MERLIN Properties Annual Report 2019 / English

| 9 4.- Year after year, the portfolio of net leases steadily performs its function of providing the Company with liquidity and stability. It represents nearly €90 million of net rents, which is much appreciated in turbulent times. It is worth noting the extraction of value that lends our portfolio its variety and breadth, starting with our asset rotation policy, thanks to which we refine the quality of our assets year after year while reducing leverage. The two main operations in this respect in FY 2019 were the sale of the Juno portfolio (26 office buildings) and the contribution of Mercury (3 shopping centres). After these divestments, our office portfolio’s exposure to the periphery fell just 9%, while exposure to secondary shopping centres remains at a residual level of 0.9%. On the investment side, the year’s main operation was MERLIN’s entry into the largest and most ambitious urban development project in Europe: Madrid Nuevo Norte. The Company acquired a 14.46% stake in Distrito Castellana Norte (DCN), the largest private owner of the development, which will bring together most of the project’s commercial assets, primarily offices. DCN has a buildable area of 1.2 million sqm, 81% of which corresponds to state-of-the-art office buildings situated around the extensive Central Park, which will alter the Madrid skyline and form the new heart of the prime CBD, with the best public transit access and train/plane connections in Europe. Madrid Nuevo Norte, which began making headway after receiving all the relevant approvals, signifies growth for MERLIN Properties for the next 20 or 30 years, our prime office reserve for the future. Continuing with the value extraction from the portfolio, progress was made in the Landmark, Flagship, and Best II & III multi-year plans. In 2019, 11 projects were completed, all of which have reached or exceeded the returns underwritten in the original business plan. Examples include Torre Glòries and Torre Chamartin, in offices; Larios and Tres Aguas, in shopping centres; and Madrid-Pinto II, Guadalajara-Cabanillas, and Toledo-Seseña, in logistics. Deserving of special mention is the latest X-Madrid shopping centre, a new concept in retail firmly anchored in experience. It is a breath- taking complex, where visitors can climb, surf, cycle, and dive, that has captured the attention of the entire industry, both nationally and internationally. And with barely enough time to digest a year full of good news and an outstanding start to the new year, on 14 March 2020, a state of alarm was declared in Spain to fight the greatest pandemic to hit the world in the last 100 years. It poses a massive new challenge that, with everyone’s help, we are gradually overcoming. However, once the virus has passed, we will face another, equally worrisome problem in the form of an economic crisis. We could be paralysed by the magnitude of the challenge, we could be dumbstruck by the overabundance of information about the threat, but that is not the attitude of our Company. What has led MERLIN Properties to become a standard-bearer in the market in record time is its unique business culture, the commitment and courage of its team. If there is one thing we do particularly well, it is getting to work, calmly and diligently, taking the bull by the horns and boldly facing any adversity. That is exactly what we did in March when the health crisis erupted. Without wasting a single minute on self pity, we got to work under the assumption that the pandemic would be more acute and prolonged than initially anticipated, and estimating that the economic consequences, at least temporarily, would be severe. From the outset, the Company understood the need to be supportive of our tenants, forced to close their stores in our shopping centres. Our strength and our solid cash position enabled us to do so.