stakes bringing the total to €11.54 billion. The portfolio generates attractive yields across segments, with shopping centers leading at 6.3%, followed by logistics at 5.8% and offices at 4.9%.
As illustrated in the following breakdown of gross asset value and passing yields:
The company maintains high occupancy rates across all segments, with logistics leading at 99.4%, followed by shopping centers at 96.5% and offices at 93.7%. The weighted average unexpired lease term (WAULT) stands at 3.2 years, with data centers offering the longest terms at 7.8 years.
The occupancy and lease term metrics across the portfolio are shown below:
Merlin’s financial structure remains robust, with a low loan-to-value ratio of 28.3% and 100% fixed-rate debt at an average interest rate of 2.46%. The company maintains a strong liquidity position of €2.36 billion and an average debt maturity of 4.3 years, supported by investment-grade ratings from both S&P (BBB+) and Moody’s (Baa1).
The following chart illustrates Merlin’s sound financial structure:
Strategic Initiatives
The most significant strategic focus presented was Merlin’s accelerated expansion into data centers, positioned to capitalize on the expected quadrupling of European data center capacity by 2035. The company highlighted Iberia’s unique advantages in this sector, including available power, competitive electricity pricing, and strategic positioning for submarine cable connections.
As shown in the following chart, Europe’s data center market presents substantial growth opportunities compared to the more developed U.S. market:
Merlin emphasized Iberia’s strategic advantage as a hub for international data traffic, with 70% of US-EU data traffic passing through Spain. This positioning provides lower latency, enhanced connectivity, and cost efficiencies for data center operations.
The strategic importance of submarine cable connections is illustrated below:
Additionally, Iberia offers significant cost advantages with electricity prices at €39.6/MWh, substantially lower than the European average. The region also leads in renewable energy availability, with a 72% sustainable energy share compared to the 61% European average.
These competitive advantages are highlighted in the following comparison:
Merlin’s data center strategy is built on a unique value proposition that includes accelerated time to market through available power and permitted land, cutting-edge technology with 99.9999% estimated availability, and industry-leading energy efficiency with a 1.15 annualized PUE (Power Usage Effectiveness).
The company’s competitive positioning in the data center market is summarized below:
Forward-Looking Statements
Merlin expects to exceed its FFO guidance of €0.59 per share, driven by strong performance across segments and accelerating data center contributions. The company’s MEGA Plan for data center development is progressing well, with 21.2 MW already leased out of 26 MW installed as of December 31, 2024.
The data center expansion plan projects a 14.5% stabilized gross yield on cost, with a 70% stabilized NOI margin. This represents a significant growth opportunity beyond the company’s traditional real estate segments.
As shown in this snapshot of Merlin’s data center plan:
CEO Ismacio Mendo highlighted the emerging European artificial intelligence market as a key driver for data center demand, noting, "If the demand in Europe goes half similarly to what it has gone in The US, yes, there will be space for Jiga development."
The company has maintained a strong track record of shareholder returns, with over €1.9 billion in dividends distributed since its IPO and total shareholder returns ranging from 9.1% to 21.6%. Management expects to maintain dividend payouts at 80% of adjusted FFO through 2025 and 2026.
Merlin’s consistent dividend distribution and total shareholder return are illustrated below:
While the company faces potential challenges from market dynamics, economic conditions, increased competition in the data center market, and regulatory changes, its diversified portfolio, strong financial position, and strategic focus on high-growth segments position it well for continued success in the coming years.
Full presentation:
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