Merlin Properties SOCIMI S A : 6M 2020 Results Presentation

6M 2020

RESULTS

PRESENTATION

30 July 2020

DISCLAIMER

This presentation has been prepared by MERLÍN Properties, SOCIMI, S.A. (the Company) for informational use only.

The information contained in this presentation does not purport to be comprehensive or to contain all the information that a prospective purchaser of securities of the Company may desire or require in deciding whether or not to purchase such securities, and has not been verified by the Company or any other person. The information contained in this document is subject to change without notice. Neither the Company nor any of affiliates, advisors or agents makes any representation or warranty, express or implied, as to the accuracy or completeness of any information contained or referred to in this document. Each of the Company and its employees, officers, directors, advisors, agents or affiliates expressly disclaims any and all liabilities whatsoever (in negligence or otherwise, whether direct or indirect, in contract, tort or otherwise) for any loss howsoever arising from any use of this presentation, the information contained or referred to therein, any errors therein or omissions therefrom or otherwise arising in connection with this presentation. Neither the Company, nor any of its affiliates, advisors or agents undertakes any obligation to provide the recipients with access to additional information or to update this document or to correct any inaccuracies in the information contained or referred to therein.

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In reviewing this presentation, the recipient is agreeing to, and accepting, the foregoing restrictions and limitations.

ı 2 ı

ISMAEL CLEMENTE

CEO

MIGUEL OLLERO

GM / COO

DAVID BRUSH

CIO

Contents

A resilient company

Key highlights

6M20 Financial results Offices

Shopping centers

Logistics

Valuation and debt position Value creation

Covid-19 update

Closing remarks

A resilient company        |       

Diversified

business

model

High quality

portfolio

1. By GAV
2. Excluding minority stakes

51%	31%
OFFICES(1)	LOGISTICS + NET LEASES + OTHER(1)
18%	>1,900
RETAIL(1)	TENANTS(2)

91%

OFFICES IN PRIME CBD AND NEW BUSINESS AREAS

90%

E-COMMERCE LOGISTICS

96%

URBAN AND DOMINANT MALLS

ı 4 ı

A resilient company        |       

Contracted rents exceed € 3bn(1) to first break and € 5bn to maturity

Stable and predictable cash flow stream

Healthy

debt profile

Only 15% of rents maturing before end of 2021

Covid-19 incentives fully booked in 2020

(€ 66 million estimated, no change from April disclosure)

Securing a minimum of € 101.1 million of rents from retail in 2021(2) through lease extensions

Only 3%-4% of retail tenants deemed "unrecoverable"

40% LTV (covenant 60%)

3.7x ICR (covenant 2.5x)

No debt repayment until May 2022

Maturity profile extended to 6.5 years

BBB stable rating by S&P

1. Including contracts on projects pending to be delivered. Not including CPI

(2) Assuming no mall income and 0% renewal rate	ı 5 ı

Key highlights        |       

FINANCIAL PERFORMANCE

• Positive LfL rental growth of +2.7% YoY, evidencing the strength of our portfolio
• FFO per share of € 0.29, affected by Covid -19 incentives (€ 0.06 per share) and assets sold (€ 0.02 per share), otherwise it would show growth when compared to 6M19
• Valuations flat vs Dec-19, with offices and logistics on the positive territory while retail down by 4.7%
• Debt management resulting in LTV on par with Dec-19 (40.4%). Average maturity extended 6 months to 6.5 years and no floating rate risk

OPERATING PERFORMANCE

• LfL growth in all asset categories, combined with sound release spread
• Leasing activity has continued at a good pace during Covid-19, with 150,000 sqm signed in offices in the second quarter. Retail has seen modest activity (ca 6,200 sqm signed) and logistics advancing, with ca 45,000 sqm signed. Leases generally signed above ERV
• Occupancy resilience, standing today (94%) where it was at the end of the first quarter. The high adoption rate of our Covid-19 commercial policy (which included an extension of contracts beyond 2021) plus the extension of the Endesa lease, provides greater visibility on future rents

