Renta 4 | At Merlin Properties’ AGM on Thursday, the CEO, Ismael Clemente, revealed further details on the status of the company’s data centre strategy and options.
Firstly, Merlin is reportedly receiving interest from a number of pension funds, sovereign wealth funds, insurance companies and other large investment vehicles.
Secondly, the management team insists that the operation to grow the data centre plan has not yet been defined, although they expect the board of directors to decide on the way forward before the summer. It should be recalled that the growth in data centres would involve an additional investment of approximately €2,000 million.
The options being considered are: 1) a capital increase (of approx. €1 billion) in the REIT; 2) the entry of a partner in the data centre subsidiary, or; 3) the divestment of assets.
Assessment: News that, for the moment, we expect to have a neutral impact on the share price.
Clemente insisted that we will try to find the formula that best balances the dilution of the current shareholder, the dividend and the level of leverage (preferably keeping it at around 35%), and always with special attention to shareholder care.
We believe that it is not an easy task to make a decision in this respect, given the difficulty of aligning the interests of the management team, potential new partners and current shareholders, as any formula would slightly benefit the interests of one of the agents over those of the others. However, we consider that this initial detriment to one of the aforementioned stakeholders, especially in the case of a capital increase and the consequent dilution of existing shareholders, would be offset by a significant increase in future profitability. In this regard, it is worth mentioning that the REIT expects a gross return on cost for the Data Centres of 14.4% (net operating return >10%).
We reiterate our recommendation of Overweight with a target price of €10.30/share.
