MERLIN Properties Annual Report 2018 / English

ı 11 ı Annual Report 20 18 a year ago. By categories of assets especially noteworthy have been the increases in offices, 90% (+ 179 basis points), and shopping centres, 91% (+ 164 basis points). These two items of data thrill me especially, as we have once again managed to comply with what we told the market two years ago after the acquisition of Metrovacesa. If you remember, the Metrovacesa portfolio came with a remarkable vacancy rate, which on the other hand represented its greatest attraction, due to its enormous potential for improvement. The backing was to return to the levels of occupation prior to the operation in two years, that is, by the end of this 2018. Our endeavours have clearly paid off. Thus far we have talked about the official data, but I would like to focus on what isn’t seen: the silent, day-to-day, meticulous, precise and detailed activity that the market from its height cannot see. It is this behind- the-scenes activity that establishes the pillars of the future growth of this company. Spreadsheets, financial models, which for us are the basis of any investment and the future roadmap of each of our assets. The plans for the refurbishments are studied over and over again, devising imaginatively the means to find the best possible solution. The slow administrative processes to obtain the licences of the developments and reforms mean our teams need reserves in terms of patience, persistence and persuasive ability to convince and offer the maximum future peace of mind to the corresponding authorities. The projects are visited on a daily basis to monitor that they are carried out as per the timeframe and budget. The search for the most suitable solutions for an increasingly demanding client that will bond us into to a lasting relationship that requires us to be very close, listening to them, earning their trust with every detail. 2018 has been a very intense year in which the pillars of future growth have settled quietly yet satisfactorily, and specifically the Landmark I, Flagship and Best II plans that we announced to our shareholders a year ago. At Landmark I, we have overseen, for example, the successful delivery of Phase I of Torre Glóries, an emblematic asset of Barcelona that MERLIN intends to make into even more of a landmark. That is why we have designed a unique asset, which will have 5 businesses living together in harmony: offices, flexible spaces for co-working, restaurant and gym services, plus the development of the unique possibilities of its illuminating façade for marketing and advertising, alongside an observatory in the dome that will become a unique tourist attraction in the city of Barcelona. The offices have been fully rented in less than 9 months at an average rental income that exceeds by 12.7% what was forecast in our acquisition analysis and the quality of the tenants, all of them technological companies, is a major plus for Catalonia and for Spain. We have also completed the refurbishment plans for Monumental, Castellana 85 and Diagonal 605, whose works begin this year, featuring highly attractive profitability forecasts. In terms of Flasghsip, we have been highly faithful to our initial plans despite the huge media noise on the apocalypse of the shopping centre industry due to the irruption of online commerce. It has been necessary to show with results that our exclusive commitment to urban and dominant centres makes us allies of online commerce, ending the year with an increase in the sales figure of our tenant base, despite the inconvenience caused by the works and the preparatory vacancies in the same. A good example of what Flagship represents is in Arturo Soria, delivered in 2018. A stylish refurbishment has been undertaken, modernising the centre and its access points, improving parking and enhancing the terraced area. The centre is now fully occupied, enjoys a very high average income due to its exclusivity and, what is more important, the average sales of its traders, historically amongst the highest in Spain, have increased by 3.4% after the reform. The return on capital invested in the reform stands at 11.1%, exceeding our expectations for the benefit of our shareholders. Larios has followed the same path, urban centre and at the same time dominant in its area of influence, located in the heart of the city of Malaga. We are carrying out a comprehensive refurbishment, which will end in a couple of months, we have purchased land owned by third parties, we have regrouped the restoration