INTERIM FINANCIAL STATEMENTS - Merlin Properties · Portfolio acquisition costs (€ thousand)...

INTERIM FINANCIAL

STATEMENTSfor the period ended

on June 30 2015

INDEX

1. Key aspects 5

2. Consolidated profit and loss account 11

3. Consolidated balance sheet 13

4. Valuation and EPRA metrics 18

5. Investment and leasing activity 22

6. Stock price evolution 31

7. Events post-closing 32

Interim financial statements ı 5

1. KEY ASPECTS

In addition, MERLIN has signed a forward purchase agreement for the development of three logistics warehouses in Guadalajara-Cabanillas, having disbursed 25% of the price upon signature (€ 11,571 thousand), and has entered into a deposit contract (€ 9,100 thousand including transaction costs) for the future acquisition of 33 supermarkets long-term leased to Caprabo (equivalent to 10% of total price).

3. Commercial portfolio

After the recent acquisitions, and excluding Testa, MERLIN Properties owns a commercial real estate comprising 906 assets, with a gross lettable area (“G.L.A.”) of 758,851 sqm. The acquisition price (including transaction costs) is € 2,229,454 thousand. The portfolio gross asset value (“GAV”) in accordance with Savills valuation as of 30 June 2015 amounts to € 2,415,537 thousand (€ 2,413,706 thousand excluding the logistics land plot). Adding the investments accounted for using the equity method (Testa and a company in Portugal, € 425,115 thousand) and the Cabanillas forward purchase advance payment and Caprabo deposit payment (totaling € 20,671 thousand), MERLIN total GAV amounts to € 2,861,323 thousand. The net asset value, following EPRA recommendations (“EPRA Net Asset Value” or “EPRA NAV”), amounts to € 2,061,947 thousand (€ 10.64 per share).

4. Results

In the first semester, MERLIN recorded revenues of € 67,036 thousand, EBITDA of € 57,295 thousand, a recurring EBITDA of € 55,355 thousand (€0.29 per share), a recurring FFO of € 42,414 thousand (€ 0.22 per share), a FFO of € 41,198 thousand (€ 0.21 per share) and a net consolidated result of € 119,582 thousand (€ 0.62 per share).

1. Capital structure

On 11 May 2015 a capital increase of MERLIN Properties Socimi, S.A. (hereinafter, MERLIN, MERLIN Properties or the Company) took place for an amount of € 613,756 thousand.

2. Investment activity

MERLIN Properties signed on 8 June 2015 with Sacyr, S.A. a binding agreement for the acquisition by MERLIN, in different phases, of a majority stake (99.6%) of Testa Inmuebles en Renta, S.A. (hereinafter, Testa). During the first semester, according to the terms of the agreement, MERLIN has acquired a 25% stake of Testa, by means of the subscription to a capital increase of newly issued shares for an amount of € 430,839 thousand. As of 30 June 2015, the stake has been accounted for using the equity method (capital increase amount less a dividend received from Testa for an amount of € 5,774 thousand).

MERLIN has acquired two office buildings, two logistics warehouses and a logistics land plot for an aggregate amount of € 101,605 thousand, of which € 99,997 thousand correspond to the acquisition price of the assets and € 1,608 thousand to transaction costs.

The acquisitions of the 25% stake of Testa and the five assets resulted in the disbursement of € 503,504 thousand of MERLIN’s equity. The remaining € 28,940 thousand corresponds to the existing financing in two of the acquired assets. MERLIN Properties has assumed these financings.

6 ı

Number of ordinary shares 193,818,000

Weighted number of ordinary shares

148,486,719

Total Equity 2,027,090

GAV 2,861,323

Net Debt 791,602

Net Debt / Net Debt + Equity

28.1%

Net Debt / GAV 27.7%

CAPITAL STRUCTURE KEY DATA

Free Float 83.6%

Marketfield 6.7%

EJF 5.0%

UBS 4.7%

(€ thousand) 30/06/2015

GAV of the commercial portfolio (1) 2,413,706

GAV of the land plot 1,831

Investments accounted for using the equity method 425,115

Forward purchase & deposit payments 20,671

Total GAV 2,861,323

Gross financial debt (1,191,782)

Cash, cash equivalents and short term financial investments 400,180

Net financial debt (791,602)

Working capital (7,774)

EPRA NAV 2,061,945

Number of ordinary shares 193,818,000

Weighted number of ordinary shares 148,486,718

EPRA NAV per ordinary share (€) 10.64

Share Price 30/06/2015 9.65

Premium / (Discount) Share Price – EPRA NAV (10.3%)

