20 - Merlin Properties · 2019. 4. 10. · MERLIN a reference company in the sector. I take this...

2018

CORPORATE SOCIALRESPONSIBILITY REPORT

2018 has been key to strengthen the leadership of MERLIN Properties in the Iberian real estate market.

A year of seizing opportunities to maximise the operational efficiency and return on assets.

07About the Annual Report 94

03 04Responsible governance model 24

MERLIN Properties, A story of success 10

01Letter from the Vice-Chairman/Chief Executive Officer 4

Leading commercial real estate company in the Iberian peninsula6

02

06Value creation for stakeholders 38

Sustainability in the portfolio 64

05

2018

CORPORATE SOCIALRESPONSIBILITY REPORT

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I am pleased to present to you, for the fourth consecutive year, the Corporate Social Responsibility Report of MERLIN Properties, developed as on previous occasions, in accordance with Global Reporting Initiative standards and continuing with EPRA Sustainability Best Practice Recommendations, like last year.

This report provides an in-depth and transparent reflection on our economic, environmental and social performance, including the contribution made by our activities to sustainable development in the environments where we operate.

The effort made in this document to present quality information, clear and useful for our stakeholders was acknowledged in 2018 by EPRA, with the award "Most improved report" to our 2017 CSR report, and its "Gold Award", the highest distinction for non-financial reporting.

This milestone marks a redoubling of our commitment to continued improvement and accountability, as initiated by the Company four years ago with the publication of its first CSR report.

Over these years, we have consolidated our position as a company of reference in the real estate sector, building up a solid portfolio of top quality assets, with a mature and balanced capital structure and our own management team, founded on expertise and experience in the markets in which we operate.

Focusing on 2018, I can report that it has been a good year for MERLIN Properties. The Company ended 2018 with gross revenues of 499.7 euros, up 6.5% on the previous year, and EBITDA amounting to 403.7 million euros, which represents a 2.8% increase with respect to 2017. As a result of these good results, the rating agency Standard and Poors has revised MERLIN's BBB outlook from stable to positive.

Ismael Clemente

Letter from the Vice-Chairman/ Chief Executive Officer

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Corporate Social Responsibility Report 2018

On the other hand, the Company has taken some important steps towards guaranteeing integral management based on a rigorous and ethical approach with a robust internal control system ensuring the compliance with applicable legislation, the ethics in our conduct and an appropriate management of the risks applicable to our business.

In 2018, we began a transformation of our corporate governance system, which has materialized with the opening of the whistleblowing channel to all our collaborators and the division of the appointments and remuneration committee into two separate committees, in accordance with best practice in the market. We shall continue to advance further in this direction in the forthcoming years.

The Company has continued to improve upon the services offered to tenants and final clients, not only through the flexibility of our portfolios - which we view as our main lever in the creation of lasting relationships and therefore continue to consolidate - but also by adapting our management and the characteristics of our assets to the needs of their actual users.

Similarly, we have continued to make progress in the improvement of the environmental performance of our portfolios, by integrating sustainability throughout all assets life cycle. External certifications continue to be the main backup of the correct environmental management and performance of our portfolios. In 2018, we already had 61% of our portfolio certified under the leading sustainable construction standards (LEED and BEEAM), moving us closer towards our goal of having almost 96% of our portfolio certified under these standards.

At the same time, we continue to increase the volume of assets included in our certified environmental management system, which currently covers 68 properties throughout the offices, shopping centres and logistics portfolios. Complementary to this certification, 7 of our assets have obtained the ISO 5001 energy efficiency certificate.

Furthermore, as part of its focus on the quality of its portfolios, MERLIN - which supported the development of this technical standard from the outset - has obtained in 2018, for two of its office properties, the AEO certification aimed at establishing uniform criteria in relation to the technical quality of office properties.

In 2018, we have continued to invest in improving the efficiency of our installations and to play an active role in the management of properties in operation, in those cases in which the contract regulating the service we provide allows us to do so. Thanks to the steps taken and measures adopted, MERLIN has managed to reduce electricity consumption by 3% in the like-for-like portfolio, and to cut water consumption by 11% in relation to 2017.

Similarly, considering our assets are our best point of contact with communities, we seek to have a positive impact on them, through the creation of direct and indirect employment, in addition to over 300 local development initiatives and programmes implemented, which bring us closer to our communities and enable us to add value to the environment in which we operate.

As always, these results have been achieved thanks to our first-rate team of professionals, their commitment to the project, the excellence of their work, and the efficiency of their management, all of which continue to make MERLIN a reference company in the sector.

I take this opportunity to express my gratitude for their efforts and to encourage them to continue along this same path in the forthcoming years.

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02MERLIN Properties is the largest, most diversified Spanish REIT. It is engaged mainly in the acquisition and management of commercial assets in the core and core-plus investment segments in Spain and Portugal.

LEADING COMMERCIAL REAL ESTATE COMPANY IN THE IBERIAN PENINSULA

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2018 performance. Main figures.

MERLIN presents its third CSR Report prepared in accordance with Global Reporting Initiative (GRI) Standards and EPRA's Sustainability Best Practice Recommendations. In this report, the Company enhances its transparency commitment to stakeholders, informing them of its economic, environmental and social performance.

Economic performance

Social performance

Environmental performance

403.7 M€(+2.8% vs. 2017)RECURRING EBITDA

176(+9% vs. 2017)EMPLOYEES

5,066 M€(-4.6% vs. 2017)MARKET CAP

598 M€(+14.6% vs. 2017)VALUE DISTRIBUTED TO STAKEHOLDERS1

40.7%(-287 bps vs. 2017)NET DEBT

78.4% TENANT RETENTION

1 This item includes salary payments, payments to suppliers, payments to governments, community investments and operating costs. Relates to the 201-1 indicator included in GRI Standards.

2 Sustainable construction certification includes LEED and BREEAM.

1.66 M€(-9% vs. 2017)

LEED/BREEAM CERTIFICATIONS INVESTMENT

97 ASSETS(+67% vs. 2017)

WITH SUSTAINABLE BUILDING CERTIFICATION2

136,764 GJ(+2% vs. 2017)

ENERGY CONSUMPTION IN LIKE FOR LIKE ASSETS

9,249 t CO2eq

(-10% vs. 2017)

GREENHOUSE GAS EMISSIONS IN LIKE FOR LIKE ASSETS

197,894 m3

(-11% vs. 2017)

WATER CONSUMPTION IN LIKE FOR LIKE ASSETS

310,654 t(+17% vs. 2017)

WASTE GENERATED IN LIKE FOR LIKE ASSETS

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MERLIN Properties’ portfolio

MERLIN’s current portfolio has over 3 million sqm rented area, making the Company the leader in the market for offices, shopping centres, high street retail premises and logistics buildings.

Overall portfolio1

Core business lines

5,513 M€ GAV

140 ASSETS

1,272 k sqm GLA

226 M€ GRI

2,200 M€ GAV

760 ASSETS

396 k sqm GLA

95 M€ GRI

Existing assets

830 M€ GAV

46 ASSETS

1,101 k sqm GLA

51 M€ GRI

Work in progress

493 M€ GAV

8 ASSETS

267 k sqm GLA

21 M€ GRI

ZAL PORT (48.5% stake)

50 ASSETS

469 k sqm GLA

32 M€ GRI

2,265 M€ GAV

18 ASSETS

549 k sqm GLA

116 M€ GRI

TRES AGUAS (50% stake)

1 ASSET

67 k sqm GLA

9 M€ GRI

1 Includes non-strategic assets.

12,041 M€(+7% vs. 2017)

GROSS ASSET VALUE (GAV)

499.7 M€(+6.5% vs. 2017)

GROSS RENTAL INCOME (GRI)

964(-17% vs. 2017)

ASSETS

5.8 years(-13% vs. 2017)

WAULT

3,318 k sqm(+1% vs. 2017)

GROSS LETTABLE AREA (GLA)

93.4%(+0.8 percentage points vs. 2017)

OCCUPANCY RATE

Offices Shopping centres

Logistics High street retail

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MERLIN PROPERTIES, A STORY OF SUCCESS03After the expansion phase, MERLIN is focused on maximising portfolio’s profitability through new developments and asset repositioning. This strategy is allowing MERLIN to build a solid first quality portfolio while retaining a mature, balanced capital structure and its own management team, founded on rigour and experience in the markets in which the Company operates.

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3.1. MERLIN’s history. Main milestones

After three years of steady growth, MERLIN has achieved its goal, having built an €12,041 million portfolio, consolidating its leading position in the Spanish as well as in the European markets, where it has become one of the most important commercial REITs.

In 2018, MERLIN launched three value creation plans for its office portfolios (Landmark), shopping centres (Flagship) and logistics assets (Best), entailing an investment of €635 million in repositionings and new developments, of which €154 million have already been invested in 2018. By deploying these plans, the Company expects to increase asset value and thus associated rents.

In 2018, MERLIN continued to increase its presence in Portugal, through two new acquisitions:

· Zen Tower. MERLIN’s office sector activities in Lisbon increased further as a result of ZEN Tower acquisition in the dynamic Expo area, increasing its footprint in Lisbon’s office market above 70,000 sqm, and thus becoming one of the city’s 3 main operators.

· Almada Forum. Almada shopping centre in Lisbon was also purchased in 2018, MERLIN’s first shopping centre in Portugal.

Launch of Value Creation Plans 2018-2021

Expansion of MERLIN Properties’ footprint in Portugal

2019 2020 2021 2022

Landmark I Plan

· Torre Chamartín (Phase II)

· Torre Glòries (Phase II)

· Marqués de Pombal 3

· Monumental

· Castellana 85

· Diagonal 605

· Adequa 7 · Adequa 4

· Plaza Ruiz Picasso

· Alfonso XI

Flagship Plan

· Larios

· Arturo Soria Plaza

· X-Madrid

· Tres Aguas

· El Saler · Porto Pi

· Callao 5

Best II Plan

· Madrid Pinto II B

· Guadalajara Cabanillas Park I F

· Cabanillas III

· Toledo Seseña

· Madrid San Fernando II

· Madrid Azuqueca II

· Madrid Azuqeca III

· Guadalajara Cabanillas Park II

MERLIN remains committed to growing its logistics portfolio, in which the GLA is above 2 million sqm.

In 2018, the Company acquired two logistics assets in Júndiz industrial park (Vitoria), the region’s leading logistics park, and a building in Cabanillas (Guadalajara), a logistics park in the Henares Corridor that is in high demand from operators and end users. The Company’s GLA has increased by 114,000 sqm as a result of this and others new acquisitions made during the year for an aggregated value of €74 million.

MERLIN also began the construction of two logistics assets in Cabanillas and signed a turnkey project in Ribarroja (Valencia), as well as a built-to-suit project and a speculative project in ZAL-Seville so as to grow its logistics footprint at strategic points in the Iberian peninsula.

Increase in the domestic logistics footprint

In September 2018, MERLIN entered into an agreement with Tropic Real Estate Holding for the sale of its stake in Testa Residencial.

The sale proceeds obtained, €321.1 million, will be used to reduce the leverage in line with the objectives of the business plan of the Company.

Sale of MERLIN’S stake in Testa Residencial

2014 2015 2016

May2015

€ 614M Capitalincrease

Dec.2014

Refinancingof Tree debt€ 940M

Acquisition ofTree portfolio

(888 BBVAbranches)

€ 740M

July 2014

July2015

€ 1.1bnCapitalincrease

Acquisitionof Testa€ 1.6bn

June2015

Acquisitionof 12 assets€ 544M

2014

Acquisition ofMetrovacesa€ 1.7bn

June2016

Feb.2016

BBBS&Prating

Acquisitionof 47 assetsand ZAL Port€ 331M

2015

€ 1,290M IPO

June2014

Dec.2015

Inclusionin IBEX 35Index

Dec.2015

Refinancingof Testadebt€ 1.7bn

Thanks to the sound business performance in 2018 and the Company's improved financial and debt indicators, the rating agency Standard & Poor’s upgraded MERLIN's BBB outlook from stable to positive.

Standard & Poor’s upgrades MERLIN'S outlook

In 2018, MERLIN received recognition for the quality of the non-financial information published in its 2017 CSR report from EPRA (European Public Real Estate Association), the benchmark European association for listed real estate companies. Specifically, MERLIN obtained the award for the “Most improved report” with respect to the previous year and the “Gold award”, the highest recognition for non-financial information reporting.

EPRA Gold Award for non-financial information reporting

In 2018, MERLIN was included for the first time in GRESB, the sector’s benchmark sustainability index that assesses the performance of companies and their portfolios from an environmental, social and governance perspective.

In its first appearance, the Company obtained the “Green Star” scoring, which is given to entities that reach over 50 points in the two reporting categories: Implementation & Measurement and Management & Policy.

First inclusion in GRESB, the sector's benchmark sustainability index

2016 2017 2018

Acquisition ofMetrovacesa€ 1.7bn

Oct.2016

Baa 2Moody’srating

Dec.2016

Sale of hotelportfolio and 10 asets € 761M

Acquisition

of 40 assets

€ 812M

2016 2017


2017

Investment in refurbishment & development€ 109M

2018


2018

Sale of Testa & non-core € 594M

2 bondissuances€ 900M

2017

Oct.2016

Deconsolidation of Testa Residencial

€ 340M

2 bondissuances€ 1,650M

2016 Feb.2018

BBBpositive outlookS&Prating

Dec.2018

Refinancing of Tree debt€ 717m

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3.2. MERLIN Properties’ strategy

Since its beginnings, MERLIN’s strategy has focused on the generation of sustainable, recurring revenue for shareholders over time by creating value in portfolio’s assets. To this end, the Company has taken steps in three key areas:

• Insourcing of portfolio management: the Company is committed to the insourcing of asset management across all phases of the life cycle. With this aim, MERLIN has first-class professionals with broad industry experience who are highly versatile, allowing them to both undertake commercial actions and address technical matters, so as to enhance the assets.

• Repositioning to generate profitability: MERLIN endeavours to extract the maximum value from the current portfolio, optimising assets quality and maximising profitability through repositioning, leaving behind the acquisition phase of prior years.

• Integration of sustainability in assets: the Company wishes to implement its commitment to portfolio sustainability by maximising efficiency in the use of resources. With this in mind, MERLIN focuses on international standards in the industry to apply them in its assets, whether before or after they become operational, cooperating with tenants and customers to achieve sustainable assets.

Offices Breadth of prime space Madrid, Barcelona and Lisbon

Shopping Centers Urban or Dominant National scale

Logistic National footprint “One-stop shop” solution for 3PL

High Street Retail High triple net cash flow inflation multiplier

40% 20%

20% 20%

CORE & CORE PLUS SPAIN & PORTUGAL

INVESTMENT GRADE CAPITAL STRUCTURE

DIVIDEND POLICY: 80% OF AFFO

ONE OF THE WORLD'S MOST COST EFFICIENT REIT'S

BEST GOVERNANCE PRACTICES

1.

1

25

34

2. 3. 4. 5.

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3.3. Business lines

MERLIN Properties’ business is focused on offices, logistics, shopping centers and high street retail.

The Company has a portfolio of real estate assets valued at €12,041 million1. Its investments include 140 office buildings, 19 shopping centres (including Tres Aguas), 46 logistics facilities (54 including premises under development) and 760 high street retail premises.

The portfolio has a leased Gross Lettable Area (GLA) of over 3 million sqm, which generates €499.7 million in gross annual rents.

1 Gross Asset Value (GAV), including non-strategic assets.2 Including 3 hotels and non-strategic assets and land.

Other

High Street Retail

Logistics

Shopping centers

O�ce

Logistics 9.1%

High Street Retail 18.4%

Shopping Centers 19.2%

Others2 3.6%

Office 49.7%

12,041M€ GAV

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MERLIN is once again the leading real estate company in the office market in the Iberian peninsula, with a portfolio of 140 assets located in the main business areas of Madrid, Barcelona and, increasingly, Lisbon. In 2018, the total volume contracted was 300,707 sqm.

Offices

5,513 M€GAV

140ASSETS

1,272 k sqmGLA

226 M€RBA

90%OCCUPANCY RATE

6.5% RELEASE SPREAD

3.1 yearsWAULT

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2018 Milestones

• Start of Landmark I Plan

In 2018, MERLIN started Landmark I Plan for the full renovation of selected offices in Madrid, Barcelona and Lisbon so as to increase asset values and yields. The plan envisages an investment of over €250 million in the period covered by the plan to 2022, so as to reposition a total of 10 office buildings located in premium zones, making them cutting-edge assets.

It includes emblematic buildings such as Torre Glòries in Barcelona, Sollube in Madrid and Monumental building in Lisbon.

MERLIN is also repositioning other office buildings not included in Landmark I Plan.

• Completion of ongoing repositionings and acceptance of the first developments

In 2018, phase one of Torre Glòries repositioning was completed. Torre Chamartín, first office building entirely developed by MERLIN, was also completed, as well as Adequa phase one.

• First operational coworking space in MERLIN’s portfolio

After acquiring a non-controlling interest of over 40% in Loom House and jointly forming “Twisttt” to create coworking spaces, in 2018 the first Twisttt space was opened in one of MERLIN's assets, the Princesa 5 building; 1,100 sqm of shared offices with a capacity of up to 150 users.

Future objectives

• MERLIN Hub

In 2018, the Company designed MERLIN Hub, an ambitious project to increase the value of 17 office assets located on A1 motorway in Madrid. This entailed a detailed diagnosis of each individual asset before designing a full action plan based on 5 pillars (mobility, branding, innovation, welfare and convenience), focused on enhancing tenant loyalty in the Company's offices.

• Continuation of the office value creation plan

Landmark I Plan addresses the development and repositioning of selected office assets to 2022. Phase two of Torre Chamartín and Torre Glòries refurbishments, and the repositioning of Marqués de Pombal 3 in Lisbon, are expected to be completed in 2019.

The Company also plans to complete the repositioning of Monumental, Castellana 85 and Diagonal 605 in 2020, Adequa 7 in 2021 and the Adequa 4, Plaza Ruiz Picasso and Alfonso XI buildings in 2022.

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MERLIN is currently the top-ranked owner of shopping centres in Spain. The portfolio has 19 shopping centres (including Tres Aguas), most of which are urban or dominant on a national scale, in the main cities of Spain and Portugal.

Shopping centres

2,265 M€GAV

18ASSETS

549 k sqm SBA

116 M€GRI

91%OCCUPANCY RATE

112 MANNUAL VISITS

3.5% RELEASE SPREAD

1ASSETS

9 M€GRI

67 k sqmGLA

819TENANTS

2.5 yearsWAULT

C.C. TRES AGUAS (50% STAKE)

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2018 Milestones

• Start of Flagship Plan

The value creation plan named Flagship Plan is focused on the modernisation of several shopping centres in the Company’s portfolio through a total investment of €144 million. This action plan runs to 2021 and encompasses Larios, Arturo Soria Plaza, Tres Aguas, El Saler, Porto Pi and Callao 5 shopping centres.

It will also include the development of a new shopping centre concept, “X”, in the form of X-Madrid: a unique, innovative leisure concept centred on customer experience and leading brands which has become one of the Company's flagships.

In this context, the first two repositioning projects included in Flagship Plan got started in 2018 with Arturo Soria Plaza and Larios shopping centres, both designed to enhance service quality and maximise customer experience.