VALUE CREATION

• Landmark. Several significant leases signed in the period, in Castellana 85 and Monumental with rents at the same level as the pre-lets negotiated before Covid-19 outbreak. Both projects achieve very compelling returns (yield on cost of 8.3% and 9.4%, respectively). Total secured future rents for Landmark of € 13.3m commencing in 2021
• Flagship. Works have progressed on pace in Saler and Porto Pi
• Best II & III. 2 projects delivered in Seville and pre-lets signed for Madrid-San Fernando II and Zaragoza-Plaza II. Total secured future rents for Best II & III of € 6.3m commencing in 2021

ı 6 ı

6M20 Financial results

6M20 Financial results        |       

Top-line ahead of 2020 expectations. FFO impact of Covid-19incentives

(€ million)	6M20	6M19	YoY
Gross rents	256.6	262.7	(2.3%)
Gross rents after incentives	221.2	253.0	(12.6%)
Net rents	198.7	228.2	(13.0%)
EBITDA(1)	184.1	210.4	(12.5%)
FFO(2)	134.3	157.2	(14.6%)
AFFO	125.4	151.6	(17.3%)
IFRS net profit	70.9	262.0	(72.9%)
EPRA NAV	7,365.3	7,096.9	+3.8%

(€ per share)

FFO

AFFO

EPS

EPRA NAV

• 0.06 of Covid incentives
• 0.02 of non core disposals

0.29	0.33	(14.6%)
0.27	0.32	(17.3%)
0.15	0.56	(72.9%)
15.68	15.11	+3.8%

(1) Excludes non-overhead costs items (€ 2.4m) plus LTIP accrual (€ 10.1m)
(2) FFO equals EBITDA less net interest payments, less minorities, less recurring income taxes plus share in earnings of equity method	ı 8 ı

6M20 Financial results        |        Bridge gross rents

Positive LfL growth in all asset categories despite the challenging environment

(€m)	Offices +4.0%	LfL(1)
	Shopping centers +2.8%
	+2.7%
	Net leases +1.2%
	Logistics +2.9%

262.7	+6.4			256.6
				(12.5)

6M19	Like-for-Like	Balance acquisitions,	6M20
	growth	disposals and other

1. Portfolio in operation for the 6M20 (€ 246.7m) and for the 6M19 (€ 240.3m)

ı 9 ı

Offices

Offices        |        Rent bridge and breakdown

Offices continue performing well in our 3 markets

(€m)		LfL(1)
			+4.0%
122.1	+4.4		118.0
						(8.5)

6M19	Like-for-Like	Balance acquisitions,	6M20
	growth	disposals and other

Lfl growth by area

Madrid

Barcelona

Lisbon

1. Office portfolio in operation for 6M20 (€ 113.4m) and for 6M19 (€ 109.0m)

+2.8%

+9.2%

+5.1%

Occupancy by area

	3M20	6M20
Madrid	89.3%	89.3%
		+2 bps
Barcelona	95.5%	92.2%
		(328 bps)
Lisbon	100.0%	100.0%
		0 bps
		Travelperk early
		termination in
		Torre Glòries	ı 11 ı

Offices        |        Leasing activity

Rental growth continues robust (+2.7% release spread)

	Contracted sqm	Release spread	#contracts	Tenants
Madrid	113,709	(1.9%)(1)	122

Barcelona

21,011

+27.8%

26

Lisbon

2,546

+14.6%

8

TOTAL

137,265

+2.7%

156

(1) Endesa extension

ı 12 ı

Offices        |        Leasing activity during Covid-19

1Q20	2Q20

	PE Sanchinarro	Beatriz de	Diagonal 514	Ribera del Loira	Ribera del Loira	Sant Cugat II
	Bobadilla 14	60	36-50

New contracts signed(1)

Premium to ERV

Contracts renewed

Renewal rate(2)

Release spread

11,927 sqm	50,078 sqm
+5.8%	+11.6%
27,494 sqm	97,831 sqm
75%	92%
+11.7%	(7.5%)

• 54,960 sqm building

Endesa renewal • Contract extended to 2030

• Trade-off of 16% rent reduction in exchange for contract extension. If excluded, release spread would have been 17.3%

(1) Including projects under refurbishment	ı 13 ı
(2) Including roll-overs

Shopping centers

Shopping Centers        |        Rent bridge and breakdown

LfL rental growth positive

(€m)		LfL(1)
			+2.8%
64.1	+1.6		60.6
						(5.1)

