Earnings call transcript: Merlin Properties Q2 2025 sees revenue rise 8.5%

Merlin Properties reported a solid second quarter of 2025, with revenues increasing by 8.5% to €264.7 million, maintaining its impressive 12.39% year-over-year growth trajectory. The company’s EBITDA rose by 9% to €205 million, and Funds From Operations (FFO) saw a notable 12.8% increase to €166.6 million. The stock trades near its 52-week high of €15.75, reflecting strong investor confidence supported by a 43.55% price return over the past six months. According to InvestingPro analysis, the company currently trades at a reasonable P/E ratio of 11.16x.

Key Takeaways

• Merlin Properties achieved an 8.5% increase in revenue.
• EBITDA and FFO showed strong growth, rising 9% and 12.8%, respectively.
• The company maintains a strong liquidity position with €1.6 billion.
• Occupancy rates remain high across all sectors, with logistics leading at 96.2%.
• The stock price decreased by 1.48% despite positive earnings.

Company Performance

Merlin Properties demonstrated robust performance in Q2 2025, driven by growth across its diverse portfolio. The company’s strategic focus on data center and logistics development contributed to its revenue and EBITDA uplift. The Spanish real estate market’s resilience, alongside strong private consumption, supported these results. Merlin’s diversified portfolio, including offices, logistics, and shopping centers, continues to bolster its competitive position.

Financial Highlights

• Revenue: €264.7 million, up 8.5% YoY
• EBITDA: €205 million, up 9% YoY
• FFO: €166.6 million, up 12.8% YoY
• Total shareholder return: 6.6% in the first half
• LTV: 28.6%
• Net debt to EBITDA: 8.8x
• Average debt cost: 2.6%

Outlook & Guidance

Looking ahead, Merlin Properties projects a 2025 FFO of €0.56 per share and plans to increase its dividend from €0.40 to €0.42 per share, maintaining its strong dividend growth trend of 114.57% over the last twelve months. While 2026 is expected to see relatively flat performance, significant cash flow improvements are anticipated in 2027. The company’s financial health score of GREAT (3.13/5) from InvestingPro underscores its solid operational foundation and growth potential. The company is also considering participation in an EU AI Gigafactory project, which could further enhance its growth prospects.

Executive Commentary

CEO Ismail Clementa highlighted the company’s strong FFO generation, stating, "We are generating significant FFO in the company." He also emphasized a cautious approach to expansion, noting, "We are new kids in the block. We have to be very, very prudent in what we do." Clementa expressed optimism for future growth, particularly mentioning, "The party starts in ’28, 2029 when we start reaping the benefits of Phase two."

Risks and Challenges

• Economic fluctuations in Spain could impact real estate demand.
• Rising interest rates may increase borrowing costs.
• Potential delays in data center and logistics projects could affect revenue.
• Competition in the real estate market remains intense.
• Regulatory changes in the EU could pose compliance challenges.

Q&A

During the earnings call, analysts inquired about the valuation methodology for data centers, reflecting investor interest in this segment. The company also addressed its prudent expansion strategy and discussed dynamics within the logistics market. Funding strategies for upcoming developments were clarified, ensuring stakeholders of Merlin’s financial prudence.

Full transcript - Merlin Properties SA (MRL) Q2 2025:

Fernando, Moderator/Host, Merlin Properties: Good afternoon, ladies and gentlemen. Welcome to Merlin Properties, half year results presentation. As usually, Ismail Clementa, our CEO, and, Frank Rivas and Ginesa Arellano, both directors of the company, will walk you through the presentation that you are seeing on the screen, and it will be followed by a Q and A session. So without further delay, let’s start. Ismail, the floor is yours.

Ismail Clementa, CEO, Merlin Properties: Thank you, Fernando. Welcome to Berlin Properties’ first half financial results presentation. It’s been a very solid quarter of performance for the company that follows also a very good first quarter. So the whole semester has been excellent from an operating standpoint. I mean, beyond the print in net results, which at the end is asset revaluation, which is paper money, The reality is that from a cash flow standpoint, we have improved margins and we have gone one extra inch in every asset class of the company.

And we are starting to see a little bit the merit behind the debt on the data centers. From an operating standpoint, the rental growth came up 3.4% like for like, and the occupancy was also very high at 95.4. You might argue that in the first quarter, it was 96.7%, but I told you that from the 99% we were in logistics, you can only go down. So it was impossible to repeat the same print in logistics in offices. We have reached 94.2%, which is our all time high.

The rental growth is quite compelling at 3.9%. In fact, as commented in previous calls, we are witnessing an acceleration of the rent negotiations with significant interest in take up. Part of it is explained, of course, by a resilient economic performance of Spain that also part of it is the destruction of stock that I commented many times with you owing to the resi reconversion projects, which are starting to be felt in the Madrid stock of offices, not so much in Barcelona because Barcelona is for residential is a disaster. And they have a disaster regulation, and it is impossible to convert an office building into resi in Barcelona. So it’s more difficult to correct excesses of stock that in Madrid is working fine.

In logistics, we went down in occupancy to 96.2%, but we still delivered good organic growth at 2.2% like for like. And we have continued pre letting significantly our width, I mean, with a big transaction in the North Of Spain and one health terms, very good one for the Generis Corridor here in Madrid. In shopping centers, very good like for like at 3.2%. What is more important, we have reached an all time low in occupancy cost ratio at 11%, which is incredible, thanks mainly to a very strong sales evolution that keeps us absolutely amazed of 5.8% versus the same period in 2024. With all these, the FFO generation came at plus 12.8% compared to year on year with a very significant strong value creation as a consequence of asset appreciation, 3.2 gross asset value like for like growth.

Mainly, it’s a data center thing. Although it is important to remark that the deterioration seen in past quarters in the value of the traditional asset classes has not only stopped, but also reversed a little bit. The appraisers seem to be flattishly, but they seem to be compressing a little bit again the cap rate. You know my opinion about that. I would prefer to stay where we were because I believe there were healthy cap rates.

But it seems that we are entering a cap a small cap rate compression phase in valuation. What is important is that with all these, the total shareholder return in the first half has amounted to 6.6%, which it’s clearly a good indication for the whole year. I believe this is going to be a good very interesting year from a shareholder return standpoint this 2025. Our financial situation remains very healthy at 28.6% LTV, underlying net debt to EBITDA, 100% fixed rate with no debt maturities till November 2026, and we have EUR 1,600,000,000.0 of liquidity position. Standard and Poor’s has reiterated the BBB plus with stable outlook, which is, of course, very, very good because towards the end of the year, we will need to tap the market for debt, and it’s important to do it on a very good double rating by Standard and Poor’s and Moody’s.

Regarding value creation initiatives, we have been very active in the sale of a number of assets that we now call noncore that I mean, it’s we are talking now always about occupied buildings, for mainly for receiver conversion. 36,400,000.0 have been executed in in the period, that we have also signed and in some cases, received advanced payments for another €145,900,000 which basically means that we expect to comply with the 2025 budget in terms of disposals. As you know, part of the data center deployment program is financed with the capital increase that we carried out last year, but we also depend on a number of disposals that we have budgeted for 2025, ’26, July ’29. And we are very well on track to comply with those internal numbers. More importantly, it’s been a very, very good, very good period in terms of pre let or or listings or big listings in data center.