PORTFOLIO VALUATION

(1) In accordance with Savills valuation as of 30 June 2015


30/06/2015

Portfolio GAV(1) (€ thousand) 2,413,706

Portfolio acquisition costs (€ thousand) 2,227,602

Gross annualized rents 2015(2) (€ thousand) 134,581

Net annualized rents 2015(3) (€ thousand) 130,228

EPRA gross yield(4) 5.58%

EPRA topped-up Initial yield(5) 5.40%

Total GLA (sqm) 758,851

Occupancy rate 95.8%

WAULT by rents (years)(6) 16.8

KEY ASPECTS OF THE COMMERCIAL PORTFOLIO

(1) As per Savills valuation as of June 30, 2015 excluding the value of the land plot in Zaragoza(2) Gross annualized rents have been calculated as passing monthly rent as of 30 June 2015, multiplied by 12(3) Net annualized rents have been calculated as passing monthly rent as of 30 June 2015, multiplied by 12(4) Calculated dividing gross annualized rents by Portfolio GAV(5) Calculated dividing net annualized rents by Portfolio GAV(6) Weighted unexpired lease term, calculated as the number of years of unexpired lease term, as from 30 June 2015, until the first

break option of the lease contracts, weighted by the gross rent of each individual lease contract

8 ı

Valencia Almussafes

Madrid Meco

WTC Almeda Park, Building 8

Alcalá

Zaragoza Plaza

Madrid Getafe

Vitoria

A1 MadridBuilding 5

Marineda

A1 MadridBuildings 1, 2 and 3

Lisbon -Expo

A1 MadridBuilding 4

# Retail/branches Shopping center Office Logistics

7131 6

96

1010

2263

1534

9124

9312

40

161

109

LOCATION OF THE PORTFOLIO

WTC Almeda Park, Building 6

Madrid Coslada


GLA PER ASSET CLASS GROSS ANNUALIZED RENTS PER ASSET CLASS

49%

26%

11%

14%

66%

7%

13%

14%

GROSS YIELD PER ASSET CLASS

8.05%

LogisticsTree Inversiones

5.16%

Office

6.34%

Retail

6.36%

5.58%

Av. MERLIN

WAULT by rents (years) Occupancy per asset category

7.322.8

100%

89%

79%

98%

3.23.1

OCCUPANCY AND WAULT PER ASSET CLASS

Tree Inversiones

Office LogisticsRetail

95.8%

Av. MERLIN

16.8Av. MERLIN

Tree Inversiones Retail Office Logistics

10 ı

(€ thousand) 30/06/2015

Gross rents 65,444

Net rents before incentives and collection loss 63,886

Net rents after incentives and collection loss 63,113

Personnel expenses (5,063)

Other operating expenses (2,696) Per share

EBITDA recurring (1) 55,355 0.29

EPRA Net Income 44,802 0.23

FFO recurring (2) 42,414 0.22

FFO (3) 41,198 0.21

Net income for the period 119,582 0.62

KEY CONSOLIDATED FINANCIAL AND ECONOMIC INDICATORS (IFRS)

(1) Recurring EBITDA has been calculated as the EBITDA (€ 57,295 thousand) less other operating income (€ 1,939 thousand) (2) Recurring Funds from Operations. Recurring funds generated by the business after deducting operating expenses and deducting

net finance costs. Recurring FFO excludes other operating income (€ 1,939 thousand) and the non-recurring costs related to acquisition of companies and one-off financing costs (€ 1,216 thousand)

(3) It is calculated deducting from recurring FFO the costs associated to acquisition of companies and one-off financing costs


2. CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2015 (IFRS)

(€ thousand)ACCUMULATED

up until 30/06/2015

Gross rents 65,444

Tree Inversiones Inmobiliarias 44,531

Retail 9,205

Office 8,078

Logistics 3,630

Other operating income 1,939

Total operating income 67,383

Incentives and collection loss (772)

Total operating expenses (9,316)

Portfolio operating expenses not rechargeable to tenants (1,558)

Personnel expenses (5,063)

General expenses (2,695)

EBITDA 57,295

Depreciation (51)

Gains / (losses) on disposal of assets 12

Provision surpluses 476

Negative goodwill on business combinations (42)

EBIT 57,690

Net interest expense (14,134)

Change in fair value of investment properties 94,954

Change in fair value of financial instruments (12,836)

PROFIT BEFORE TAX 125,674

Income taxes (6,092)

PROFIT (LOSS) FOR THE PERIOD 119,582

12 ı

2.1 Notes to the consolidated income statement

Gross rents (€ 65,444 thousand) less portfolio operating expenses not rechargeable to tenants (€ 1,558 thousand) equals to net rents before incentives and collection loss of € 63,886 thousand. After deducting incentives and collection loss (€ 772 thousand), the resulting amount is € 63,114 thousand of net rents after incentives and collection loss.

