EUR 100.00 For Business Accounts Only

MERLIN PROPERTIES: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Gross rents: € 126.2 M (-3.7% vs. -18.6% expected and -8.0% expected by the market consensus);
EBITDA: € 80.2 M (-23.9% vs. -27.8% expected and -33.9% expected by the market consensus);
FFO: € 59.6 M (-23.8% vs. n/a expected and -45.4% expected by the market consensus);
1H'20 vs. 1H'19 Results
Gross rents: € 256.6 M (-2.3% vs. -9.8% expected and -4.5% expected by the market consensus);
EBITDA: € 184.1 M (-12.5% vs. -14.4% expected and -17.5% expected by the market consensus);
FFO: € 134.3 M (-14.6% vs. n/a expected and -25.3% expected by the market consensus);
The company has released better-than-expected 1H’20 results, with revenues and FFO beating our expectations and those of the consensus. The asset appraisal also came in above the consensus (€ 15.68/sh.; +7% vs. consensus).
Rents fell -2% due to asset sales but adjusting this effect, LfF revenues rise by +3%. Occupancy stood at 93.9% (-9bps vs. March’20).
MRL has accounted the incentives awarded to its retail clients due to Covid-19 as expenses (€ 28 M), which explains the -24% drop in EBITDA over the period (vs. -28% BS(e) vs. -34% consensus) and -15% in FFO (-25% vs. consensus).
As for the asset appraisal, improvements have been seen in offices (+2%) and logistic (+2%), while retail fell -5%. The improvement in offices beats expectations while Retail decreases more than the drop seen yesterday in LRE’s results. With this in mind, the appraisal beats market expectations and NAV rises by +4% vs. last year (flat vs. Dec’19).
We believe that the market is more concerned about the future prospects in the medium and long-term than by the resilience showed in the very short-term in companies with lease contracts under way, and thus with significant momentum in revenues in the short-term. Thus, the share price is trading at a -56% discount to NAV June’20. Bearing in mind the company’s debt, we estimate that the market is implicitly assuming that MRL’s assets are worth -35% less than the appraisal valuation. The discount is excessive, in our view, and we reiterate our BUY recommendation and € 10.17/sh. T.P. (+48.68% upside).