Well, you all know that we finally placed a block of 15 megawatts in Barcelona with a big neo cloud hyperscaler and then a block of another 18 megawatts in the Bilbao or Azure data center. I won’t do spoilers. So Francois will comment in a moment about the evolution of conversations with clients for the derisking of Phase two and the rest of Phase one. In offices, we signed two very large headquarter leases, one with an existing client, Tecnikas Realmidas, who significantly enlarged their position with us in the A1 Corridor and the other one with a very big energy company, Spanish IBEX thirty five, for a headquarter in the A2 Corridor. In logistics, signed with Mercedes Benz in Victoria, 73,000 square meters, and have signed also a head of terms for a turnkey project in the Genarez Corridor for another 55,000 square meters, which is very interesting.

And shopping centers, what is more notable is that the extension to the already big Marineda Shopping Center, it’s going very well, from a pre commercialization standpoint. The opening is in principle pencil in for something around November or December. And yet, we are 92.9% pre let, which is a very remarkable achievement by our colleagues of retail and logistics. Regarding financial results, if we move into Page six, well, revenues have grown by 8.5%, of which rent €264,700,000 by 6.7% compared to the same period last year. What is important is that we have improved EBITA margin.

So moving from 188,000,000 to $2.00 5,000,000 with an increase of 9% above the increase in top line, so very good conversion. Most notable, the FFO has increased from 147,800,000.0 to 166.6 which is an increase of 12.8%. Also very interesting exercise in terms of cost containment by the company. And well, and as commented before, the EPRA NTA has gone up very, very significantly, first as a consequence of the capital increase carried out last year, which of course contributed a lot of cash to the company, but also as a consequence of the asset revaluation that we commented before. With all that, the dilution in FFO that was expectable following the capital increase that diluted naturally the FFO of shareholders by around 16.7% is now has been now moderated to only 6%, and we will try to continue eroding between now and year end.

So in plain language, with only the traditional asset classes for the moment working in favor of offsetting the dilution, we are managing to significantly offset the capital increase carried out last year. I mean, which in theory or well, in theory, in practice was penciled in for the development of data centers. So without data centers yet contributing to the company on a meaningful basis, we are little by little closing the dilution caused by the capital increase, which is, I believe, a remarkable achievement. And in terms of MTA, the strong revaluation has meant that we have almost flattened the dilution caused by the capital increase, and we are more or less where we were last year in the same period with minus 0.5%. On Page seven, well, you have the like for like divided by offices, logistics and shopping centers, you see what is like for like growth change of perimeter.

And on Page eight, you see the occupancies, 94.2% in offices, 96.2 in logistics, 96.5% in shopping centers. Later during the presentation, I will give you what our estimated figures for year end look like, which offices is going to be relatively flat, a little down from the 94.2 Logistics will go significantly up. I mean, we’ll depending on a couple of contracts that we are negotiating and shopping centers will remain relatively stable because it’s impossible to move it from there. And without further delay, I will let my colleague, Inessa Rejano, explain the details of the different asset classes for your benefits.

Ginesa Arellano, Director, Merlin Properties: Thank you, Ismaio. So moving to offices in Slide 10, which today still represent 58% of our portfolio in terms of value. The momentum is quite positive, demonstrated by all time high occupancy levels, both in Madrid and Lisbon. Barcelona is still suffering from a temporary oversupply situation, and it will take some time to be digested. The drop in occupancy, however, has mainly happened in June, and that’s the reason why you still see a solid like for like rental growth of plus 3.4% despite the impact.

On Slide 11, you may have noticed that we reached an agreement with the refusal to enlarge the tenanubarc, Seneca Ramirez, that implies a mark to market on the existing space in first Q and that we’ve now signed an additional 21,000 square meters expansion with them in a turnkey project to be developed in the same campus in Adelaide. Excluding this impact, however, the overall relief of spread could have been plus 5.1% overall and more importantly, plus 3.3% up versus the minus 3.7% in Madrid. We have contracted 165,000 permitted in the first half of the year, which is a wide enough example or sample, I’d say, to provide us with reliable information on what is happening in the market. And this is shown in Slide 12. As already flagged in February, Madrid office market is experiencing a very interesting trend.

There is a clear need for residential among solar users, and there’s no land available in Madrid’s city center, which is driving the reconversion of certain office buildings that are above current book value. Coupled with no new supply in offices, the overall office stock is shrinking, and this is benefiting the good quality assets, not just with occupancy gains, but also with pensioning rents. In our portfolio, we have identified 13% of our Madrid stock suitable for reconversion. But please do not think that we’re gonna be selling off everything. It also means that there’s certain users like universities that are compatible with the type of buildings that we have, and we can extract more value and cash flow.

And a good example of it is our within our portfolio, we have KUNE, one of the most reputed private universities in Madrid, that trusted us with its 18,000 square meter campus in Ciudad. We moved the logistics, and what we can say is that the performance continues to be robust with a flat 2.2% like for like rental growth. And the overall drop in occupancy is only due, as is my comment, to second twenty. Twenty. Of the second several visits.

The Hopefully, it will be occupied, if not by year end, by the beginning of next. So the cutoff date of December could be either going up to 99% again or staying in the range of the 96% occupancy ratio. But we’ve also experienced a significant increase in occupancy in Barcelona, which, obviously, does not impact as much as Madrid does. Release spread, plus 7.2% in the first six months with higher leasing volumes in the second Q, reaching 260,000 per meter contracted. Moving to Slide 16.

This is our minority stake in Southport, Barcelona, whose total showed a plus 3.2% unit spread with around 157,000 square meters contacted and a temporary decline in occupancy, which cannot be considered a trend, except that our Barcelona portfolio in logistics has shown more than 500 states increase in occupancy. Shopping centers. This as is my to call it, our Cinderella became a princess long ago and is still showing its strength. All KPIs reported are positive, plus 3.2 like for like rental growth, 96.5% occupancy versus 96.1% last quarter, sales evolution outstanding at 5.8%, footfall at plus 2.4%, record low OCR at 11%, and release of spread at 4.1, coming from 3% last quarter. And then let’s go to valuations in Slide 21.

All this good operating performance translates into valuation. TAV has increased by $518,000,000, standing at EUR 12,100,000,000.0 as a result of the 3.2% valuation uplift, mainly driven by development gains in data centers, which have shown a 38.2% like for like growth. Valuations have resulted in a 5.2% passing gross yield, which implies a 4.3% net initial yield, slightly lower from the one shown in December because the extent that they’re still not yet stabilized. The revaluation impact in P and L has totaled EUR $361,000,000, of which around 58%, EUR $2.00 8,000,000, comes from data centers. Operating data centers have crystallized part of the expected value creation, and Sam will walk you through in a minute in Slide 36.

And appraisers have decided to also value the assets that we’ve started its construction after obtaining construction license, therefore, anticipating value recognition. Now it is very important to say that all the land spend remains at cost. So it’s only the either operating or already into construction portfolio that has been given a value by the appraisers. Methodology is as follows. Appraisers assess values with a ten year DCF where they apply cap rates.