Other operating income includes penalties to tenants for early lease cancellations.

Total operating expenses of the Company for this semester were € 9,316 thousand, of which € 3,133 thousand are excluded from the overheads limitation, corresponding to portfolio operating expenses non-recoverable from tenants (€ 1,558 thousand) and € 1,575 thousand mainly to costs associated with the acquisition of companies and one-off financing costs. Out of the total amount of the costs included within the limit of the annual overheads (€ 6,184 thousand), € 5,063 thousand correspond to personnel costs and € 1,121 thousand to running costs of the Company. Personnel costs include an estimate of the variable remuneration component.

The negative goodwill on business combinations corresponds to the difference between the purchase price of 100% of the equity of MPVCI (Portuguese company holding the office asset in Lisbon) and of MERLIN Logistica II, S.L.U., holding company of the logistics asset named Madrid-Meco, and the book value of each company as at the acquisition date, adjusted by the fair market value of the assets acquired net of its tax impact.

Income taxes correspond to the taxation arising as a result of the capital gain produced by the substitution of branches exercised by virtue of the master lease agreement by BBVA, which was signed on 3 February 2015 (45 entry branches and 42 exiting branches). Exiting branches were sold at a price equivalent to the Savills valuation giving rise to a capital gain for the difference between the sales value and the book value of the referred 42 branches sold.

2.2 Reconciliation Gross rents - FFO

The reconciliation between the gross rents of the period and FFO is as follows:

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Gross

rent

s

Proper

ty exp

. not

rech

argea

ble

Net

rent

s bef

ore in

cent

ives

and c

ollect

ion

loss Ren

ts

ince

ntive

s

Net

rent

s

Gener

al

expen

ses

Perso

nnel

Recur

ring

EBITDA

Fina

ncial

inco

me

Fina

ncial

expen

ses

FFO

Non re

curri

ng

expen

ses

Recur

ring F

FO

Collect

ion

loss

65,443.963,886.4

-1,557.5-346.9 63,113.9

-2,696.1-5,063.4

55,354.4 845.5 -15,002.2

41,197.7 1,216.4 42,414.1

-425.6


3. CONSOLIDATED BALANCE SHEET AS OF JUNE 30 2015 (IFRS)

ASSETS 30-06-2015 31-12-2014

NON-CURRENT ASSETS

Intangible assets 137 149

Property, plant and equipment 961 894

Investment property 2,187,001 1,969,934

Investments accounted for using the equity method 425,065 -

Non-current financial assets 268,060 281,192

Embedded inflation derivative 249,206 261,689

Other financial assets 18,854 19,503

Deferred tax assets 7,347 9,369

Total non-current assets 2,888,571 2,261,538

CURRENT ASSETS

Trade and other receivables 5,439 3,340

Other current financial assets 56,944 125,791

Other current assets 76 122

Cash and cash equivalents 343,236 26,050

Total current assets 405,695 155,303

TOTAL ASSETS 3,294,266 2,416,841

(€ thousand)

14 ı

EQUITY AND LIABILITIES 30-06-2015 31-12-2014

EQUITY

Subscribed capital 193,818 129,212

Share premium 1,711,519 1,162,368

Reserves 1,631 (30,475)

Other equity holder contributions 540 540

Valuation adjustments 14,833 (2,636)

Profit for the period 119,582 49,670

Equity attributable to equity holders of the Parent 2,041,923 1,308,679

NON-CURRENT LIABILITIES

Non-current bank borrowings 1,177,102 1,027,342

Other financial liabilities 22,128 21,498

Deferred tax liabilities 22,626 24,432

Provisions 841 476

Non-current accruals and deferred income 125 -

Total non-current liabilities 1,222,822 1,073,748

CURRENT LIABILITIES

Bank borrowings 14,750 10,809

Other current financial liabilities - 190

Trade and other payables 12,916 23,302

Current tax liabilities 292 75

Other current liabilities 1,563 38

Total current liabilities 29,521 34,414

TOTAL EQUITY AND LIABILITIES 3,294,266 2,416,841

(€ thousand)


3.1 Notes to the consolidated balance sheet

The fair value of property investments corresponds to the Savills valuation as of 30 June 2015, except for the assets not included in the perimeter of the valuation: (i) the 25% stake in Testa, which has been valued at acquisition cost (less the dividend received from Testa), and (ii) two assets for which a deposit (Caprabo) or a partial payment of the price (Guadalajara-Cabanillas) has been paid, both of which have been valued at acquisition cost. Investment property includes the fair value of the investments completed by 30 June 2015, minus the fair value of the embedded inflation derivative.