• Completion of Mosaic project in Las Arenas

As part of MERLIN's commitment to digitalisation as a means to add value to visitor experience, the Company has completed an innovative digitalisation project at Las Arenas shopping centre in Barcelona, having fitted seven LED screens totalling over 180 sqm to create Mosaic, a multimedia show featuring mosaics, in honour of the city’s architectural landscape.

Future objectives

• Extension of our shopping centre footprint in the Iberian peninsula

After buying Almada shopping centre in 2018, MERLIN will stay alert in the coming years for opportunities in the Portuguese market so as to increase its footprint in the Iberian peninsula and, more specifically, in Portugal, offering a comprehensive geographic solution for all its tenants.

• Continuation of the shopping centre value creation plan

As part of Flagship Plan, MERLIN will continue with the intensive repositioning of its shopping centres in the next few years. During 2019, X-Madrid development Larios, Arturo Soria Plaza and Tres Aguas repositionings will be finalised.

El Saler shopping centre repositioning process is scheduled to end in 2020, while Porto Pi and Artea are due for handover in 2021.

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With a portfolio of 46 assets distributed along the main logistics corridors in Spain and Portugal, MERLIN is the leading logistics company in Spain thanks to a portfolio that is latest-generation, diversified and geographically consolidated, a situation that will be reinforced by the eight assets under development.

Logistics assets

830 M€GAV

46ASSETS

1,101 k sqm GLA

51 M€GRI

98.2%OCCUPANCY RATE

81% (in GAV terms)LATEST-GENERATION LOGISTICS ASSETS

50ASSETS

267GAV

469 k sqm GLA

493 k sqm GLA

8ASSETS

9.2%RELEASE SPREAD

4 yearsWAULT

ZAL PORT (48.5% STAKE)

32 M€GRI

21 M€GRI

WORK IN PROGRESS

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2018 Milestones

• Launch of Best II Plan

Best II Plan is designed to build value in the logistics portfolio by investing over €250 million to 2021. This entails developing 500,000 sqm of logistics area in the best locations to achieve the broadest product range, either by selectively purchasing assets in the main logistics hubs or by developing latest-generation buildings.

• Completion of the first developments

In 2018, developments undertaken by MERLIN in 2017 were completed, specifically Gavilanes assets (first turnkey asset prepared for refrigerated products), San Fernando I asset (first turnkey cross-docking asset) and Cabanillas F building, entailing a GLA of over 70,000 sqm.

• First full renovations at a MERLIN logistics building

In 2018, MERLIN completed the comprehensive refurbishment of the Pinto I and Pinto II A buildings, the first to be undertaken by the Company in this portfolio.

The assets, in prime locations, were repositioned thanks to the replacement of conventional lighting by LED lighting, roof renovation and redistribution of the space inside the buildings.

Future objectives

• Continuation of the logistics portfolio value creation plan

In 2019, MERLIN will carry on creating value in the logistics portfolio, when completing Madrid Pinto II B, Toledo Seseña and Cabanillas III developments.

The action plan will run to 2021, including the handovers of San Fernando II, Azuqueca II and Azuqueca III in 2020, and Cabanillas Park II in 2021.

• Launch of Best III Plan to expand logistics footprint to other areas of the Iberian peninsula

In response to strong market demand, MERLIN has launched Best III Plan to extend the Company's logistics footprint in Spain and Portugal through projects in new hubs such as Valencia, Seville, Zaragoza, Lisbon and the Basque Country, entailing the development of half a million square metres in the coming years.

GRI

9.2%

4 yearsWAULT

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MERLIN’s high street retail portfolio comprises 33 supermarkets leased to Caprabo in Catalonia, 692 branch offices and five buildings leased to BBVA, with a total area of 366,000 sqm distributed throughout Spain.

The portfolio also includes several key commercial areas in the centre of Madrid: Plaza de los Cubos, the premises of Torre de Madrid and the FNAC premises in Plaza de Callao.

High street retail

2,200 M€GAV

760ASSETS

396 k sqm GLA

95 M€GRI

99.2 %OCCUPANCY RATE

17.7 yearsWAULT

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2018 Milestones

• Further selling of branch offices

In 2018, MERLIN continued to selectively sell branch offices occupied by BBVA, specifically 166 branch offices for €252 million. Since the branch office sales plan was launched in 2016, MERLIN has sold to BBVA 187 branch offices for close to €275 million.

Future objectives

• Improvements in high street retail premises

In the coming years, MERLIN will work to improve and adapt its high street retail premises to tenant’s needs and to the Company’s quality standards. This improvement plan covers FNAC in Plaza de Callao and Torre de Madrid previously occupied by a concert hall.

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RESPONSIBLE GOVERNANCE MODEL04MERLIN Properties’ governance structure is dynamic, diversified, experienced and committed to the business project. Corporate governance imposes a culture of business responsibility that is reflected in a solid internal control and risk management system.

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Approval of the Audit and Control Committee Regulations aligned with CNMV Technical Guidance 3/2017 and best practice for corporate governance.

Split of the Appointments and Remuneration Committee to form two separate committees.

Approval of the Tax Strategy and Policy and of the regulations governing the MERLIN Group’s taxation unit.

Publication and extension of the ombudsman to all the Company's collaborators.

Update of the Risk Management System to the July 2017 COSO ERM standard.

Training courses on money laundering and crime prevention for the professionals most exposed to these risks.

Specific training for MERLIN's governing bodies in criminal and regulatory compliance, as well as in technological and cybersecurity risks.

Implementation of an IT support tool for the execution and documentation of ICFR controls.

Comprehensive modification of MERLIN's corporate governance system, supported by a corporate governance policy.

Posting of the corporate governance policies on MERLIN's website, reflecting the corporate commitment with transparency.

Implementation of an IT support tool to execute and document controls for GDPR and criminal compliance.

Training on criminal and regulatory compliance and personal data protection and technological risks and cybersecurity extended to include all employees.

Certification of the Group’s crime prevention system under standard UNE 19.601.

Adherence to the Spanish Tax Agency’s Code of Best Tax Practices.

Adaptation of Nomination and Compensation Committees to CNMV Technical Guidance 1/2019.

Main indicators for the year

2018 EVOLUTION 2017-2018

Independent Directors 8/12 =

Women on the Board of Directors 4/12 =

Complaints received through the Ombudsman 0 =

Number of meetings of the Board of Directors 14 =

Attendance at meetings of the Board of Directors 92.3% +1.6 percentage points

2018 Milestones Future objectives

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4.1. Capital structure

MERLIN Properties’ share capital currently consists of 469,770,750 ordinary shares with a par value of €1 each, all of the same class, fully subscribed and paid up, granting their holders the same rights

The Company has a solid shareholder structure. The principal shareholder is Banco Santander, followed by the US fund BlackRock.

MERLIN Properties also has a free-float of 73.7%.

4.2. MERLIN’s corporate governance

MERLIN has a corporate governance system composed of the Group’s Vision and Values, the By-laws, corporate policies, internal corporate governance rules and other internal codes and procedures.

Its content is inspired by and founded on a commitment to best practices in good governance, business ethics and social responsibility in all areas. The Company takes as a reference the “Code of Good Governance in Listed Companies” published by the Spanish Securities and Exchange Commission (CNMV) and corporate governance practices generally recognised in international markets.

In 2018, MERLIN split the Appointments and Remuneration Committee into two separate bodies, in line with best practices on the separation of two closely linked remits.

Banco Santander 22.3%

Free Float 73.7%

Blackrock 4.0%

Invesco

Principal Financial Group

Standard Life

Blackrock

BBVA

Banco Santander

Free Float

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Board of Directors

Audit and Control Committee

Appointments Committee

Remuneration Committee

An internal permanent informative and consultative body reporting to the Board of Directors, without executive functions, providing information, advice and proposals within its remit. It plays the surveillance of the internal audit function, it reviews the internal control systems and risk supervision. It also supervises the economic and financial information development process and account auditing, the assets rating process and complicance with its regulations.

It is an internal permanent informative and consultative body reporting to the Board of Directors, without executive functions, providing information, advice and proposals on recruitments, appointments, reappointments and removals. It is also responsible for the structure, size and composition of the Board of Directors and Board committees and for overseeing the Company's governance and corporate responsibility systems, as well as compliance with the Code of Ethics.

Having similar features to the previous committee, its remit covers remuneration for the Company's directors and management team. The committee oversees and recommends remuneration policies to the Board and determines remuneration packages for the CEO and the other Executive Team members.

MERLIN’s Board of Directors, formed by a broad majority of independent directors, focuses on defining, overseeing and monitoring the policies, strategies and general guidelines that must be followed by the Company. The Board is responsible for the long-term strategy and for monitoring its implementation. It offers leadership and principles to be followed and is also responsible for the Company’s corporate governance.

The Chief Investment Officer has a key role in decisions related to the Company’s investments at all levels.

Bo

ard

Man

ag

em

en

t Te

am

Investment Committee Chief Executive Officer Executive Committee

Comprising the management team, the Investment Committee is responsible for analysing and approving investments, divestments and closures of operations that are not reserved for the Board of Directors on the basis of size(<€150 million).

Responsible for implementing the Board’s strategy, leading the Company’s daily activities and overseeing all matters not reserved for the Board or Board committees.

It supports the Chief Executive Officer and is formed by multidisciplinary members of the Executive Team who assist the CEO in the supervision of MERLIN’s operations and performance.

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The Committee’s size did not change in 2018, so it still has 12 members and the same proportion of independent directors. The only change was the inclusion of Emilio Novela to replace Alfredo Fernández.

Composition of the Board of Administration and Board Committees

Javier García-Carranza Non-Executive Chairman

Ismael Clemente CEO & Executive Vice-Chairman

Miguel Ollero

Francisca Ortega

María Luisa Jordá

Ana García Fau

Fernando OrtizChairman A&R Committees

Donald Johnston

John Gómez Hall

Juan María AguirreChairman A&C Committee

Pilar Cavero

Emilio Novela

Mónica Martín de Vidales Secretary

Ildefonso Polo del Mármol Vice-SecretaryAudit and Control Committee

Appointments Committee

Remuneration Committee

Independient Directors

Executive Director

Propietary Director

Further information on the composition of the Board of Directors is provided in the Annual Corporate Governance Report available in the Spanish National Securities Market Commission’s website www.cnmv.es

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33.3% Women on the Board of Directors

66.6% Independient directors

During 2018, the Board of Directors met 14 times with 92.3% attendance. The Audit and Control Committee met 14 times, the Appointments Committee met 9 times and Remuneration Committee met 6 times.

The presence of independent directors and women on the Board of the Company has remained unchanged

Boardof Directors

Audit and Control Committee

• Updating of the company´s bylaws and the Board of Directors regulations.

• Preparation of the annual accounts and approval of the annual corporate governance as well as the annual remuneration report.

• Approval the Strategy and the new Tax Policy.

• Appointment of new members of the Board of Directors.

Appointments Committe

Remuneration Committe

• Review of the financial information to be disclosed to securities markets.

• Oversight of the process for the preparation of the annual accounts and annual corporate governance report.

• Review of external audit work.

• Oversight of the services of real estate asset appraisers.

• Risk Map update and KPI monitoring.

• Supervision of internal audit work.

• Supervision of ICFR framework controls.

• Oversight of the governing bodies with respect to money laundering prevention and regulatory and criminal compliance.

• Proposal for the appointment and re-lection of Directors.

• Approval of the organisation chart of the Company and group companies and the Succession Plan for the main members of the manager team.

• Modification of the Remuneration Policy for Directors and General Managers or those who perform their senior management duties.

• Analysis of the amounts of fixed and variable retribution for fiscal year 2018 and STIP and LTIP (3-year measurement period) for executive Directors and retribution for the management team (fixed and variable).

• Review of the Annual Report on Directors' Remuneration and the Annual Report on Corporate Governance, in those issues within its scope.

• Communication Plan with proxy advisors and institutional investors regarding the Directors´remuneration.

ı 30 ı

The remuneration received by the members of the Board takes into account both their category and the economic environment, the Company’s results, the Group’s strategy, legal requirements, good corporate governance recommendations and market best practices. On this basis, the Board of Directors determines the directors’ remuneration, following a report from the Remuneration Committee, comprising the following items depending on the type of director:

Remuneration model

Board of Directors’ remuneration is based on the following principles:

Independent directors Executive directors

Fixed remuneration

Fixed remuneration

Variable remuneration

Management Stock Plan

Please find more information on the Board of Directors’ remuneration in the Annual Report on Directors’ Remuneration in Listed Companies available through www.merlinproperties.com.

Transparency of information on Board directors' remuneration.

Coherence with MERLIN's long-term business strategy,

objetives values and interest.

Focus in the Complany's

profilability and sustainability.

Competitiveness in relation to market standards.

Capacity to attract and

retain the best professionals.

ı 31 ı


Comprehensive Improvement Plan for the corporate governance system

In 2018, a Plan was deployed to improve all aspects of the corporate governance system by drawing up new policies and developing existing policies to bring them into line with current global and industry best practices.

At present, a total of 13 policies, supported by a corporate governance policy, are in the process of approval during 2019. As part of this plan, the corporate governance policies will be posted on the website, reflecting MERLIN's commitment to transparency.

In addition to the renewal and preparation of corporate governance policies, the comprehensive improvement Plan has led to the deployment of an IT tool to support the execution and documentation of controls relating to the following compliance areas, which have been entirely reviewed and updated:

• Internal Control over Financial Reporting (ICFR) system.

• Personal data protection (adapted to the GDPR).

• Criminal compliance, in line with the Criminal Code, Public Prosecutor's Office Circular 1/2016 and the most relevant Supreme Court judgements.

Training plan for the Board, the Board committees and the executive team

As part of the Training Plan for the Board of Directors and the Board committees, a number of courses were held in 2018 on a variety of matters, including criminal compliance, operational risks (offices and retail) or in current issues such as cybersecurity.

In addition, during 2018, face-to-face training has been given in relation to the prevention of money laundering, as well as in Internal Control and SCIIF to the Group's people with direct responsibilities in the asset sales process and the reporting of the Group's financial information.

MERLIN has planned further training sessions for 2019 to allow its Directors and their professionals most exposed to risk to permanently update their knowledge. The Company has already scheduled new training sessions on criminal compliance, personal data protection and technological risks for the coming year.

ı 32 ı

4.3. Ethics and compliance

MERLIN is firmly committed to ethics, transparency and value creation for its stakeholders. This is reflected in the Company’s corporate vision and in the values that guide its professionals.

MERLIN Properties’ vision and values

Code of conduct and ombudsman

The Company’s Vision and Values are enshrined in the Code of conduct, the framework that contains MERLIN’s commitments and principles on business ethics and process transparency. This code is applicable to all Company’s professionals, and to all MERLIN’s suppliers and tenants of its assets, who commit to its fulfilment through the “ethics clause” included in all contracts since 2017. In 2018, both the ombudsman and the Code of Conduct have been made public and are available on the Company’s website.

Any signs of irregular actions or conduct on the part of MERLIN’s employees, managers or collaborators that could entail a breach of the Code of conduct is reported through the ombudsman. This ombudsman may be used by employees, suppliers and tenants

New contracts signed by MERLIN with suppliers and tenants include clauses referring to both the compliance policy and the ombudsman.

Regulatory compliance

Ethical conduct entails scrupulous compliance with prevailing legislation. Since the outset, MERLIN’s bodies, policies and procedures have guaranteed compliance at all levels. In these two years, the Company has focused on complying with the requirements associated with the regulations, which it considers to be a priority due to its corporate structure, its sector and the nature of its activities.

“To be the REIT of reference in the Iberian peninsula for our commitment to long-term value creation and the generation of a sustainable, growing dividend for our shareholders in a context of transparency, ethics and responsibility in business and society”

Ethics and corporate

responsibility

Financial performance

Respect for the environment and balanced urban development

Objectivity & Integrity

Respect for Human Rights

Asset protection

20180 complaints were received through the ombudsman

ı 33 ı


MERLIN’s key regulatory compliance

An IT tool was deployed in 2018 to support the documentation of the following regulations: Compliance, ICFR system, Data Protection.

Crime prevention

MERLIN’s management has put in place a programme to prevent crime, as stipulated in the Criminal Law Compliance Policy, the purpose being to guarantee vis-à-vis third parties, courts and administrative bodies that the Company exercises due control over its administrators, managers, employees and other dependent persons, as required by law, and to strengthen the existing commitment to combat fraud and corruption in all their expressions. The Criminal Law Compliance Body (CLC) is mainly responsible for overseeing policy compliance. In 2018, a specific Bylaw was approved for the CLC and the Company's Criminal Risk Map has been updated, upgrading the significance of risks related to offences against the market and consumers, corruption and workers’ rights, in line with the ethical standards that MERLIN demands.

Prevention of money laundering

Control tools are in place to assure compliance with applicable anti-money laundering legislation, such as a Prevention Guide, a Customer Acceptance policy, an Anti-Money Laundering Technical Unit, an ICB (Internal Control Body), a SEPBLAC representative (government body working to prevent money laundering) and annual external money laundering audits.

Internal Control over Financial Reporting

(ICFR) system

As regards financial control, MERLIN has also aligned with best practices, having adapted the Internal Control over Financial Reporting system to the three lines of defence model, developed narratives and flowcharts for the key financial information preparation processes and updated the ICFR Guide, which supports and complements the other tools.

Personal data protection

(GDPR)

In 2018, for the purposes of the protecting the personal data that MERLIN processes in its contractual relationships with customers, suppliers and third parties that access its offices, shopping centres and logistics buildings, a structure of preventive and detective controls was put in place to assure the correct processing of the personal data under the European General Data Protection Regulation.

Combating corruption

In 2018, the Board of Directors approved the Tax Strategy, Tax Policy and Taxation Unit Regulations, which lay down a series of action principles, including strict fulfilment of tax obligations and payment of taxes as required by law, non-use of structures that are artificial or devoid of economic or business meaning so as to reduce the tax burden for the Company or its shareholders and no operations in territories classed as tax havens with the main aim of reducing the amount of tax paid by the Company or its shareholders.

The Audit and Control Committee promoted a number of policies in 2018 which reflect the Company’s desire to comply strictly with the highest standards of ethical and legal behaviour (Board approval being expected in the first quarter of 2019).

These policies include the policy on anti-corruption and anti-fraud and the policy on relations with public administrations, the purpose of which is to lay down the basic principles governing the Group and the standards and criteria on employee conduct in relations with public administrations, so as to put in place a preventive and proactive approach to combating corruption and bribery in all areas of the business.

ı 34 ı

4.4. Risk management

MERLIN’s risk management is supported on the guidelines contained in the Risk Management Policy approved by the Board of Directors in 2015. This policy seeks to lay down the basic principles to control and manage risks faced by the Company and its subsidiaries and investees.

During 2018, the Audit and Control Committee, tasked with overseeing the efficiency of the Company’s internal control and risk management systems, reviewed the Risk Control and Management Policy, including, in its May 2018 review, the three line of defence model in the definition of roles and responsibilities in MERLIN’s risk management and reflecting the new methodology used to determine the 2018 Corporate Risk Map, based on the COSO ERM 2017 Model.

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1st line of defence. 2nd line of defence 3rd line of defence

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ı 35 ı


MERLIN Group’s Risk Management System, based on the principles, key elements and methodology established in the COSO ERM 2017 framework (“Committee of Sponsoring Organizations of the Treadway Commission”), aims to minimise the volatility of results (performance) and therefore maximize the Group’s economic value, including risk and uncertainty in the decision-making process in order to provide reasonable assurance and deliver on the strategic objectives set, providing shareholders, other stakeholders and the market in general, with an appropriate level of assurance to guarantee that the value generated is protected.