You can see in our results that it ranges from 5.5 to 8%

Fernando, Moderator/Host, Merlin Properties: I think on

Ginesa Arellano, Director, Merlin Properties: the exit value. And based on base, nine to 11%, which today still looks high for the risk assets. For the first time for a while, now we see an overall slight yield compression in average seven bps, flat exit yield, so in all three traditional asset classes. Obviously, it being not meaningful in data centers as the assets are not yet stabilized and will see the ramp up in the years to come. In Slide 23, we can show you the sound financial structure that we have.

This is moving from the asset side of the balance sheet to the liability side of the balance sheet. We finished this semester with a gross debt of EUR 4,400,000,000.0, down from EUR 4,900,000,000.0 in December after repaying the EUR 600,000,000 bond in May. We have net debt of EUR 3,600,000,000.0, implying a 28.6% LTV. Cash flow generation and value creation have all have almost offset dividend payment and CapEx efforts, and this is shown in this 28.6% LTV. As said by Ismail, our net debt to EBITDA stands below 10 times, 8.8 times, and the average cost is slightly higher than the one in December, 2.6 coming from 2.5.

It obviously will increase slightly as we refine the purchase response, but all of that is fixed with average maturity of four point four years. Liquidity also commented by Liz Nile is still high because we still have some other receipts obtained on capital increase. And S and P reconfirm on BBB plus rating with stable outlook together with Moody’s on the basis of sustained lower leverage and expanding cash flow. In Slide 24, very little else to add. 84% of our debt is corporate, so 75% of it is bonds and 25% is unsecured bank loans, and only 16% of our debt is mortgage debt.

Our next maturity to be faced in second November twenty twenty six. And although we do have time to tackle it, we prefer to be prudent here as we’ve always been on time to debt and take advantage if and when we see a window of opportunity. So with no further delay, I’ll pass the floor again to Ismail, who will comment on the value creation part of the business. Thank you.

Ismail Clementa, CEO, Merlin Properties: Thank you, Ines. Well, regarding capital recycling, the investments in the first semester were, you know, very few. We acquired, one, co working space that we operated but didn’t own, around 2,000 square meters in Barrio De Salamanca in Madrid. And we bought a land bank for two data centers, one in the North Of Madrid, Tres Canthos, with 30 megawatts of IT capacity confirmed, and then a potential expansion of up to 130 in the future, which is requested but not obtained yet. And in the case of Madrid Getase, we bought a former industrial manufacturing facility in which we have 48 megawatts of existing, I mean, confirmed IT capacity given the electric power that we enjoy in the export.

Regarding divestments, we are at 183,200,000.0 of which 37,400,000.0 executed and €145,800,000 signed, all above JV. There are some adjustments still pending in some of the cases. And we execute later in the year and in 2026. You can imagine the reason why we operate this way is because we want to keep cash flow as long as possible. I mean, at present, we are a company which is excessively financed.

I mean, we have a lot of we have had a lot of cash. We are running out of cash very quickly, but we have had a lot of cash. And of course, what we need to keep now is rent rather than cash. So when we sell assets, we don’t rush. We prefer to keep them in the balance sheet for longer and enjoy the cash flow.

These those sales are mainly concentrated in offices in the resi, the conversion play that we have commented with you on a number of occasions. And those assets sold contributed 8,900,000.0 or will contribute 8,900,000.0 gross rental income in 2025. Hence, the average disposition yield is 4.9% gross, which is interesting from a capital recycling perspective if reinvested in data centers. Regarding the Marinara expansion, the size of the shopping center has significantly increased by about 25%. I mean total size at present is 126,500 square meters, which is a lot.

It was already the third largest in Spain and now it’s the second. But what is more important, despite the diversity and quality of the existing tenants, we have been able to find further tenants for the extension. We are almost 93% pre let and with a CapEx of €41,000,000 which in part was defensive because what we wanted to do is protect the shopping center upon the exit of El Corte Ingles in the area. We didn’t want any undesirable neighbor to come near our shopping center, which is, of course, one of the big cash flow producers in our portfolio. So what was once a defensive movement has turned into a decent offensive movement because we are obtaining a yield on cost of 6.5%, which is not great, but it’s not bad.

Regarding Abequa four, this is a large pre let, one of the largest signed in Spain since the great financial crisis. We have signed ten years contract with more than EUR 70,000,000 backlog added to our office division. And 21,000 square meters with delivery at the 2028. CapEx is close to EUR 53,000,000. The yield on cost is 6.2% on historic cost of land, including historic cost of land.

So if you do just the yield on CapEx, it’s 10.4, which at the end, explains why we are doing this because in reality, what we are doing is moving idle office land that we have in the A1 Corridor in Madrid, which is now performing very, very well in terms of occupancy. We are moving that, let’s say, land bank into WIP and that WIP into product and operation, hence, bringing more cylinders to fire together in favor of the performance of the company. Together with this building, we will assess the convenience of building the remaining buildability in the complex, which is a little tower and it’s a low rise tower of around 100 meters with circa 25,000 square meters of total GLA In order to optimize, first, construction synergies and also capitalize the momentum in the market, we believe that if we add that capacity in Day one corridor, we believe I know it’s a bold movement or may look like a bold movement, but we believe we will fill it up in due time because I know the corridor now with proximity of Opera Finchamartini is starting to perform very, very well. And and, you know, it’s it’s our opinion that we will be able to make good use of our money by bringing the power together with the with the pre let, fully pre let building.

In logistics, we are building or we are building or are in project or will build in the short to medium term, 291,000 square meters. The last modules will be delivered in Lisbon in the 2027, but the rest is mainly 2026 business. Total investment will be around EUR 156,000,000, and the expected gross rental income is EUR 17,200,000.0. That will move our logistics our visible logistic income beyond the EUR 100,000,000 mark, which is important. Although, as you know, there is invisible income in logistics that comes from the SAL Barcelona, which is accounted for as equity method.

And you don’t see the cash flow, but the cash flow, of course, is there. The yield on cost is 7.5% and the yield on CapEx is 11.1%. So I believe it’s an interesting move to put that also into production. We need cash flow in order to continue feeding our little base of the data centers. And with that, the non committed pipeline will be only 190,000 square meters, mainly in Madrid, Valencia and a little bit in Seville, with a pending CapEx of €101,000,000 and stabilized GRI of 11.5%.

So a yield on cost in the region of 8% and a yield on CapEx in the region of 11.4%. So looking forward to mobilize also this pocket of value in the coming future so that we do not keep in our balance sheet any assets which are noncash flowing other than the land of Operation and Chamartin, which, of course, will take more time to become productive. And Fran will comment on the digital infrastructure plan.

Frank Rivas, Director, Merlin Properties: My thanks, Ismael, and good afternoon to everyone. I’m going cover now the update on our project MEGA and the main achievements completed over the 2025. So as you can see in Page thirty two and thirty three, we have summarized the current positions of our data center division that we internally call the Merlin Edge within Liberian Peninsula. Regarding in Page 33, you can find a table with an overview of the different phases. Phase one, which comprises our three assets in operation Phase two, which includes our work in progress, our WIP Phase three, for the upsizing of the former three locations and finally, the pipeline, which represents the future growth of our data center division.