Long term financial investments include the fair value of the embedded inflation derivative, for an amount of € 249,206 thousand. This adjustment corresponds to the annual rent update component included in the BBVA lease agreement. This item has been valued separately from the main contract as a financial derivative. For the valuation of the embedded derivative the Company has based its estimation on the future total revenue derived from the contract adjusted by the credit risk of the counterparty.

The breakdown of the fair value of the assets in MERLIN’s portfolio, as of 30 June 2015, is as follows:

(€ thousand)

Tree Inversiones Inmobiliarias

Investment property 1,477,589

Financial investments (embedded derivative) 249,206

Subtotal Tree Inversiones Inmobiliarias 1,726,795

Retail assets in Investment property 294,971

Office assets in Investment property 279,530

Logistics assets in Investment property 114,241

Subtotal other assets 688,742

Forward purchase and deposit payments 20,671

Investments accounted for using the equity method(1) 425,114

Total fair value of the Portfolio 2,861,323

(1) Includes € 50 thousand of a company incorporated in Portugal.

16 ı

The balance of deferred tax liabilities, which amounted to € 22,626 thousand, corresponded to the estimate of the tax impact of the implicit capital gain when valuing the assets of Tree Inversiones Inmobiliarias at their fair value.

3.2 Capital structure evolution

3.2.1 Equity

On 11 May 2015 a capital increase was executed for € 613,756,990, by means of the issue and placing in circulation of 64,605,999 new ordinary shares, of 1 euro nominal value and a share premium of 8.5 euros per share, of the same class and series as those currently in circulation. The shares were fully subscribed and disbursed. After the capital increase, the equity balance of the Company as of 30 June 2015 amounts to € 2,041,923 thousand.

3.2.2 Financing

On 19 February 2015, MERLIN Retail signed the financing of Marineda, a loan facility agreement signed with Allianz group, with mortgage security on Marineda shopping centre. The loan has a principal amount of € 133,600 thousand, a term of ten years and accrues a fixed interest rate of 2.66% with no annual principal repayment requirement and full repayment of principal upon maturity.

On 13 March 2015, MERLIN Oficinas signed the financing of World Trade Centar Almeda Park building 6, a loan facility agreement signed with Deutsche Pfandbriefbank, with mortgage security on WTCAP 6. The loan has a principal amount of € 22,845 thousand, a term of nine years and accrues a fixed interest rate of 2.41%, with annual principal repayment of 0.5% per annum and repayment of 95.5% of principal upon maturity.

On 26 March 2015, MERLIN Oficinas renegotiated and assumed the existing financing on Alcala 38-40, a loan with Caixabank, with mortgage security over the

The balance of LT debt and ST debt includes Company’s outstanding financial debt, and the mark-to-market of interest-rate and inflation hedging contracts:

Long term Short term Total

Outstanding principal 1,179,222 10,632 1,189,854

Accrued interest 0 1,928 1,928

Total Gross financial debt 1,179,222 12,560 1,191,782

Cash and short-term financial investments (400,180)

Total net financial debt 791,602

Cash and short-term financial investments 400,180

Arrangement expenses (28,305) (28,305)

Market value of interest-rate and inflation hedging contracts

26,185 2,190 28,375

Total financial debt 1,177,102 14,750 1,191,852


asset. The loan has a principal amount of € 21,000 thousand, a term of fifteen years and accrues a variable interest rate of 3-months Euribor plus a margin of 150 basis points. The loan has a grace period of 4 years over principal repayment and full repayment of principal from year 5 until maturity.

On 17 April 2015, the Company, through its subsidiary MERLIN Logistica II, S.L.U., upon acquisition of the company holding the asset Madrid-Meco, assumed the financing with Caixabank, with mortgage guarantee over the asset. The loan has an outstanding balance as at the date of the acquisition of € 7,940 thousand and a variable interest rate of Euribor 6 month plus a 250bps margin.

