Merlin Properties, SOCIMI, S.A.

Financial Statements for the year ended 31 December 2022 and Directors’ Report

MERLIN PROPERTIES SOCIMI, S.A.
BALANCE SHEET AT 31 DECEMBER 2022
(Expressed in thousands of euros)
	Notes to the				Notes to the
ASSETS	financial statements	31-12-2022	31-12-2021	EQUITY AND LIABILITIES	financial statements	31-12-2022	31-12-2021
NON-CURRENT ASSETS		7,819,630	8,437,075	EQUITY	Note 10	4,030,143	3,673,353
Intangible assets		71,083	94,013	SHAREHOLDERS' EQUITY		4,017,345	3,673,353
Goodwill	Note 5	69,481	92,641	Subscribed capital		469,771	469,771
Other intangible assets		1,602	1,372	Share premium		3,541,379	3,647,876
Property, plant and equipment		2,183	2,250	Reserves		(443,080)	(432,104)
Investment property	Note 6	4,393,368	4,454,947	Tresury shares		(17,166)	(32,305)
Land		2,138,286	2,202,752	Other equity holders contributions		540	540
Buildings		2,136,745	2,179,566	Profit/(Loss) for the period		910,716	89,608
Property, plant and equipment under construction and advances		118,337	72,629	(Interim Dividend)	Note 3	(444,815)	(70,033)
Non-current investments in Group companies and associates -		3,120,068	3,671,311	VALUATION ADJUSTMENTS-	Note 10.4	12,798	—
Equity instruments	Note 9	2,564,543	3,164,795	Hedging transactions		12,798	—
Loans to companies	Notes 7 y 16.1	555,525	506,516
Non-current financial investments -	Note 7	158,848	139,187
Equity instruments		9,191	6,796	NON-CURRENT LIABILITIES		3,853,965	5,368,939
Derivatives		12,798	—	Non-current provisions -	Note 12	11,558	10,184
Loans to third parties		105,705	100,791	Long-term employee benefit obligations		4,619	3,338
Other financial assets		31,154	31,600	Other provisions		6,939	6,846
Deferred tax assets	Note 14.2	74,080	75,367	Non-current payables -		3,442,284	4,954,831
				Debt instruments and other marketable securities	Note 11	3,279,334	4,017,570
CURRENT ASSETS		1,033,190	1,406,601	Bank borrowings	Note 11	108,243	872,358
Inventories -		3,715	476	Derivatives	Note 11	—	6,169
Advances to suppliers		3,715	476	Other financial liabilities	Note 12	54,707	58,734
Trade and other trade receivables	Note 7	27,744	13,011	Non-current payables to Group companies and associates	Notes 7 y 16.2	11,021	12,821
Trade receivables for sales and services		9,533	4,156	Deferred tax liabilities	Note 14.3	389,102	391,103
Trade receivables from Group companies and associates	Note 7 y 16.2	8,388	2,272
Sundry accounts receivable		1,268	587
Employee receivables		184	184	CURRENT LIABILITIES		968,712	801,384
Other accounts receivable from public authorities	Note 14	8,371	5,812	Current payables -		781,283	592,923
Current investments in Group companies and associates -	Note 7	653,400	817,306	Debt instruments and other marketable securities	Note 11	775,036	588,155
Financial assets at fair value with changes in profit or loss		—	80,964	Bank borrowings	Note 11	969	1,497
Loans to companies	Note 16.2	651,580	735,892	Other financial liabilities	Note 12	5,278	3,271
Other financial assets	Note 16.2	1,820	450	Current payables to Group companies and associates	Note 16.2	69,805	108,630
Current financial investments -	Note 7	294	311	Trade and other payables -	Note 13	117,599	99,831
Equity instruments		18	18	Payables to suppliers		44,410	25,087
Loans to companies		236	236	Payables to suppliers - Group companies and associates	Notes 13 y 16.2	33,980	33,809
Debt securities		2	2	Sundry accounts payable	Note 13	1,037	1,199
Other financial assets		38	55	Staff costs (remuneration payable)	Note 13	15,025	20,767
Current prepayments and accrued income		4,956	4,772	Other accounts payable to public authorities	Note 14	22,700	18,969
Cash and cash equivalents -	Note 8	343,081	570,725	Clients invoices	Note 13	447	—
Cash		343,081	570,725	Current accrued expenses and deferred income		25	—
TOTAL ASSETS		8,852,820	9,843,676	TOTAL LIABILITIES AND EQUITY		8,852,820	9,843,676
The accompanying Notes 1 to 23 and Appendix I and II are an integral part of the balance sheet at 31 December 2022.

MERLIN PROPERTIES SOCIMI, S.A.
INCOME STATEMENT FOR 2022
(Thousands of euros)
	Notes to the	Year	Year
	financial statements	2022	2021
CONTINUING OPERATIONS:
Revenue	Note 18.1	428,075	344,001
Other operating income		1,308	2,057
Staff costs -	Note 18.2	(35,796)	(37,945)
Salaries, wages and similar expenses		(32,910)	(35,115)
Employee benefit costs		(2,886)	(2,830)
Other operating expenses	Note 18.3	(46,968)	(41,724)
Depreciation and amortisation	Notes 5 y 6	(64,556)	(64,162)
Change in provisions		(74)	1,510
Impairment and gains or losses on disposal of non-current assets -	Note 6	684,147	1,222
Impairment and other losses		684,147	1,222
PROFIT/(LOSS) FROM OPERATIONS		966,136	204,959
Finance income -	Note 18.4	3,795	4,602
From investments in equity instruments		—	1,145
From marketable securities and other financial instruments		2,058	3,094
Other finance income	Note 8	1,737	363
Finance costs -	Note 18.4	(99,391)	(112,424)
On debts to Group companies and associates		(1,067)	(1,433)
On payables to third parties		(97,702)	(110,153)
Other finance costs		(622)	(838)
Changes in fair value of financial instruments	Note 18.4	36,934	14,792
Impairment and gains or losses on disposal of financial instruments -	Notes 7.3, 9 y 18.4	2,812	(21,511)
Impairment and other losses		3,424	(16,323)
Gains or losses on disposals and other		(612)	(5,188)
FINANCIAL PROFIT/(LOSS)		(55,850)	(114,541)
PROFIT/(LOSS) BEFORE TAX		910,286	90,418
Income tax	Note 14.2	430	(810)
PROFIT/(LOSS) FOR THE YEAR		910,716	89,608
The accompanying Notes 1 to 23 and Appendix I and II are an integral part of the income statement for 2022.

