MERLIN Properties Annual Report 2019 / English

Mr. Javier García-Carranza Non-Executive Chairman Letter from the Chairman With regard to offices, we lead the market with a portfolio of 1,193,364 sqm in operation, the occupancy of which increased from 90.1% to 92.8%, improving by 264 bps, and whose average profitability at market value is 4.1%, with total gross income of €243.4 million. We continue investing to boost the quality of our assets: in 2019, we invested €35.4 million in capex and €126.5 million in acquisitions, having sold €225 million in suboptimal assets. The offices portfolio includes as tenants some of the top companies in their respective markets, allowing us to face the future calmly. We have also developed new forms of use of our assets (like our flex space subsidiary, Loom) that enables us to adapt to market demand. In retail, we continue to work closely with our tenants to adapt to market demand, and our portfolio primarily focuses on dominant large-scale shopping centres or those in urban locations that are well-situated for convenience. We have 18 assets with a total leasable area of 614,917 sqm, at 93.3% occupancy (up 204 bps relative to 2018) as of the end of 2019 and with total like-for-like rents of €127.3 million, and increase of 3.1% (€3 million) over 2018. As with offices, we invested €55.1 million to improve our assets, mainly in the re-opening of the X-Madrid centre in Alcorcon, Larios in Malaga, and Tres Aguas in Madrid. In a sector that is facing significant structural changes, it is our opinion that, given the location and size of our assets, coupled with efficient, innovative management that strengthens our relations with tenants, we will be able to weather any transformational challenge successfully. In logistics we are the indisputable leaders in a clearly expanding market, where we continue to grow through the development of new projects. Our portfolio includes 1.2 million sqm in operation, with a market value of €939 million which, occupied at 97.7%, gives us a return of 5.8% (€53.8 million). We will continue to invest in this sector as one of the pillars of MERLIN’s growth in the coming years. Dear shareholders, It is my pleasure to present to you MERLIN Properties’ 2019 Annual Report, which includes the annual financial statements and all of the information relevant to the 2019 fiscal year. 2019 was a very positive year for the Company, having achieved the targets we set for ourselves early in the year. Our portfolio of commercial property continues to make us industry leaders in Iberia and leaders in all sectors in which we operate—offices, retail, net leases, and logistics—with product diversification that limits market volatility, a strong balance sheet, long-term financing, and, most importantly, the operational and managerial excellence needed to ensure outstanding occupancy rates and returns across the entire portfolio. Shareholder returns for 2019 (NAV per share appreciation plus dividend) reached 8.8%, backed by solid fundamentals; the net value of our assets (NAV) increased 5.4% (€375 million), while leverage decreased 7 bps, representing 40.6% LTV. In 2019, we divested a total of €281 million, improving the average quality of the portfolio and its occupancy by 140 basis points; like-for-like rents also improved by 4.5%, climbing from €499.7 million to €525.9 million.