On 21 June 2015, the Company signed a bridge financing facility for € 500 million with Morgan Stanley, JP Morgan and Goldman Sachs for the financing of the acquisition of Testa. As at 30 June 2015 no amount of the loan facility had been drawn down.

(€ thousand) 30/06/2015

Outstanding amount 1,189,854

Average maturity 9.0 years

Average cost until 31/12/2017

3.8%

Average cost from 31/12/2017 until maturity

2.7%

% of the debt with interest rate hedging

95.5%

KEY FEATURES OF THE GROSS FINANCIAL DEBT

Main features of the outstanding debt are as follows:

18 ı

4. VALUATION AND EPRA METRICS

GROSS ASSET VALUE RECONCILIATION (€ MILLION)

4.1 Portfolio valuation

The GAV of MERLIN as of 30 June 2015 amounts to € 2,861.3 million. The like-for-like increase from 31 December 2014 is +3.6%, due to a yield compression of approximately 20 basis points. The breakdown is as follows:

• Savills has valued all the assets of MERLIN portfolio, with the exception of the stake in Testa and the forward purchase and deposit payments, for a total amount of € 2,415.5 million.

• Testa stake. It has been considered as additional GAV for an amount equivalent to the acquisition cost (€ 430.8 million) less the ordinary dividend received from Testa, paid on 10 July 2015 (€ 5.7 million).

• Forward purchase and deposit payments. It has been considered as additional GAV for the amount disbursed as deposit (Caprabo) and 25% of price of forward purchase (Guadalajara-Cabanillas), for a total amount of € 20.7 million.

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

2,231.6

GAV 31/12/2014

80.1

LfL Increase

103.8

1S 2015 Acquisitions

425.1

TestaStake

20.7

Advance payments and

deposits

2,861.3

GAV 30/06/2015


4.2 EPRA Net Asset Value

EPRA NAV as of 30 June 2015 of MERLIN amounts to € 2,061.9 million, equivalent to € 10.64 per share (+1.5% versus 31 December 2014) or €13.89 per weighted number of ordinary shares.

EPRA NNNAV as of 30 June 2015 of MERLIN amounts to € 2,018.3 million, equivalent to € 10.41 per share (+4.6% versus 31 December 2014) or €13.59 per average weighted share.

GAV PER ASSET CATEGORY LIKE FOR LIKE GAV INCREASE PER ASSET CATEGORY

Tree Inversiones Retail Office Logistics

70.9%12.5%

5.2%

11.5%

5.1%

3.4%

2.6%

5.0%

NET ASSET VALUE RECONCILIATION (€ MILLION)

Av. MERLIN 3.6%

3,000

2,500

2,000

1,500

1,000

500

0

EPRA NAV 31/12/2014

1,355.0

Change in net debt

65.7

EPRA NAV 30/06/2015

2,061.9

Testa 25% stake

425.1

lfl Increase

80.1

GAV Acquisitions

124.5

Change in working capital

11.5

20 ı

Performance Measure

Definition 30/06/2015 31/12/2014

€ MillionPer

share€ Million

Per share

EPRA Earnings

Recurring earnings from core operational activities

44.8 0.23 20.4 0.16

EPRA NAV

Net Asset Value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to crystalise in a long-term investment property business model

2,061.9 10.64 1,354.9 10.49

EPRA NNNAV

EPRA NAV adjusted to include the fair value of financial instruments, debt and deferred taxes

2,018.3 10.41 1,286.5 9.96

EPRA Net Initial Yield

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with acquisition costs

5.40% 5.86%

EPRA “topped-up” NIY

Adjustment to the EPRA Net Initial Yield in respect of the expiration of rent-free periods (or other unexpired lease incentives such as discounted rent periods and step rents)

5.46% 5.93%

EPRA Vacancy Rate

Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio

4.2% 3.4%

EPRA Metrics


EPRA earnings have been calculated as follows:

(€ thousand) 30/06/2015

Consolidated net profit in accordance with IFRS 119,582

(i) changes in value of investment properties -94,912

(ii) profits or losses on disposal of investment properties -12

(iii) change in fair value of financial instruments +12,836

(iv) transaction costs in respect of acquisition of companies / joint ventures

+1,216

(iii) tax adjustments +6,092

EPRA Earnings for the period 44,802

EPRA Earnings for the period per share (€) 0.23

EPRA Earnings for the period per weighted share (€) 0.30

RECONCILIATION OF IFRS NET INCOME WITH EPRA EARNINGS

22 ı

5. INVESTMENT AND LEASING ACTIVITY

5.1 Investments

Investment activity in the first half of 2015 has been as follows:

Alcalá 38-40 acquisition

On 26 March 2015, the Group acquired, through MERLIN Oficinas, an office building located in the heart of Madrid,at Alcalá 38-40, for a purchase price of € 38,128 thousand.