MERLIN PROPERTIES SOCIMI, S.A.
STATEMENT OF CHANGES IN EQUITY FOR 2022
A) STATEMENTS OF RECOGNISED INCOME AND EXPENSES
(Thousands of euros)
	Notes to the financial statements	Year	Year
		2022	2021
PROFIT/(LOSS) PER INCOME STATEMENT (I)		910,716	89,608
Income and expense recognised directly in equity
-  Por valoración de instrumentos financieros
Financial assets at fair value with changes in equity	Notes 7 y 11	12,780	—
TOTAL INCOME AND EXPENSE RECOGNISED DIRECTLY IN EQUITY (II)		12,780	—
Transfers to profit or loss
- From Financial assets at fair value with changes in profit or loss		—	4,988
- From cash flow hedges		18	625
TOTAL TRANSFERS TO PROFIT OR LOSS (III)		18	5,613
TOTAL RECOGNISED INCOME AND EXPENSE (I+II+III)		923,514	95,221
The accompanying explanatory Notes 1 to 23  are an integral part of the statement of changes in equity for the period ending in 2022

MERLIN PROPERTIES SOCIMI, S.A.
STATEMENT OF CHANGES IN EQUITY FOR 2022
B) STATEMENT OF CHANGES IN TOTAL EQUITY
(Thousand of euros)
						Other
	Share	Share		Shareholder	Valuation	Shareholder	Profit/(loss)	Interim
	Capital	premium	Reserves	Contribution	adjustments	Contribution	for the year	Dividend	TOTAL
BALANCE AT THE END OF 2020	469,771	3,813,409	(406,842)	(54,149)	(5,613)	540	(25,467)	—	3,791,649
Total recognised income and expense	–	–		–	5,613	–	89,608	–	95,221
Transactions with shareholders:	–	–		–	–	–	–	–	–
-Distribution of 2021 profit	–	(25,467)	–	–	–	–	25,467	(70,033)	(70,033)
- Distribution of dividends	–	(140,066)	–	–	–	–	–	–	(140,066)
Disposal of treasury shares	–	–	–	5	–	–	–	–	5
Acquisition/Disposal of treasury shares	–	–	8,758	–	–	–	–	–	8,758
Recognition of share-based payments (Note 17)	–	–	(33,835)	20,896	–	–	–	–	(12,939)
Delivery of 2017 stock plan shares and flexible remuneration	–	–	(185)	943	–	–	–	–	758
BALANCE AT END OF 2021	469,771	3,647,876	(432,104)	(32,305)	–	540	89,608	(70,033)	3,673,353
Total recognised income and expense	–	–		–	12,798	–	910,716	–	923,514
Transactions with shareholders:	–	–		–	–	–	–	–	–
-Distribution of 2021 profit	–		8,961	–	–	–	(89,608)	70,033	(10,614)
- Distribution of dividends	–	(106,497)	–	–	–	–	–	(444,815)	(551,312)
Acquisition of treasury shares	–	–	(52)	142	–	–	–	–	90
Recognition of share-based payments (Note 17)	–	–	4,014	–	–	–	–	–	4,014
Delivery of 2017 stock plan share			(23,864)	14,133	–	–	–	–	(9,731)
Delivery of flexible remuneration shares	–	–	(35)	864	–	–	–	–	829
BALANCE AT END OF 2022	469,771	3,541,379	(443,080)	(17,166)	12,798	540	910,716	(444,815)	4,030,143
The accompanying explanatory Notes 1 to 23 and Appendix I and II are an integral part of the consolidated statement of changes in equity for the period ended as of 31 December 2022

MERLIN PROPERTIES SOCIMI, S.A.
STATEMENT OF CASH FLOWS FOR 2022
(Thousands of euros)
	Notes to the	Year	Year
	financial statements	2022	2021
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (I)		152,311	121,787
Profit/(Loss) for the year before tax		910,286	90,418
Adjustments for:		(760,758)	60,603
- Depreciation and amortisation charge	Note 5	64,556	64,162
-  Impairment losses	Note 6	29,936	25,388
- Changes in provisions		3,831	22,347
- Gains/Losses on derecognition and disposal of non-current assets	Note 6	(717,507)	(10,469)
- Gains/Losses on derecognition and disposal of financial instruments		612	5,023
- Changes in fair value of financial instruments		(36,934)	(14,792)
- Finance income		(3,795)	(4,602)
-  Finance costs	Note 18	99,391	112,424
- Dividend income	Note 18	(176,161)	(110,693)
- Other income and expenses		(24,687)	(28,185)
Changes in working capital		(23,300)	(39,497)
- Inventories		(3,239)	(433)
- Trade and other accounts receivable		(14,733)	(5,221)
- Other current assets		16	5
- Accounts payable		7,394	(11,861)
- Other assets and liabilities		(12,738)	(21,987)
Other cash flows from/(used in) operating activities		26,083	10,263
- Interest payments		(99,438)	(102,659)
- Dividends received		122,253	111,838
-  Interest received		1,738	3,373
- Collections /(payments) on debts to Group companies		171	(542)
- Income tax recovered (paid)	Note 14	1,655	(1,747)
- Other receivables/(payments) from operating activities		(296)	–
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES (II)		1,395,537	68,690
Payments due to investments		(790,176)	(82,595)
- Group companies and associates		(683,452)	(1,642)
-  Intangible assets		(1,055)	(1,222)
- Property, plant and equipment		(324)	(479)
- Investment property	Note 6	(103,069)	(71,357)
- Other financial assets		–	–
- Financial investments		(2,276)	(7,896)
Proceeds from disposals		2,185,713	151,286
- Group companies and associates		1,996,425	–
- Financial investments		–	96,160
- Investment property		108,324	55,126
- Other financial assets		80,964	–
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES (III)		(1,775,492)	268,530
Proceeds and payments relating to equity instruments-		(562,068)	(210,104)
- Treasury share purchases	Note 10	(142)	(5)
-  Dividends paid		(455,429)	(140,066)
- Premium refunds and reserves		(106,497)	(70,033)
Proceeds and payments relating to financial liabilities		(1,213,425)	478,634
- Bank borrowings		81,760	(669)
- Issuance of debentures and bonds		–	494,230
- Repayment of borrowings from Group companies and associates		(850,000)	–
- Issuance / (repayment and amortization) of debt with Group companies and associates		78,786	(14,927)
-Cancellation of interest rate derivatives		24,329
- Repayment and redemption of debentures and bonds		(548,300)	–
EFFECT OF FOREIGN EXCHANGE RATE CHANGES (IV)
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV)		(227,644)	459,007
Cash and cash equivalents at beginning of year		570,725	111,718
Cash and cash equivalents at end of year		343,081	570,725
The accompanying Notes 1 to 23 and Apendix I and II are an integral part of the statement of cash flows for 2022.

