J.P. Morgan Highlights Merlin Properties With FFO Estimates Surpassing Consensus by 5%

J.P. Morgan has spotlighted MRL by placing it on a Positive Catalyst Watch, emphasizing a noticeable divergence between their own funds from operations (FFO) estimates and the market consensus. The Spanish real estate investment trust's (REIT) upcoming half-year results, set for July 30, are in focus as the broker anticipates stronger than expected operational figures.

The brokerage firm reaffirmed its "overweight" stance on MRL and nudged up its price target for December 2027 to €19.00 from €18.50, while shares were last seen trading at €14.79. What's catching attention is J.P. Morgan's projection of FY26 FFO coming in about 5% above the Bloomberg consensus, estimating earnings per share at €0.58, outperforming the consensus of €0.55. This beat is largely attributed to stronger revenue streams and more controlled costs than market expectations.

A key analyst note relates to the upcoming earnings call where Merlin Properties is expected to update its FY26 FFO guidance and detail a significant revaluation tied to its data centre developments. This follows earlier signals during the first quarter that point to substantial value gains from data centre clusters (DCs) anticipated in the first half of 2026.

The expansion of Merlin's data centre footprint in Iberia is a standout factor. The initial phase of the data centre rollout is valued at €19.3 million per megawatt compared to an investment cost of just €9.6 million per megawatt. Their plans in Lisbon are scaling up to 340 megawatts of capacity, illustrating an aggressive buildout.

Merlin emerges as the dominant player in the Iberian IT infrastructure space, controlling 37% of the projected capacity, a sizeable lead over competition like Edgemode and Start Campus, which hold 11% and 8%, respectively. Phase III alone plans for 412 megawatts, targeting gross rental revenue of €656 million, supported by a committed capital raise of €768 million executed in late March 2026.

The broker also points out an upside scenario with an extra 200 megawatts that could lift total Phase III capacity to 612 megawatts and rental income to an estimated €935 million. Such figures reinforce the expected shift in the portfolio makeup, where data centres could grow from a minor 6% slice to dominating 65% by 2032, while traditional office space shrinks from a majority 53% to roughly 20%.

On the financial front, projections indicate adjusted EBITDA climbing from €399 million in FY25 to €643 million by FY28, aided by operational efficiencies that push EBITDA margins up from 70.7% to 73.2%. Revenue is forecasted to escalate from €565 million to €878 million over the same timeline, underscoring steady top-line growth.

Debt metrics show net debt to EBITDA starting at a hefty 10.1 times in FY25 but easing to 8.5 times in FY26 before rising somewhat to 9.7 times by FY28 as capital expenditure activity intensifies. This indicates a balancing act between growth investments and leverage management amid expansion.

Bottom line: Merlin's pivot into data centre assets appears to be reshaping its earnings outlook and underlying value metrics in a way that analysts at J.P. Morgan view positively. The market now waits to see if the forthcoming results confirm this trajectory or if adjustment in expectations becomes necessary.