In order to develop risk control and management, the Board of Directors relies on the collaboration of the Audit and Control Committee that oversees and reports on the appropriateness and efficiency of the risk control and management system (including internal controls) and verifying their appropriateness and integrity. The Audit and Control Committee carries out this oversight function through Internal Audit Management, that verifies annually the appropriateness and integrity of the Risk Management System implemented by Company Management.

Based on the analysis of MERLIN’s Vision, Values and Strategy, an analysis has been conducted of the different components, according to the grouping of the different strategic objectives pursued (being the SOCIMI benchmark, long-term value creation, generation of a sustainable and growing dividend, values of transparency, ethics and responsibly).

A total of 29 key risks were identified, from the point of view of the different strategic components and facilitators identified above, as set out below:

• Business risks: affecting the strategic objectives of long-term value creation and generation of a sustainable and growing dividend and whose attainment mainly involves the group’s assets, grouped into different business segments (offices, shopping centres, logistics and other): asset occupancy levels, fluctuations in rental levels, rent concertation, decline in property values, investment inefficiency, political risk, etc.

• Resources risks: affecting the strategic objectives of generating a sustainable and growing dividend and the values of transparency, ethics and responsibility and, whose attainment mainly involves the Group’s various internal and external resources (human, technological and financial): dependence on employees and their remuneration, occupational risk prevention, business continuity plan, cybersecurity breaches, technological innovation, the company’s credit rating, short-term debt, covenant compliance, etc.

• Stakeholders risks: affecting the strategic objectives of leadership and benchmarking (in terms of Socimis) and the values of transparency, ethics and responsibility, whose attainment mainly involves the different actions and policies rolled out by the Group to reach out to stakeholders (clients, providers, society, investors and shareholders, and regulatory authorities): credit risk with respect to clients and providers, the Group’s reputation, country’s macroeconomic conditions, shareholder remuneration (dividend), SOCIMI scheme compliance, etc.

ı 36 ı

Within MERLIN’s Risk Management System, all risks have been assessed in terms of Impact and Probability, obtaining a residual risk indicator for the year in progress, KPIs have been identified and reporting responsibilities assigned and mitigating measures for each have been implemented or developed.

Also during 2018, MERLIN continued work on its Risk Management System through other specific actions:

• The main indicators (KPIs) of the Organisation's key risks and the actions envisaged to mitigate them were reviewed on a six-monthly basis.

• A sensitivity analysis was carried out on the risk factors and their potential impact on the Group's financial statements, as well as an analysis of simulations using the Monte Carlo method.

• The main business risks were monitored periodically through the attendance by those responsible for the business units at meetings of the governing bodies to explain business trends and associated risks.

• The technological and cybersecurity risks to which the Company is exposed were analysed with the help of an external provider that also supervised the design of a training and awareness plan for all the employees to be deployed in 2019.

Oversight and internal control

The alignment of MERLIN's activities with its vision and values is assured through the Internal Audit Department, which reports to the Audit and Control Committee and forms part of the Group's Corporate General Management while supporting the Committee’s oversight and information tasks. The Internal Audit function, as the third line of defence, proactively oversees the proper functioning of the internal control, risk management and governance systems, systematically auditing the management and control activities of the first and second lines of defence.

The Competences of Internal Audit Management are set out in MERLIN’s Internal Audit Regulations, approved by the Audit And Control Committee on 11 May 2016. It carries out its work in accordance with International Standards for the Professional Practice of Internal Auditing and in accordance with the Code of Ethics of the Global Institute of Internal Auditors.

The 2018 Annual Activity Plan, approved by the Audit and Control Committee on 13 December 2017, included, as priorities, activities aimed at supporting the Audit and Control Committee in respect of all its responsibilities, ensuring the reliability of financial-economic information, the performance of internal audits in all MERLIN’s business divisions and the development of internal control structures (anti-money laundering, ICFR, Crime Prevention Model and Risk Management).

In this respect, the 2018 Annual Activity Plan, which has been completed in full, included, generally, assurance work with respect to the preparation of financial information (ICFR controls, quarterly, six-monthly and annual closings and the annual management report and annual corporate governance report), the review of operational, investment and contracting procedures in the different

ı 37 ı


business segments (Offices, Logistics, Shopping Centres and High Street Retail), verification of compliance with operational processes (expense reinvoicing, capex management, revenue assurance, in-house development management), reviews of extraordinary investment/divestment and other types of actions aimed at the oversight of the development of the crime prevention, data protection, anti-money laundering and risk management and control system structures.

ı 38 ı

VALUE CREATION FOR STAKEHOLDERS05MERLIN Properties understands the creation of shared value with its stakeholders as an essential aspect to achieve sustainable objectives over time. The success of the corporate project is only achievable by taking into account stakeholder’s expectations and setting the appropriate response mechanisms.

ı 39 ı


MERLIN’s main stakeholders are its investors, employees, tenants, customers and local communities. MERLIN also has one-off or periodic contacts with other stakeholders such as regulators, public administrations, analysts, suppliers and the media.

The Company takes them all into account in the course of business and works with them to identify their expectations and needs, and to respond through different communication channels that are permanently open and under improvement.

Stakeholders, relevant aspects and communication channels

Main stakeholders

Relevant aspects

Communication channelsF

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Investors• Long-term dividend.• Share value. • • • • •

Analysts• Relevant information.• Company's operations.• Share price evolution.

• • • • •Employees

• Labour uncertainty and stability.

• Labour conditions. • Working hours.

• • • • • •

Tenants• Personalised service.• Portfolio flexibility. • • • •

Suppliers• Maintenance, development

and remodelling of the Company’s assets.

• •

Local communities

• Economic and social impacts of assets on local communities.

• • •

Regulators

• Relevant events. • Compliance with legislation

and periodic reporting requirements.

• •

Public Administration

• Compliance with legislation governing the Company's buildings (permits, licences…).

• •

Media• Relevant transactions

and events. • • • • • •

ı 40 ı

5.1. Investors

Main indicators 2018

Outlook upgrade by Standard & Poor’s from stable to positive.

Distribution of €215 million among shareholders (0.46 €/share).

First roadshow organised entirely by MERLIN.

First Annual General Meeting to be attended online.

EPRA Gold award for sustainability reporting.

First appearance in the GRESB sustainability index.

Improved credit rating.

Organisation of the second Capital Markets Day.

2018 EVOLUTION 2017-2018

Share price (€) 10.78 -4.6%

Dividend pay-outs (M€) 215 +15%

Number of analysts covering the Company 25 +4.1%

Average daily trading volume (M€) 28.7 +2.1%

Total Shareholder Return (TSR) 15.2% -6.4 percentage points

2018 Milestones Future challenges

ı 41 ı


Distinctive aspects for investors

MERLIN Properties’ profitability target is based on shareholders’ remuneration, consisting of the annual distribution of dividends and value creation through an increase in the Company’s EPRA NAV1.

Together with the generation of sustainable remuneration for investors, the distinctive aspects of MERLIN’s relationship with its investors are transparency, efficiency, expertise and predictable behaviour.

1 Net Asset Value reported following the EPRA guidelines.

215 M€paid out to shareholders

Sustainable Retribution

Maintaining the goal of guaranteeing an annual dividend payout in line with the Company's results.

Transparency

Aligning the reporting of information in time, form and content with shareholders and financial community’ demands.

78 Reportsand presentations available in the corporate website

0.55% of NAVor 5.5% of GRI is the maximum limit of structural costs set for 2020

Efficiency

Assuring maximum cost efficiency and continuous improvement targets.

27 yearsof average management team experience

Expertise

Based on a fine team of professionals focused on maximising operating efficiency and profitability for each asset.

0.52 €/acción€/share to be distributed in 2019

Predictability

Stabilising behaviour as a Company, allowing the adjustment of both internal predictions and those of stakeholders.

ı 42 ı

Company's results

MERLIN Properties ended 2018 with gross rental income of €499.7 million, which is 6.5% up on the previous year. EBITDA was also +2.8% higher than in 2017 at €403.7 million.

The Company achieved an operating cash flow per share of €0.61, representing a fall of 0.8% with respect to the previous year. MERLIN once again demonstrated a capacity to use the capital made available by shareholders efficiently.

As regards the capital structure, the value of the Company’s assets grew once more. The year-end NAV1 of MERLIN's portfolio amounted to €6,956 million (€14.81 per share), 11.7% up on end-2017.

MERLIN's net debt rose by 7% in 2018 to €5,252 million, with a leverage ratio of 40.7%. Proactive debt management brought a considerable reduction in leverage and cost of debt, as well as lower exposure to interest rate fluctuations.

Financial highlights (€ million)

Share price and shareholder dividend

MERLIN’s stock closed at €10.78 at 31 December 2018, entailing a fall of 4.6% on the previous year.

Share price reached a peak of €12.95 in May, although regulatory uncertainty in Spain, political instability and macropolitical tensions that marked the year meant that MERLIN’s stock did not mirror the Company's excellent performance in 2018, when assets exceeded €12,000 million and gross rental income rose 6.5% on the previous year.

In any case, in 2018 stock price still outperformed the industry's reference index EPRA Europe (-10.6%), the IBEX-35 (-15.3%) and the Euro Stoxx 600 (-13.1%). Its value in NAV terms was 14.81 €/share, 37% above the stock market value.

1 NAV: Net Asset Value.

2018 Change 18 vs 17

Gross rental income 499.7 +6.5%

Recurring EBITDA 403.7 +2.8%

FFO 286.9 -0.8%

Leverage 40.7% -287 bps

Net Asset Value (NAV) 6,956 +11.7%

ı 43 ı


Following Board’s approval, MERLIN resolved to pay out a dividend of 0.20 €/share on account of 2018 profits, payment having been made in October. MERLIN's management team is to recommend a gross supplementary dividend of 0.30 €/share, which will be paid out in May 2019 following Board approval.

Communication with investors and analysts

The confidence of investors and analysts is a fundamental aspect for MERLIN, so the Company continuously strives to improve its visibility and positioning with them and with the news media that report its activities.

In 2018, the Company was again in contact with investors and analysts through channels that are already well established and managed by the Investor Relations Department.

This is reflected in the recommendations made by the 25 analysts who covered MERLIN in 2018. Over 70% of the analysts upheld their purchase recommendation, pushing the target price up to above €13.

The liquidity of MERLIN’s stock is worthy of note, with an average daily volume traded of €28.7 million or 0.5% of average market capitalisation in 2018.

From 1st January 2018 to 31st December 2018, Rebased to 100

0

2

4

6

8

10

12

80

85

90

95

100

105

110

115

120

MERLIN Properties Volume MERLIN Properties EPRA Europe (incl. UK) Stoxx 600 IBEX-35

Jan-18 Feb-18 Mar-18 apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Source: BloombergAdjusted for any equity dilutive transactions

(4.6%)

(10.6%)

(13.1%)

(15.3%)

MERLIN’s share price in 2018. Evolution, comparison with the main indexes

ı 44 ı

Relationship channels with Investors, Analysts and the News Media

The Company currently has the following channels:

Direct contact with the

Department

MERLIN’s Investor Relations Department has a specific contact telephone number to respond as quickly as possible to doubts and queries from the investors and analysts that cover the Company.

Corporate reports and

presentations

MERLIN publishes regular reports to keep investors and analysts up to date on a timely basis. In 2018, the summarised quarterly report format launched in the previous year was repeated so as to communicate more efficiently by focusing on key highlights for the period.

The Company also publishes annual reports on its financial and non-financial performance. This year, the CSR Report received the EPRA Gold Award for the quality of the non-financial information disclosed in 2017. It was also recognised by the “Most improved report” award for efforts made with respect to the previous year.

All relevant corporate reports and presentations are posted on the Company’s website, which is kept permanently up to date.

General Shareholders’

Meeting

MERLIN streamed its Annual General Meeting for the first time in 2018 to allow easy access and increase coverage, reaching a higher number of shareholders than in previous years.

Participation in sustainability

indices

For the first time in 2018, MERLIN was included in GRESB, the real estate industry’s sustainability index. This allowed MERLIN to showcase its social, environmental and governance performance for the industry’s main institutional investors so they can take sound investment decisions.

Visits to the Company's assets

With the aim of improving knowledge of the Company’s assets, location, status of occupancy and upkeep, etc., MERLIN organises visits by investors and analysts to the main properties.

MERLIN organised a total of 25 visits in 2018 attended by 68 investors and analysts.

Capital Markets Day

In line with the communication objectives set in 2017, the second edition of MERLIN's Capital Markets Day is due to be held in 2019 to showcase both the buildings forming part of the Company's portfolios and the team responsible for daily management.

Industry conferences and

events

MERLIN again played an active role in 2018 in the industry's main conferences and events, both in Spain and internationally. In 2018, MERLIN took part in 22 conferences and round tables. In all cases, individual and group meetings were held with the investors.

Roadshows

MERLIN continued to hold roadshows, this year in unusual locations such as Stockholm, so as to prospect for potential new investors.

Following on from the initiative launched in 2017, the Company held a new corporate governance roadshow to present the best practices implemented during the year and a new publishing roadshow, this time visiting a total of 20 news media.

In 2018, the first roadshow organised entirely by MERLIN was held independently from financial institutions and therefore aligned with the MiFID II Directive.

ı 45 ı


1 MERLIN Group includes employees both in MERLIN Properties and its subsidiaries: MERLIN Parques Logísticos, S.A.; GESCENTESTA S.L.METROPARQUE, S.A.; Parc Logístic de la Zona Franca; SEVISUR Logística, S.A.; VFX Logística, MP Monumental.

5.2. Employees

Broadening of the scope of training provided, making it available to more Company employees.

Implementation of new IT tools for the on-line management of holidays and leave.

First meeting of the entire MERLIN Group in Madrid.

Update the Welcome Guide for all new hirings.

Initiatives to encourage employees of MERLIN to get involved in voluntary actions.

Development of a consolidated Human Resources Procedures Manual.

Inviting employees to present training proposals.

Access to the acquisition of shares through the flexible compensation plan for all employees of the Company.



2018 EVOLUTION 2017-2018

Number of employees 1761 9%

% women in the workforce 41.5% -1.1 percentage points

Employees with permanent contract 99.4% =

ı 46 ı

Distinctive aspects of MERLIN’s human capital1

Human capital is a key, distinctive factor at MERLIN. All the Group’s employees have considerable experience, are skilled, qualified and trained to carry out their functions and have a recognised high capacity for work and commitment, as well as honesty in the performance of their duties.

Despite their varied origins, all the workers share the Company’s philosophy and are perfectly aligned to achieve its objectives.

1 MERLIN Group includes employees both in MERLIN Properties and its subsidiaries: MERLIN Parques Logísticos, S.A.; GESCENTESTA S.L.METROPARQUE, S.A.; Parc Logístic de la Zona Franca; SEVISUR Logística, S.A.; VFX Logística, MP Monumental.

20.5years of average employee experience

Excellence

MERLIN has a first-rate team, made up of highly skilled professionals with extensive experience in the real estate sector in both Spain and Portugal.

Efficiency

MERLIN's professionals manage a volume of assets which is 2.8 times greater than that managed by similar companies, in accordance with its philosophy, which is based on both growth and efficiency.

68M€M€ GAV/employee

1.14%Voluntary turnover rate

Commitment to the organisation

The Company's professionals are firmly committed to a business project which has resulted in MERLIN becoming the leading Spanish REITs and one of the key players in the European market.

71%of employees have

received training

Independence

The Company has a team of proactive, responsible professionals who are provided with the necessary skills and independence to make decisions.

ı 47 ı


Workforce composition

MERLIN's professionals are the Company's main asset. MERLIN’s human capital is currently composed of 176 professionals divided into only two categories in line with the Company’s horizontal structure strategy

• Management Team. This team is made up of 12 employees (7% of the total headcount), led by CEO Ismael Clemente. They have a wealth of experience in the real estate business and expert knowledge of the Spanish and Portuguese markets, characterized by the pursuit of operational efficiency and impressive track record in terms of value creation.

• Other professionals. Composed of 164 employees. It is a team of highly qualified professionals with considerable experience in the sector, who are firmly committed to and focused on the Company's objectives.

2018 2017 2016

Men Women Men Women Men Women

Management team

<30 years - - - - - -

30-50 years 7 1 8 1 8 1

>50 years 4 - 3 - 3 -

Other pro-fessionals

<30 years 4 4 4 5 4 4

30-50 years 67 54 58 51 60 76

>50 years 21 14 20 12 27 15

TOTAL 176 162 198

1 As at 31 December 2018.

• I represent 41% of the workforce.

• I represent 40% of recruits in 2018.

• I am between 30 and 50 years old (75% of women).

• I have a permanent contract (99%).

• I received 17.6 hours of training in 2018.

• I represent 59% of the workforce.

• I represent 60% of recruits in 2018.

• I am between 30 and 50 years old (72% of men).

• I have a permanent contract (100%).

• I received 14.1 hours of training in 2018.

Current profile of MERLIN Group employees1

ı 48 ı

The Relocation Plan linked to Metrovacesa's ERE has been successfully completed in 2018, with 100% of the employees who signed up for it having been relocated.

Diversity and equal opportunities

As reflected in the Company’s Code of conduct, MERLIN promotes equal opportunity and non-discrimination in all phases of the working relationship with employees, regarding access to employment, training, promotion and working conditions.

MERLIN is also firmly committed to the social inclusion and integration into the labour market of people with disabilities.

The Company has 5 employees with disabilities on its workforce, currently accounting for 3% of its headcount, all of whom are on permanent part-time contracts. These professionals are completely integrated and perform essential and valued tasks for the Company.

MERLIN therefore exceeds the requirements of the current legislation in this respect (the LGD, the General Law on Disability, formerly the LISMI) through direct hirings.

Talent attraction and retention

When hiring employees, MERLIN guarantees equal opportunity and transparency, selecting new professionals based on their skills, knowledge and alignment with corporate values and objectives.

MERLIN has taken on 20 new employees during 2018 (rate of new hires of employees 11.4%), 40% of whom are female.

In order to attract new talent, the Company signs collaboration agreements with top educational institutions to both favour the integration of new job seekers and identify the highest academic achievers. MERLIN currently has agreements with the following institutions: Universidad Autónoma de Madrid, Universidad Carlos III, Universidad Pontificia de Comillas and Universidad de Navarra.

In the framework of these agreements, MERLIN has been supported by two interns in 2018.

For talent retention purposes, MERLIN analyses ways to motivate and reward its professionals for their involvement and commitment. Four key mechanisms are now used for this purpose: remuneration, professional development, closeness with employees and social benefits.

ı 49 ı


Talent retention. Main tools

>50 years

30-50 years

<30 years

20%>50 years

75%30-50 years

5%<30 years

Women

Men

60% Men

40%Women

>50 years

30-50 years

<30 years

20%>50 years

75%30-50 years

5%<30 years

Women

Men

60% Men

40%Women

Profile of MERLIN’s hirings in 2018

Remuneration

26% of employees currently

participating in the Company's Long-Term Incentive Plan

Remuneration is a key tool to attract and retain the best talent. The Company’s remuneration system includes three distinctive features:

• Flattest pay slope in the entire IBEX-35.

• Highest average salary of the entire IBEX-35.

• Prioritisation of performance over any other variable when determining remuneration. Continuous monitoring of the employees’ evolution.