Starting with Phase one and as a snapshot, after we complete the letting of all Barcelona, including the six MEG of repowering and Al Azur, the pending capacity of Madrid and the fact that the advanced conversations we are holding with one specific client has driven us to update the stabilized GRI from the former EUR 88,000,000 to the current expected EUR 92,000,000, which also improved as well the gross dividend cost up to 15.1%. In our weak category, Phase two, the total IT capacity has grown from the former two ten megawatts to the current two forty six megawatts the inclusion of a second building in Lisbon. Consequently, the stabilized GRI that we are estimating in 2029 achieves EUR $379,000,000 with a gross yield on cost of 14.2%. The reason of including now a second building in Lisbon and as compared to former calls we have had is due to two reasons. The first one is the fact that the US government has finally decided to do not implement their artificial intelligence deficient rule, which classified at the time Portugal as among other countries as as tier two.

And, that, rule basically, was impeding the Portugal to import the latest technology in terms of chips. Secondly, the fact that in light of the performance and also the revaluation seen in Phase one, we have considered that we can stretch a little bit more the funds raised last year in our capital increase and the debt attached to it, of course, without affecting our target LTV and the net debt to EBITDA that we have agreed with our rating agencies. In the upsizing category, we have included now a new repowering of Building 1 in Bilbao Azur, power that has been already been requested and we will be answered in the following months. Same applies to Building 6 in Azur within our pipeline category with 30 MEG of potential additional capacity. Entering now in more detail in Page 34, we can see the current status of our operating assets.

In Barcelona, within the 22 meg of maximum IT capacity, we have already equipped, as you know, 16 meg, which are currently in operation. And additional six MEG of the repowering will be commissioned during the 2026 with ready for service set for 2026. As a curiosity, this additional six MEG of repowering will be with liquid cooling systems, while the first 16 Mbps are air cooled equipment. In the La Vazur, what we call Building 3, which was the first one we have built, the 22 Mbps are already equipped. 10 of those, 10 meg will be air cooled and 20 sorry, 10 meg will be liquid cooled and the 12 originally is air cooled.

We are now working on the fit out of the client, which, from now in June, we have already given the first rooms, and there are different tranches until they are in fully operation, by the 2025. Finally, in Headache one, as of six months, so as of 06/30/2025, as we described here in this slide, we have four MEG equipped. And by now, this figure has jumped to the to to six meg is what we have equipped right now, with the remaining 14 meg to be commissioned by the end of this year. In terms of commercialization of MET Madrid Hetafel I, we are in well advanced conversation, as I was commenting before, with one client. This is what we define booking, considering the level of both technical and commercial involvement that we have already achieved with this client.

For the available capacity that we have of this, originally six meg, which in this case is is is five meg of, of lease. And regarding the second phase of power, traditionally 14 that we will get next year, we have also booked for them another five, and know that will increase basically that, letting with the client up to 10 meg in in Madrid, half a one. And then finally, also, we give them basically option that if, when or when they are repowering of six meg that we are foreseeing in this asset, once we get it, they have also booked that capacity as a future growth in the next years.

Ismail Clementa, CEO, Merlin Properties: As you know, we have

Frank Rivas, Director, Merlin Properties: been holding this capacity in Madrid, Hepafe 1, until we have some visibility on the power delivery. But now we are seeing a bit more clarity on the timing to get the power in the recent week, so we have included this in the negotiations of current availability. Now moving to Page 35. We are showing you on a year by year the expected GRI generation of our operating assets until 2027, where as mentioned before, we forecast 92,000,000 of GRI. Out of this €92,000,000 €66,000,000 have been already contracted so far.

And with Madrid, Gerafe, once it’s fully let, we will jump to this magnitude. In terms of value creation of Phase one, it’s showing in Page 36, the total investment remains at $6.00 €8,000,000 valued as of June at $719,000,000 implying basically for the company already invested another €255,000,000 of value capture as of June. And considering the expected value of the assets as per our appraisals, there will be another €293,000,000 of estimated value to be captured, which if you add also the rent that is being generated all over the periods, this will convert this Phase one investment in a very profitable project for our shareholders. Moving into the update of our WIP, Phase two, in Page 37. Both Bilibar Azure Building 2 and Lisbon Data Center Campus, Business 1 And 2, are already under development.

In the case of Lisbon, we will see this again at an early stage. In the case of Bilbao Assur, Building Two, we will see in the following slide the progress in construction, which is evident because the building is already almost raised. All equipment regarding this building has been already ordered to guarantee that its delivery date by Q4 twenty twenty six. And regarding Building 1, which is the third building that we are constructing in Abilhabrasur, which is the largest one once the repowering is obtained. We expect it to start construction by the end of the year and also equipment orders are well on progress to guarantee as well the delivery date by the 2027.

The particularity of this building is its connection to a non site photovoltaic project that we will feed renewable energy into the site, which also improve even more the sustainability character of this development. In terms of commercialization, we have two initiatives launched. One with a client interested in taking most or, you know, with different ramp ups, even all of this capacity of Building 2. And another one, another initiative that I will give you more details at the end of this section, which could comprise both Building 2 And 1. In Lisbon, although its construction started last September, right after the capital increase, the conditions of the Lisbon area of Light Pass, as commented several times in several calls, to carry out soil compaction and special piloting works as we will see later on the presentation.

News in this project is now inclusion of Building 2 in the same first phase of construction for the two reasons I commented before. Also taking advantage of the power ability we have on-site, which covers the first 180 megabytes of IP in one of the feeds. And then we have also secured the second step to reach maximum capacity of the first phase without the upsizing. In addition to this power availability, we have also signed an agreement with EDP to provide, in St. K.

La Carre Sura, another on-site photovoltaic plant of 200 meg, which will be physically connected to the data center campus and also will generate a significant part of the energy consumption of this building. In terms of commercialization, it’s still a bit too early to entail conversation with future customers as the targeted completion date is the end of so Q4 twenty twenty seven. But we have included this capacity as well in the European initiative that we will cover at the end of this section. Regarding Madrid Gepafe 2, we are awaiting to have green light from the administration to start the demolition works on the site. Those works will be carried out by the seller of the land, and we are finishing our design project to submit it to the municipality in the following months.

Finally, on Madrid, Santos, the licensing process is advancing and organization of the land should start within the 2026. Regarding the CapEx of this week, Page I’m just jumping to Page 38. We are showing you the update figure of the total CapEx expected

Ismail Clementa, CEO, Merlin Properties: for this Phase two, which has increased from our

Frank Rivas, Director, Merlin Properties: former 2,100,000,000.0 to the current EUR 2,500,000,000.0 due to the incorporation of Building 2 in Lisbon Campus. We highlight here that the CapEx in a data center, as we have several times commented, is around 20% to 25% on civil construction, where payments usually are more linearized, while the remaining 75% is equipment, where payments are more back ended. That’s the reason why we always present CapEx commitments because, you know, when the timing of payment is a little bit different from what we show here. The pace, as you can see basically, is that, we expect to commit 836,000,000 in 02/2025, out of which 49%, $411,000,000, has been already signed, committed as of 06/30/2026. In Page 39, you can see some pictures of the construction works in Bilbara Sur, Building 2.

And also basically on the top right photo, you can see in the background the building we have in operation, which is our Building 3. In Page 40, we are showing different columns where you can see the soil compaction and piling process at different stages. So and the final one is on the right on the bottom on the right side of the slide. And as a basic construction, our plan will start right after the summer break. Regarding Phase three or upsizing projects in Page 41, the news there are the update of the remaining capacity in Lisbon Campus after including Building 2 in the first phase of construction.