6M19	Like-for-Like	Balance acquisitions,	6M20
	growth	disposals and other
Footfall (million)			Tenant sales (million)

2019 LTM	101.2	2019 LTM	1,074.9
	(19.9%)		(18.2%)
2020 LTM	81.1	2020 LTM	879.3

1. Shopping centers portfolio in operation for 6M20 (€ 58.2m of GRI) and for 6M19 (€ 56.6m of GRI)

ı 15 ı

Shopping Centers        |        Leasing activity and occupancy

Occupancy secured by Covid-19 Commercial Policy

	Release spread	#contracts	Tenants
All	4.0%		100
portfolio

	Contracted	Net	Occupancy	Change vs
	sqm	Absorption	30/06/20	31/03/20 (bps)
All	18,112	(1,007)	94.1%	(9)
portfolio

ı 16 ı

Shopping Centers        |        Footfall and tenant sales evolution

Since reopening, footfall and tenant sales are affected by Covid-19

		Vs same period last year	June 01-15	June 15-30	July 01-15
Footfall	Shopping centers	(42%)	(35%)	(33%)
evolution

YoY

Shopping centers

(excl. assets under (41%) (32%) (29%) reform: Porto Pi +

Saler)

		Vs same period last year	June 01-30
Sales	Shopping centers	(23%)
evolution

YoY

Shopping centers

(excl. assets under(18%) reform: Porto Pi +

Saler)

Note: excluding X-Madrid since it opened in November 2019

ı 17 ı

Logistics

Logistics        |        Rents bridge and breakdown

Rental growth in a strong market

(€m)		LfL(1)
			+2.9%
26.2	+0.7		+1.9	28.8

6M19	Like-for-Like growth	Balance acquisitions,	6M20
		disposals and other
LfL growth by location	Occupancy by area

Madrid

Barcelona

Other

+7.7%

(10.1%)

+3.5%

Madrid

Barcelona

Other

3M206M20

97.2% 97.3%

+8 bps

85.4% 88.7%

+331 bps

99.8% 99.4%

(41 bps)

(1) Logistics portfolio in operation for 6M20 (€ 26.3m of GRI) and for 6M19 (€ 25.5m of GRI)

ı 19 ı

Logistics        |        Leasing activity

Excellent release spread in all markets

	Contracted sqm	Release spread	#contracts	Tenants
Madrid	30,284	+4.5%	2

Barcelona 10,390

+14.5%

4

Other

20,211

+12.2%

1

TOTAL

60,885

+6.7%

7

ı 20 ı

Logistics        |        ZAL Port

Stock 624,716

WIP 102,965

Stock incl. WIP 727,681

155,345 sqm delivered in 2020

GRI

€ 13.4m

Third parties stock 183,252

Stock under management 910,933

Contracted sqm	Release spread	#contracts	Tenants
280,944	(0.8%)	36
Occupancy by area
FY19 98.9%	(-210 bps)	6M20 96.8%
€m		6M20	6M19	YoY
Gross rents		26.7	22.9	+16.4%
Net rents		22.7	22.5	+0.7%
EBITDA		21.8	21.5	+1.3%
FFO(1)		12.2	12.6	(2.6%)

ı 21 ı

1. After deducting leasehold concession charge FFO. Affected by free rent attached to the recently delivered units

Valuation and debt position

Valuation and debt position        |        GAV summary

Valuation remains flat (+0.2%) as compared to December 2019

Reversionary	4.9%		5.6%	4.7%		6.4%
yield
Passing	4.0%		4.9%	4.7%		5.8%		-		4.4%
yield						12,755
										12,193
	6,334
GAV												stakes
(€ million)
		Shopping centers	2,274	1,849						Minority stakes		TOTAL with minority
	Offices		Net Leases	Logistics	972	Other(1)	763	TOTAL
			562

Source: Company

ı 23 ı

1. Other includes WIP, hotels, non-core land and miscellaneous

Valuation and debt position        |        GAV drivers

Offices and logistics showing positive LfL growth, net leases flat and shopping centers down by 4.7%, mainly due to yield expansion

GAV Like-for-Like evolution(1)(1)