Merlin Properties SOCIMI, S.A.

Notes to the Financial Statements for the year ended 31 December 2022

1. Nature and activities of the Company

Merlin Properties SOCIMI, S.A. (“the Company”) was incorporated in Spain on 25 March 2014 under the name

Merlin Properties, S.A., Sociedad Unipersonal, in accordance with the Spanish Corporate Enterprises Act [Ley de

Sociedades de Capital] On 22 May 2014, the Company requested to be included in the tax regime for listed

companies investing in the property market (REITs), effective from 1 January 2014.

On 27 February 2017, the Company changed its registered office from Paseo de la Castellana 42 to Paseo de la

Castellana 257, Madrid, Spain.

The Company’s corporate purpose is:

–The acquisition and development of urban property for subsequent leasing, including the refurbishment of

buildings as per Spanish Law 37/1992, of 28 December, on Value Added Tax [Ley 37/1992, de 28 de

diciembre, del Impuesto sobre el Valor Añadido];

–The holding of shares in other REITs or in other non-resident entities in Spain with the same corporate

purpose and that operate under a similar regime as that established for REITs with respect to the

mandatory profit distribution policy enforced by law or by the articles of association;

–The holding of shares in other resident or non-resident entities in Spain whose corporate purpose is to

acquire urban property for subsequent leasing, and which operate under the same regime as that

established for REITs with respect to the mandatory profit distribution policy enforced by law or by the

articles of association, and which fulfil the investment requirements stipulated for these companies; and

–The holding of shares or shares in collective property investment institutions regulated by Law 35/2003, of

4 November, on collective investment undertakings, or any law that may replace this in the future.

In addition to the economic activity deriving from the principal corporate purpose, the Company may also carry

on any other complementary activities; these being any that generate income representing less than 20%,

taken as a whole, of the Company's income in each tax period, or any that can be classified as complementary

as per prevailing legislation.

The activities included in the Company’s corporate purpose may be indirectly carried on, either wholly or in

part, through the ownership of shares in companies with a similar or identical corporate purpose.

The direct and, where applicable, indirect performance of any activities which are reserved under special

legislation are excluded. If the law prescribes the need for a professional qualification, administrative

authorisation, entry in a public register, or any other requirement for the purpose of exercising any of the

activities within the corporate purpose, no such activity can be exercised until all the applicable professional or

administrative requirements have been met.

The Company engages mainly in the acquisition and management (through leasing to third parties) of offices,

industrial buildings, logistic centres, local premises and shopping centres, and it may also invest to a lesser

extent in other assets for lease.

The 2016 financial year saw the merger by absorption of Testa Inmuebles en Renta SOCIMI, S.A. as well as the

business combination carried out with the property business of Metrovacesa, S.A. The information required by

section 107 of Spanish Law 43/1995, of 27 December, on Corporation Tax [Ley 43/1995 de 27 de diciembre del

Impuesto sobre sociedades] relating to mergers is broken down in the 2016 financial statements.

All the Company's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia

stock exchanges. The market price of the Company’s shares at 31 December 2022 and the average market price

for the fourth quarter amounted to EUR 8.78 and EUR 8.65 per share, respectively.

Starting 15 January 2020, the Company's shares were listed on Euronext Lisbon under a dual listing.

The Company is the head of a group of subsidiaries and is obliged under current legislation to prepare

consolidated financial statements separately. These consolidated financial statements were prepared in

accordance with International Financial Reporting Standards (IFRSs), in conformity with Regulation (EC) no.

1606/2002 of the European Parliament and of the Council, of 19 July 2002, and with all the related

implementing provisions and interpretations. The separate and consolidated financial statements for 2022

were formally prepared by the directors at the Board meeting held on 27 February 2023.

The consolidated financial statements for 2022 of the Merlin Group prepared in conformity with the IFRSs

adopted by the European Union present total assets of EUR 12,051,483 thousand and equity attributable to the

Parent’s shareholders of EUR 6,849,224 thousand. Consolidated sales and consolidated profit attributable to

the Parent amount to EUR 439,038 thousand and EUR 263,087 thousand, respectively (EUR 382,830 and

512,217 thousand in 2021)

In view of the business activities currently carried out by the Company, it does not have any environmental

liability, expenses, assets, provisions or contingencies that could be significant with regards to its equity,

financial position and results. Therefore, no specific disclosures relating to environmental issues are included in

these notes to the financial statements.

1.1 SOCIMI Tax Regime

Merlin Properties, SOCIMI, S.A., as the Parent of its Group, is governed by Spanish Law 11/2009, of 26 October,

amended by Spanish Law 16/2012, of 27 December, regulating listed companies investing in the property

market (REITs) [Ley 11/2009, de 26 de octubre, modificada por la Ley 16/2012, de 27 de diciembre, por la que se

regulan las Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario].

Section 3 of that Law sets out the investment requirements for these types of companies, namely:

1.At least 80% of a REIT's assets must be invested in urban property for leasing purposes and/or in land to be

developed for leasing purposes provided such development starts within three years of acquisition, along

with investments in the capital or equity of other entities referred to in section 2.1 of that Law.