ALCALÁ 38-40

Acquisition price of the asset (€ thousand) 38,128

Asset debt outstanding as of the date of purchase (€ thousand) 21,000

Equity disbursement (€ thousand) 17,128

Debt to acquisition price of asset 55.1%

Annualized gross rent 2015 (€ thousand) 1,985

Annualized net rent 2015 (€ thousand) 1,901

EPRA Gross Yield (1) 5.21%

EPRA Topped-up Initial Yield (2) 4.99%

Total G.L.A. (sqm) 9,315

Occupancy rate 100%

WAULT by rents (years) (3) 1.5

(1) Calculated as the gross annualized rent (passing rent as of 30 June 2015 times 12) divided by the acquisition price of the asset(2) Calculated as the gross annualized rent (passing rent as of 30 June 2015 times 12) minus annualized property expenses not

rechargeable to tenant, divided by the acquisition price of the asset(3) Weighted average unexpired lease term, calculated as number of years of unexpired lease term, as from June 30, 2015, until the

first break option window of the lease contracts, weighted by the gross rent of each individual lease contract

The building is located at the junction of the streets of Alcalá and Gran Vía, in an area known for its high density and retail concentration. This area is currently undergoing a redevelopment alongside the Canalejas project, which is taking place at the site of the former Banco Santander headquarters. The building has a GLA of 9,315 sqm, and is fully let to the Home Office, until 31 December 2016.


Madrid-Coslada logistics warehouse acquisition

On 27 March 2015, the Group acquired, through MERLIN Logistica, a logistics warehouse located in Madrid, in the Logistics Transport Centre in Coslada, for a purchase price of € 19,807 thousand.

The asset is located in Coslada (Madrid), a consolidated logistics area, known for its good connection to the A-2 highway and proximity to Madrid (18 kms.) and the airport (7 kms.). The acquired asset has a GLA of 28,490 sqm and is fully let to Azkar (a subsidiary of Dachser, one of the leading logistics operators in Europe).

(1) Calculated as the Gross annualized rent (passing rent as of 30 June 2015 times 12) divided by the acquisition price of the asset(2) Calculated as the Gross annualized rent (passing rent as of 30 June 2015 times 12) minus annualized property expenses not



MADRID-COSLADA


Asset debt outstanding as of the date of purchase (€ thousand) 0


Debt to acquisition price of asset 0%






Occupancy rate 100%


24 ı

Madrid-Meco logistics warehouse acquisition

On 17 April 2015, the Group acquired, through MERLIN Logistica II, S.L.U., a logistics warehouse located in Meco, for a purchase price of € 22,210 thousand.

The asset is located in the consolidated industrial area of Meco, Madrid, in the A-2 corridor connecting Madrid with Barcelona and Zaragoza. The acquired asset has a GLA of 35,285 sqm and is fully let to Azkar (a subsidiary of Dachser, one of the leading logistics operators in Europe).

MADRID-MECO


Asset debt outstanding as of the date of purchase (€ thousand) 7,940


Debt to acquisition price of asset 35.7%






Occupancy rate 100.0%






Lisbon- Expo office building acquisition

On 5 June 2015, the Group acquired, through MPCVI, a grade-A office building located in Avenida Dom Joao II, in Parque das Nações (Expo discrict), for a purchase price of €18,000 thousand.

The building commands excellent visibility given its privileged location next to Vodafone headquarters, Lisbon Casino, Vasco da Gama shopping center and other prestigious buildings. The area features first-class communication infrastructure, less than 200 meters away from one of the main intermodal transport hubs in Lisbon, only 5 minute-drive from Lisbon airport and 10 minute-drive from the city center. The property, that was designed by Broadway Malyan and built in 2007, has a GLA of 6,740 sqm. The buildings if fully let to Novabase, a leading Portuguese IT company.

LISBON – EXPO










Occupancy rate 100%





26 ı

Portfolio of 33 Caprabo supermarkets acquisition

On 18 June 2015, the Group, through MERLIN Retail, signed a €9,000 thousand deposit contract for the acquisition in September 2015 of 33 supermarkets fully let on a long-term basis to Caprabo, all of them located in Cataluña.