And in Bilbara Sul, we have included the potential repowering of 12 meg IP in Building 1 that I was commenting before. And also in Hertafle, we have maintained the six meg of repowering and subsizing until we confirm timings of this power upgrade. And then going back to one of these initiatives in terms of commercialization for the Power Azure and Lisbon Campus is the possibility of being selected as one of the gigafactories that the European Union have launched in April 2025. As you can see, in Page 42, the European Union aims to become an AI continent with large scale AI data and computing infrastructure across Europe by setting up at least 13 AI factories. There are some existing ones like the supercomputing center in Barcelona, but also establishing five AI gigafactories to which, the opinion you want to devote €20,000,000,000 through, different loans and grants.

With this objective in April 2025, the EU published its call for expression of interest of AI Gigafactories, and Merle Edge submitted to this EU a consortium capable of delivering what we believe is a unique AI gigafactory. And the reasons why we believe this is unique is for different reasons. Now the first one is that we have not only permitted land with power access, but that land is currently under construction and it fits with your objectives of having capacity ready for servicing years twenty six and twenty seven. And to achieve these timings, unless you have already started, is almost impossible that you can meet those deadlines. And as you have seen before, both of our Al Azur, Vilaur Azur and Lisbon campuses meet these deadlines and will provide 180 meg of IP capacity.

Also, are looking for projects with capacity of expansion within the same sites. And again, both Nizbawan Al Azur and Lisbon offers additional three fifty eight meg of IP capacity to grow there. And finally, they are seeking for technical capacity of buildings to support the levels of densities to ensure as KW Parac that the artificial intelligence type of computing is requiring. And this need to, of course, maintain sustainable parameters. In our case, as you know, we don’t use water consumption and we have a very low POE, which basically matches to what they are looking for.

After this inspection of interest, the different consortiums across Europe, because as said, this is a European competition, will need to submit binding proposals by October, and the European Commission expect to decide the final locations of their Gigafactories by the December 2025. As said before, this is an initiative from a commercialization point of view, and of course, we are competing with other countries and with other projects. But after seeing that the timing that the EU is looking for and our ready for service capacity and the reasons I mentioned before, we decide to apply to it. Unfortunately, I’m not allowed to provide you with much more details of the nature of our structure or members of the consortium, first because due to confidentiality reasons, but also because we are in a competitive process. And so, of course, if there is news regarding this, potential initiative, we will keep you posted.

And, yep, that’s all from side. Ismail, closing remarks. Thank you, Frank.

Ismail Clementa, CEO, Merlin Properties: Well, just closing our part of the conversation today. I mean, I’m opening the the q and a simply to stress what I commented at the beginning. We are seeing strong organic rental growth at the company. We are seeing a strong momentum in offices in Madrid, a little bit of weakness in Barcelona and good performance continued in Lisbon. We are generating significant FFO in the company.

I mean the company continues to be a highly cash flowing one with very healthy margins, which is always a nice thing to see from a managerial perspective that we don’t lose attention and we don’t become gigantic and you know, and sporadic like happens in many other companies. We continue stressing our teams to to work towards high occupancy levels. And and also, well, we we are enjoying a certain tailwind because Southern European economies seem to be having a good momentum and Spain is clearly not an exception. Regarding value creation, what is to me particularly satisfactory is that we are generating a lot of alpha, basically by moving projects into WIP and WIP into assets in operation. And we are meeting that with a very significant success in commercialization in data centers.

But you know what we have been doing with CorWis. In offices, we led two big headquarter leases to Tecnica Ramirez and another big energy Spanish energy company. In logistics, we delivered 33,000 square meters just two weeks ago to Wharton and Nuatom in Lisbon Part B. And we led almost 73,000 square meters to Mercedes Benz in Victoria Hundeev. And what is important, the long term non committed CapEx GLA is only 190,000 square meters.

So we keep reducing the land bank that we acquired in twenty sixteen, seventeen, eighteen at very good prices. We keep reducing that land bank and adding cash flowing assets to our inventory. And in shopping centers, I believe the Mariner extension is a remarkable achievement. I mean, leasing teams have done a fantastic job. And by pre letting in record time close to 93% of the very significant GLA addition, which is close to 27,000 square meters, is a lot.

So as a very quick outlook, we see an improving investment market. We see also an improving underlying market in leases, particularly in offices, in shopping centers, a little bit business as usual for the moment. The evolution of private consumption in Spain keeps us absolutely amazed. I believe it’s a mix of very low household indebtedness, a little bit of doping from fiscal deficit. But clearly, spending capacity of people continues to surprise us.

As a consequence, we have decided to raise a little bit the FFO guidance for 2025 to zero point five six. Many of you will take the 0.3 of the first semester and multiply by two. Please don’t do that because we will have less 700 and change million working in Cash App Bank, for seven, eight months of the year because we we repaid the bond on the May 26. So that will subtract about $02 of that theoretical calculation of $0.6 And then we are also counting on tapping the bond market between August and October. I mean, we will we will, of course, be quick and and and and benefit from the very good momentum we are seeing in pricing pricing in the market and volumes and also in the maturities.

And that additional cash will, of course, drag FFO because the remuneration we will obtain in cash at banks will be one point zero lower than the cost of that money to us. So that will subtract another $0.2 easily of cash flow to the theoretical calculation of 0.6. So I mean, point five six is okay. I know some of you are now expecting 0.57. Please, I mean, bear with us.

I mean, I don’t believe it’s super important, That said, that we will, of course, do whatever is in our hands to excel the guidance that we are giving to you. But it’s pretty much accurate at this point is what we see. And regarding translation into dividend, well, as you know, we were a little bit below the 80% payout ratio. Going back to 80%, that increase of €02 in cash flow per share allows us to recommend to the Board another €02 of extra dividend per share. So we will propose to the Board raising the dividend from €0.4 that was our initial estimate at the beginning of the year to €0.42 And that is basically it.

So we can move into Q and A. We are here to answer your questions.

Fernando, Moderator/Host, Merlin Properties: Thank you, Ismael. We will now start with the Q and A session. So the first question comes from the line of Marius Pastou. Marius, the floor is yours.

Marius Pastou, Analyst: Great. Thank you very much. Thank you for taking my questions and the presentation. I’ve got three questions from my side. Preference to answer ask them one by one or or all in one go?

Ismail Clementa, CEO, Merlin Properties: If if you make one by one, as you wish, I mean, we are simply I mean, we will take note.

Marius Pastou, Analyst: Okay. Fantastic. But they’re all related to data centers. So I think maybe we’ll do them in one go. But I think maybe we start with Slide 35, where you’ve now provided the GRI buildup of Phase one.

Can I just check how you’re including Madrid capacity in there and how this has been included in the buildup of, say, 2026 and into 2027 based on the discussions you’re having? And then secondly, on the data center values, I think you mentioned that you’re now revaluing both operational assets and those under construction. So can I just check, has there been any upside taken across Phase two? And if not, when will this likely start? And then finally, on the timing of the value creation of Phase one

Eleanor, Analyst: that

Marius Pastou, Analyst: you provided on Slide 36, how should we think about it in terms of the remaining $293,000,000 to be captured split, say, between the second half of this year and into 2026? Thank you.

