MERLIN Properties Annual Report 2017 / English

ı 10 ı more avant-garde, and better suited to the needs of clients. But we don’t rest on our laurels, we always ask more of ourselves, it’s part of this Company’s DNA. So we innovate, make plans and adjust them according to market circumstances, and thanks to this team, we execute them in a timely manner. Finally, it is important to say a few words about the current strength of the MERLIN Properties project that we embarked upon (with you aboard) in 2014 and how well prepared the Company is to face the exogenous eventualities that threaten Spain’s excellent macroeconomic situation, turbulence in financial markets, or changes in the real estate cycle. After years of working with surgical precision, our balance sheet looks very good, with the bulk of the work concluded during a boom in rates and only pending a couple of small adjustments that we expect to wrap up this year, the goal of which is to lengthen maturities without affecting average costs. All financial ratios, without exception, have improved relative to 2016, most notably, the progressive reduction in leveraging (we closed 2017 at 43.6%) and protection against interest rate fluctuations, with more than 99% coverage and an average rate of 2.23%, including the cost of derivatives, for the next six years. We work tirelessly to improve the rating that, in the long term, helps offset the expected increase in base rates with lower spreads. Our income statement continues to be one of the most efficient in the world, despite having absorbed margin impairments from Metrovacesa’s vacancy rate, now much improved. We are, by far, the company that generates the most cash flow per share in the industry and, to date, we cover our interest costs by nearly 4x with rental income. Our general costs, as you know, are subject to a series of limits (this year reduced to the greater of 5.75% of rent or 0.575% of NAV). Payroll and incentives, as you also know, are dependent upon those limits and, therefore, contingent on the continuous fulfilment of our internationally admired efficiency goals. We also have superior quality buildings that, after the execution of the various improvement projects underway, will reach never- before-seen levels of excellence. We operate in three asset categories, diversifying risks and providing us with more flexibility than any of our competitors to navigate the cycles and, crucially, we are the leaders in each of those categories. This facilitates our position at the forefront and enhances our ability to predict trends, anticipate changes, and take advantage of market opportunities. I want to conclude by saying that none of these achievements would be possible without the work ethic and conduct reflected in four key ideas that serve as the foundation of our daily efforts—honesty, transparency, precision, and continuous growth and learning—values of which we are extremely proud and that I know are shared by you, our shareholders.