The portfolio, that has a GLA of 64,252 sqm, consists of 19 urban supermarkets and 14 “big boxes”. By rents, 71% of the supermarkets are located in Barcelona region, the remaining 29% located in Tarragona, Lérida and Gerona regions. The properties are well consolidated, with Caprabo operating them since, on average, 1993.

CAPRABO





Annualized gross Rent 2015 (€ thousand) 6,957

Annualized net Rent 2015 (€ thousand) 6,927




Occupancy rate 100%






Forward purchase of 3 logistics warehouses in Cabanillas

On 19 June 2015, the Group, through MERLIN Logistica, signed a forward purchase agreement to acquire a plot zoned for the construction of 3 logistics warehouses located in Cabanillas (Guadalajara), Upon signature of the forward purchase agreement, MERLIN disbursed €11,571 thousand, 25% of the total purchase price. The delivery of the finished assets is expected to occur by the end of 2016.

Cabanillas del Campo is located in the third ring of Madrid (50 kms), in the province of Guadalajara, with direct access to the A-2 and R-2 motorways, in the largest logistics hub in Spain, the so called “Corredor de Henares”. The land plot allows for the construction of 3 logistics warehouses, with a total GLA of 103,519 sqm. The agreement establishes the delivery of the 3 finished warehouses no later than December 2016.

GUADALAJARA - CABANILLAS





Annualized Gross Rent (€ thousand) 3,896

Annualized Net Rent (€ thousand) 3,679




Occupancy rate (forecast) 100%

(1) Calculated as estimate annualized gross rent at full occupancy divided by the acquisition price of the asset(2) Calculated as the estimate annualized gross rent at full occupancy minus annualized property expenses not rechargeable

to tenant, divided by the acquisition price of the asset

The purchase price of € 46,6 million (€ 11,6 million already disbursed), can be increased if an incentive granted to the seller is achieved, dependent upon their ability to sign leases with a minimum mandatory term of 5 years and a minimum rent of € 3.2 / sqm / month.

The main economic data on the assets once leased-up is as follows:

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Zaragoza-Plaza logistics land plot acquisition

On 9 April 2015, the Group acquired, through MERLIN Logistica, a logistics land plot adjacent to the warehouse already owned in Zaragoza Plaza, for a purchase price of € 1,852 thousand. The land plot has a total surface of 20,347 sqm and buildability for 24,417 sqm.

Testa

The main financial and economic indicators of Testa in the first semester are detailed below:

(€ thousand) 30/6/15

Total revenue (1) 79,919

Gross rental income (1) 78,959

Net rental income (1) 76,917

EBITDA 68,477

Net profit for the period 34,142

Net profit per share (€) (2) 0.28

30/6/15

Gross financial debt 1,663,349

Net financial debt (3) 1,465,295

Net financial debt/GAV 45.8%

KEY CONSOLIDATED FINANCIAL INDICATORS (IFRS)

(1) Does not include amounts recharged to tenants for shared expenses, which as at 30 June 2015 and 2014 amounted to €12,966 thousand and €13,297 thousand, respectively. .

(2) Calculated over weighted number of shares of the period (120.2 million).(3) Includes net financial debt of companies accounted for using the equity method.


(€ thousand) 30/6/15

GAV 3,202,432

Gross financial debt (1,663,349)

Debt arrangement expenses 7,261

Financial derivatives (8,708)

Total financial debt (1,664,796)

Other assets and liabilities 169,822

EPRA NAV 1,707,458

Number of shares 153,967,718

EPRA NAV per share (€) 11.09

EPRA NAV ESTIMATE

TESTA arranged leases for 49,333 sqm of space in the first half of 2015, of which 37,927 sqm correspond to renewals and 11,406 sqm to new contracts.

LEASE AGREEMENTS (sqm)

0

Logistic

0

Hotels

6,045

Retail

43,288

Offices

49,333

Total TESTA

LEASING ACTIVITY

30 ı

Leasing activity

Up to 31 July 2015, MERLIN has signed lease agreements amounting to 60,273 sqm, out of which 48,748 sqm correspond to new leases and 11,524 sqm to renewals.

The breakdown by asset category is as follows:

45,666.7

60,272.6

15014,455.9

Retail Office Logistic TOTAL MERLIN

By asset category, the main achievements have been as follows:

Retail. Marineda is undergoing a strong letting activity, in line with the business plan laid out for the property. Since acquisition, asset management has been focused on three fronts:

• The exit of those tenants with poor sales performance, low footfall and a profile below the standards.