The Long-term Incentive Plan for employees has been consolidated during 2018. There are currently 45 employees participating in the LTIP.

Flexible remuneration and social benefits

100% Employees with access to social

benefits and full medical insurance

In addition to MERLIN's remuneration system, the Company provides fringe benefits and alternative remuneration schemes for all its employees.

In 2018, MERLIN has continued to standardize the conditions and fringe benefits of all its personnel. MERLIN has equalized and improved the provision of life insurance policy to all its employees, with the Company assuming the full cost of this.

Similarly, all employees have access to the flexible remuneration schemes made available by the Company (training, kindergarten vouchers, transport cards and restaurant vouchers).

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Communication

One of the main reasons for MERLIN’s desire to keep its current structure is related to the effectiveness of its communication with the employees. The Company is well aware of the importance of having communication channels in place to ensure staying informed regarding the concerns and opinions of its employees.

MERLIN has therefore focused part of its efforts on the development of new communication channels and the reinforcement of existing channels:

• In 2018, the Company held the Group's first global meeting in Madrid, attended by all the company's employees from different geographies.

• MERLIN celebrated again the annual asset management meeting, in which 73 employees participated, including senior management, the asset managers of different portfolios and different corporate departments. The aim was to favour the adoption of a culture common to all the various teams, and give the participants first-hand knowledge of the assets and see the synergies existing between them.

MERLIN also continues to work on improving its current communication tools, such as the employee intranet. The Company will also carry out a new employee satisfaction survey in 2019.

Professional development

2,731 h Training to employees

The proactiveness of MERLIN’s professionals is the key to their advancement.

The Company’s horizontal structure and youth allows its professionals to define the pace and direction of development based on their capabilities and aspirations. During their time at the Company, all professionals have the opportunity to move between different positions and take on new responsibilities.

MERLIN also offers its employees on-the-job training, to reinforce their professional development. This training comprises three strands:

• Language training plan: MERLIN has extended its language training, now being offered to both the employees at the Company's headquarters and to its employees in Barcelona, as a result of which the number employees who are able to sign up for it has increased by 16%.

• Focused training: MERLIN enables its employees to select the courses best suited to their specific needs.

• Shared knowledge: Over its 20 years' experience, the workforce at MERLIN has built up considerable knowledge on the management tools developed by its work teams and procedures, and the Company views the reinforcement and transfer of such knowledge as a priority. The Company therefore provides annual "internal training" courses which are given by members of MERLIN's own personnel to their colleagues. During 2018, the training of this type provided has consisted of courses on Office and new digitization tools such as Power BI.

In addition, all new employees receive training in the Prevention of Occupational Risks as soon as they join the Company.

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Employee involvement with the community

MERLIN knows that its professionals value being part of an organisation aware of the problems and needs of the communities where its activities are developed and uses available tools and resources to help improve it.

In this respect, the Company has further consolidated those programs which aim to reinforce the involvement of both MERLIN and its employees with the wider community.

MERLIN's aim, through initiatives such as this, is to encourage its employees involvement in the communities, fostering their development and supporting the most disadvantaged groups.

The MERLIN Corporate Social

Responsibility Plan

50 Foundations benefited

17% Employees involved

> 320 k€ In donations

The Company, within the framework of its CSR Plan - whereby it undertakes to allocate a percentage of its revenues (up to 0.1% of the gross rental income) to social projects and programmes - has donated almost €220,000 to 50 different foundations.

Complementary to these corporate contributions, the CSR Plan looks to duplicate employees, directors or executives contributions to social projects, by MERLIN. Donations corresponding to this second strand of the Plan - under which the contributions made may be either financial or consist of volunteer work - amounted a total of more than 100,000 euros.

Also within the context of this same initiative, MERLIN's employees were given the opportunity to see for themselves the work carried out by "Empieza por Educar", one of the associations with which MERLIN has collaborated within the framework of this Plan.

Voluntary training for MERLIN

professionals

94 hours devoted to teaching

Twenty one MERLIN professionals have voluntarily delievered training as part of the university degree “Intensificación en Planificación y Gestión Inmobiliaria” of the Quantity Surveyor’s School of the Universidad Politécnica de Madrid, donating the associated course fees to academic grants for the course’s best students.

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5.3. Tenants and end customers

Increase in occupancy of MERLIN’s assets.

DIGA certification of Eucalipto 25 office building, the first asset in this portfolio to obtain accessibility certification.

Launch of the shopping centres tenant satisfaction survey.

Development of the digitalisation strategy in shopping centres.

Adaptation of the Las Arenas shopping centre, as the first in Spain prepared for blind users.

Implementation of the MERLIN Hub project to enhance mobility and connectivity in the office portfolio.

Extension of the DIGA 2020 certification plan for shopping centres.

Increase the offer of logistics assets through land development in Portugal's main logistics hub.


2018 EVOLUTION 2017-2018

Multi-tenant offices satisfaction 3.1 out 4 -0.13 points

Asset occupancy 93.4 % +0.8 percentage points

ISO 9001 certified buildings 68 +28 %

Shopping centres with accessibility certification 13 +160%


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MERLIN’s distinctive aspects in relation to tenants

Working together, valuing the opinions of tenants and customers, quality initiatives, the capacity to design unique solutions and the accessibility of our assets are the distinctive aspects of MERLIN’s relationship with tenants.

100% of single tenant asset customers recommend MERLIN as a landlord.

Joint work

MERLIN is committed to involving asset occupants as a key to optimise operations, cooperating and working with them to improve management.

Opinion valuation

MERLIN compiles tenants’ opinions, concerns, needs and improvement suggestions through several communication channels.

3.1/4In satisfaction surveys to tenants of ISO 9001 buildings.

68 managedunder the ISO 9001-certified Quality Management System.

Maximum quality

MERLIN guarantees maximum quality in the services provided to its tenants through an externally certified Quality Management System.

MERLIN is the leaderin the office, shopping centre, logistics and high street retail markets.

Unique solutions

Thanks to its internal management team and portfolio versatility and size, MERLIN is able to offer unique solutions to tenants.

14 DIGA -certified assets, 2 assets in progress.

Accessibility

MERLIN actively promotes the best possible accessibility in its assets so as to guarantee quality and satisfaction with the service provided, regardless of user capabilities.

ı 54 ı

The quality of tenant and end customer experience is critical to MERLIN’s success. Innovative solutions and the response to the genuine needs of tenants is key to assuring user satisfaction. To achieve this, the Company is committed to insourcing a leasing management team engaged in comprehensive management throughout asset life cycles, continuously adapting its management strategy to offer an excellent service to tenants and end customers.

Communication and response to the needs of tenants and end customers

MERLIN is in constant relation with tenants so as to discover and respond to their concerns and needs and optimise their experience while they occupy the assets.

The Group conducts annual customer satisfaction surveys, in line with its ISO 9001 certification, to continuously improve the quality of the service offered to customers and measure progress. In 2018, over 700 satisfaction surveys were sent out to tenants of mono-tenant (satisfaction of 85/100) and multi-tenant (3.1/4) office buildings and, for the first time, to the tenants of the shopping centres (2.9/4) included in the corporate Quality Management System.

In each asset surveyed, the questionnaire covers aspects such as the cleanliness of facilities, administrative matters, response to tenant needs, incidents that may arise and treatment by MERLIN’s personnel. In this way, MERLIN is able to obtain its tenants’ opinions on the assets and the corporate asset management, so as to detect improvement areas.

Beyond tenant relations, MERLIN strives to capture the expectations of end customers in its shopping centres through different relationship tools employed throughout the shopping process. The Company undertakes annually or biennally studies, has an action protocol in place for potential complaints or suggestions and is working on digital tools to enhance contacts with end customers.

Shopping centre management programmes

MERLIN has two programmes under way to maximise service quality in shopping centres, both for end customers (“Excellentia 1.0” project to improve end customer satisfaction) and for tenants (“We are Merlin” project to build lasting relationships with tenants).

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Renault Group’s new headquarters, the work environment of the future

MERLIN worked with Renault on the comprehensive repositioning of its new headquarters so as to meet the group's needs in a functional, efficient space for its workers.

The headquarters combines innovation, design, sustainability and technology, fulfilling the initial objective to create the work environment of the future, where the Renault Group's 500 employees in Madrid are now based.

The new offices also foment team creativity and inter-departmental cooperation thanks to 80 meeting rooms, numerous spaces for spontaneous meetings and a large social area.

MERLIN is working actively to bring in an increasing number of ammenities and services to enhance tenant comfort and satisfaction. Along these lines, the Company includes sports facilities and restaurant services in its assets.

Integration of new trends in assets and management

In order to maintain its leadership position and offer a top quality service, MERLIN works actively to anticipate new trends and offer tenants and customers the latest trends that impact the sector such as technology, digitalization, the emergence of e-commerce or the emergence of new ways and workspaces.

Well-being and comfort of tenants and end customers

MERLIN is committed to creating environments that maximise well-being and comfort for asset users, whether tenants or visitors. As a starting point, MERLIN makes sure that its assets comply with applicable health and safety legislation and assesses possible impacts on its occupants across the entire asset portfolio. No incidents were recorded in 2018 due to the failure to fulfil health and safety regulations.

This concern for tenant well-being extends to the products, materials and services offered, creating healthy work environments and maximising occupant well-being through the design, the heating, ventilation and air-conditioning equipment used in the asset, lighting levels and ergonomics, among other factors, in response to the need for thermal, visual and acoustic comfort and indoor air quality.

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Integration of the online and offline world

The Company has carried on integrating the online and offline worlds by fitting Click&Collect points in all its portfolios, installing WiFi networks in shopping centres and creating marketplaces for its smaller tenants or last-mile solutions in response to new logistics needs, mainly arising from e-commerce.

Commitment to accessibility

MERLIN works to ensure that its assets are accessible to all potential users.

In 2016, MERLIN began to deploy the Indicative Sign of Accessibility Degree (DIGA) in its portfolios, entailing the opportunity to assess the status of accessibility in its assets and undertake the necessary remodelling, so as to guarantee that all potential users, irrespective of their capabilities, have the same degree of access to facilities and services.

At present, Company has a total of 13 DIGA-certified shopping centres, as well as the Eucalipto 25 office building, which was awarded a 3-star rating. MERLIN plans to increase the number of assets certified in the coming years and two business office parks are in the process of certification.

Las Arenas, the first shopping centre accessible to the blind

As part of the Company's commitment to promote asset accessibility, MERLIN undertakes actions in addition to those required for DIGA certification. In 2018, Las Arenas shopping centre in Barcelona was the first in Spain to implement an innovative guide system allowing visually impaired people to visit the centre unaccompanied.

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Occupancy, WAULT and tenant retention rate

Thanks to good management and exclusive, quality solutions for tenants, MERLIN has successfully improved the occupancy rate in all portfolios to reach an overall 93.4%, 0.8 percentage points above the previous year, with a tenant retention rate of 78.4% during the period.

Wault

(y

ears

) 3.1

17.7

2.5 4

Rete

nti

on

rati

o

(%)

70.6% n.a.86% 82.5%

Occ

up

ancy

(%)

90%

Offices

99.2%

High street retail

91%

Shopping centres

98.2%

Logistics

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5.4. Local communities

Launch of the MERLIN Proptech Challenge programme to promote and support new entrepreneurs.

Adherence of the entire Spanish office and shopping centre portfolio to the “Earth Hour” initiative.

Over 300 activities and initiatives with local communities.

Creation of a panoramic observatory of the city of Barcelona on the top floor of Torre Glòries.

Comprehensive renovation of the Monumental building in Lisbon to create the best building in the market.

Improvement of access to the A1/M11 motorway as part of the development of the Torre Chamartín building.


2018 EVOLUTION 2017-2018

Economic value distributed (M€) 597.5 +14.6%

Purchases to suppliers (M€) 91.1 +6.5%

Average supplier payment period (days) 47 +21.4%

Social or environmental claims from communities (No.) 0 =


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MERLIN’s distinctive aspects in relation to local communities

The presence of MERLIN’s assets in the local community is an opportunity for socio-economic growth and dynamism. The Company foments solid, lasting relationships with local communities. Through a two-way, transparent approach, MERLIN identifies their needs and tries to respond through cooperation in initiatives and programmes, offsetting any potential adverse impact and creating value as a result of its activities.

Another distinctive aspect in connection with local communities is MERLIN’s upkeep of quality spaces.

Contribution to local development

In line with the commitment acquired in its Corporate Social Responsibility Policy, MERLIN encourages local community development through its assets.

Each asset makes a contribution to local economic development, is a source of direct and indirect employment, and creates value in the local community through various social and awareness-building initiatives.

MERLIN captures local community expectations through its asset managers.

Dialogue and transparency

Smooth, ongoing communication with the members of the community.

Impact management and value creation

Maximising positive impacts on society while mitigating the adverse effects and identifying new local development opportunities.

91.1 M€on supplier purchases.

1 M€ Committed in 2018 to the adaptation of public use spaces in 2019.

Quality spaces

Creating spaces in and around our assets which optimise use opportunities for local communities.

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1. Contribution to economic development

The direct purchasing and contracting of products and services by MERLIN and its assets is one of the main positive economic effects of the Company’s activities. MERLIN gives priority to local suppliers and subcontractors provided they submit a competitive offer and meet required quality standards, including aspects such as a quality system or the selling of certified products, among others.

In addition, as required by the sustainable construction standards in which the Company is certified, MERLIN works with local contractors during development and remodelling work, as well as for raw material purchases, which generates a considerable volume of business and jobs in the local community.

In 2018, payments made by the Company to suppliers of products and service rose by 6.5% to €91.1 million. MERLIN has internal processes and a supplier payment period policy in line with regulations on measures to combat late payment in commercial transactions. The Company’s average supplier payment period in 2018 was 47 days.

Annual expenditure on purchasing and contracting associated with MERLIN’s assets (M€)

2. Contribution to local employment

The presence of MERLIN’s assets also contributes towards direct job creation given that they frequently contract daily operations such as cleaning and maintenance, security and asset management in the local community.

During the operation phase, the Company’s assets also indirectly contribute to job creation in the local community through new commercial activities and restaurant services.

54.4

2016

85.5

2017

91.1

2018

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3. Value creation through its assets

MERLIN, through its assets, promotes programmes, initiatives and sponsorships that bring value to communities. In 2018, the Company implemented participation and development programmes and initiatives in the local community in 54%1 of the managed portfolio2.

Percentage of centres with development, impact assessment and local community participation programmes3

The content of the programmes and initiatives carried out in the Company's assets varies depending on local needs and seeks to respond to the main local concerns and community interests. Six commitments are currently covered: improvement of public spaces, recovery of the local area, training, social outreach, culture and awareness-building.

Percentage of centres in which development programmes have been implemented

95%

Offices

89%

Shopping centers

8%

Logistics assets

Awareness-raising activities

Social action

Promotion of culture and local development

Training activities

Upgrading of the surroundings

Improvement of spaces for public use

16.4% 49.7%

27.2%

6.1%0.3% 0.3%

1 Percentage calculated based on floor area of assets.2 Includes information on the office, shopping centre and logistics asset portfolios.3 Percentage calculated based on floor area of assets.

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MERLIN’s main commitments to sustainable development in local communities

Surroundings upgrading

MERLIN contributes to economic development and upgrading in local communities through improvements in infrastructures and communications, as well as secondary activities associated with its operations.

Improvement of spaces for public use

While developing and repositioning assets, MERLIN extends and applies its corporate quality criteria to related spaces, adding value to and showcasing its influence on the local community. As part of the comprehensive repositioning of the Larios shopping centre, MERLIN has committed to remodel the “Solidarity Square” adjoining the Company's asset.

MERLIN promotes local community training on a variety of subjects by organising activities in its own shopping centres such as workshops, competitions, talks or courses, as well as through prizes and training grants. In 2018, the La Fira shopping centre held the first short film competition and gave grants to the three winners to study a master’s degree at the Reus Film School. As an industry leader, MERLIN promotes and foments education and research in asset management, real estate and town planning. A number of courses and seminars were held in 2018, including the “Aulas MERLIN” initiative.

Training activities

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Besides over 300 social participation initiatives and programmes, MERLIN is actively involved in local communities through activities at schools and universities and with industry, local and regional associations.

Social action

MERLIN supports projects and initiatives that promote improvements in the living conditions of underprivileged groups, cooperating with NGOs and local entities. Both in its shopping centres and in its logistics assets, the Company assigns space for various initiatives such as Food Bank activities or programmes of local entities, among others.

Promotion of local culture and development

MERLIN also promotes local culture, participating actively in the organisation of exhibitions, competitions and sales of local products. As an example, the Company sponsored the Ús urban art festival by assigning space in the Las Arenas shopping centre for three street artists on the large-format screens and in the mall.

Awareness-raising activities

Various awareness-building activities are also held in MERLIN's assets. For example, the main vestibule in the Partenón office building served as space for “Ahora puedes verlo”, a virtual reality initiative that brought the lives of thousands of refugees in the Za’atari camp in Jordan closer to visitors.

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SUSTAINABILITY IN THE PORTFOLIO06Sustainability is a key pillar of MERLIN Properties' asset strategy, from acquisition to occupancy. For this reason, the Company integrates sustainability criteria into its properties based on benchmark sustainability standards in all its operations.

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39 new LEED/BREEAM sustainable construction certificates.

First LEED V4 type BD+C certificate: Warehouse and Distribution Centres worldwide, for the San Fernando I building.

Inclusion of 16 new assets in the Environmental Management System.

ISO 50001 certification for an office building, a business park and a shopping centre.

Technical classification of office buildings promoted by the Spanish Association of Offices (AEO) for two buildings.

37 office assets in the process of AEO technical classification.

Electric car charging points in the entire office portfolio.

Integration of network analysers in a data-gathering system to analyse consumption and pass on costs to tenants.

Fitting of photovoltaic solar energy in future repositionings.

LEED/BREEAM certification of 95.9% of assets (in GAV terms) (excluding high street retail).


2018 EVOLUTION 2017-20181

Energy consumption in GJ 421,946 (136,764) +12% (+2%)

Greenhouse gas emissions (tCO

2eq) 28,761 (9,249) +1% (-10%)

Investment in LEED/BREEAM certification (k€) 1,658 -9%

% of portfolio (in GAV terms) LEED or BREEAM certified2 61% +16

percentage points

Purchases made from approved suppliers (M€) 78 +113%


1 In brackets, value expressed in Like for like terms. Like for like is defined as those assets that have remained in operation within the MERLIN portfolio in the last 3 years (from 1 January 2016 to 31 December 2018) without significant variations.

2 Excluding high street retail.

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Acquisition of land and new buildings

Sustainability criteria in decision-making

Evaluation of sustainability aspects in the new investments in land and buildings (legal compliance, penalties, construction features, etc.).

6.1. Integration of sustainability in MERLIN Properties’ assets life cycleMERLIN seeks to integrate sustainability in each phase of the asset life cycle, identifying and mitigating the negative impacts of its buildings and involving in the process all agents that take part in asset acquisition and management..

Sustainability in MERLIN’s asset life cycle: Torre Glòries

1

2

2017

Comprehensive development or refurbishment

Sustainability criteria in development

• Inclusion of sustainability criteria in the design.

• Mitigation of impacts during execution.

• Inclusion of environmental requirements for contractors.

• Certification of assets under sustainable construction systems.

Acquisition of Torre Glòries

Sustainability was taken into consideration right from the initial decision to acquire this asset. MERLIN assessed aspects such as the tower's connectivity and proximity to public transportation.