Ismail Clementa, CEO, Merlin Properties: Okay. Well, regarding the timing of value creation, in principle, we should be running at full cash flow around 02/1927, ’27. If you multiply December by 12, probably we will already be at, let’s say, cruise speed. So starting from that point, I believe the appraisers will start, let’s say, normalizing the appraisals of those data centers in Phase one. And I believe they will start lowering significantly the discount rates because at present between 911% looks to me a little high.

I mean, if if you can buy data centers in the market at between 911%, give them all to me. Because, you know, we we wouldn’t take the the the risk of building if we were able to buy data centers in the open market at those rates. I mean, I believe that if you calculate the gross rental income, which is 92%, and you multiply by an NOI margin of, say, seventy seventy change, you will be at an NOI of between sixty and sixty five. And, you know, it looks very clear to me that that warrant evaluation in the region of 1.2 to 1.25, even 1,300,000,000, given the hype in the market and the fixed escalations, which, of course, play a role, particularly on on very, very long contracts like the ones, we are we are signing. So, you know, I believe, let’s say, ’27 being prudent, starting ’27, probably in the evaluation of end twenty seven, or in ’28, we will probably be able to reap the benefits of most of those EUR 300,000,000 that we believe are still pending to be recognized in Phase one.

Then regarding the value of Phase two, at present, the only thing that has been recognized is a little bit of value in BIMVU two because it’s already with construction license and being built. And the two buildings first first building in in because we have not yet taken the decision to to start the second building, the first building in Lisbon. So this is the only thing that has been appraised and has captured a very little value because the discount rates, which are applied by the appraisers are very high. And also the cash flow projections are also very high. So the PV, as you can imagine, suffers as a consequence of that and very little value is recognized.

But we have a doctrinal discussion with the with the auditor, and, their stance is that it’s good to be prudent. But if you are too prudent, sometimes you are not transmitting to the market the fair image of value of your company. So we came at kind of a middle ground, which is, okay. We are not going to reappraise our land bank as such, even though we might have obtained power. We will only start appraising when we start building.

So upon obtaination of the license of construction, when we start building, when we start collecting columns, we start appraising or reappraising that building, which up to then is carried out in our books at cost, including land cost plus whatever CapEx we have incurred as a consequence of land compaction or foundations or similar. Okay. And then regarding the data center in in Hetacel?

Frank Rivas, Director, Merlin Properties: Yes. As commented, basically, we are in discussion with with a client for taking, you know, in different steps capacity within the building. Right now, what we have available, you know, is is five meg of of capacity as we commented several times. The clients, when they were coming, they want to see growth. So five meg used to be a very decent amount.

Now normally, type of clients want to have capacity to expand within the same asset. So we were waiting and holding a little

Ismail Clementa, CEO, Merlin Properties: bit those conversations until we

Frank Rivas, Director, Merlin Properties: have more clarity on the additional jump in power up to the maximum capacity of the 20 IP that we designed originally. So out of that additional capacity that we expect to receive in the 2026, if you add several months of the fit out for the client until this is ready for service. So probably we will be by the 2015, ’27, ready for service for the client. So that’s exactly what you were mentioning. So, like, five, maybe it be like, ’26, five month would be ’27.

And then they are also reserving the option to, take the capacity in case of repowering. That, of course, at the time that comes, need to equip that, that we are not equipping in advance. So once it comes, there will be other options as well to complete that.

Ismail Clementa, CEO, Merlin Properties: So that’s basically the current status of, Madrid Header for one. The client, is a cloud operator, which is bringing not only, IT cap pure IT capacity, but also telecommunications or interconnection equipment. So that is, of course, important because that normally drives further expansion of capacities in the in the future. So it’s very, very important to, to make the initial movement. And then, normally, you are blessed with additional extensions of capacity.

So this is what we are negotiating at present.

Fernando, Moderator/Host, Merlin Properties: Thank you, Mario. Very

Marius Pastou, Analyst: clear. Thank you for the additional color. Thank you.

Ismail Clementa, CEO, Merlin Properties: Thank you. Thank you.

Fernando, Moderator/Host, Merlin Properties: Next question comes from the line of Florian Lavoj. Florian, the floor is yours.

Florian Lavoj, Analyst: Yes. Good afternoon. Thank you for this presentation. I would have two questions. Maybe the first one, a follow-up question on the data centers and maybe the Slide 35.

So you have provided an expectation in terms of revenue for the next three years. So in which way this is very accurate or in which way maybe you could be able to improve this expected revenues in the coming months? So that would be my first question. My second question would be on logistics. So we can see that your occupancy rate can be very high, sometimes at 99% and come back lower at 96% today.

So are there any major lease that would come to end shortly and for which you could expect departure of tenants? Thank you very much.

Ismail Clementa, CEO, Merlin Properties: Okay. Well, regarding the question about logistics, the reason why we went down from 99 to 96 was due to the departure of a big client, GxO, former XPO, in Cavanaugh at 47,000 square meters, which is, of course, a it is a big shed. It’s a it’s a very significant shed. So, of course, now what we are doing is, first, we’ll be waiting for the effective exit of the client, which will still take some time to to clear up completely the the share. Then we will take possession.

Then, of course, we will repair in case there are, little damages or things that need to be looked after, and then we will start the commercialization. So for the moment, it’s business as usual. I mean, regarding big leases that can depart in coming months, we have, of course, one or two negotiations identified. But it’s part of our, let’s say, portfolio usual portfolio management. I mean, we don’t see anything which is noteworthy that, you know, requires calling your attention.

If we can replace the GXO departure before year end, which is not super likely, but, you know, we are working on it, but it’s not easy. Then the occupancy, as commented by Ines, will go to the region of 98%. But if we cannot, replace, the occupancy will stay flat at around 96% as of year end. But probably next year, we will replace the tenant and life goes on. And on improvement of the cash flow, Phase one.

Frank Rivas, Director, Merlin Properties: On Phase one, I mean, considering that we have building of Barcelona with repowering already let and we have Arasur already let, the only capacity we have in order to improve that is is Madrid. The only thing basically that, if you want to have some some hope, basically, of improvement is the the fact that part of this capacity in Madrid will come as well, not only air cooled, but also liquid cooled. And normally, when liquid cool is entering into normally, we only charge a bit of of of a higher rent. But, I mean, it would be pretty accurate. I mean, we there’s no little range of movement to to improve that.

And then, as I said, either because of liquid cool or the part that we are not discussing, this capacity we are not discussing with this client, which would be basically nine meg of this, you know, jump of additional until the 20. That on that on that nine, of course, we are, more or less, you know, forecasting that we will obtain similar rents to the one we are obtaining in the building. If somebody comes, of course, at the last minute, then we have probably some sort of, negotiation capacity that will be pretty in line with the numbers we have shown you.

Ginesa Arellano, Director, Merlin Properties: Okay.

Fernando, Moderator/Host, Merlin Properties: Thank you very Next question comes from the line of Adam Chapman. Adam, the floor is yours.

Adam Chapman, Analyst: Good afternoon, team. Just one from me, just thinking about development pipeline and funding. So you obviously raised equity a good way below where the share price is today. How are you thinking about funding the remaining data into CapEx over time in terms of the mix between equity and debt, let’s say? And also just wondering if you’ve taken any lessons from what Equinix has experienced with the public markets in its own funding of its pipeline.