The value of the assets will be determined based on the average of the individual balance sheets for each

quarter of the year, and so the Company may opt to calculate such value by taking into account the market

value of the assets included in such balance sheets instead of their carrying amount, in which case that

value would apply to all balance sheets for the year. For these purposes, the money and collection rights

arising from the disposal of these properties or shareholdings, if applicable, during the same year or

previous years will not be calculated, provided that, in this last case, the reinvestment period referred to in

section 6 of this Law has not elapsed.

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2.Similarly, at least 80% of the income for the tax period for each year, excluding that arising from the

disposal of shareholdings and properties used in the compliance of its main corporate purpose, once the

holding period referred to below has elapsed, should come from the lease of properties and from

dividends or shares in profit from these investments.

This percentage is calculated based on consolidated profit if the company is a parent of a group, as defined

in section 42 of the Spanish Commercial Code [Código de Comercio], irrespective of the place of residence

and the obligation to prepare consolidated financial statements. That group will be exclusively composed

of the REIT and all the other entities referred to in section 2.1 of that Law.

3.The REIT's property assets must be leased for at least three years. The time that the properties have been

offered for lease, up to a maximum of one year, will be included for the purposes of this calculation. This

period will be calculated:

a)In the case of properties that are included in the REIT's assets before it avails itself of the regime, from

the date of commencement of the first tax period in which the special tax regime set forth in the Law is

applied, provided that the property is leased or offered for lease at that date. Otherwise, the provisions

of the following letter will apply.

b)In the case of properties developed or acquired subsequently by the Company, from the date on which

they were leased or offered for lease for the first time.

c)Shares or equity investments in entities referred to in section 2.1 of that Law must be kept in the REIT's

asset base at least during three years after their acquisition or, if applicable, from the beginning of the

first tax period during which the special tax regime established in that Law applies.

As established in transitional provision one of Law 11/2009, of 26 December, amended by Law 16/2012, of 27

December, regulating listed companies investing in the property market (REITs), these companies may opt to

apply the special tax regime pursuant to section 13 of that Law, even when the requirements stipulated in it

are not met, under the condition that such requirements are met within two years of the date application of

the REIT tax regime is sought.

REITs are taxed at a rate of 0% for income tax. However, where dividends distributed to an shareholder owning

at least 5% of the REIT's share capital are exempt from taxation or taxed below 10%, such REIT will be subject

to a special charge of 19% of the dividends distributed to those shareholders, in respect of corporation tax. If

deemed applicable, this special charge will be paid by the REITwithin two months after the dividend

distribution date.

The transitional period in which the Company had to meet all requirements of this tax regime ended in 2017.

The Company's directors, supported by the opinion of their tax advisers, assessed its compliance with the

Regime's requirements in 2022, and concluded that all requirements are met.

Consequently, the Company's financial statements for 2022, prepared by its directors, awaiting approval by the

General Shareholders' Meeting, have been prepared under the REIT Scheme. However, the Company’s

directors consider that the aforementioned financial statements will be approved without any significant

changes.

With effect for the years beginning on or after 1 January 2021, Spanish Law 11/2021, of 9 July, on measures to

prevent and combat tax fraud [Ley 11/2021, de 9 de julio, de medidas de prevención y lucha contra el fraude

fiscal] amended section 9.4 of Spanish Law 11/2009, of 26 October, regulating listed companies investing in the

property market (REITs). Specifically, a special tax of 15% was introduced on the amount of profit obtained in

the year that is not distributed, in the part that comes from: a) income that has not been taxed at the general

tax rate of income tax and, b) income that does not stem from the transfer of eligible assets, once the three-

year maintenance period has elapsed, which has been included in the three-year reinvestment period

stipulated in section 6.1.b) of Law 16/2012, of 27 December. This special tax will be considered a tax liability

19

under corporation tax and will accrue on the day of the resolution applying the profit for the year by the

shareholders at the General Meeting or equivalent body. The tax must be self-assessed and deposited within

two months of the accrual.

1.2 Corporate transactions

2022

On 1 February 2022, the Company sent BBVA a communication that included, among other points, a proposed

sale of 100% of the shares of Tree Inversiones Inmobiliarias Socimi, S.A. in accordance with right of first refusal

held by BBVA. On 1 April 2022, the Company received a communication from BBVA on its acceptance of the

proposed sale of Tree, which was subject, among others, to the approval of the Spanish National Markets and

Competition Commission (CNMC). On 1 June 2022, the CNMC authorised the transaction and the sale was

concluded on 15 June 2022.

Based on the above, the sale price of Tree Inversiones Inmobiliarias Socimi, S.A. amounted to EUR 1,987,400

thousand, which, after early settlement of the debt associated with Tree and the transaction costs, amounting

to EUR 9,399 thousand, generated a capital gain of EUR 700,291 thousand. The following items are included in

"Impairment and gains or losses o  disposals fixed assets" in the attached Income Statement.

Prior to the sale, on 21 March 2022, Tree Inversiones Inmobiliarias Socimi, S.A. resolved to distribute a dividend

of EUR 53,908 thousand to the Company charged to profit for 2021.

On 27 July 2022, 100% of the shares of Slack Tailwind Systems, S.L.U and Slow Rise Spain, S.L.U. were acquired

for EUR 3 thousand each. Subsequently, on 29 July and 15 September 2022, these companies purchased part of

the Serantes building, respectively.

On 3 August 2022, the Company acquired 100% of the shares Generous Profile Unipessoal Lda. for EUR 9

thousand. Subsequently, on 12 August 2022, Generous Profile Unipessoal Lda acquired the Liberdade 195

building.

In 2022, the General Meeting of PK Hoteles 22, S.L. unanimously resolved to liquidate the company, which was

32.50% owned by the Company. This transaction generated a loss of EUR 274 thousand in the 2022 income

statement.

2021

On 27 January 2021, the Company acquired 100% of the shares of Edged Spain, S.L.U. for EUR 3 thousand and

subsequently sold 50% to Edged Global Services Iberia, S.L.U. on 30 March 2021. Edged Spain, S.L.U. is engaged

in providing data processing centre services.

