MERLIN Properties SOCIMI, S.A.

Thank you very much. Dear ladies and gentlemen, welcome and thank you for joining MERLIN’s first quarter 2021 trading update.

We remind you that quarterly results there is no presentation available, it only the summary. Today, Ismael Clemente, our CEO will do a 10 minute update and then we will open the line for Q&A.

Thank you, Ines. Welcome to MERLIN’s first quarter 2021 results call.

The month of January, February, and March have been a tough period for business in Spain, at least for our business in Spain. But as I was reading this morning in Kepler Cheuvreux research report, nobody said it would be easy.

I mean, we want the market and the investors at the end of 2020 that we expected it to happen simply because, basically our sector of activity real estate lacks the real economy by one or two quarters. And you know, what happened at the end of 2020 has reflected in the beginning of 2021.

That means, we expect an equally, you know, difficult second quarter, slightly better, particularly from an optical standpoint, because in the first quarter, you compare year-on-year against mostly undisturbed first quarter in 2020, whereas in the second quarter we will compare with an already disturbed second quarter of 2020. So, figures will look optically better, but in real terms, it will also be a tough quarter.

Of course, occupancy erosion will be much smaller, but it will continue to be a tough business environment. This has risen, which is that Spain is trailing behind other countries in terms of vaccination.

We are as we speak at 14% of the total population. We do not foresee to reach herd immunity until at least end of September, October, despite the more optimistic forecasts, which are being released by public officials.

Then third quarter, we expect to be flatter and the sunshine should be seen again towards the fourth quarter. I mean in response to a better sanitary management of the crisis towards the end of the year.

However, despite this challenging environment, the cash flow of the company has performed basically as expected. In fact, have informed to our board of directors we are running slightly ahead of budget in the first quarter, perfectly on track to beat our cash flow forecast for the whole year, because we expect marginal improvement towards the fourth quarter plus we expect also some additional rents to be income as a consequence of the entry into operation of work-in progress.

In terms of consolidated performance, the gross rents of the company fell 2.9% like on a like-for-like on a year-on-year basis. The diminished by 15.3% and net tangible assets, although no revaluation was carried out during the period stood at plus 0.3%.

The business performance as aforesaid was heavily impacted by farther mandatory closures decided by, you know both central autonomous municipal, and you name it, authorities in different cities. And some tenants are starting to be heavily affected by now, especially in shopping centers.

Operator, could you please open the line for Q&A? Thank you.

Hi, good afternoon. Thank you for taking my questions.

Have two please. The first one regards to the report of a persistent increase of vacancy in pretty much every sub market of Madrid.

I know, you had correctly flagged the strength in your previous communications to the market. Just wanted to know how confident you are that in the second half of this year occupancy can start recurring because according to some press sources there are apparently some cases in which companies reduced significantly in some cases 50% their office space needs.

So, based on the conversations you're having with tenants, are you still seeing a strong winter for occupied demand? And second question related to these, your expectation for rental prices, considering these pressure in occupancy?

And also appreciate your comment on the incentives because seen that incentives, as a percentage of your gross rental income increased from previous quarters? Thank you very much.

Okay, well Pedro, regarding vacancy, our forecast for the whole year continues to be between 1.5% and 2%, loss of occupancy as compared to 2020 – or where we finished 2020. Clearly, we are operating under no hopes of a very significant recovery towards the end of the year, simply because we won't be on time.

I mean, most of the effects of the recovery will only be felt in 2022. So, you know, towards the end of the year, we might pick up a little bit.

In fact, we believe we will pick up a little bit in occupancy, very important data for you.

No, it's perfect. Thank you very much Ismael.

Thank you.

Hi, good afternoon. I have two questions on my side, which again, relates to the vacancy in the office portfolio.

So, I wanted to know if you could give us a sense is the vacancy is just on a few buildings, or is it actually quite widespread across your portfolio. And then another question is, in order to reverse, potentially this vacancy uptake would you be able to actually further, you know, have more negative reversion or is it just, as you suggest, maybe there is no demand?

Because of your just cutting jobs and thereby there's just no demand for the office space? And then, just – just another one just to put it up.