Ismail Clementa, CEO, Merlin Properties: Okay. Well, look, for the moment, our preoccupation is basically concentrated in debt because we need to raise significant amount of debt over the coming twenty four months to continue funding our CapEx effort. And we have, in principle, no need for equity. And in being completely frank and open, I believe we are we’ll have our tank full till at least, you know, second semester ’27. So we shouldn’t, be needing equity till till then.

There are the recent, that we have seen with, with Equinix, you know, there is very little similarity between Equinix, which is a very big company and a very serious company. And as we are, you know, an absolute beginner, a little nuance, a little difference is also the the the business in which they are, which is they are more colocation. We are more hyperscale. And that being hyperscale allows us to reduce a little bit the lag between spending the CapEx and obtaining some returns and an impact on our earnings. More notably, we are now working from a research and development standpoint in a new technology that could come to market at the ’27, ’28, that will allow us to be even more modular in the way we construct our data centers in order to fine tune even better the time lag between spending and obtaining returns.

Because, with with, traditional construction, of course, we build, we equip, and there is always, you know, relatively, reduced or significant, I mean, compared to the new construction technique, time lag between spending and obtaining the returns. We, with the help of Endeavor, we are working on a new way to construct that will allow us to obtain a little cost efficiency, which is very much welcome, plus particularly more accuracy in the way we we spend. What can I say? I mean, of course, in retrospective terms, I feel sorry for having raised money at ten. That what what what could I do?

I mean, at the time, that was my only option was basically raise money at in a market exercise at the prevailing at the then prevailing market price because some of we had CapEx commitments that were about to be ordered. And our main two shareholders were not very much in favor of incorporating a big shareholder or a new big shareholder into the company in one shot. They prefer to do a market exercise. So we raised the equity at the price we could. Through performance underlying performance of the company, now we have closed a little bit further the gap between our stock price and our MTA per share.

As you can imagine, I feel only half happy that our MTA is running so fast because although, of course, I love the value recognition that this implies and the fact that we are working in your favor as shareholders, that, that increases again a little bit our the gap between stock price and NTA per share. So our endeavor now, our obsession is to try to continue closing the gap between stock price and MTA per share because that opens that would open a brand new world in terms of options to finance our continued CapEx, like, for example, convertibles. Convertibles these days are couponing very, very low and are paying very significant premiums upon conversion that paradoxically enough, the premium and the coupon do not vary a lot between being trading at minus 30% to NTA and being trading at minus 10 or at NTA spot. So, of course, the closer we can come to MTA, the more options we will have in terms of raising additional equity if and when the situation comes. One important piece of information is that we have been now advised by our two main shareholders that they will support capital raising further capital raising exercise in their in their pro rata share.

So that is always very, important because that gives you a very significant support when you go to market. When you go to open market, if you have 33% to 34% of your placement already secured, that gives, of course, a lot of confidence to the market. And if you look in retrospective to the capital raising exercise we did last year, at the end of the day, we placed 84.5% of the capital increase with existing shareholders. So that, of course, allay the fears a lot of dilutions, more dilution, less dilution because at the end, the same the the the people who is buying your stock are the same that are already your shareholders. I mean, the the new shareholders that you bring into the into the book are very, very minimal.

And in fact, in many cases, it’s people that were already shareholder a number of months ago, etcetera. So this is what I can tell you. I mean, of course, I know what has happened with Equinix. I take note of it. Anyway, I wish I was Equinix.

I mean, Equinix is a is a monster company. We are no fucking body in the world, and and we are just starting. And despite the what has happened, I would exchange my position for that position any day of the year because they are an incredible company that can fund as much CapEx as they want.

Adam Chapman, Analyst: That’s very clear. Just to be clear, it wasn’t intended as a criticism of the previous equity raising, far from it, the opposite, but just that’s useful as a look forward view. Thank you.

Ismail Clementa, CEO, Merlin Properties: Thank you for that. Much appreciated.

Fernando, Moderator/Host, Merlin Properties: Thank you, Alan. Next question comes from the line of Veronik Mertens. Veronik, the floor is yours.

Veronik Mertens, Analyst: Hey. Good afternoon all. Thank you for taking my question. Maybe first one question on phase two. You mentioned that you upped Portugal on the back of probably leaving less funds due to the higher valuation gain.

What’s holding you back on not fully restoring the full megawatts? Is it purely funding? And a follow-up question on that is that what kind of development gains do you now still take into account for Phase two?

Ismail Clementa, CEO, Merlin Properties: That’s a very interesting question. And and and the very simple explanation, Veronik, is that we didn’t dare. We didn’t dare. I mean, we have construction, license for the five buildings, and we could develop the 180 megawatts in in one go. But we only raised 36 megawatts because, you know, otherwise, we will be stretching too much our financial capacity.

So, you know, if if we were rich, if we were Equinix, we we could do the 180, megawatts in in Lisbon in one go, which, of course, would bring to the surface very significant value because that land, you know, was, acquired many, many years ago. All the value was attributed to the logistic land plots. So the residual value for that land in our books is very close to zero. So if we were to reappraise all that land now with power, of course, we would obtain very interesting value appreciation in that project. But we want to be prudent.

I mean, we we are new kids in the block. We have to be very, very prudent in what we do. This is why we decided to do all phase one with our own self funding capacities. We only dared to raise money in the market when we saw that we were meeting commercial success in the market, sufficient commercial success to predict a successful commercialization of Phase two. But we have always tried to reduce the number of construction sites.

I mean, will be very cool on our side to tell you that we are opening 20 data centers in Spain in every possible province or region and another 20 across Europe. That will be very cool, but not very realistic because then you need to send construction managers, procurement managers, a lot of stuffing to all those data centers is not easy. So we have decided to be relatively concentrated in very few construction sites, and we want to keep that relatively prudent stance. If by any chance, imagine we are awarded the European Union, Gigafactory status, then it’s a different thing because with with the with the advancement and the grants, awarded by the European Union, we can realistically think about, building the whole shit because, you know, you know, that that extra money, of course, is is a very welcome, help to our financial stance. But this is what I can tell you.

We did it out of prudency.

Veronik Mertens, Analyst: Maybe one question. Did I understand correctly that you get clarity on that, EU part before the end of the year?

Ismail Clementa, CEO, Merlin Properties: In principle, yes. Although with the public clerks, you never know. I mean, in principle, by the October, we should firm up the proposal from the consortia, and then the the decision should be taken towards year end. December, in principle, is the date in which the European Union has decided to meet and take the decisions regarding the location of the five gigafactories.

Veronik Mertens, Analyst: Okay. Thank you. And then one question on logistics. You’re also working obviously on your pipeline. There’s still some pre letting to do.

Can you elaborate a bit on how your discussions in terms of pre lets are going and how the appetite is in the market for these logistics assets at the moment?

Ismail Clementa, CEO, Merlin Properties: Mhmm. Well, the the the part which is, well, keeps us more occupied at present is Valencia. In in Valencia, conversations are are going well. I mean, it’s a it’s a city and it’s a region which is now experiencing very significant strength and and industrial activity. So, you know, we are we are happy with with, what we what we see there.

Then, in, San Fernando, three, and Suqueca, we are significantly pre let, and it’s mainly, Lisbon Park fully pre let. Sevilla Sal is 8,000 specular bits. That is there is only two little modules. I mean, we believe that we will be okay. And and then at the end is Calamillo’s part two, which is, you know, we are entertaining conversations for a 25,000 square meter share in there out of the 58.