+2.1%

+2.0%

+0.0%0.2%

MERLIN average(1)

(4.7%)

Offices

Shopping centers

Net Leases

Logistics

Yield
compression
/ (expansion)(1)					1 bps	1 bps
	0 bps
									(2) bps
										MERLIN
										average
		(8 bps)
	Offices	Shopping centers	Net Leases	Logistics

1. Vs FY19

ı 24 ı

Valuation and debt position        |        Debt maturity profile

Recent debt management initiatives to extend maturity profile

(€ million)

2,036

No debt maturities

until May 2022

1,400

(€ million)			560
			548
6	1	10
	5	10	12
2020		2021	2022

754

743

12

2023

862

850

12

2024

	888
619		23
600	800	613
19	88
2025	2026	2027-2034

Mortgage debt

Unsecured debt (incl. RCF)

Bonds

ı 25 ı

Valuation and debt position        |        Debt position

Average maturity now at 6.5 years, with no floating rate risk

	30/06/2020 PF(1)	30/06/2020	31/12/2019
Net debt	€ 5,167m	€ 5,153 m	€ 5,182 m
LTV	40.5%	40.4%(2)	40.6%
Average interest rate	2.07%	1.97%	2.09%
Average maturity (years)	6.5	6.0	6.4
Unsecured debt/Total debt	86.6%	85.2%	82.7%
Fixed rate debt	99.8%	88.9%	99.5%

Rating	Outlook
BBB	Stable
Baa2	Negative

(1) PF after the €500m - 7yr bond issue, which includes the partial Bond repayment, the RCF repayment and the repayment of Retail mortgage debt	ı 26 ı
(2) Excluding transfer costs. If included, LTV would amount to 39.2%

Valuation and debt position        |        Debt covenants

Ample headroom to safely comply with all financial covenants

Covenant	Required	MERLIN Today
LTV	<60%	40.4%
ICR	>2.5x	3.7x
Unencumbered	>125%	190.8%

ı 27 ı

Value creation

Value creation        |        Landmark I

Castellana 85		Monumental

• Full refurbishment of the asset, located in the heart of Azca, the best business area in Madrid Prime CBD
• 12,789 sqm signed post Covid-19 outbreak (+ 1,842 sqm optioned)
• C85 will become the HQ of both a top-tier consulting firm and construction company

• Full refurbishment of the building, located in Duque de Saldanha, one of the most emblematic squares in the city and the core of Lisbon's Prime CBD area
• 10-yearterm lease agreement with BPI comprising 19,425 sqm, to become their main HQ in Lisbon

CONFIDENTIAL

GLA 16,471 sqm(1) Total Capex € 33.0m Yield on cost 8.3% Delivery 1Q21

1. Post refurbishment

GLA 25,385 sqm(1)

Total Capex € 34.8m

Yield on cost 9.4%

Delivery 1Q21

ı 29 ı

Value creation        |        Flagship

Saler

• The refurbishment will consolidate Saler, facing the City of Arts and Sciences, as the leading urban mall in Valencia
• Anchor tenants upsizing and upscaling units

GLA 28,834 sqm (inc. additional GLA) Cost € 36.0m (inc. units acquired) Yield on cost 5.2%

Porto Pi

• Full refurbishment of the shopping center
• The asset will contain outstanding exterior terraces overlooking the Mediterranean sea
• The future additional space (2,400 sqm) is fully let

GLA 32,732 sqm (inc. additional GLA) Cost € 41.8m (inc. units acquired) Yield on cost 4.2%

ı 30 ı

Value creation        |        Best II & III

Madrid San Fernando II				Zaragoza Plaza II

Sevilla ZAL WIP

• The project, currently under construction, will be delivered by 3Q20
• 67% pre-let to Grupo Damm

• Turn key project in the most dynamic hub of Zaragoza
• 100% let to Dachser upon delivery (September 2020)

• Phased project located in Seville's Port area
• 3 warehouses totalling 27,248 sqm have already been delivered

GLA 34,224 sqm	GLA 11,421 sqm
Cost € 1.9m	Cost € 0.5m
Yield on cost 8.9%	Yield on cost 7.1%