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Management of operational buildings

Active management

• Active consumption monitoring and management.

• Collaboration with tenants and operators (training sessions, Good Practices Guide).

• Emission cutting (renewable energy facilities, RECs).

• Supplier evaluation based on sustainability criteria.

• Asset certification under recognised systems that allow performance measurement.

Remodelling

Sustainability criteria in remodelling • Fitting of more resource consumption efficient equipment and

systems.

• Certification under sustainable construction standards.

Completion of phase one of the Torre Glòries refurbishment to enhance energy efficiency

MERLIN successfully completed phase one of the comprehensive repositioning so as to adapt the Torre Glòries building to the most stringent energy standards and obtain LEED Gold certification for the most efficient and environmentally friendly designs. This involved a number of energy efficiency measures such as replacing the old air-conditioning systems with new high-energy-efficiency systems, thereby contributing to a sustainable energy model in the local area.

Torre Glòries’ Management

Implementation of management systems certified by the most demanding standards

MERLIN will include in 2019 Torre Glòries in its environmental management system certified according to ISO 14001.

3

4

2018

2019

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From the moment assets are acquired, the Company integrates sustainability into decision-making and is also aware of its influence in enhancing asset performance and tenant welfare. MERLIN seeks to distinguish its buildings along these lines, having launched three new key repositioning plans in 2018: Landmark I, Flagship and Best II, on a time horizon of 2018-2022 and for a total investment of approximately €600 million. These plans are focused on value creation through the repositioning of selected properties while integrating sustainability in the process.

Portfolio certification

The Company is working intensively to obtain LEED and BREEAM certification, having launched a plan in 2016 to certify 95.9% of the portfolio (in GAV terms, excluding high street retail premises), for which €6 million has been earmarked.

This Plan has enabled MERLIN to establish alliances with demanding tenants and to jointly advance in the creation of first-rate portfolios in terms of sustainability.

MERLIN’s asset certification strategy under sustainable construction frameworks

When certifying the assets, the Company selects the most suitable framework and type based on the phase of the asset and the features of the building, the level of occupancy at the time of certification or the tenants that occupy it.

Certified

In process

97%

Offices

60%

37%

98%

Shopping Centers

63%

35%

79%

Logistics

63%

16%

Sustainable building certification plan

In 2016, MERLIN defined an ambitious plan to distinguish its assets in sustainability terms, basing its actions on the most demanding, recognized building certification standards: LEED and BREEAM.

In 2018, MERLIN was able to obtain 39 new certificates, which means that today 61% of the Company's asset portfolio (excluding high street retail) is LEED or BREEAM certified.

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Success stories in 2018

The San Fernando I building, accepted by MERLIN in 2018, became the first facility in the world to obtain LEED V4 type BD+C sustainability certification: Warehouse and Distribution centres.

The Company planned the project to meet the highest standards of sustainability in both the design and construction phases so as to assure the application of sustainable, energy-efficient strategies during construction and subsequent use.

Thanks to this approach, the building has cut energy and water consumption 50% compared with a standard facility having the same features.

Thader shopping centre, sited in Murcia, received the Very Good BREEAM certification in 2018. Through systems such as bicycle parkings or charging areas for electric vehicles, Thader shopping centre promotes the use of alternative means of transport and is also located at a point close to public transport hubs.

In addition, a new waste sorting system has been developed which guarantees the correct management of all waste.

Platinum3 new assets

Gold22 new assets

Silver2 new assets

Very Good2 new assets

Good8 new assets

Correct2 new assets

Platinum 11% Correct 12%

Gold 74% Good 68%Silver 15% Very Good 20%

LEED Certificates1

BREEAM Certificates1

1 Based on the total floor area of the assets.

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Appendix I includes the certificates for each of MERLIN Properties’ assets.

Management under certified systems

MERLIN, as part of its portfolio management responsibilities, has an ISO 14001 certified Environmental Management System that is the umbrella for managing portfolios under which new buildings are added every year. Currently, 68 assets are managed under the certified EMS, 16 more than in 2017. The Company aims to carry on growing the number of properties under the corporate EMS so as to cover 100% of multi-tenant office assets and several shopping centres.

1 The assets Tree and Caprabo (High Street retail) have been excluded for the calculation.2 In area terms.

Energy classification of MERLIN'S assets (% total area)2

MERLIN has played an active role since the outset in the industry initiative “Technical classification of office buildings” promoted by the Spanish Office Association (AEO).

This pioneering voluntary project seeks to develop a technical quality rating for offices buildings, taking into account environmental aspects such as efficiency or certification, among other matters.

In 2018, the Company obtained its first certificates under this standard for two office buildings, Eucalipto 25 and Avenida de Partenón 12-14, which were awarded B and B+ ratings, respectively. MERLIN plans to certify the entire office portfolio, of which 37 buildings are currently undergoing classification.

As the owner, MERLIN continues to work on the energy certification of all its assets required by Royal Decree 235/2013. This provides an indication of the energy characteristics of buildings and serves as a basis for an improvement strategy. Buildings classified to date account for 78% of the portfolio1.

B28%

A5%

B14%

C36%

B9%

C24%

A11% A6%

C42%

D19%

E6%F0%

Floor area 100%

D35%

F1%

Floor area 81%

E4%

D5%

E48%

F8%

Floor area 60%

Offices Logistic AssetsShopping Centers

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1 In terms of floor area.2 Appendix I provides further details of the assets included in the report on environmental performance for each

aspect addressed.3 None of MERLIN Properties’ assets reports district heating and cooling or renewable energy systems.

The deployment of the Energy Management System under ISO 50001 that began in 2017 also continued and seven assets are now certified: 4 office buildings, two business parks and one shopping centre. In total, three new assets were certified in 2018: the Avenida Partenón 12-14 offices, the Alvento business park and the Arturo Soria Plaza shopping centre. Thanks to this, MERLIN’s total certified area has risen to 163,707 sqm, representing around 10% of the office and shopping centre portfolios1.

As part of the optimisation of its assets’ environmental performance, in MERLIN launched an environmental training programme for shopping centre operators, in view of their important role in the Company's environmental performance, so as to promote awareness and enhance performance.

6.2. Environmental performance of MERLIN Properties’ portfolio

MERLIN assesses the environmental performance of its operating assets over which it has operational control, which include 102 assets in the office portfolio, 13 shopping centres and two logistics buildings, representing 64% of the total portfolio (in GAV terms)2.

Additionally, MERLIN, as the owner, selectively collects waste in the assets included in the ISO 14001 certified corporate Environmental Management System.

Energy consumption

Energy consumption in MERLIN’s assets relates primarily in the three portfolios (offices, shopping centres and logistics assets) to electricity consumption. Offices and shopping centres, in addition, use gasoil and natural gas3.

For the like for like portfolio, total energy consumption rose to 136,764 GJ. This consumption includes offices (64.2%), shopping centres (35.2%) and logistics assets (0.6%). This energy consumption means an increase of 2% compared to 2017.

Regarding the office portfolio’s like for like performance, energy consumption rose to 87,846 GJ. This consumption relates mainly to electricity (70%) and, to a lesser extent, natural gas (19%) and gas oil (11%). Energy consumption in this portfolio has experienced an increase of 4% compared to the previous year, linked to an increase in fuel consumption, since electricity consumption has been reduced by 3%. The increase in fuel consumption is linked to the lower temperatures in 2018 and as well to the increase in occupancy in WTC6 building.

As regards to shopping centres like for like portfolio, consumption decreased to 48,178 GJ, a reduction in consumption of 1% compared to the previous year. Shopping centres in the like for like portfolio do not have fuel consumption.

Finally, as regards to logistics assets, energy consumption is associated only with electricity, as there is not fuel consumption in this portfolio. In 2018 this consumption amounted to 740 GJ. Both in absolute and like for like terms, this represents an increase of 11% compared to 2017.

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Energy consumption in absolute terms in 2018 rose to 421,946 GJ, including offices (62.2% of the total), shopping centres (37.6%) and logistics assets (0.2%). This represents an increase of 12% compared to 2017.

Energy consumption in MERLIN’s office portfolio was equal to 262,413 GJ. This consumption related mainly to electricity (74%) and, to a lesser extent, natural gas (22%) and gas oil (4%). Energy consumption in this portfolio has experimented an increase of 18% compared to the previous year.

The increase in absolute energy demand in office buildings was mainly due to the inclusion in the reporting perimeter of two new assets located in Portugal, as well as the completion of the refurbishments that took place in the buildings of Vegacinco 2 and Partenón 12-14. To a lesser extent, this increase is as well linked to higher thermal requirements in 2018 and to the opening of a new gym in Cristalia’s office building.

In the shopping centres portfolio, energy consumption rose to 158,793 GJ. In this portfolio, energy consumption relates to electricity consumption (91%). The remaining 9% relates to fuel consumption, specifically natural gas. Compared to the previous year, there is a 3% growth in energy consumption due to the inclusion of more reporting months in Arturo Soria Plaza and also linked to lower temperatures in 2018. Electricity consumption remained stable in 2018.

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ENERGY CONSUMPTION IN MERLIN'S ASSETS1

Energy consumption offices

Energy consumption in shopping centers

Energy consumption in logistic assets

Energy intensity offices

Energy intensity in shopping centers

Energy intensity in logistic assets

Absolute energy consumption (GJ) and absolute energy intensity2 (GJ/sqm)

Absolute energy consumptionand absolute energy intensity (GJ/m2)

Energy consumption in offices


Energy consumption in logistics assets

2017 20182016

91,025

142,358

0.009 0.011 0.0120.286

0.310 0.293

0.3770.367

0.255

50,750

583222,487

377,519

154,367

665

262,413

158,793

740

421,946

Like for like energy consumption (GJ) and like energy intensity2 (GJ/sqm)

Like for Like energy consumption (GJ)and Like for Like energy intensity (GJ/m2)

Energy intensity in offices

Energy intensity in shopping centres


134,040

48,867

665

2017 20182016

78,176

126,313

0.009 0.011 0.012

0.320

0.293

0.360

0.2650.265

0.346

47,554583

84,50887,846

48,178

740136,764

1 Energy consumption reported relates to the assets with management control (included in the table at the beginning of this chapter). The scope of this consumption may include common areas and/or services shared with tenants (e.g. air conditioning), depending on the asset

2 Energy intensity has been calculated based on the total floor area of the assets.

Electricity consumption in offices Electricity consumption in logistic assets

Electricity consumption in shopping centers

Absolute electricity consumption by asset category (GJ)

Like for like electricity consumption by asset category (GJ)

Absolute electricity consumptionby asset category (GJ)

Electricity consumption in offices


Electricity consumption in logistics assets

2017 20182016

583

50,750

67,523

118,856

665

143,352

164,134

740

143,961

195,633

340,334

308,151

Like for like electricity consumptionby asset category (GJ)

Electricity consumption in offices


Electricity consumption in logistics assets

2017 20182016

583

47,554

59,303

108,741665

48,867

62,846

112,379

740

48,178

61,102

110,020

Like for Like energy consumption (GJ)and Like for Like energy intensity (GJ/m2)

Energy intensity in offices

Energy intensity in shopping centres


134,040

48,867

665

2017 20182016

78,176

126,313

0.009 0.011 0.012

0.320

0.293

0.360

0.2650.265

0.346

47,554583

84,50887,846

48,178

740136,764

ı 74 ı

Absolute fuel consumption by asset category (GJ)

Absolute fuel consumptionby asset category (GJ)



2017 20182016

23,502

23,50258,353

66,780

11,015

69,368

14,832

81,612

Like for like fuel consumption by asset category (GJ)

Fuel consumption in offices Fuel consumption in shopping centers

Like for like fuel consumptionby asset category (GJ)



2017 20182016

18,873

18,87321,662 26,744

21,66226,744

Generation of photovoltaic electricity in MERLIN’s assets

MERLIN has photovoltaic panels at three of its assets through which it jointly generated 2,113 GJ in renewable energy in 2018. This electricity is self-consumed in the three assets and also in one of them is exported to the grid.

Electricity consumption at MERLIN Properties’ headquarters

Employees are distributed between MERLIN’s headquarters in Madrid and Barcelona, which account for 71% and 11% of the Group’s total workforce. MERLIN currently controls only the consumptions that take place in the Company's corporate headquarters, so that this section will only take into account consumption associated with MERLIN’s Madrid offices. All MERLIN employees in Madrid work at a single corporate headquarters, occupying two floors of an office building. These floors have a total floor area of 1,855 sqm. Electricity consumption on these floors amounted to 767 GJ in 2018, entailing energy intensity of 0.41 GJ/sqm. This consumption represents an increase of 35% compared to the previous year, mainly due to the fact that MERLIN moved to its new headquarters in late March 2017, and headcount increased during 2018. If the consumption made in the 9 months that MERLIN occupied its offices in 2017 were annualized, the level of energy consumed would remain constant.

Water consumption1

Water consumption in MERLIN’s portfolio derives from the municipal supply network. None of the assets reported consumes water from alternative sources.

In like for like terms, water consumption amounted to 197,894 m3. This consumption includes offices (56%), shopping centres (42%) and logistics assets (2%). This represents an 11% reduction with regards to 2017.

With respect to like for like office portfolio, water consumption has been 109,917 m3, a 10% reduction compared to 2017.

1 Water consumption reported relates to the assets in which MERLIN controls management.

ı 75 ı


Water consumption of the like for like shopping centre portfolio also experienced a notable reduction with respect to 2017 levels, falling to 83,510 m3 in 2018. This represents a 21% decrease with respect to the previous year’s consumption.

Finally, water consumption in the like for like portfolio of logistics assets was 4,467 m3, an increase of 3% on the previous year.

Overall water consumption rose to 708,793 m3. This consumption is concentrated basically in offices (55%) and shopping centres (44%). Logistics assets account only for 1% of the total. In this context, water consumption has maintained the same levels compared to 2017.

For offices portfolio, water consumption rose to 391,731 m3, that represent a decrease of 4% compared to 2017.

Water consumption associated with shopping centres and logistics assets increased to 312,595 m3 and 4,467 m3 respectively, representing an increase of 6% and 3% compared to last year. The increase in absolute water consumption in shopping centres is due to the increase in the reporting perimeter of several assets, from reporting consumption in common areas to including consumption in tenant space.

Water consumption in offices

Water consumption in shopping centers

Water consumption in logistic assets

Water intensity in offices

Water intensity in shopping centers

Water intensity in logistic assets

WATER CONSUMPTION IN MERLIN'S ASSETS

Like for like consumption by asset category (m3)

and like-for-like water intensity1 (m3/sqm)

Absolute consumption by asset category (m3)

and absolute water intensity1 (m3/sqm) Absolute consumption by asset category(m3) and absolute water intensity (m3/m2)

2017 20182016

133,829

244,731

106,118

4,784

410,116

708,697

294,251

4,330

391,731

708,793

312,595

4,467

0.1320.120 0.123

0.631

0.424 0.423

0.7420.699

0.465

Like for like consumption by asset category (m3)and like for like water intensity (m3/m2)

2017 20182016

117,655

186,332

63,893

4,784

124,303

224,788

96,155

4,330

109,917

197,894

83,510

4,467

0.132 0.120 0.123

0.394 0.4600.522

0.442 0.4130.467

Like for like consumption by asset category (m3)and like for like water intensity (m3/m2)

2017 20182016

117,655

186,332

63,893

4,784

124,303

224,788

96,155

4,330

109,917

197,894

83,510

4,467

0.132 0.120 0.123

0.394 0.4600.522

0.442 0.4130.467

1 Intensity has been calculated on the total floor area of the assets.

ı 76 ı

Greenhouse gas emissions

The consumption of non-renewable energy in MERLIN’s assets (electricity and fuel) has greenhouse gas emissions associated. For the like for like portfolio, total greenhouse gas emission decreased to 9,249 t CO

2 eq, 10% compared to 2017.

Broken down by scope, a total of 1,731 t CO2 eq were derived from fuel consumption

in the Company’s assets, while the remaining 7,518 t CO2 eq were emitted as a result

of the electricity consumption produced by the Company’s assets. This decrease is mainly has been due to, principally, the decline of the electricity mix emission factor in Spain1.

In absolute terms, in 2018 total emissions increased to 28,761 tonnes of CO2,

an increase of 1% on the previous year.

Broken down by scope, emissions from the consumption of gas oil and natural gas (scope 1 emissions) amounted to 4,824 tonnes of CO

2 eq, while emissions from

electricity consumption (scope 2 emission) have increased to 23,936 t CO2 eq.

GREENHOUSE GAS EMISSIONS (GHG) FROM MERLIN'S ASSETS2

GHG emissions by asset category (t CO2 eq) and

intensity3 of absolute emissions (t CO2 eq/sqm)

Like for like GHG emissions by asset category (t CO

2 eq) and intensity3 of emissions (t CO

2 eq/sqm)

GHG emissions in offices

GHG emissions in shopping centers

GHG emissions in logistic assets

Emission intensity in offices

Emission intensity in shopping centers

Emission intensity in logistic assets

1 The electricity mix emission factor is the value that expresses CO2 emissions associated with the generation of electricity consumed and is

therefore an indicator of the energy sources used to produce electricity. The lower the factor, the higher the contribution from low-carbon energy sources.

2 The emission factors recommended by the Ministry of Agriculture and Fisheries, Food and Environment for gas-oil and natural gas were used to calculate Scope 1 GHG emissions. The emission factor recommended by Red Eléctrica de España was used to calculate Scope 2 GHG emissions for each year.

3 Intensity has been calculated as the total floor area of the assets.

GHG emissions by asset category (t CO2 eq)and intensity of absolute emissions (t CO2 eq/m2)




2017 20182016

6,029

9,479

0.001

0.020

0.021

0.025

0.028

3,41239

16,440

11,967

51

18,036

28,761

10,674

51

0.019

0.001 0.001

28,458

0.020

GHG emissions by asset category (t CO2 eq)and intensity of absolute emissions (t CO2 eq/m2)




2017 20182016

6,029

9,479

0.001

0.020

0.021

0.025

0.028

3,41239

16,440

11,967

51

18,036

28,761

10,674

51

0.019

0.001 0.001

28,458

0.020

GHG emissions by asset category (t CO2 eq)and like for like intensity of emissions (t CO2 eq/m2)


Emission intensity in shopping centres

Emission intensity in logistics assets

2017 20182016

5,216

8,452

0.001

0.019

0.021

0.024

0.0180.021

3,19739

6,356

3,86951

5,906

9,249

3,292

51

0.001 0.001

10,276

0.026

GHG emissions by asset category (t CO2 eq)and like for like intensity of emissions (t CO2 eq/m2)


Emission intensity in shopping centres

Emission intensity in logistics assets

2017 20182016

5,216

8,452

0.001

0.019

0.021

0.024

0.0180.021

3,19739

6,356

3,86951

5,906

9,249

3,292

51

0.001 0.001

10,276

0.026

ı 77 ı


Promotion of electric mobility in MERLIN’s assets

MERLIN commits to a model of sustainable eco-friendly mobility and has therefore installed charging stations for all new generation electrical vehicles at its shopping centres.

The Company wants to enlarge this project to its office portfolio, with the goal of installing 5 charging stations per building before 2020. There are already 93 charging stations installed.