2. Basis of presentation of the financial statements

2.1 Regulatory financial reporting framework applicable to the Company

These financial statements were prepared by the directors in accordance with the regulatory financial

reporting framework applicable to the Company, which consists of:

–The Commercial Code and all other Spanish commercial law;

20

–The Spanish National Chart of Accounts [Plan General de Contabilidad] approved by Royal Decree

1514/2007, with the amendments introduced by Royal Decree 1159/2010, as well as by Royal Decree

602/2016 and Royal Decree 1/2021, and its industry adaptations.

–The mandatory rules approved by the Spanish Accounting and Audit Institute to implement the National

Chart of Accounts and its supplementary rules.

–Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, regulating listed companies

investing in the property market (REITs).

–All other applicable Spanish accounting legislation.

The figures included in the financial statements are expressed in thousands of euros.

2.2 Fair presentation

The accompanying financial statements for 2022, which were obtained from the Company’s accounting

records, are presented in accordance with Royal Decree 1514/2007 approving the Spanish National Chart of

Accounts, as well as the amendments made thereto by Royal Decrees 1159/2010, 602/2016 and 1/2021 and,

accordingly, present fairly the Company’s equity, financial position, results of operations and cash flows for

2022.

These financial statements, which were formally prepared by the Board of Directors, will be submitted for

approval by the shareholders at the Ordinary General Shareholders Meeting, and it is considered that they will

be approved without any changes.

2.3 Comparative information

For comparison purposes the directors present, in addition to the figures for 2022 for each item in the balance

sheet, income statement, statement of changes in equity, statement of cash flows and notes to the financial

statements, the figures for 2021.

2.4 Accounting principles applied

The directors formally prepared these financial statements taking into account all the obligatory accounting

principles and standards with a significant effect on them. All obligatory accounting principles were applied. No

non-obligatory accounting principles were applied.

2.5 Key issues in relation to the measurement and estimation of uncertainty

In preparing the Company’s financial statements, the directors made estimates based on past experience and

other factors that are considered to be reasonable in view of the current circumstances and that constitute the

basis for establishing the carrying amount of the assets and liabilities whose value is not easily determinable

through other sources. These estimates relate basically to the following:

–The market value of the Company’s property assets (see Note 4.3). The Company obtained valuations from

independent experts at 31 December 2022.

–The assessment of possible impairment losses on certain assets (see Notes 4.1, 4.2, 4.3 and 4.5).

–The fair value of certain financial instruments (see Note 4.5).

–The assessment of provisions and contingencies (see Note 4.9)

–The recovery of deferred tax assets and the tax rate applicable to temporary differences (see Note 4.11).

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–Compliance with the requirements governing REITs(see Notes 1 and 15).

–Management of financial risk and, in particular, of liquidity risk and climate change risk (see Note 21).

Although these estimates were made on the basis of the best information available at 2022 year-end, events

that take place in the future might make it necessary to change these estimates (upwards or downwards) in

coming years. Changes in accounting estimates would be applied prospectively.

2.6 Grouping of items

Certain items in the balance sheet, income statement, statement of changes in equity and statement of cash

flows are grouped together to facilitate their understanding; however, whenever the amounts involved are

material, the information is broken down in the related notes to the financial statements.

2.7 Correction of errors

In preparing the accompanying financial statements, no significant errors were detected that would have given

rise to restating the amounts included in the financial statements for 2021.

2.8 Changes in estimates and accounting policies

The effect of any change in accounting estimates is recognised under the same income statement line item as

that in which the expense or income based on the previous estimate had been recognised prospectively.

Changes in accounting policies and correction of errors: if material, the cumulative effect at the beginning of

the year is adjusted under “Reserves” and the effect for the current year is recognised in the income

statement. In these cases, the financial data for the comparative year presented together with those for the

current year are restated.

2.9 Quantitative and qualitative information on the impacts of COVID-19 and the war in Ukraine

The evolution of the COVID-19 health crisis in 2022 allowed the Company to end the commercial measures it

implemented in 2020 and 2021. In this regard, no specific commercial measures were carried out in 2022 due

to the impact of COVID-19 on asset tenants, although the Company closely monitored the various risks that

were accentuated by the health and economic crisis. In this regard, the fair value of investment property

methodology was carried out normally, without any independent appraisers including any uncertainty in the

outcome of their valuation. The Group's liquidity risk is not significant, nor is the credit risk of its customers.

On 24 February 2022, a war between Russia and Ukraine began with uncertain geopolitical consequences at

the global level in the short, medium and long term. Although the Company does not have any activity in the

countries where the war is taking place, nor have its operations been significantly impacted, the Company

constantly monitors its evolution and its effect on the macroeconomic variables to which the sector in which

the Company operates is usually sensitive.

Valuation of investment property and participation in Group companies and associates

The Company regularly uses third parties from outside the Company as experts to determine the fair value of

its property assets, whether directly managed and through the Group companies and associates in which it

participates, on which the recoverable value of the assets is mainly recognised.

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The measurement methodology has not changed with regard to the previous year.

Liquidity risk

In the opinion of the Company's directors, the current economic situation of high inflation and interest rate

rises by central banks may have a significant impact on the overall financial position of the companies, which

could be divided into the liquidity risk of the companies or groups and the liquidity risk of customers (credit

risk).

In this context, at 31 December 2022, the Company had a cash position of EUR 360 million at the year-end

(including Treasury stock), reaching a liquidity position, including the corporate line of credit and undrawn

facilities, amounting to EUR 1,752 million.

The Company's directors and management are constantly monitoring the evolution of the current situation and

the effects it may have on the credit market, and they believe that the Company's situation at 31 December

2022 ensures that the Company is solvent to fulfil the current obligations on the balance sheet at 31 December

2022, and there is no material uncertainty about the continuity of the Company's operations.

Credit risk

The directors continued to assess the credit risk of their tenants as a result of the COVID-19 crisis, having

discontinued in 2022 the rent reduction policies implemented in 2020 and 2021 since no relevant risk was

identified in this regard. On the application of the simplified approach of impairment and credit risk, and also

taking into consideration other differential factors of its portfolio of tenants and the characteristics of their

leases, and the amounts collected thus far, the Company has concluded that the increased credit risk of its

customers has not been significantly affected, with a risk of default below 1% of turnover.

