MERLIN Properties Annual Report 2018 / English

ı 10 ı After five years of positioning, through intelligence and effort, MERLIN Properties is today a company that stands out above all for its stability and its strength. We are the seventh largest REIT in Europe in terms of assets and are the benchmark in Spain, both globally and in the three asset categories in which we operate. We have exceeded these goals, and this year aim to advance further, after having reduced the level of leverage significantly during the year, which now stands at 40.7% LTV compared to 43.6% a year ago, at the same time that we have improved all the financial indicators, especially Debt/EBITDA, now at 12.1x and EBITDA/Interest Expense, which now stands at 4x. A BBB investment grade rating from Standard & Poors has been issued, who also placed us this year with a positive outlook. This strength brings important benefits for business dynamics, for example, in terms of loyalty and ability to negotiate rents with our tenants. With regard to offices this year, rental income has increased by 6.5% on average in the renewals and, in the midst of the complete overhaul of Metrovacesa’s assets, 71% of the renewals have been reached. In shopping centres, the Company has been able to increase rental income in renovations by an average of 3.5%, having renewed 86% upon maturity. In terms of logistics, MERLIN is the reference solution for any operator that wants to increase its footprint in the Iberian Peninsula and more than 210,000 sqm of the almost 690,000 sqm contracted in the last two years come from pre-existing customers who have enjoyed growth alongside us. The average increase of rental income in the renewals in 2018 was 9.2% and 82% of maturities have been renewed. The strength of MERLIN Properties also begins to be noted in occupancy rates. Our assets stand out for their quality, location and versatility and we have depth, for want of a better word, with which we offer solutions of all kinds to adapt to the changing needs of our customers. Thus, the average occupation rate of the portfolio has leapt to 93.4%, 80 basis points more than Dear Shareholders, I am proud to present the results for the 2018 financial year, which, as you know, have complied with the indications given to the market at the beginning of the year, when our aim of achieving a free cash flow (FFO) per share of at least 60 euro cents and a dividend per share of 50 was initially announced. The net asset value (NAV) amounts to 6,956 billion euros, or 14.81 euros per share, showing an increase of 11.7% compared to the previous year. All this has yielded in an excellent total return for our shareholders of 15.2%, demonstrating the health and momentum of the national real estate cycle and MERLIN’s capacity to attract value in this positive environment. We have also continued to rotate and refine the quality of the portfolio, having exceeded the investment and divestment targets for the year, after reaching €569.5 million in acquisitions and €594.4 million in sales. Sales have been carried out at an average premium of 3.1% with respect to the latest valuation, which is evidence for our shareholders of the quality and liquidity of the asset portfolio they own. Mr. Ismael Clemente CEO Letter from the CEO