Like for like GHG Scope 1 emissions by asset category (t CO

2 eq)

Like for like GHG Scope 2 emissions by asset category (t CO

2 eq)

Absolute GHG Scope 1 emissions by asset category (t CO

2 eq)

Absolute GHG Scope 2 emissions by asset category (t CO

2 eq)

Like for like GHG Scope 1 emissionsScope 1 by asset category (t CO2 eq)

Scope 1 emissions in offices

Scope 1 emissions in shopping centres

2017 20182016

1,230

1,230

1,387 1,731

1,731

1,387




2017 20182016

1,230

1,230

1,387 1,731

1,731

1,387

Absolute GHG scope 2 emissionsasset category (t CO2 eq)



Scope 2 emissions in logistics assets

2017 20182016

4,539

12,994 14,048

7,990

3,412

39

24,394

11,349

5123,936

9,837

51

Absolute GHG Scope 1 emissionsby asset category (t CO2 eq)

Emisiones de Alcance 1 en oficinas

Emisiones de Alcance 1 en centros comerciales

2017 20182016

1,490

1,490 3,446

618

3,988

4,824

8364,064

Absolute GHG scope 2 emissionsasset category (t CO2 eq)




2017 20182016

4,539

12,994 14,048

7,990

3,412

39

24,394

11,349

5123,936

9,837

51

Like for like GHG scope 2 emissionsby asset category (t CO2 eq)




2017 20182016

3,969 4,969 4,175

7,205

3,197

39

8,889

3,869

51 7,518

3,292

51




2017 20182016

1,230

1,230

1,387 1,731

1,731

1,387

ı 78 ı

The Company also makes different efforts to cut energy consumption and greenhouse gas emissions. MERLIN purchases renewable energy certificates (REC) to offset emissions derived from electricity consumption in its buildings. This ensures offsetting emissions linked to electricity consumption through the generation of the same quantity of renewable energy. In 2018 MERLIN purchased 178,362 GJ in renewable energy which was worth €52,809.

Additionally, MERLIN has launched initiatives to partially offset emissions. For LEED and BREEAM certification purposes, MERLIN cooperates, through the association REFORESTA, in forest recovery and the fight against desertification, while mitigating emissions from its assets. In 2018 the Company invested €17,500 in reforestation projects.

GHG emissions associated with electricity consumption at MERLIN Properties’ headquarters

Electricity consumption at MERLIN’S headquarters generated GHG Scope 2 emissions equivalent to 52 t CO

2 eq (0.028 t CO

2eq/sqm), 15% more than 2017 due

to the fact that MERLIN moved to its new offices at the end of March 2017 and the workforce has grown during 2018. If the 2017 emissions were annualised, in 2018 there would have been a 14% reduction with respect to the previous year.

Waste management

MERLIN currently controls the generation of hazardous and non-hazardous waste of 50 of its assets. They are all included in the ISO 14001 corporate environmental management system.

By nature, both in the absolute and like for like portfolio, practically 100% of waste generated is non-hazardous.

In the like for like portfolio1, total waste generation rose to 310,654 tonnes. This includes logistic assets (99%) and offices (1%). In 2018, there has been a 17% increase in waste generation, associated to Coslada logistic asset. This growth is due to the activity carried out by the new tenant, that produces more waste than the previous ones.

In absolute terms, the reported assets generated in 2018 a total waste amounting to 3,840 tonnes. Absolute waste generation is concentrated basically in shopping centres (90.9%), while logistic assets and offices account for the remaining 8% and 1.1%. This generation represents an increase of 122% compared to waste generated in 2017, due to the inclusion of new properties in the reporting, mainly the shopping centres Marineda, La Vital and Arturo Soria Plaza.

1 Although there is waste generation information available from Marineda shopping center as well as from Sant Cugat II and Bruselas 24 offices, they have been excluded from the like for like report because they have not reported this information for previous years.

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Absolute waste generation by asset category (kg generated)

Like for like waste generation by asset category (kg generated)

Absolute waste generation by assetcategory (kg generated)

Waste generation in offices

Waste generation in shopping centres

Waste generation in logistic assets

2017 20182016

60,792 12,303 40,690

226,392165,600

1,730,626

3,840,102

3,491,492

307,920

1,454,823

263,500





2017 20182016

594 4362,734

166,194

165,600

263,936

310,654

307,920

263,500





2017 20182016

594 4362,734

166,194

165,600

263,936

310,654

307,920

263,500

Absolute waste generation by type (kg generated)

Like for like generation by type (kg generated)

Additionally, MERLIN has information on the final destination of 65% of the waste generated in its reported assets.

Absolute waste generation by type(kg generated)

Non-hazardous waste generation

Hazardous waste generation

2017 20182016

224,259

226,3922,133

1,730,626

3,840,102

3,167

3,639

1,726,987

3,836,935

Like for like waste generationby type (kg generated)



2017 20182016

165,600

166,194594

263,936310,654

1,049436

263,500 309,605

Like for like waste generationby type (kg generated)



2017 20182016

165,600

166,194594

263,936310,654

1,049436

263,500 309,605

ı 80 ı

6.3. Report on environmental performance under EPRA’s sBPR (Sustainability Best Practice Reccommendations)

MERLIN reports the Company's environmental indicators based on the latest recommendations issued by EPRA (European Public Real Estate Association): Best Practice Recommendations on Sustainability Reporting (sBPR), third version, 2017.

The indicators reported relate to the assets’ environmental performance (including energy consumption, greenhouse gas emissions, water consumption, waste generation and the percentage of buildings having environmental certification).

Organisation's limits

MERLIN limits environmental reporting to the operating assets in which it has operational control and thus the capacity to monitor and implement improvement measures.

Buildings in which the tenants are responsible for contracting the energy and water supply, and waste collection (mono-tenant buildings) are excluded from this approach.

The reported assets include multi-tenant office buildings, shopping centres and multi-tenant logistics assets, which currently total 102 assets in the office portfolio, 13 shopping centres and two logistics buildings, accounting for 64% of the portfolio in GAV terms1.

Like for like total weight of waste by disposal route (kg generated)

Absolute total weight of waste by disposal route (kg generated)

Absolute total weight of waste by disposalroute (kg generated)

Like for like total weight of waste by disposalroute (kg generated)

Logistic Offices Shopping centers

Elimination RecoveryEnergy Recovery Recycling


2,026 1082,182 467

11,000

36,470 2,451,667

1,5921,010

120

40,678

2,463,242

2,722






2,026 1082,182 467

11,000

36,470 2,451,667

1,5921,010

120

40,678

2,463,242

2,722






2,026 1082,182 467

11,000

36,470 2,451,667

1,5921,010

120

40,678

2,463,242

2,722

1 Appendix I provides further details of the assets included in the report on environmental performance for each aspect addressed.

ı 81 ı


Coverage

MERLIN works actively to access relevant data on the properties owned and managed by the Company. The proportion of assets included depends on the environment vector in question and is therefore included in each indicator reported.

Estimation of consumption data obtained by the owner

There is no estimation of data.

Landlord/tenant consumption boundaries

The limit between landlord and tenant is different in each portfolio, in terms of both service contracting and consumption. There follows a breakdown by portfolio:

Offices

Throughout its managed office buildings (multi-tenant), MERLIN, as the owner, acquires:

• Energy: Air-conditioning and fuel consumed (if applicable) throughout the asset and lighting in common areas. In some assets, Merlin acquires electricity (air-conditioning and lighting) throughout the building, including tenant space.

• Water: Water consumed throughout the building.

Shopping centres

In its shopping centres, MERLIN, as the owner, is responsible for the acquisition of:

• Energy: Lighting in common areas. Air-conditioning and fuel consumed (if applicable) throughout the asset.

• Water: Water consumed throughout the building.

Logistics assets

MERLIN has information on electricity and water consumption in its multi-tenant assets only for the common areas.

MERLIN manages waste in some assets that are ISO 14001 certified.

ı 82 ı

In all the portfolios, energy and water information derives from the invoices for the services contracted by MERLIN. In cases in which the Company acquires services consumed in the tenant space, this consumption is distinguished in the data reporting tables.

No information on services contracted directly by tenants is reported.

Intensity (normalisation) calculation base

In all portfolios, asset floor areas have been used for normalisation purposes:

• Offices the office portfolio has been normalised in relation to the total floor area of the reported assets, since energy consumption includes air conditioning and fuel (if applicable) for the entire asset, as well as water consumed, also in the entire asset.

• Shopping centres: intensities in the shopping centre portfolio have been calculated in relation to the total floor area of reported shopping centres, since there is no breakdown of common areas and tenant space.

• Logistics assets the portfolio of logistic assets has been normalised based on the entire floor area of reported buildings, since MERLIN does not have a breakdown for the floor area of common areas and tenant space.

Segment analysis (by property type, geography)

MERLIN presents sustainability data divided into different asset types: offices, shopping centres and logistics assets, using the same format as in the rest of the 2018 CSR Report.

As MERLIN only owns properties in Spain and, to a lesser extent, in Portugal, the geographic distribution is not considered to be relevant to the Company.

Performance in own offices

MERLIN reports the performance of its own offices separately from the other assets on pages 84 and 87. No water consumption information is included due to not being available.

ı 83 ı


MERLIN Properties’ environmental performance

Below follows information on each aspect of MERLIN’s reported environmental performance: energy, GHG emissions, water, waste and certifications.

Energy

Reported energy consumption includes non-renewable electricity consumed in all the assets and fuel consumed in offices (gas-oil and natural gas) and in shopping centres (natural gas).

None of the assets reports district heating and cooling or renewable energy systems.

The energy report includes two tables: one containing information on the assets in MERLIN’s portfolios and one on its corporate offices.

The energy consumption at the corporate headquarters only includes grid electricity. No fuels are consumed there.

The narrative of the energy performance of assets can be found on pages 71 and 72 of this report.

ı 84 ı

Energy consumption in MERLIN Properties’ portfolios

EPRA code

Indicator and units

MERLIN total

Absolute Like for like

2017 2018 2017 2018 Evol.

Elect-Abs,Elect-LfL

Electricity(kWh)1

Non-renewable electricity

Common areas

21,885,256 23,754,638 6,512,245 6,383,941 -2%

Tenant space

63,713,138 70,783,280 24,704,271 24,177,328 -2%

Renewable electricity generated and exported to the grid

488,377 586,857 488,377 531,946 9%

Total electricity consumed 85,598,394 94,537,918 31,216,516 30,561,269 -2%

Fuels-AbsFuels-LfL

Fuel(kWh)1

Fuel

Common areas

4,125,755 5,043,393 1,195,879 1,481,100 24%

Tenant space

15,143,242 17,626,836 4,821,393 5,947,897 23%

Total fuels consumed 19,268,997 22,670,229 6,017,272 7,428,997 23%

Energy-IntEnergy intensity2

(kWh/sqm)77.3 84.9 76.3 77.8 2%

Coverage (based on the number of assets) 115 of 118 117 of 121 25 of 25 25 of 25 -

% of data estimated 0% 0% 0% 0% -

1 The energy report only includes electricity and fuel that MERLIN has acquired in its capacity as owner. No information is available on the consumption contracted directly by the tenant

2 In the buildings of Juan Esplandiú 11-13 and PE Vía Norte, the reported energy consumption includes only common areas, so the area considered is that of common areas.

Energy consumption in MERLIN Properties’ corporate headquarters

EPRA code

IndicatorMERLIN’s headquarters

2017 2018 Evol.

Elect-Abs,Elect-LfL

Electricity(kWh)

Non-renewable electricity 159,760 212,976 33%

Electricity from renewable sources (%)

0% 0% 0%

Fuels-AbsFuels-LfL

Fuel(kWh)

Non-renewable fuel N/A N/A -

Fuel from renewable sources (%) N/A N/A -

Energy-Int Energy intensity (kWh/sqm) 86.1 114.8 33%

% of data estimated 0% 0% -

ı 85 ı


Shopping centres


2017 2018 2017 2018 Evol.

8,723,869 8,815,442 2,714,877 2,676,570 -1%

31,096,574 31,174,170 10,859,509 10,706,282 -1%

0 0 0 0 0%

39,820,443 39,989,612 13,574,386 13,382,852 -1%

611,928 824,003 0 0 0%

2,447,713 3,296,006 0 0 0%

3,059,641 4,120,009 0 0 0%

101.8 104.7 74.7 73.7 -1%

13 of 16 13 of 17 4 of 4 4 of 4 -

0% 0% 0% 0% -

Logistics assets


2017 2018 2017 2018 Evol.

184,846 205,442 184,846 205,442 11%

0 0 0 0 0%

488,377 531,946 488,377 531,946 9%

184,846 205,442 184,846 205,442 11%

0 0 0 0 0%

0 0 0 0 0%

0 0 0 0 0%

2.9 3.3 2.9 3.3 11%

2 of 2 2 of 2 2 of 2 2 of 2 -

0% 0% 0% 0% -

Offices


2017 2018 2017 2018 Evol.

12,976,541 14,733,754 3,612,522 3,501,929 -3%

32,616,564 39,609,110 13,844,762 13,471,046 -3%

0 54,911 0 0 0%

45,593,105 54,342,864 17,457,284 16,972,975 -3%

3,513,827 4,219,390 1,195,879 1,481,100 24%

12,695,529 14,330,830 4,821,393 5,947,897 23%

16,209,356 18,550,220 6,017,272 7,428,997 23%

70.8 81.3 96.3 100.1 4%

100 of 100 102 of 103 19 of 19 19 of 19 -

0% 0% 0% 0% -

ı 86 ı

Greenhouse gas emissions

Energy consumption is associated with the emission of greenhouse gases. These emissions may derive from fuel consumption (natural gas and gas-oil) or from the consumption of non-renewable grid electricity.

Scope 1 emissions (i.e. direct emissions from fuel consumed) have been calculated using the emission factors recommended by the MAGRAMA. Scope 2 emissions (indirect emissions associated with the consumption of non-renewable electricity) have been obtained based on the emission factors recommended by Red Eléctrica de España.

At present, MERLIN does not have information on the emissions associated with its value chain (Scope 3 emissions).

The emissions report includes two tables: one containing information on the assets in MERLIN’s portfolio and one on its corporate offices.

The narrative of the performance of asset issues can be found on pages 76 and 77 of this report.

Greenhouse gas emissions from MERLIN Properties’ portfolios

EPRA code Indicator and units

MERLIN total


2017 2018 2017 2018 Evol.

GHG-Dir-Abs,GHG-Dir-LfL

Direct emissions – Scope 1 (t CO

2eq)

4,064 4,824 1,387 1,731 25%

GHG-IndirAbs,GHG-Indir-LfL

Indirect emissions – Scope 2 (t CO

2eq)

24,394 23,936 8,889 7,518 -15%

-Total emissions – Scope 1+2 (t CO

2eq)

28,458 28,761 10,276 9,249 -10%

GHG-IntEmission intensity (t CO

2eq/sqm) 0.021 0.021 0.021 0.019 -10%

Coverage (based on the number of assets 115 of 118 117 of 121 25 of 25 25 of 25 -


ı 87 ı


Greenhouse gas emissions from MERLIN Properties’ corporate headquarters

EPRA code

Indicator and unitsMERLIN’s headquarters

2017 2018 Evol.

GHG-Dir-Abs,GHG-Dir-LfL

Direct emissions – Scope 1 (t CO2eq) N/A N/A -

GHG-IndirAbs,GHG-Indir-LfL

Indirect emissions – Scope 2 (t CO2eq) 46 52 +15%

- Total emissions – Scope 1+2 (t CO2eq) 46 52 +15%

GHG-Int Emissions intensity (t CO2eq/sqm) 0.025 0.028 +15%

% of data estimated 0% 0% -

Shopping centres


2017 2018 2017 2018 Evol.

618 836 0 0 0%

11,349 9,837 3,869 3,292 -15%

11,967 10,674 3,869 3,292 -15%

0.028 0.025 0.021 0.018 -15%

13 of 16 13 of 17 4 of 4 4 of 4 -

0% 0% 0% 0% -

Logistics assets


2017 2018 2017 2018 Evol.

0 0 0 0 0%

51 51 51 51 0%

51 51 51 51 0%

0.001 0.001 0.001 0.001 0%

2 of 2 2 of 2 2 of 2 2 of 2 -

0% 0% 0% 0% -

Offices


2017 2018 2017 2018 Evol.

3,446 3,988 1,387 1,731 25%

12,994 14,048 4,969 4,175 -16%

16,440 18,036 6,356 5,906 -7%

0.019 0.020 0.026 0.024 -7%

100 of 100 102 of 103 19 of 19 19 of 19 -

0% 0% 0% 0% -

ı 88 ı

Water

Water consumed in MERLIN’s assets derives entirely from the municipal supply network.

None of the assets reported consumes water from alternative sources, so this option has been excluded from the report.

The water consumption report includes a table of information on the assets in MERLIN’s portfolio.

MERLIN has no data on water consumed in its corporate headquarters.

The narrative of the water consumption performance of assets can be found on pages 74 and 75 of this report.

1 The complete building category has been created to report the water consumption of the Arturo Soria Plaza shopping centre (2017), given that the breakdown of information between common areas and tenant spaces is not available.

Water consumption in assets managed by MERLIN Properties


MERLIN total


2017 2018 2017 2018 Evol.

Water-Abs, Water-LfL

Water consumption in common areas (m3)

198,707 247,689 77,130 80,323 4%

Water consumption in tenant space (m3)

471,162 461,104 147,659 117,570 -20%

Water consumption in entire building (m3)1 38,828 0 N/A N/A 0%

Total water consumption (m3)

708,697 708,793 224,788 197,894 -12%

Water-IntWater consuption intensity (m3/sqm)

0.51 0.51 0.46 0.41 -12%



ı 89 ı


Shopping centres


2017 2018 2017 2018 Evol.

139,084 193,214 57,199 62,199 9%

116,340 119,380 38,956 21,311 -45%

38,828 0 N/A N/A 0%

294,251 312,595 96,155 83,510 -13%

0.70 0.74 0.52 0.46 -13%

13 of 16 13 of 17 4 of 4 4 of 4 -

0% 0% 0% 0% -

Logistics assets


2017 2018 2017 2018 Evol.

4,330 4,467 4,330 4,467 3%

0 0 0 0 0%

N/A N/A N/A N/A 0%

4,330 4,467 4,330 4,467 3%

0.12 0.12 0.12 0.12 3%

2 of 2 2 of 2 2 of 2 2 of 2 -

0% 0% 0% 0% -

Offices


2017 2018 2017 2018 Evol.

55,293 50,008 15,600 13,658 -12%

354,822 341,723 108,703 96,259 -11%

N/A N/A N/A N/A 0%

410,116 391,731 124,303 109,917 -12%

0.46 0.42 0.47 0.41 -12%

99 of 100 99 of 103 19 of 19 19 of 19 -

0% 0% 0% 0% -

ı 90 ı

Waste

MERLIN selectively collects waste in the assets included in the ISO 14001 certified corporate Environmental Management System. This includes assets under and assets not under operational control. The criterion for reporting coverage in connection with waste is therefore financial control.

MERLIN has no data on waste generated at its corporate headquarters.

The narrative of the waste generation performance can be found on page 78.

Waste generation in assets managed by MERLIN


MERLIN total


2017 2018 2017 2018 Evol.

Waste-Abs,Waste-LfL

Total non-hazardous waste generated (t)

1,727 3,840 264 309 +17%

Total hazardous waste generated (t)

3.6 3.2 0.4 1 +150%

Waste disposal (t) N/A 11 N/A 0 N/A

Waste for energy recovery (t)

N/A 2.1 N/A 1.6 N/A

Waste to recovery (t) N/A 2.7 N/A 1 N/A

Waste to recycling (t) N/A 2,488 N/A 0.1 N/A



ı 91 ı


Shopping centres


2017 2018 2017 2018 Evol.