• The enhancement of the food court area, removing the kiosks from the mall and increasing the terrace areas of the restaurants, improving their visibility and sales area. Two kiosks have already exited (291 sqm) and negotiations continue to remove those left, while in parallel negotiations with restaurant operators continue to increase their terrace areas.

• The creation of a sports themed area aimed at revitalizing the area where most of the vacancy is concentrated, with the exit of the few tenants left, relocation of existing sports-related tenants to this area, and new leases with operators related to the concept. During the period, two lease contracts have been cancelled with tenants in this area (120 sqm).

Total take-up has been 14,456 sqm, of which 11,524 sqm are renewals and 2,932 sqm are new leases. Exits amounted to 1,883 sqm, and therefore the net take up is 1,049 sqm, which raised the occupancy to 90.2% (vs. 89.2% as of 31 March)

Footfall performance continues upwards with total visitors in the period of 7.6 million (+8.7% vs. 1H 2014)

Office. Exits were 4,711 sqm and new leases 150 sqm. The exits are concentrated in buildings 6 and 8 of World Trade Center Almeda Park.

Due to an internal restructuring process, Sharp has abandoned its Barcelona HQ, and has therefore terminated their lease in WTCAP building 6 before the first break option (31 March 2017). As a consequence, Sharp has paid all rent from their termination (May) until 31 March 2017 (€ 1.3 million), and has been relocated to a smailler size unit (862 sqm)

Logistics. New leases for 45,667 sqm and exits for 11,559 sqm, and therefore the next take-up is +34,108 sqm. The flow was in Valencia-Almussafes warehouse and Guadalajara-Cabanillas. In Valencia, Johnson Controls exited and most of the space has been taken up by the existing tenants (Ford and Truck & Wheel). In Guadalajara, ahead of business plan, a new lease has been signed with a grade A tenant for 38,054 sqm. The tenant will occupy a complete premise upon delivery after construction, thus evidencing the high demand in logistics for the area as well as the excellent location of the asset.


6. STOCK PRICE EVOLUTION

MERLIN shares closed on 30 June 2015 at € 9.657, an increase of 20.6% versus 31 December 2015 closing price. The share has outperformed in the same period the IBEX-35 (+4.8%) and the sectorial EPRA reference index (+9.0%)

Average daily trading volume during the period has been € 14.7 million, representing 0.8% of the market cap of the company. With respect to the second half of 2014 (€ 6.5 million), the average daily trading volume has more than doubled.

MERLIN Properties is a member of the Euro STOXX 600, IBEX 35 Medium Cap, FTSE EPRA/NAREIT Global Real Estate, GPR Global Index, and MSCI Small Cap indexes.

Source: Bloomberg

MERLIN SHARE PRICE PERFORMANCE VS IBEX 35 / EPRA INDEX

DAILY TRADED VOLUME

11

10

9

8

7

€

March 2015February 2015 May 2015 June 2015January 2015

MERLIN +20.6%

EPRA +9.0%IBEX 35 +4.8%

0

20

40

60

80

€M M

March 2015February 2015 May 2015 June 2015January 2015

Av. MERLIN € 14.7 MM

32 ı

7. POST-CLOSING EVENTS

Capital increase

On 7 August 2015, a capital increase was executed for a total amount of 1,033,696,000 euros by means of the issue and placing in circulation of 129,212,000 new ordinary shares, of 1 euro nominal value and a share premium of 7 euros per share, of the same class and series as those currently in circulation.

Testa

On 23 July 2015, MERLIN has acquired an additional stake of 25.1% from Sacyr for € 861 million, thus becoming majority shareholder of the company, with 50.1% of the equity.

Additionally, on 23 July 2015, MERLIN has registered with the CNMV the previous announcement of the request for authorization to launch a tender offer for 0.4% of Testa owned by minority shareholders. The offered price per share is 13.54 euros.

On 24 August 2015 the request for authorization was registered with the CNMV.

On 12 August 2015, MERLIN has acquired an additional stake in Testa of 26.913% from Sacyr, thus totaling a stake of 77.01%.

Other

In July, private contracts have been signed for the acquisition of 100% of a logistics asset located in Getafe-Madrid, with a GLA of 11,487 sqm, and 50% of a retail asset located in Madrid, with a GLA of 5,981 sqm. In both cases, it is envisaged to sign the public deeds during the month of September.

34 ı

PASEO DE LA CASTELLANA, 42

28046 MADRID

+34 91 787 55 30

[email protected]

www.merlinproperties.com

INTERIM FINANCIAL STATEMENTS - Merlin Properties · Portfolio acquisition costs (€ thousand)...

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