Is the tough office fundamentals on the operational side, how does it translate into the investment markets?

Okay. Fantastic.

So, if I understand well. Your second question, basically, you mean, whether in order to revert the vacancy, we could simply lower prices, and take a bigger dent on the delta between passing and market?

Look, I don't think it will make a big difference, because, you know, today is – we are living a period of simply with demand, and there is very little you can do about it, other than wait. I mean, which is always something you can do.

Thank you very much. And then…

You also commented on the investment market, I am very sorry. So, on investment market, the first quarter has been much blunder than the first quarter last year minus 60%, approximately 1.5 billion in offices versus like 3.6 billion last year and in shopping centers, even worse, minus 85%, I mean, almost an anecdotal, the amount of transactions happening in the marketing in the period, but the market remains reasonable.

I mean, we are entertaining conversations with a number of investors regarding some non-core and you know those conversations continue and you know there is no panic in the market. It is simply that those people are worried about the level of vaccination, people are worried about the level of economic activity and people who are worried about the economic management of the recovery from the crisis that the Spanish government may finally, you know do, but other than that the market remains solid.

There are no rush sales in the market, and you know, things are happening as we would expect. So, no problems in this side.

You don't see your extension happening in real time?

I couldn't follow you. Can you repeat?

Sorry. You’ve not, at least from transactions that have happened – you've not noticed yield expansion or significant change in values?

Not at all. In fact, counter-intuitively as commented in the 2020 result call, we continue to see yield tightening a little bit.

Quote the , of course, that you know, yields continue tightening as we speak. It is clearly – inclusive is paradoxical and maybe it is also predicting future increases in value as a consequence of increased activity.

We still do not know, how things will recover when Spain starts to recover. It is also true that people are starting to take into account much bigger inflation in models.

So, that inflation of course is also putting some pressure on the prices because real estate is starting to be seeing as an eventual, you know, protection from inflation.

Thank you very much.

Welcome.

Hi there. Thank you very much for the clear presentation and clear guidance ahead.

Two questions from me. Firstly, on your newly vacant office space, will you look to refurb any of it or do you expect to be straight relapsed?

That’s the first question. And then the second point is, given that you don't expect Spain to reach herd immunity until kind of September at the earliest should we expect to Phase 4 of your commercial rent relief policy, which I believe expires this June?

Thank you very much.

Okay. As for the first one Oliver, the newly vacant space, the one that has been affected by vacancy in this quarters, especially, frankly speaking no need for refurbishment.

I mean, it will be so easy for us to simply take them out of inventory and refurb, this is a very old trick that we don't intend to do it. As for the second, whether reaching late the herd immunity through September, October will mean exceeding our budgeted help to tenants in shopping centers, we do not expect that for one thing, the reason of course, when we compare trailing till March 2020 trailing till March 2021, you are about in the worst picture possible of Spain.

Because the LTM training till March 2020 was a mostly undisturbed trading period, you know except by 15 days in our 365 day period. However, the LTM till March 2021 is 365 shitty days of performance, you know, throughout the year.

So, of course, when we say, minus 40% in of course, we are comparing about the worst we can compare. However, just to give you a, you know a brighter picture of what is happening, if you start comparing the weeks of re-opening or the month of re-opening to the prior month, now that we are starting to reopen some of our shopping centers, you will see that approximately you are posting plus 80 in footfall and sales as compared to the previous period is very simple.

I mean, empty shopping centers versus full shopping centers. So, we are seeing a much better pattern of consumer behavior as the centers little by little reopen and come back to normality.

So, we simply expect a better period in the second quarter. Except – as I commented, except that country where restrictions continue to be very heavy.

Catalonia where restrictions are funded afterward, and Lisbon where also restrictions are very, very heavy. The rest of the portfolio is now little by little going back to normality.

So, we expect a much lower level of incentives in the second quarter as compared to the first. So, with the remainder of the 8 million to the 19.6 we commented to market, I think we are safe.

Okay, that's super clear. And we can follow up afterwards if not, but do you have that 80% year-on-year comparison in terms of footfall or sales, but do you have that on a two-year stack basis versus say 2019?

