Merlin Properties Shares Fall After Jefferies Downgrade on Dilution, Tenant Risks

Shares of Merlin Properties SA (MRL) fell on Tuesday after analysts at Jefferies downgraded the Spanish real estate investment trust, citing concerns over shareholder dilution and concentrated credit risk in its expanding data center portfolio.

Analyst Concerns Drive Downgrade

Jefferies lowered its rating on Merlin to Hold from a previous Buy and trimmed its price target to €16 from €17. The downgrade followed the company's first-half 2026 results, which, despite showing strong operational momentum, highlighted several risks for investors, according to the brokerage.

The primary concerns outlined by Jefferies include:

• Shareholder Dilution: The dilutive effect of a 10% share issuance in March 2026 to fund data center expansion, coupled with a potential future convertible bond of around €1 billion to finance the next phase. Jefferies estimates the bond could weigh on funds from operations (FFO) by approximately 7.5% in the medium term.
• Tenant Concentration: A key overhang is that 85% of Merlin's 180MW of pre-let data center capacity is tied to a narrow group of "neo-cloud" operators, creating significant tenant risk.
• Development Costs: The firm also noted that over €100 million in fees owed to development partner Edged partially offset the headline uplift in the value of its data center assets.

Valuation and Fundamentals

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The downgrade also reflects a valuation call, as Jefferies noted the stock had already rallied roughly 20% year-to-date, potentially limiting near-term upside. The cautious analyst outlook overshadowed Merlin's otherwise solid fundamentals reported for the first half of the year.

The company posted net profit growth of 12.9% and upgraded its full-year FFO guidance. However, the combination of the downgrade, financing concerns, and tenant risk outweighed these positive operational results for investors on the day.

Market Reaction

In response to the news, Merlin Properties' stock was trading down 1.9% at €14.765. The decline made the REIT a notable underperformer within the Spanish market, as the broader IBEX 35 index traded in a tight range near its all-time highs.