GLA 42,632 sqm Cost € 2.0m Yield on cost 8.4%

ı 31 ı

Covid-19 update

Covid-19 update        |        Commercial policy

MERLIN Properties conceived a commercial policy in 2 phases to help its retail tenants

		Phase I	Phase II
Enacted		Since March 15th until the reopening	Since the reopening until December 31st
		Tenants affected by the compulsory shutdown set	Tenants affected by the compulsory shutdown or
Eligibility		forth in the state of alarm regulations which were	a severe operations limitation who were up-to-date in
		up-to-date in their contractual obligations	their contractual obligations

	• 100% rent relief since March 15th (state of alarm)
	and up until the earliest of (i) end of compulsory	• Partial rent relief until year end (progressive from
	shutdown, and (ii) July 31st	60% in June to 10% in December)
Policy	• Common service charges continue to be paid	• Tenants extend their contracts until 2022
	by tenants	• Tenants continue paying common service charges
	• Tenants waive rights to take any future actions	and waive any future actions against MERLIN
	against MERLIN as a consequence of Covid-19

		Offices	Shopping centers			Offices	Shopping centers
Implementation
Eligible universe(1)	3%	89%		Eligible universe(1)	4%	94%
	Tenants that	100%	>85%		Tenants that	93%	>92%
	have accepted		have accepted

(1) As a % of annual gross rents of each category

ı 33 ı

Covid-19 update        |        Collection rate

A high quality tenant base leads to high collection rates post-Covid

(as a % of total invoices due)
2Q 2020	Offices	Shopping centers	Net leases	Logistics
Commercial policy	0%(1)	59.7%	0%	0%
Collected	99.2%	37.7%	100%	96.4%
In process	0%	0%	0%	2.7%
Uncollected	0.8%	2.6%	0%	0.9%

(1) We have excluded the retail component of offices which is residual for the asset category (~3%)

ı 34 ı

Covid-19 update        |        Impact on business

No change in Covid-19 impact for 2020 previously quantified. 2021 impact mitigated by low level of maturities and delivery of new rents secured by Landmark and Best II & III

2020

2021

€ 66m	€ 29m	€ 250m
INCENTIVES
	BOOKED IN 1H	(€ 0.53 per share)
€ 4m	€ 41m
NEW FFO GUIDANCE
EXPECTED FOR 2H
COLLECTION LOSS

Only 12% of rents mature in 2021

2020 incentives expensed, not straight-lined (no impact on 2021 P&L)

€ 20 million of incremental rents secured by new contracts already signed

Retail occupancy supported by commercial policy(1)

13% reversionary potential in offices as a buffer against market declines

Net leases as a "safe harbour" Logistics to continue its growth pace

(1) Maturities extended beyond December 2021

ı 35 ı

Closing remarks

Closing remarks        |       

• Covid-19impact on 2020 net rents of € 70m and € 60m on FFO. FFO

guidance for 2020 of € 250m (€ 0.53 per share)

Financial	• Valuations flat, with retail taking the biggest hit, a 4.7% decrease, mainly due to yield
expansion (8 bps)
performance	• Strong balance sheet, € 1.2bn in liquidity, no maturities until 2022 and ample headroom
in covenants

• Leasing activity post-Covid revealing higher retention rates, with new deals signed above

ERV and renewals with positive release spread

	• Occupancy on par with FY19 and set up well for resilient performance going forward: 15%
Business	expiry rate from June 30 to December 2021, commercial policy highly embraced by retail
tenants whose expiries have been extended beyond December 2021 in exchange for incentives
performance
• Collection rates in the hardest part of the crisis have maintained very healthy levels,
	underpinned by the quality of our tenant base
	• Landmark. Important leases signed in Castellana 85 and Monumental, generating compelling
	value creation (yields on cost of 8.3% and 9.4%, respectively). Secured rents of € 13.3m
	• Flagship. Works advancing in Saler and Larios, with leasing activity growing on the back of
Value	the reforms
• Best II & III. 2 warehouses delivered in Sevilla ZAL. Leases signed in Madrid-San Fernando II
creation	and Zaragoza-Plaza II. Secured rents of € 6.3m
• Cabanillas Park II moved back to priority 1 Capex category
	ı 37 ı

Paseo de la Castellana, 257 28046 Madrid

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www.merlinproperties.com