So, you know, for the moment, business as usual. I mean, I I know the reason for your question because elsewhere in Europe, logistics is starting to cool off a little bit. For the moment, we don’t see that in the market. And if that happens, of course, we will be happy to report that this is why we are pretty much concentrated in killing of our land bank, before the tide turns. So this is this is what keeps us busy at present.

Veronik Mertens, Analyst: Okay. Thank you. Very clear.

Fernando, Moderator/Host, Merlin Properties: You’re welcome. Thank you, Veramique. Next and last question comes from the line of Stephanie Dosman. Stephanie, the floor is yours. Stephanie?

Eleanor, Analyst: Hello? Can you hear me?

Fernando, Moderator/Host, Merlin Properties: We can.

Eleanor, Analyst: Sorry. I was on mute still. Sorry. Hello, everyone. So thank you for taking my questions.

Actually, I have a couple of them. Maybe the first one is a follow-up on the evaluation of data centers. It’s a bit tricky to understand how it’s how the appraisers approach it. So just to clarify, could you could you maybe give a bit of breakdown of how how much is the the value taking into account in in the so the on the GAV currently related to the land and construction and how much is equipment? As I understand that you start to revalue the land when you start the work and so on, but could you give a bit more of what pace they recognize the value of a typical development and what is including currently in the $780,000,000 sorry, $720,000,000?

The second one would be, you mentioned disposal program all over the plan. So how much would you target to sell in total and maybe next year, for instance, please?

Ismail Clementa, CEO, Merlin Properties: Okay.

Ginesa Arellano, Director, Merlin Properties: So I’ll take the evaluation one. Again, just to remind you how methodology appraises used for data centers. It’s a ten year DCF. So basically, what they take into account is the cash flow. The estimated cash flow before now for phase one is the contract.

Okay? So that has moved, obviously, those cash flows to a sooner time, which derives in a higher valuation. So they take this ten year DCF. They use to calculate an exit value, they use a cap rate. Again, the ranges that we provided you with are also in the account.

It’s still a range. They don’t value yet Madrid the same as they’re valuing Barcelona or Bilbao. Remember, we are in a ramp up mode in phase one. And so for that active value, they discount all those cash flows with a discount rate, again, the user range. And as Ismail was mentioning, for the operating one, so the three data centers that we already have in operations, one providing rents on January 1, which is Barcelona, the one in Bilbao that will be providing rents at the fourth key of this year, and then Madrid, which is the laggard.

The values are different. They’re using different discount rates, but that’s exactly what they’re doing. So for the operating data centers, still value to be captured, as Fran mentioned before. Obviously, as the commissarization stage in Madrid comes, they will be using different discount rates. We we we hope.

Because, obviously, once you’ve derisked completely an operating asset, it makes no sense to be using discount rates that are not market prevailing rents. Let’s put it that way. So that’s for the operating side. And then for the work in progress side, which, again, before it was not valued, we’ve always maintained a very, very prudent approach to valuing work in progress. So for anything that is already under construction, and, obviously, your something is being under construction because it has a license, otherwise, you cannot start building.

So whenever anything is already under construction, then the appraisers come and do give a value for that particular site. Now they don’t do evaluation as if this was already fully done, and then they discount the CapEx to so on and so forth. They’re just saying this land that before was at cost, it has a higher value because it has power, it has license, and you’re already starting with all of this. So they do provide you with a value. Now is this a big value that they provide you with?

No. It has a longer lease longer time period. With DCF, the cash flows are obviously much you know, they’re delayed within the the cash flow statement, if you wish, like the line. And so again, Flan mentioned about this. If the exit value is one thing, but even the cash flow that you will be receiving once you finish with this development is not expected for the near term.

And so all that cash flow put in the future, discounted at a higher discount rate, much higher discount rate to today brings you, obviously, higher value than what you have in books, but still negligible, I would say, compared to what you are generating in an operating asset. Okay? So this is a bifurcation of of valuation, and that’s why we are providing you, and this is in the executive summary, the valuation table. You have the value for the operating $1,719, and then you have the value for what we call data center with a land. Again, land at cost with at a an appraised value.

Ismail Clementa, CEO, Merlin Properties: Regarding disposals, Stephanie, on in 02/2025, we had an internal, objective of reaching around 110 to a 120,000,000, more or less, and it will be done. And then for 02/1926, our objective was a little higher, I mean, 120 plus. And we believe we are also going to be there comfortably. I mean, because of the, what we have already signed and and what now is in d d or in advanced negotiations, I believe we will be there. I don’t have yet a lot of visibility on 02/1927, but, I mean, you can rest assured.

I mean, we are no longer selling, you know, low value kind of things or, you know, empty buildings. We we are now selling things which are good one. And, you know, we we will we will make sure that we obtain the funding needed in order to comply with our capital increase plus internal capital recycling objectives towards funding the data center expansion and delaying as much as possible capital raising exercises.

Ginesa Arellano, Director, Merlin Properties: Thank you so much.

Ismail Clementa, CEO, Merlin Properties: It’s a pleasure.

Fernando, Moderator/Host, Merlin Properties: Thank you, Stephanie. There is an additional question coming from the line of Eleanor through. So Eleanor, the floor is yours.

Eleanor, Analyst: Okay. Thanks very much for the presentation. Quick one from me. Thinking about next year’s FFO per share, you previously said you thought that 2026 would be positive compared to ’25, but relatively flattish. Is that still true?

Or is the strong performance so far this year giving you more confidence next year will bring good growth too?

Ginesa Arellano, Director, Merlin Properties: I think that the guidance will provide it in February, right?

Ismail Clementa, CEO, Merlin Properties: The guidance for this year and next?

Ginesa Arellano, Director, Merlin Properties: So so the guidance for this year has been revised backwards except for next year

Frank Rivas, Director, Merlin Properties: A little bit, but it it We will

Ginesa Arellano, Director, Merlin Properties: I mean will provide you guidance.

Ismail Clementa, CEO, Merlin Properties: We will we will provide guidance in in due course next year, but but, Eleanor, for and in all frankness, next year is going to be relatively flattish. Mean, we will do whatever we can in order to improve it, but it’s going to be relatively flattish because the reality is that we don’t start seeing a jump in the income from data centers phase one till 2027. Because in 2027, we will have two tailwinds that will be absolutely differential, which is full year of the new logistic development, which is another will add another 17,000,000, 18,000,000 to the cash flow of the company. And then full cash flow from data centers that will jump from 60 to 90, so another 30, and no significant increases in cost. So that will be the beginning of the good thing because some of phase two will also be kicking in, particularly if we are lucky with the commercialization of Bilbao We could also kick in a little bit of cash flow in ’27.

And then, of course, the party starts in ’28, 2029 when we start reaping the benefits of Phase two, which is the really game changer, the real game changer for the company, volume that Phase two will bring of additional rents to the company that will, of course, make a big difference in terms of cash flow per share and DPS.

Eleanor, Analyst: That’s helpful. Thanks very much.

Ismail Clementa, CEO, Merlin Properties: It’s a pleasure.

Fernando, Moderator/Host, Merlin Properties: Thank you, Eleanor, and thank you, everyone. So the IR team will remain at your disposal for any further clarifications that you may need. And in the meantime, enjoy the summertime. Thank you.

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