In relation to its other financial assets exposed to credit risk, which mainly correspond to loans to associates

and third parties, the Company’s directors have determined that there has not been a significant increase in

the risk, considering the measures agreed in some cases with tenants and the long-term expectations based on

the historical experience with those entities, which make it possible to estimate that the credit risk will remain

stable.

War in Ukraine

The war between Russia and Ukraine has caused, among many other aspects, significant fluctuations in the

cost of raw materials and energy, putting global economic growth in significant difficulties. The evolution of the

war is uncertain at this time and given the complexity of the markets, as a result of their globalisation, the

Company's operations are exposed, albeit indirectly, to the evolution and extent of the conflict in the coming

months, as well as to the capacity of all impacted economic players to react and adapt. Although the

Company's operations have not been directly affected by the war or by the international sanctions imposed,

indirect effects, such as price rises, the impact on construction costs, financing and the increase in the cost of

energy, are currently affecting all economic operators in the sector, and the directors are, therefore, closely

monitoring the situation.

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3. Allocation of profit/(loss)

The distribution of profit/(loss) for the year proposed by the Company’s directors for approval by its

shareholders at the General Meeting is as follows:

	Thousands of euros
Profit/(Loss) for the year	910,716
Distribution:
Legal reserve	19,860
Interim dividend to be offset	444,815
To dividends	113,350
To voluntary reserves	332,691

Other dividends distributed

On 4 May 2022, the General Shareholders Meeting approved the distribution of a dividend charged to the

“share premium” reserve in the amount of EUR 106,497 thousand, and the distribution of a dividend charged

to profit for 2021 for EUR 10,614 thousand.

On 28 July 2022, the Company’s Board of Directors approved the distribution of an interim dividend charged to

profit for 2022 in the amount of EUR 351,169 thousand.

On 10 November 2022, the Company’s Board approved the distribution of a dividend of EUR 93,646 thousand

charged to profit for 2022.

In the last five years, the Company has distributed the following dividends and Share Premium

reimbursements:

	2022	2021	2020	2019	2018
Distributions to shareholders	561,926	210,099	68,518	232,347	215,364

3.1 Restrictions relating to the distribution of dividends

The Company is subject to the special regime for REITs. As established in section 6 of Law 11/2009, of 26

October, amended by Law 16/2012, of 27 December, the REITs opting to pay tax under the special tax regime

are required to distribute the profit generated during the year to shareholders as dividends. Once the

corresponding commercial obligations have been fulfilled, that distribution must be agreed within six months

from year end, and the dividends paid within 30 days from the date on which the pay-out is agreed.

Moreover, as specified in Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, the

Company must distribute the following as dividends:

–100% of the profit from dividends or shares in profits distributed by the entities referred to in section 2.1 of

Law 11/2009.

–At least 50% of the profits arising from the transfer of the properties, shares or ownership interests referred

to in section 2.1 of Law 11/2009, of 26 October, subsequent to expiry of the time limits referred to in

section 3.2 of Law 11/2009, which are used for pursuit of the entities' principal corporate purpose. The

remainder of these profits must be reinvested in other property or investments used for the pursuit of that

activity within three years after the transfer date. Otherwise these profits should be distributed in full

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together with any profit arising in the year in which the reinvestment period expires. If the items to be

reinvested are transferred prior to the end of the holding period, that profit must be distributed in full

together with, if applicable, the profit generated during the year in which the items were transferred. The

obligation to distribute profit does not apply to the portion of the profit attributable to prior years in which

the Company was not included under the special tax regime established in this Law.

–At least 80% of the remaining profits obtained.

When dividend distributions are charged to reserves generated from profits in a year in which the special tax

regime applied, the distribution must necessarily be approved as set out above.

4. Accounting policies and measurement bases

The principal accounting policies and measurement bases applied by the Company in preparing its financial

statements for 2022 were as follows:

4.1 Intangible assets

As a general rule, intangible assets are recognised initially at acquisition or production cost. They are

subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses.

These assets are amortised over their useful life. When the useful life of these assets cannot be estimated

reliably, they will be amortised over a period of ten years.

The gains or losses arising from the derecognition of an intangible asset are calculated as the difference

between the net profit obtained on the sale and the carrying amount of the asset, and are recognised in the

consolidated income statement when the asset is derecognised.

Goodwill

Goodwill is recognised as an asset when it arises in an acquisition for valuable consideration in the context of a

business combination. Goodwill is allocated to the cash-generating units to which the economic benefits of the

business combination are expected to flow. After initial recognition, goodwill is measured at acquisition cost

less any accumulated depreciation and any recognised accumulated impairment losses. In accordance with

applicable legislation, the useful life of the goodwill is 10 years and it is amortised on a straight-line basis.

These cash-generating units are analysed at least once a year for indications of impairment and, if those

indications exist, they are tested for impairment in accordance with the methodology indicated below and the

corresponding impairment loss is recognised.

Impairment losses recognised in goodwill may not be reversed in subsequent fiscal years.

Specifically, the Company recognises under “Goodwill” the goodwill that arose on the merger by absorption in

2016 of Testa Inmuebles en Renta SOCIMI, S.A.

Computer software

The computer software acquired or developed by the Company is recognised at acquisition or production cost

and, where applicable, amortised on a straight-line basis over four years. Computer software maintenance

costs are recognised with a charge to the income statement for the year in which they are incurred.

Impairment of intangible assets, property, plant and equipment and investment property

Whenever there are indications of impairment of assets with a finite useful life (i.e. all the Company’s

intangible assets, property, plant and equipment, and investment property), the Company tests the tangible

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and intangible assets for impairment to determine whether the recoverable amount of the assets has been

reduced to below their carrying amount.

The recoverable amount is the higher of fair value less costs to sell and value in use. In particular, the

recoverable amount for virtually all the investment property is determined based on the evaluation of an

independent expert (see Note 6).

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised

estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying

amount that would have been determined had no impairment loss been recognised in prior years. This

impairment loss reversal is recognised as income, except in the case of goodwill, as mentioned in this Note.

4.2 Property, plant and equipment

Property, plant and equipment are initially recognised at acquisition or production cost, at which the amount of

the additional or supplementary investments made are included, and are subsequently reduced by the related

accumulated depreciation and by any impairment losses recognised, as indicated in Note 4.1 above.