Not here with me, but you know the IR will contact you and we'll share with you. I mean, for what is worth, internally, we track everything against 2019 because otherwise you know that tracking to 2020 is a roller coaster because in 2020 we have better period worse periods is very difficult to compare.

We normally track to 2019.

Okay. Got it.

I’ll follow-up afterwards. That's very helpful.

Thank you.

You’re welcome.

Hi, good afternoon. Thank you for taking my question, only one.

So, whether you expect to be fruitful in tenant sales by the end of the year? I know, basically it is quite low right now, but you are now starting to reopen some of your assets.

So, you can get, kind of a fill-in and of course, if there is you expect an out performance of tenant sales versus footfall, and now that consumption is picking up quite fast? Thank you.

You’re welcome . It is difficult to predict a figure with a certain level of accuracy, but, you know, if I have to make forecasts, I believe we will be picking up from the minus 40 to the minus 25 to 30 we are seeing now, as compared to what was through and we expect that by year-end, it will be clear to us what component of the drop in footfall and sales per square meter was and what component was simply related to the pandemic driven increase in online.

Only by then we will know. You have heard us many times saying that we expect these number three in the region of minus 20.

But, however, I have to admit that some of the trading of some of the shopping centers is now surprising me. If I look at for example, what X-Madrid, X-Madrid is now wild.

But if I look at those shopping numbers and I see that their performance, it might be lower than that minus 20. It could be actually something between minus 5 and minus 10 for those, let's say predominant very dominant in their RF catchment shopping centers in the portfolio.

Some others will of course, suffer a little bit more.

Thank you. So, Ismael do you mean by the end of the year?

Yes, because now, we will be picking up. I mean, we are – now we are reopening people come to the shopping centers.

They incur in prevention spending, as you correctly pointed out. Of course, sales exceed the footfall because people normally comes to spend not to wonder, and yes, I mean that will provoke a gradual recovery of shopping centers.

It will not be completely at the beginning because people will take time to continue regaining confidence in that way of spending, but through year-end, we should have a much clearer picture of what is exactly, I get your point, what is exactly the degree of damage inflicted by growing online sale penetration in the total retail sales in Spain in the shopping center format.

Yes. I was a bit more worried on when your tenants will stop .

So, they stop being you know, problematic. But yes, okay.

You will depend on this very quickly of course. Okay.

Thank you much Ismael.

Regarding tenant, by year-end, I tell you that, at the , we are evicting by year-end most of the what we track us red line or zombie status in our portfolio will have been replaced. So, because, you know, one of the few things which in Spain is, fast is courts regarding commercial evictions.

So, you know, we are obtaining super high rates of success. So, we are evicting and re-tenanting, of course, we are trailing behind a little bit in re-tenancy.

So, you know, in the fourth quarter, we evicted 11,200 and re-tenanted 9,900. So, we accumulated let's say, 1,300.

In this first quarter, we evicted like 8,000 and re-tenanted 7,000 and change. So, we are accumulating a little, little, you know, , but is surprising us on the positive side.

Okay. Okay, thank you very much, very clear.

You're welcome.

Hi. Thank you for taking my question.

Just a quick one from my side. I would like to know how much are you planning to invest to develop the data centers and what year are expecting to achieve?

Thank you.

Hi, , look as commented in the end of the year results presentation the basic numbers of our business plan regarding data centers are going to be no relief to the market on the first half Bristol’s presentation because as we are speaking we are positioning a couple of buildings. We are now asking for the different licensing projects.

We are elaborating the and , we are also going through the coasting and only when we have more visibility of course not complete visibility, but when we have more visibility on which equipment for example needs to be imported from the U.S. which can be locally sourced in Spain and things like that, we will have a better understanding of the numbers of but we will open the market in due time.

Okay, thank you very much.

You’re welcome.

Thank you, operator. So, thank you very much for attending today's call.

As always we remain at your disposal so if you have further questions do not hesitate to contact us. You have our e-mails.

You have our direct lines as well. And keep safe and talk to you very soon.

Thank you so much.