1,453 3,491 N/A N/A N/A

1,5 0,9 N/A N/A N/A

N/A 11 N/A N/A N/A

N/A 0,1 N/A N/A N/A

N/A 0,5 N/A N/A N/A

N/A 2,452 N/A N/A N/A

1 of 17 4 of 18 0 of 4 0 of 4 -

0% 0% 0% 0% -

Logistics assets


2017 2018 2017 2017 Evol.

264 308 264 308 +17%

0 0 0 0 0%

N/A N/A N/A N/A -

N/A N/A N/A N/A -

N/A N/A N/A N/A -

N/A N/A N/A N/A -

1 of 40 1 of 47 1 of 2 1 of 2 -

0% 0% 0% 0% -

Offices


2017 2018 2017 2018 Evol.

10 38 0 1 +100%

2.1 2.3 0.4 1.7 +325%

N/A 0 N/A 0 N/A

N/A 2 N/A 1.6 N/A

N/A 2.2 N/A 1 N/A

N/A 36 N/A 0.1 N/A

13 of 139 45 of 140 11 of 19 11 of 19 -

0% 0% 0% 0% -

ı 92 ı

Certification

This section addresses the certification of all MERLIN Properties’ assets in the three portfolios (offices, shopping centres and logistics assets).

Certificates considered include energy classifications (Royal Decree 235/2013), LEED or BREEAM sustainable construction certificates and ISO 14001, ISO 9001 and ISO 50001 certified management systems for the Company’s entire portfolio.

As regards certificates, the total number of assets covered refers to MERLIN Properties’ total assets.

The data have been reported based on the percentage of the portfolio floor area relating to each certificate.

The narrative of certification performance can be found from page 68 to page 71.

Certificates

EPRA code

Indicator and units

MERLIN total OfficesShopping centres

Logistics assets

AbsoluteLike

for likeAbsolute

Like for like

AbsoluteLike

for likeAbsolute

Like for like

Cert-Tot

Energy certificates (% floor area)

78% 100% 100% 100% 81% 100% 60% 100%

Coverage (based on the number of assets)

205 of 205 25 of 25 140 of 140 19 of 19 18 of 18 4 of 4 47 of 47 2 of 2

% of data estimated 0% 0% 0% 0% 0% 0% 0% 0%

Sustainable construction certificates (% floor area)

48% 76% 48% 100% 64% 45% 42% 58%




Management systems (% floor area)

25% 74% 51% 89% 29% 55% 2% 58%




ı 93 ı


ı 94 ı

ABOUT THE ANNUAL REPORT07

ı 95 ı


7.1. Basis of preparation of this report

Reporting scope

This CSR report provides information on MERLIN Properties’ economic, environmental and social performance in 2018. Where relevant, prior-year information has been included to show the evolution of the Company’s results.

Standards employed

The report has been drawn up in accordance with the Core option indicated in the Global Reporting Initiative (GRI) Standards Guidelines on the preparation of Sustainability Reports. Additionally, specific content has been provided for the industry in which the Company operates, as indicated in the GRI industry supplement Construction & Real Estate.

Principles applied

The GRI Standards Sustainability Report guidelines lay down a number of principles that have been applied when preparing the report:

• Stakeholder inclusiveness. MERLIN Properties’ 2018 CSR Report has been prepared taking into account our stakeholders' expectations and concerns in connection with the Company’s operations and performance. These expectations have been considered through the MERLIN Properties personnel who are in contact with our stakeholders and relevant matters published in the media and included in questionnaires and sustainability indices targeting investors, such as DJSI, EPRA or GRESB have also been analysed.

• Sustainability context at MERLIN Properties The way in which the Company’s activities and services interact with the social, economic and environmental context has been evaluated.

• Materiality A materiality analysis has been conducted to define the most relevant aspects of CSR for MERLIN Properties. The process followed is explained below.

• Completeness. After identifying material aspects, the content of the report has been designed to be able to include sufficient information on these aspects to allow stakeholders to assess and understand MERLIN Properties’ economic, environmental and social performance in recent years.

ı 96 ı

GRI principles for information processing and quality

This report has been drawn up applying the following GRI information quality principles:

• Balance. This principle states that CSR reports should reflect positive and negative aspects of the Company’s performance. By applying this principle, a broad and unbiased picture of MERLIN Properties’ overall performance has been provided.

• Comparability.The Company has compiled and reported information so that stakeholders are able to analyse how its performance has evolved in recent years, thus supporting analysis relative to other organisations.

• Accuracy. The information contained in this report is intended to include sufficient details to meet the expectations expressed by the Company's stakeholders.

• Timeliness. MERLIN Properties’ aims to update the content of this CSR report annually to provide stakeholders with regular access to information on the Company's performance.

• Clarity. MERLIN Properties seeks to report on performance in a manner that is accessible and clear to all our stakeholders.

• Reliability. MERLIN Properties has described the report preparation process, which guarantees that the content can be subject to external examination to establish the quality and materiality of the information.

ı 97 ı


Materiality analysis

In line with the GRI Standards guidelines, this document includes information on indicators associated with aspects that have been classed as material.

To achieve this objective, a specific analysis of the key CSR issues has been carried out, based either on their influence on stakeholders’ assessments and perceptions or on their direct impact on the medium- and long-term success of MERLIN Properties’ strategy.

Specifically, the main activities carried out to analyse materiality are as follows:

• Meetings with the directors and managers of the Company’s key areas.

• Comparative analysis of the content included in the CSR/Sustainability reports of other companies operating in MERLIN Properties’ industry.

• Identification of investors’ CSR requirements based on an analysis of the content/indicators requested by initiatives such as GRESB, EPRA and Dow Jones Sustainability Index (DJSI).

• Analysis of over 40 news stories on the Company and its industry.

These actions have resulted in the following materiality matrix:

Sustainable certification

Transparency & communication

Economic performance

Ethics, compliance &

fiscal

Asset intervertion & development

Accesibility

Tenant wellbeing

GHG emissions

Talent management (employees)

Supply chain sustainability

assurance

WaterWaste

Dividend sustainability

Rele

van

ce f

or

the S

takeh

old

ers

gro

up

s o

f M

ER

LIN

Relevance for MERLIN-

+

Operational/business aspects

Economic aspects

Enviromental aspects

Social aspects

GobenanceEnergy

efficiencyLocal community

integration

ı 98 ı

Coverage of material aspect

Category Material aspectInside the organisation

Outside the organisation

Operational/Business

Governance •Ethics, compliance and fiscal responsibility • •Asset intervention and development • •

Economic

Economic performance •Dividend sustainability • •

Environment

Sustainable certification • •Energy efficiency • •Greenhouse gas emissions • •Waste • •Water • •

Social

Tenant wellbeing • •Talent management (employees) •Accessibility • •Transparency and communication • •Local community integration • •Supply chain sustainability assurance • •

ı 99 ı


Having identified the material aspects (including coverage), the information required to prepare the report was compiled by means of interviews with and forms completed by the heads of the Company's main areas.

Once the data was received and the information necessary to analyse materiality compiled, MERLIN Properties drew up the final version of this report. The GRI content table included in the following section tell readers the sections in which the information on each of the GRI standard indicators may be found.

Where it has not been possible to cover all the requirements of the guidelines in connection with a specific indicator, this has been mentioned in the table. MERLIN Properties plans to improve its information systems so as to include the data required in the following editions of this report.

Contact details

Please contact MERLIN Properties at the following address for any clarifications of the information reported or any aspect of the Company's CSR performance: [email protected]

ı 100 ı

7.2. GRI Content Index

GRI Content Index

General standard disclosures

EPRA Sustainability Performance Measures

Page or direct answer

Omissions Description

Organizational profile

102-1 4 Name of the organization

102-2 15-23Activities, brands, products, and services

102-3 Back cover Location of headquarters

102-4 Spain and Portugal Location of operations

102-5 6 Ownership and legal form

102-6 15-23 Markets served

102-7 7, 8 Scale of the organization

102-8 47Information on employees and other workers

102-9

The Company’s supply chain basically comprises contractors in charge of projects and service providers in buildings

Supply chain

102-10 12-13Significant changes to the organization and its supply chain

102-11 Not applicablePrecautionary Principle or approach

102-12

MERLIN Propertiesforms part of the main benchmark indices:

• IBEX 35• Euro STOXX 600• FTSE EPRA/NAREIT

Global Real Estate Index• GPR Global Index• GPR-250 Index• MSCI Small Caps

External initiatives

ı 101 ı


GRI Content Index





102-13

• Spanish Association of Offices

• Spanish Association of Shopping Centres

• International Council of Shopping Centres.

• European Public Real Estate Association• Audit Committee

member• Investor Relations

Committee member• Spanish Confederation

of Business Organisations

Membership of associations

Strategy

102-14 4, 5Statement from senior decision-maker

102-15 Section E of the ACGRKey impacts, risks, and opportunities

Ethics and integrity

102-16 32Values, principles, standards, and norms of behavior

102-17

32. MERLIN Properties has an Ombudsman as a way to confidentially report any event that infringes the law and the Code of Conduct, as well as irregularities of a financial, accounting or any other nature that are potentially significant. This Channel is accessible to all the companies of the Group. Also, MERLIN Properties has an Ombudsman as a way to confidentially report any event that infringes the law and the Code of Conduct, as well as irregularities of a financial, accounting or any other nature that are potentially significant. This Channel is accessible to all the companies of the Group

Mechanisms for advice and concerns about ethics

ı 102 ı

GRI Content Index





Governance

102-18 27 Governance structure

102-22 Gov-Board

28, 29. More information on this indicator can be found in the AnnualCorporate GovernanceReport (ACGR)

Composition of the highest governance body and its committees

102-23

The chairman of thehighest governingbody does not hold anexecutive post

Chair of the highest governance body

102-24 Gov-Selec

The processes forappointing and selectingthe members of thehighest governing bodyand its committees aredescribed in the AnnualCorporate GovernanceReport (ACGR). In addition, MERLIN has a policy of selection of the highest governance body

Nominating and selecting the highest governance body

102-25 Gov-Col

Article 28 of the Board ofDirectors Regulations lays down the mechanisms for preventing and managing potential conflicts of interest. Section D "Related Party Transactions and Intragroup Transactions" in section D6 also includes the foregoing mechanisms

Conflicts of interest

102-26 29Role of highest governance body in setting purpose, values,and strategy

102-28

The Board is responsible for the periodic performanceevaluation of the Chairman of the Board of Directors and the Board committees, the performance of the directors and of the Company’s senior managers.For 2017, following the recommendations of the Code of Good Governance in ListedCompanies, the Company has been assisted by a reputableindependent externalconsultant

Evaluating the highest governance body’s performance

ı 103 ı


GRI Content Index





102-29 29Identifying and managing economic, environmental, and social impacts

102-30 29Effectiveness of risk management processes

102-31

Defined risks areassessed annually todetermine the extentto which they are up todate

Review of economic, environmental, and social topics

102-32 Board of DirectorsHighest governance body’s role in sustainability reporting

102-33

This information isavailable in the AnnualCorporate GovernanceReport

Communicating critical concerns

102-36 30Process for determining remuneration

102-37Through the GeneralShareholders’ Meeting

Stakeholders’ involvement in remuneration

Stakeholder engagement

102-40 39 List of stakeholder groups

102-41

98% of the Company'semployees are coveredby collective bargainingagreements

Collective bargaining agreements

102-42 39Identifying and selecting stakeholders

102-43 39, 95Approach to stakeholder engagement

102-44 39, 95 Key topics and concerns raised

Reporting practice

102-45

The organisation’sfinancial statementsinclude MERLINProperties and allIts subsidiaries. Moreinformation may be found in the annual accounts included in the management report. The management report is available throughwww.merlinproperties.es

Entities included in the consolidated financial statements

ı 104 ı

GRI Content Index





102-46 95-99Defining report content and topic Boundaries

102-47 98 List of material topics

102-48

Some 2017 consumptions have been updated with data from the last invoices received

Restatements of information

102-49 Not applicable Changes in reporting

102-50 2016-2018 Reporting period

102-51 2017 Date of most recent report

102-52MERLIN Properties willprepare annual reports

Reporting cycle

102-53 99Contact point for questions regarding the report

102-54 CoreClaims of reporting in accordance with the GRI Standards

102-55 100-109 GRI content index

102-56

The indicators included i n the Independent Review Report on pages 120 and 121 have been extrernally verified

External assurance

ı 105 ı


GRI Content Index





Economic Performance

103 41, 42 Management approach

201-1

7, 58. Direct economicvalue generated isexpressed as grossrental income

Direct economic value generated and distributed

201-3

MERLIN Properties has no pension plan, so this does not apply to the Company

Defined benefit plan obligations and other retirement plans

201-4

MERLIN Properties has not received significant financial assistance from governmentbodies

Financial assistance received from government

Indirect Economic Impacts


203-1 60, 61

There is nodisaggregateddata availableon investments

Infrastructure investments and services supported

203-2 60Significant indirect economic impacts

Anti-corruption

103 33 Management approach

205-1

Risks in general,including corruption, are assessed through the Company’sRisk Management

Operations assessed for risks related to corruption

205-2 33Communication and training about anti-corruption policiesand procedures

205-3No case of corruption has been detected

Confirmed incidents of corruption and actions taken

Anti-competitive Behavior


ı 106 ı

GRI Content Index





206-1MERLIN Properties has received no claim for unfair competition

Legal actions for anti-competitive behavior, anti-trust, and monopoly practices

Energy

103 71-74 Management approach

302-1

Elec-Abs Elec-LfL DH&C-Abs DH&C-LfL Fuels-Abs Fuels-LfL

73, 74. Energyconsumed derives from non-renewable sources

Energy consumption within the organization

302-3 73 Energy intensity

G4-CRE1 Energy-Int 73 Building energy intensity

Water


303-1Water-Abs Water-LfL

75. Water consumed derives from municipal supply systems

Interactions with water as a shared resource

G4-CRE2 Water-Int 75 Building water intensity

Emissions


305-1GHG-Dir-Abs GHG-Dir-LfL

76-77Direct (Scope 1) GHG emissions

305-2GHG-Indir-Abs GHG-Indir-LfL

76-77Energy indirect (Scope 2) GHG emissions

305-4 76 GHG emissions intensity

G4-CRE3 GHG-Int 76Greenhouse gas (GHG) emissions intensity of the buildings

G4-CRE4Currently not available. This will be considered for future CSR Reports

Greenhouse gas emissions intensity from new construction and redevelopment activity

ı 107 ı


GRI Content Index





Effluents and waste


306-2Waste-Abs Waste-LfL

79, 80Waste by type and disposal method

Environmental Compliance


307-1*MERLIN Propertieshas received no fine or penalty

Non-compliance with environmental laws and regulations

Employment


401-1 Emp-Turnover46-49. In 2018 there have been a total of 6 departures

New employee hires and employee turnover

401-2 49Benefits provided to full-time employees that are not provided to temporary or part-time employees

401-3

In 2018 three female employees returned to work after maternity leave

Parental leave

Occupational Health and Safety


403-1The health and safety committees have yet to be formed

Occupational health and safety management system

403-2* H&S-Emp

• Injury Rate - IRM: 6·10-6. W: 0

• Lost Day Rate - LDRM: 4·10-5. W: 0

• Accident Severity Rate - ASRM: 0. W: 0

• Abstentee Rate - ARM: 0.003. W: 0.003

• Work-related fatalityM: 0. W: 0

Hazard identification, risk assessment, and incident investigation

G4-CRE6 Not applicable

Percentage of the organizationoperating in verified compliance with an internationally recognizedhealth and safety managementsystem

* Rates calculated according to GRI Standards.

ı 108 ı

GRI Content Index





Training and Education


404-1 Emp-Training 47, 50Average hours of training per year per employee

404-2 50Programs for upgrading employee skills and transitionassistance programs

404-3 Emp-DevAll employees receive evaluations once a year

Percentage of employees receiving regular performanceand career development reviews

Diversity and Equal Opportunity


405-1 Diversity-Emp 27, 28, 47 Diversity of governance bodies and employees

Local Communities


413-1 Comty-Eng 61-63Operations with local community engagement, impact assessments, and development programs

413-2 59Operations with significant actual and potential negative impacts on local communities

G4-CRE7

Nobodyhas had tobe transferredor relocated

Number of persons voluntarilyand involuntarily displaced and/or resettled by development, broken down by project

Customer Health and Safety


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GRI Content Index





416-1 H&S Asset

55. MERLIN assesses the potential health and safety impacts of all its assets on its occupants (tenants and visitors)

Assessment of the health and safety impacts of productand service categories

416-2 H&S-Comp

55. No incidenthas been detectedas a result ofthe infringement ofhealth and safetyregulations

Incidents of non-compliance concerning the health and safety impacts of products and services

Marketing and Labeling

103 56, 68-71 Management approach

417-2

There has beenno infringementof regulations orvoluntary codesrelated to the labelling of products and services

Incidents of non-compliance concerning product and service information and labeling

G4-CRE8 Cert-Tot 56, 68-71

Type and number of sustainabilitycertification, rating and labeling schemes for new construction, management, occupation and redevelopment

Customer Privacy


418-1

MERLIN Properties has received no claim for the breach of customer privacy or customerdata leakage

Substantiated complaints concerning breaches of customer privacy and losses of customer data

Socioeconomic Compliance


419-1*MERLIN Propertieshas received no fine or penalty

Non-compliance with laws and regulations in the socialand economic area

* Fines or firm sanctions (in contentious terms) considered significant (over 50,000 euros) derived from sanctions and breaches (excluding administrative and fiscal) on which there is no possibility of appeal and which are directly attributable to conduct or acts carried out by companies or employees of the Corporation prior to December 31, 2018.

