Merlin Properties’ Earnings Call: Growth Amid Challenges

Merlin Properties (OTC) ((ES:MRL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Merlin Properties’ recent earnings call paints a picture of a company experiencing robust growth in several key areas, yet facing challenges that temper the overall positive sentiment. The call highlighted strong performance in funds from operations (FFO) and data centers, alongside high occupancy rates and successful asset sales. However, concerns were noted regarding a decrease in net tangible assets (NTA), underperformance in the logistics segment, and potential delays in capital expenditures (CapEx).

Significant FFO Increase

Merlin Properties reported a notable increase in funds from operations (FFO) by nearly 17%, which has significantly improved margins. This growth has nearly offset the dilution effects from a recent capital increase, showcasing the company’s ability to enhance profitability despite financial challenges.

Expansion in Data Centers

The company has made strategic acquisitions in the data center sector, securing two sites in Madrid with a total of 115 megawatts available for development. This move allows Merlin to develop 78 megawatts of IT capacity, strengthening its leadership position in the Iberian Peninsula. Additionally, the pre-letting of 6 megawatts in Barcelona underscores its growth ambitions in this sector.

High Occupancy Rates

Merlin Properties maintained a high occupancy rate of 96.7% across its portfolio, with an organic growth rate of 2.7% like-for-like. This high occupancy is a testament to the company’s effective property management and strong demand for its assets.

Strong Performance in Shopping Centers

Shopping centers under Merlin’s management have shown remarkable performance, with a release spread of 3%. This segment is described as performing like a rocket, indicating strong consumer demand and successful leasing strategies.

Asset Sales at Premium

Merlin Properties successfully sold €37.4 million worth of non-core assets at a low double-digit premium. The company has also signed more sales for 2025, reflecting a strategic approach to portfolio optimization and capital recycling.

Decrease in NTA

Despite the positive developments, the company experienced a 4.8% decline in net tangible assets (NTA). This decrease is attributed to dilution from the capital increase, with no revaluation occurring during the quarter.

Logistics Segment Lagging

The logistics segment showed growth of only 1.8%, lagging behind other segments such as offices and shopping centers. This underperformance highlights a potential area of concern for the company.

Negative Release Spread in Offices

Merlin reported a negative release spread of -1.3% in its office segment, primarily due to a single transaction that resulted in rent loss. This indicates challenges in maintaining rental income in the office sector.

Potential Delays in Phase 2 CapEx

There are concerns about potential delays in the Phase 2 capital expenditures for data centers in 2025, with a reduction of over 15% in planned CapEx. This raises questions about project timelines and demand issues.

Vacancy in Logistics

The logistics segment is facing a significant challenge with an anticipated vacancy of 47,000 square meters due to a tenant’s departure. This projected vacancy could impact the segment’s performance moving forward.

Forward-Looking Guidance

Looking ahead, Merlin Properties’ CEO Ismael Clemente provided guidance that reflects cautious optimism. The company reported a 2.7% increase in consolidated gross rents and a 16.9% rise in FFO, improving the FFO per share despite a capital increase. While the NTA stands at minus 4.8%, occupancy remains robust at 96.7%. The company has completed €37.4 million in non-core asset sales and approved a final dividend of €0.40. For the remainder of 2025, Merlin maintains its guidance of €0.54 FFO, with potential for slight improvement, though it remains cautious due to economic uncertainties.

In summary, Merlin Properties’ earnings call reflects a company with strong growth in key areas, yet facing challenges that require strategic focus. The positive momentum in FFO, data centers, and asset sales is balanced by concerns in logistics, NTA, and potential CapEx delays. Investors and stakeholders will be keenly watching how the company navigates these challenges while capitalizing on its growth opportunities.