MERLIN Properties Annual Report 2022

MERLIN Properties | 7 In terms of asset rotation, the highlight has been the sale of the branches leased to BBVA, the so-called “Tree” portfolio, a transformational transaction for MERLIN, as we exited a business line, high-street retail, with a shorter real estate track record, to focus on our three main asset classes, offices, logistics and data centers. This transaction has also allowed us to significantly reduce our leverage. By asset classes, offices ended the year above forecasts. Occupancy stood at 92.5%. We have had a significant increase in like-for-like rents of 6.0%, thanks to the increase in occupancy (+245 bps vs. 2021) to 92.5%, inflation, and the increase in rents in the renewals. The gross rental income generated in the year totaled € 242.7 million and progress has been made with the refurbishment of Ruiz Picasso 11, scheduled for completion in the last quarter of 2023, which will bring the Company’s Landmark Plan to an end. The asset is almost fully let to top-in-clss tenants such as IBM, Globant and Willis Towers Watson. In logistics, the year was once again an outstanding one for MERLIN, with a remarkable organic growth (+8.6% like-for- like) thanks to occupancy, indexation, and release spread. Gross rental income for the year amounted to € 73.6 million and occupancy, for yet another year, is almost full (97.0%). Regarding the progress of Best II & III plans, 115.210 sqm have been delivered this year and let to large operators such as DSV and Logista. In addition, progress has been made in the development of A2-Cabanillas Park II B (47,342 sqm), which will be delivered in the second half of 2023. In shopping centers, we already commented last year that they had started their pathway to recovery, which is supported by this year’s data. We remain cautious and prudent, but the reality is that our tenants’ sales have been above pre-Covid levels after the best Christmas campaign to date. December footfall at the centers exceeded 2019 figures (+0.3%) for the first time this year. This asset class closes 2022 with gross rents of € 123.8 million, 7.5% like-for-like rent growth vs. 2021 and occupancy of 95.0% (+79 bps vs. 2021). But if there has been one thing that has stood out this year, it is the sale of the BBVA bank branch portfolio and the acceleration of our data center development program. In June 2022, MERLIN Properties completed the sale to BBVA of the portfolio composed of 662 branches leased to BBVA for € 1,987 million, which implied a premium of 17.1% over the last valuation. The cash proceeds were used for debt reduction and the distribution of an extraordinary dividend. The significant deleveraging, closing the year at 32.7% (a reduction of 651 bps compared to 2021), prior to the tightening of the capital markets, has allowed the Company to focus solely on operating performance and value creation, as well as to protect itself against possible declines in asset values, given the rise in interest rates and their translation into the market return or yield on real estate assets. In 2022, MERLIN Properties’ comparable valuation was € 11,317 million, representing a like for like decrease of 1.5%, mainly due to the 44 bps yield expansion due to the aforementioned interest rate hikes. We believe this trend is likely to continue throughout 2023. In terms of dividend, an extraordinary dividend of € 352 million (or 75 cents per share) was paid to shareholders in August, which, together with the ordinary dividend, implies a total distribution to shareholders of € 1.20 per share for the full year. The Board of Directors of MERLIN Properties is very proud of the significant increase in shareholder remuneration this year. Finally, in terms of MERLIN’s financial and operating performance, 2022 saw the acceleration of the Company’s commitment to the future, the Mega plan for the