ı 110 ı

7.3. EPRA sBPR Content Index

EPRA Code GRI Standard Description Page or direct answer

Environmental sustainability performance measures

Elec-Abs 302-1 Total electricity consumption 84, 85

Elec-LfL 302-1Like-for-like total electricity consumption

84, 85

DH&C-Abs 302-1Total district heating & cooling consumption

Not applicable

DH&C-LfL 302-1Like-for-like total district heating & cooling consumption

Not applicable

Fuels-Abs 302-1 Total fuel consumption 84, 85

Fuels-LfL 302-1Like-for-like total fuel consumption

84, 85

Energy-Int CRE1 Building energy intensity 84, 85

GHG-Dir-Abs 305-1Total direct greenhouse gas (GHG) emissions

86, 87

GHG-Indir-Abs 305-2Total indirect greenhouse gas (GHG) emissions

86, 87

GHG-Int CRE3

Greenhouse gas (GHG) emissions intensity from building energy consumption

86, 87

Water-Abs 303-1 Total water consumption 88, 89

Water-LfL 303-1Like-for-like total water consumption

88, 89

Water-Int CRE2 Building water intensity 88, 89

Waste-Abs 306-2Total weight of waste by disposal route

90, 91

Waste-LfL 306-2Like-for-like total weight of waste by disposal route

90, 91

Cert-Tot CRE8Type and number of sustainably certified assets

92

Social performance measures

Diversity-Emp 405-1 Employee gender diversity 27, 28, 47

Diversity-Pay 405-2 Gender pay ratio Not available

Emp-Training 404-1Employee training and development

47, 50

Emp-Dev 404-3Employee performance appraisals

All employees receive evaluations once a year

ı 111 ı


EPRA Code GRI Standard Description Page or direct answer

Emp-Turnover 401-1 New hires and turnover46-49. In 2018 there have been a total of 6 departures

H&S-Emp* 403-2 Employee health and safety

• Injury Rate - IRM: 6·10-6. W: 0

• Lost Day Rate - LDRM: 4·10-5. W: 0

• Accident Severity Rate - ASRM: 0. W: 0

• Abstentee Rate - ARM: 0.003. W: 0.003

• Work-related fatalityM: 0. W: 0

H&S-Asset 416-1Asset health and safety assessments

55. MERLIN assesses the potential health and safety impacts of all its assets on its occupants (tenants and visitors)

H&S-Comp 416-2Asset health and safety compliance

55. No incident has been detected as a result of the infringement of health and safety regulations

Comty-Eng 413-1Community engagement, impact assessments and development programs

61-63

Governance performance measures

Gov-Board 102-22Composition of the highest governance body

28, 29. More information on this indicator can be found in the Annual Corporate Governance Report (ACGR)

Gov-Selec 102-24Process for nominating and selecting the highest governance body

The processes forappointing and selectingthe members of thehighest governing bodyand its committees aredescribed in the AnnualCorporate GovernanceReport (ACGR). In addition, MERLIN has a policy of selection of the highest governance body

Gov-CoI 102-25Process for managing conflicts of interest

Article 28 of the Board ofDirectors Regulations laysdown the mechanisms forpreventing and managingpotential conflicts ofinterest. Section D "Related Party Transactions and Intragroup Transactions" in section D6 also includes the foregoing mechanisms

* Rates calculated according to GRI Standards.

ı 112 ı

Appendix I. Breakdown of the environmental performance reporting scope

Asset name PortfolioGLAsqm

Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)

Sustainable buildingcertification

ISO 14001 ISO 9001

ISO 50001Energy

classification

Torre Castellana 259 Offices 21,390 Yes Yes Yes LEED GOLD Yes Yes Yes

Castellana 280 Offices 16,918 Yes Yes LEED GOLD Yes Yes

Castellana 278 Offices 14,468 Yes LEED GOLD Yes

Castellana 93 Offices 11,650 Yes Yes Yes Yes Yes

Castellana 83-85 Offices 15,254 Yes Yes Yes LEED GOLD Yes Yes

Sollube Offices 31,576 Yes Yes Yes Yes Yes

Alcalá 40 Offices 9,315 Yes

Principe de Vergara 187 Offices 10,732 LEED GOLD Yes

Alfonso XI Offices 9,945 Yes Yes LEED GOLD Yes Yes

Pedro de Valdivia 10 Offices 6,721 Yes Yes Yes LEED GOLD Yes Yes

PE Churruca (4 buildings) Offices 16,979 Yes Yes Yes Yes Yes

Princesa 3 Offices 17,810 Yes Yes Yes BREEAM GOOD Yes Yes

Princesa 5 Offices 5,693 Yes Yes Yes BREEAM GOOD Yes Yes

Ventura Rodriguez 7 Offices 10,071 Yes Yes Yes BREEAM GOOD Yes Yes

Juan Esplandiu 11-13 Offices 28,008 Yes Yes Yes BREEAM GOOD Yes Yes

Eucalipto 33 Offices 7,301 Yes Yes Yes LEED GOLD Yes Yes

Eucalipto 25 Offices 7,368 Yes Yes Yes LEED GOLD Yes Yes

Santiago de Compostela 94 Offices 13,130 Yes Yes Yes Yes

Ulises 16-18 (2 buildings) Offices 9,576 Yes Yes Yes Yes

Josefa Valcarcel 48 Offices 19,893 LEED GOLD Yes

PE Alvento (2 buildings) Offices 32,928 Yes Yes LEED SILVER Yes Yes Yes

Cristalia Offices 11,712 Yes Yes Yes

ı 113 ı


Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

Trianon (4 buildings) Offices 18,400 Yes Yes LEED GOLD Yes

PE Puerta de las Naciones (4 buildings)

Offices 39,150 Yes Yes Yes LEED GOLD Yes Yes

Ribera del Loira 60 Offices 54,960 LEED GOLD Yes

Partenón 12-14 Offices 19,609 Yes Yes Yes LEED GOLD Yes Yes Yes

Partenón 16-18 Offices 18,343 Yes Yes Yes LEED SILVER Yes Yes Yes

Arturo Soria 128 Offices 3,206 Yes Yes Yes Yes

Torre Chamartín Offices 18,295 LEED PLATINUM Yes

Arturo Soria 343 Offices 6,615 Yes LEED GOLD Yes

Elipse Offices 7,515 Yes Yes Yes

Fuente de la Mora Offices 4,482 Yes Yes Yes Yes

Aquamarina Offices 10,685 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes

Parque empresarial (PE) Via Norte (6 buildings)

Offices 37,224 Yes Yes Yes LEED GOLD Yes Yes Yes

PE Sanchinarro (2 buildings) Offices 17,191 Yes Yes Yes LEED GOLD Yes Yes

PE Las Tablas (3 buildings) Offices 27,073 Yes Yes Yes Yes

Avenida de Burgos 210 Offices 6,176 BREEAM VERY GOOD Yes

Encinar Offices 3,623 Yes

PE Minipark Alcobendas 1 (4 edificios)

Offices 9,195 Yes Yes Yes

PE Minipark Alcobendas 2 Offices 3,347 Yes Yes Yes

Avenida de Bruselas 24 Offices 9,164 Yes Yes Yes LEED GOLD Yes Yes

Avenida de Bruselas 26 Offices 8,895 LEED SILVER Yes

Avenida de Bruselas 33 Offices 33,718 LEED GOLD Yes

Avenida de Europa 1B Offices 12,606 Yes LEED PLATINUM Yes Yes

Memoria Responsabilidad Social Corporativa 2018

ı 114 ı


Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

Avenida de Europa 1A Offices 12,606 LEED PLATINUM Yes Yes

Maria de Portugal T2 (3 edificios)

Offices 17,139 BREEAM VERY GOOD Yes

Adequa 1 Offices 27,399 Yes Yes Yes

Adequa 3 Offices 15,937 Yes Yes Yes Yes



Vegacinco 1 Offices 5,496 Yes

Vegacinco 2 Offices 5,400 Yes Yes

Costa Brava 2-4 Offices 16,000 Yes Yes LEED GOLD Yes Yes

Avenida de Aragon 334 Offices 3,890 Yes Yes Yes

Atica 1 Offices 7,080 Yes Yes Yes LEED SILVER Yes Yes

Atica 2 Offices 5,644 Yes Yes Yes Yes Yes

Atica 3 Offices 5,746 Yes Yes Yes BREEAM GOOD Yes Yes

Atica 4 Offices 4,936 Yes Yes Yes LEED SILVER Yes Yes

Atica 5 Offices 9,526 Yes Yes LEED GOLD Yes

Atica 6 Offices 3,434 Yes Yes Yes

PE Atica XIX (3 buildings) Offices 15,411 Yes Yes Yes

PE Cerro Gamos (5 buildings) Offices 35,498 Yes Yes Yes Yes

Plantio 6 G Offices 1,780 Yes Yes Yes

Plantio 8 F Offices 1,723 Yes Yes Yes

Plantio 10 E Offices 1,749 Yes Yes Yes

Plantio 12 D Offices 1,816 Yes Yes Yes

Al-Andalus Offices 5,972 Yes Yes Yes Yes

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Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

PE Alvia (3 buildings) Offices 23,567 Yes Yes Yes

PE Euronova (8 buildings) Offices 32,665 Yes Yes Yes Yes

Diagonal 605 Offices 14,795 Yes Yes LEED GOLD Yes Yes

Diagonal 514 Offices 9,664 Yes Yes LEED GOLD Yes Yes

Diagonal 458 Offices 4,174 Yes Yes BREEAM Pass Yes

Balmes 236-238 Offices 6,187 Yes Yes

Vilanova 12-14 Offices 16,494 Yes

E-Forum Offices 5,190 Yes Yes

Citypark Cornella (5 buildings) Offices 12,916 Yes Yes Yes

WTC6 Offices 14,461 Yes Yes LEED GOLD Yes

WTC8 Offices 14,542 Yes Yes LEED GOLD Yes

PLZFA Offices 11,411 Yes

PLZFB Offices 10,652 Yes

Diagonal 211 (Torre Glòries) Offices 37,614 Yes

Diagonal 199 Offices 5,934 Yes Yes Yes Yes

PE Poble Nou 22@ Offices 31,337 Yes Yes LEED GOLD Yes Yes

Muntadas I Offices 24,380 Yes Yes BREEAM GOOD Yes Yes

Muntadas II Offices 3,783 Yes Yes BREEAM GOOD Yes Yes

Sant Cugat I Offices 15,377 Yes Yes BREEAM VERY GOOD Yes Yes

Sant Cugat II Offices 10,008 Yes Yes Yes LEED SILVER Yes Yes

Monumental Offices 16,892 Yes Yes

Marques de Pombal 3 Offices 12,460 Yes Yes Yes

Lisboa Expo Offices 6,740 Yes

Torre Lisboa Offices 13,715 Yes


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Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

Central Office Offices 10,310 Yes

Torre Zen Offices 10,207 Yes

Lerida – Mangraners Offices 3,228 Yes

Zaragoza - Aznar Molina Offices 4,488 Yes

Sevilla – Borbolla Offices 13,037 Yes

Granada - Escudo del Carmen

Offices 2,041 Yes

Coverage (floor area)

1,327,941 949,308 956,724 438,886 634,109 672,008 140,350 1,322,260

Coverage (number of assets)

140 106 101 45 42 62 6 139

Adequa 2 WIP Offices 5,013 Yes Yes

Adequa 4 WIP Offices 15,793

Adequa 7 WIP Offices 32,109 Yes

Costa Brava 6-8* WIP Offices 14,000 Yes


66,915 5,013 5,013 0 0 0 0 46,109


4 1 1 0 0 0 0 2

MarinedaShopping centres

100,242 Yes Yes Yes Yes Yes

Arturo SoriaShopping centres

6,000 Yes Yes Yes Yes Yes Yes

Centro OesteShopping centres

10,876 Yes Yes BREEAM GOOD Yes

Tres AguasShopping centres

67,691 BREEAM GOOD Yes

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Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

NassicaShopping centres

10,007

LariosShopping centres

37,822 Yes Yes BREEAM VERY GOOD Yes

Porto PiShopping centres


ArteaShopping centres

24,323 Yes Yes BREEAM VERY GOOD Yes Yes

ArenasShopping centres

31,900 Yes Yes Yes BREEAM GOOD Yes Yes

VilamarinaShopping centres


La FiraShopping centres

29,013 Yes Yes BREEAM VERY GOOD

El SalerShopping centres


La VitalShopping centres

20,853 Yes Yes Yes BREEAM GOOD Yes

BonaireShopping centres

17,559 Yes Yes Yes

Medianas BonaireShopping centres

4,584

ThaderShopping centres

48,646 Yes Yes BREEAM VERY GOOD Yes

Monumental SCShopping centres

5,495

AlmadaShopping centres

60,098


569,228 420,794 420,794 158,967 364,063 162,422 5,974 458,790


18 13 13 4 11 4 1 13


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Energy Report

GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

X-MadridShopping centres (WIP)

47,424


47,424


1

Madrid-Coslada Logistics 28,491 BREEAM PASS Yes

Madrid-Coslada Complex (3 buildings)

Logistics 36,234 Sí Sí Sí BREEAM GOOD Yes Yes

Madrid-Getafe Logistics 16,242 Yes

Madrid-Getafe (Los Olivos) Logistics 11,488 Yes

Madrid-Meco Logistics 35,285 BREEAM PASS Yes

Madrid-Pinto I Logistics 11,099 Yes

Madrid-Pinto II A Logistics 29,544 Yes

Madrid-Pinto II B Logistics 29,473 Yes

Madrid-Getafe (Gavilanes) Logistics 39,415 LEED GOLD Yes

Madrid-Meco II Logistics 59,814 LEED PLATINUM Yes

Madrid-San Fernando I Logistics 11,179 LEED GOLD Yes

Guadalajara-Alovera Logistics 38,763 BREEAM GOOD Yes

Guadalajara-Azuqueca (3 naves)

Logistics 27,995 BREEAM PASS Yes

Guadalajara-Cabanillas I Logistics 70,134 BREEAM GOOD Yes

Guadalajara-Cabanillas II Logistics 15,078

Guadalajara-Cabanillas Park I A

Logistics 38,054 LEED GOLD Yes

Guadalajara-Cabanillas Park I B


Guadalajara-Cabanillas Park I C


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GJ

Water Report

(m3)

Waste Report

(kg)


ISO 14001 ISO 9001

ISO 50001Energy

classification

Guadalajara-Cabanillas Park I D Logistics 47,892 LEED GOLD Yes

Guadalajara-Cabanillas Park I E Logistics 49,793 LEED SILVER Yes

Barcelona-ZAL Port Logistics 468,743

Barcelona-Lliça del Vall Logistics 14,911 Yes

Barcelona-Sant Esteve Logistics 16,811 Yes

Nave Castellbisbal Logistics 21,508

PLZF Logistics 132,554 Yes

Zaragoza-Pedrola Logistics 21,579 BREEAM GOOD Yes

Zaragoza-Plaza Logistics 20,764 BREEAM GOOD Yes

Valencia-Almussafes Logistics 26,613 Yes Yes

Vitoria-Jundiz Logistics 72,717 BREEAM GOOD Yes

Vitoria-Jundiz II Logistics 26,774

Sevilla Zal Logistics 108,728


1,594,059 62,846 36,234 36,234 664,493 36,234 0 953,228


47 2 1 1 16 1 0 26

Madrid-San Fernando II Logistics WIP 34,224

Guadalajara-Azuqueca II Logistics WIP 98,000 Yes

Guadalajara-Azuqueca III Logistics WIP 51,000 Yes

Guadalajara-Cabanillas Park I F Logistics WIP 19,750 Yes

Guadalajara-Cabanillas Park II Logistics WIP 210,678

Zaragoza Plaza - logistics Logistics WIP 11,262 Yes


424,914 0 0 0 0 0 0 180,012


6 0 0 0 0 0 0 4

The environmental performance report also includes the offices that are part of Callao 5 commercial premises (1,987 sqm).“Like for Like assets”.


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7.3. Independent Review Report

PricewaterhouseCoopers Auditores, S.L., Torre PwC, Pº de la Castellana 259 B, 28046 Madrid, España Tel.: +34 915 684 400 / +34 902 021 111, Fax: +34 915 685 400, www.pwc.es 1 R. M. Madrid, hoja 87.250-1, folio 75, tomo 9.267, libro 8.054, sección 3ª Inscrita en el R.O.A.C. con el número S0242 - CIF: B-79 031290

Free translation from the original in Spanish. In the event of a discrepancy, the Spanish language version prevails

INDEPENDENT LIMITED ASSURANCE REPORT

ON THE CORPORATE SOCIAL RESPONSIBILITY INDICATORS To the Management of Merlin Properties SOCIMI, S.A.: We have carried out our work to provide limited assurance on the Corporate Social Responsibility key indicators (102-8, 102-18, 102-22, 102-24, 102-25, 102-41, 103: Marketing and labelling, 201-1, 205-3, 206-1, 302-1, 302-3, 303-1, , 305-1, 305-2, 305-4, 306-2, 307-1, 401-1, 401-2, 403-2, 404-1, 405-1, 413-1, 416-1, 416-2, CRE2, CRE3, CRE8) contained in “GRI Content Index” of the 2018 Corporate Social Responsibility Report (hereinafter “CSR key indicators”) of Merlin Properties SOCIMI, S.A.(the parent company) and its subsidiaries (hereinafter “Merlin Properties”) for the year ended 31 December 2018, prepared in accordance with the general basic and specific content proposed in the Guidelines for the Preparation of the Sustainability Report of the Global Reporting Initiative (GRI) Standards (hereinafter GRI Standards) and Construction and Real Estate Sector Disclosures of the GRI Guidelines version G4 (hereinafter Construction and Real Estate Sector Disclosures). Responsibility of Management The Management of Merlin Properties is responsible for the preparation, content and presentation of the Corporate Social Responsibility Report in accordance with the Core option of the GRI Standards and the Construction and Real Estate Sector Disclosures as well as for the selection of the key indicators to be reviewed. Management’s responsibility includes establishing, implementing and maintaining the internal control required to ensure that the CSR indicators are free from any material misstatement due to fraud or error. The Management of Merlin Properties is also responsible for defining, implementing, adapting and maintaining the management systems from which the information required to prepare the CSR indicators, is obtained. Our responsibility Our responsibility is to issue a limited assurance report based on the procedures that we have carried out and the evidence obtained. Our limited assurance engagement was done in accordance with the International Standard on Assurance Engagements 3000 (Reviewed) “Assurance Engagements other than Audits or Reviews of Historical Financial Information”, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). The scope of a limited assurance engagement is substantially less extensive than the scope of a reasonable assurance engagement and thus, less security is provided. The procedures that we have carried out are based on our professional judgment and have included consultations, observation of processes, document inspection, analytical procedures and random sampling tests. The general procedures employed are described below: Meetings with Merlin Properties’ personnel from various areas who have been involved in the preparation of 2018 Corporate Social Responsibility Report.

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2

Analysis of the procedures used for obtaining and validating the data presented in the CSR key indicators. Analysis of Merlin Properties’ CSR key indicators adaptation to the requirements established by the GRI Standards for the preparation of sustainability reports and to the Construction and Real Estate Sector Disclosures. Verification, through random sampling tests revisions, internal control tests and substantive tests on the information used to determine Merlin Properties’ CSR key indicators. We have also verified whether they have been appropriately compiled from the data provided by Merlin Properties’ sources of information. Our Independence and Quality Control We have fulfilled our work in accordance with the independence requirements and other ethical requirements of the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA), which are based on basic principles of integrity, objectivity, professional competence and diligence, confidentiality and professional conduct. Our firm applies the International Standard on Quality Control 1 (ISQC 1) and thus employs an exhaustive quality control system which includes documented policies and procedures on the compliance of ethical requirements, professional standards, statutory laws and applicable regulations. Limited assurance conclusion As a result of the procedures carried out and the evidence obtained, no matters have come to our attention which may lead us to believe that CSR key indicators (102-8, 102-18, 102-22, 102-24, 102-25, 102-41, 103: Marketing and labelling, 201-1, 205-3, 206-1, 302-1, 302-3, 303-1, , 305-1, 305-2, 305-4, 306-2, 307-1, 401-1, 401-2, 403-2, 404-1, 405-1, 413-1, 416-1, 416-2, CRE2, CRE3, CRE8) for the financial year ending 31st December 2018, contain significant errors or have not been prepared, in all of their significant matters, in accordance with the GRI Standards and the Construction and Real Estate Sector Disclosures. Use and Distribution Our report is only issued to the Management of Merlin Properties, in accordance with the terms and

conditions of our engagement letter. We do not assume any liability to third parties other than Merlin Properties’ Management.

PricewaterhouseCoopers Auditores S.L. Pablo Bascones April 10th, 2019

Paseo de la Castellana, 257

28046 Madrid

+34 91 769 19 00

[email protected]

www.merlinproperties.com

20 - Merlin Properties · 2019. 4. 10. · MERLIN a reference company in the sector. I take this...

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