The revaluation surpluses or net increases in value resulting from revaluations and the assignments of gains as

a result of business combinations are depreciated over the tax periods in the remaining useful lives of the

revalued assets.

Property, plant and equipment upkeep and maintenance expenses are recognised in the income statement for

the year in which they are incurred. However, the costs of improvements leading to increased capacity or

efficiency or to a lengthening of the useful lives of the assets are capitalised.

For non-current assets that necessarily take a period of more than twelve months to get ready for their

intended use, the capitalised costs include those borrowing costs as might have been incurred before the

assets are ready for their intended use and that have been charged by the supplier or relate to loans or other

specific-purpose or general-purpose borrowings directly attributable to the acquisition or production of the

assets.

Work carried out by the Company on its own property, plant and equipment is recorded at accumulated cost,

resulting from external costs plus in-house costs (determined based on in-house materials consumption) and

manufacturing costs applying the same criteria as those used for inventory valuation.

Depreciation of property, plant and equipment is calculated on a straight-line basis, based on the years of

estimated useful life of the assets. The annual depreciation rates are applied to the respective values at the

revalued cost, where applicable, and the years of estimated useful life are as follows:

	Years of
	useful life
	estimated
Buildings for lease	50 – 75
Other fixtures	10-18
Furniture	10
Computer hardware	4
Other items of property, plant and equipment	4-5

Property, plant and equipment under construction is not depreciated until it enters into operation, at which

time it is transferred to the corresponding property, plant and equipment account in view of its nature.

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4.3 Investment property

“Investment Property” in the balance sheet reflects the values of the land, buildings and other structures held

either to earn rentals or for capital appreciation.

Depreciation of these items is carried out systematically and rationally based on the useful life of the assets

and their residual value, in accordance with the normal decline in value caused by their use and by wear and

tear, without prejudice to the technical or commercial obsolescence that may also affect the assets. The

straight-line method is used to calculate the depreciation of investment property based on its estimated useful

life (see Note 4.2).

Investment property is measured as described in Note 4.2 on property, plant and equipment.

The Company estimates the impairment losses on its investment property based on the fair value obtained in

the appraisal performed by the independent expert. The method used to determine the fair value of the assets

is detailed in Note 6.

4.4 Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards incidental to ownership of the leased asset to the lessee.

All other leases are classified as operating leases.

Finance leases:

In finance leases in which the Company acts as the tenant, the cost of the leased assets is presented in the

balance sheet, based on the nature of the leased asset, and, simultaneously, a liability is recognised for the

same amount. This amount is the lower of the fair value of the leased asset and the present value, at the

inception of the lease, of the agreed minimum lease payments, including the price of the purchase option

when it is reasonably certain that it will be exercised.

The minimum lease payments do not include contingent rent, costs for services and taxes to be paid by and

reimbursed to the lessor.

The total finance charges arising under the lease are allocated to the income statement for the year in which

they are incurred using the effective interest method.

Contingent rent is recognised as an expense for the period in which it is incurred.

There are no finance leases in which the Company acts as landlord.

Operating leases:

In operating leases, the ownership of the leased asset and substantially all the risks and rewards relating to the

leased assets remain with the landlord.

If the Company acts as the lessor, income and costs arising under operating leases are allocated to the income

statement for the year in which they are incurred. In relation to the rent reductions that the Company granted

to certain tenants during the COVID-19 pandemic, they did not entail any contractual changes and, therefore,

the accounting policy for the reductions was to recognise lower income, not accruing any effect in the balance

sheet. Also, the acquisition cost of the leased asset is presented in the balance sheet based on the nature of

the asset, increased by the costs directly attributable to the lease, which are recognised as an expense over the

lease term, applying the same method as that used to recognise lease income.

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If the Company acts as the tenant, costs arising under operating leases are allocated to the income statement

for the year in which they are incurred. A payment made on entering into or acquiring a leasehold that is

accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term

in accordance with the pattern of benefits provided.

A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease

represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of

benefits provided.

4.5 Financial assets

Classification

The financial assets held by the Company are classified into the following categories:

a) Financial assets at amortised cost: includes financial assets, including those admitted to trading on an

organised market, in which the Company holds the investment to collect contractual cash flows, and the

contractual terms of the asset give rise on specified dates to cash flows that are solely collections of principal

and interest on the principal amount outstanding. In general, this category includes:

i) Trade receivables: arising from the sale of goods or provision of services in the ordinary course of

business for which collection is deferred, and

ii) Non-trade receivables: arising from transactions involving loans or credit facilities granted by the

Company with fixed or determinable payments.

b) Financial assets at fair value through changes in equity: financial assets whose contractual terms give rise, on

specified dates, to cash flows that are only principal payments and interest on the amount of the principal

outstanding, and are not held for trading and are not classified in the previous category, are included in this

category. Investments in equity instruments irrevocably designated by the Company at the time of their initial

recognition will also be included in this category, provided that they are not held for trading and should not be

measured at cost.

c) Financial assets at cost: the following investments are included in this category:

a.equity instruments in Group companies, jointly controlled entities and associates;

b.equity instruments whose fair value cannot be reliably determined, and the derivatives whose

underlying is these investments;

c.contributions made in joint accounts agreements and similar agreements;

d.participating loans with contingent interest;

e.financial assets that should be classified in the following category but whose fair value cannot be

reliably estimated.

Group companies are considered to be those related to the Company as a result of a relationship of control and

associates are companies over which the Company exercises significant influence. Jointly controlled entities

also include companies over which, by virtue of an agreement, the Company exercises joint control with one or

more other venturers.

d) Financial assets at fair value through profit or loss: includes financial assets held for trading and financial

assets that have not been classified in any of the above categories. This category also includes financial assets

that are optionally classified as such by the Company upon initial recognition that would otherwise have been

28

included in another category, due to the fact that this classification eliminates or significantly reduces any

measurement inconsistency or accounting mismatch that would otherwise arise.

Initial recognition

Financial assets are initially recognised, in general, at the fair value of the consideration given, plus any directly

attributable transaction costs. However, transaction costs directly attributable to assets recognised at fair value

through profit or loss are recognised in the income statement for the year.

In the case of equity investments in Group companies affording control over the subsidiary, since 1 January

2010 the fees paid to legal advisers and other professionals relating to the acquisition of the investment have

been recognised directly in profit or loss.

Subsequent measurement

Financial assets at amortised cost are recognised in accordance with this measurement basis, with accrued

interest taken to the income statement using the effective interest method.

Financial assets included in the fair value with changes in equity category will be recognised at fair value,

without deducting the transaction costs that could be incurred in their disposal. Changes in fair value will be

recognised directly in equity until the financial asset is derecognised or impaired, at which point the amount so

recognised will be charged to the statement of comprehensive income statement.

Financial assets at fair value through profit or loss are measured at fair value and the gains and losses arising

from changes in fair value are recognised in the income statement for the year.

Investments in Group companies and associates and interests in jointly controlled entities are measured at cost

net, where appropriate, of any accumulated impairment losses. These losses are calculated as the difference

between the carrying amount of the investments and their recoverable amount. Recoverable amount is the

higher of fair value less costs to sell and the present value of the future cash flows from the investment. Unless

there is better evidence of the recoverable amount, it is based on the value of the equity of the investee,

adjusted by the amount of the unrealised gains existing at the date of measurement (including any goodwill).

The valuation was carried out in accordance with the Appraisal and Valuation Standards issued by the Royal

Institute of Chartered Surveyors (RICS) of the United Kingdom and the International Valuation Standards (IVS)

issued by the International Valuation Standards Committee (IVSC).

In the case of Company companies with an equity deficit, the Company follows the policy of recognising

provisions for this equity deficit.

Impairment

At least at each reporting date the Company tests financial assets not measured at fair value through profit or

loss for impairment. Objective evidence of impairment is considered to exist when the recoverable amount of

the financial asset is lower than its carrying amount. When this occurs, the impairment loss is recognised in the

income statement. Objective evidence of impairment is considered to exist when the recoverable amount of

the financial asset is lower than its carrying amount. In any case, equity instruments measured at fair value

with changes in equity will be presumed to be impaired if their price has declined for one and a half years or by

40% and not recovered. The impairment is recognised in the income statement.

The Company derecognises a financial asset when it expires or when the rights to the cash flows from the

financial asset have been transferred and substantially all the risks and rewards of ownership of the financial

asset have been transferred.

29

However, the Company does not derecognise financial assets, and recognises a financial liability for an amount

equal to the consideration received, in transfers of financial assets in which substantially all the risks and

rewards of ownership are retained.

4.6 Financial liabilities

The financial liabilities assumed or incurred by the Company are classified in the following categories:

a) Financial liabilities at amortised cost: these include accounts payable by the Company that have arisen from

the purchase of goods or services in the normal course of the Company’s business or those that, not having

commercial substance and not considered derivative instruments, arise from transactions involving loans or

credit facilities received by the Company. These liabilities are initially recognised at the fair value of the

consideration received, adjusted by the directly attributable transaction costs. These liabilities are

subsequently measured at amortised cost.

b) Financial liabilities at fair value through profit or loss.

Liability derivative financial instruments are measured at fair value using the same methods as those described

above for financial assets at fair value through profit and loss.

Assets and liabilities are presented separately on the balance sheet and their net amount is only presented if

the Company has a legally enforceable right to offset the amounts recognised and also intends either to settle

the amounts on a net basis or to realise the asset and settle the liability simultaneously.

The Company derecognises financial liabilities when the obligations giving rise to them cease to exist.

4.7 Equity instruments

An equity instrument is a contract that evidences a residual interest in the assets of the Company after

deducting all of its liabilities. Capital instruments issued by the Company are recognised in equity at the

proceeds received, net of issue costs.

The equity instruments acquired by the Company are recognised separately at acquisition cost and deducted

from equity in the balance sheet, regardless of why they were acquired. No gains or losses from transactions

involving own equity instruments are recognised in the consolidated income statement.

If the Company’s own equity instruments are subsequently retired, capital is reduced by the nominal amount

of these treasury shares and the positive or negative difference between the acquisition price and nominal

amount of the shares is debited from or credited to reserves.

The transaction costs related to own equity instruments are recognised as a decrease in equity, net of any

related tax effect.

4.8 Termination benefits

Under the current law, the Company is required to pay termination benefits to employees terminated under

certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an

expense in the year in which the decision to terminate the employment relationship is taken.

In this sense, at 31 December 2022, the Company does not have commitments for this item, and there is no

Downsizing Plan in force.

4.9 Provisions and contingencies

When preparing the financial statements the directors made a distinction between:

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a.Provisions: credit balances covering present obligations arising from past events with respect to which it is

probable that an outflow of resources embodying economic benefits that is uncertain as to its amount

and/or timing will be required to settle the obligations; and

b.Contingent liabilities: possible obligations that arise from past events and whose existence will be

confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the

Company’s control.

The financial statements include all the provisions as regards which it is considered that it is more likely than

not that the obligation will have to be settled. Unless they are considered unlikely, contingent liabilities are not

recognised in the financial statements, but rather are disclosed. 

Provisions are measured at the present value of the best possible estimate of the amount required to settle or

transfer the obligation, taking into account the information available on the event and its consequences.

Where discounting is used, adjustments made to provisions are recognised as finance cost on an accrual basis.

The compensation receivable from a third party on settlement of the obligation is recognised as an asset,

provided there is no doubt that the reimbursement will take place, unless there is a legal relationship under

which a portion of the risk has been externalised, as a result of which the Company is not liable, in which case,

the compensation will be taken into account when estimating, if appropriate, the amount of the related

provision.

4.10 Share-based payments

On the one hand, the Company recognises the goods and services received as an asset, if qualifying, or an

expense, when obtained, with an increase to equity, if the transaction is settled in equity instruments, or with

the corresponding liability, if it is settled with an amount that is referenced to the value of equity instruments.

In the case of equity-settled transactions, both the services rendered and the increase in equity are measured

at the fair value of the equity instruments granted, by reference to the grant date. In the case of cash-settled

share-based payments, the goods and services received and the related liability are recognised at the fair value

of the latter, by reference to the date on which the requirements for recognition are met.

2017-19 incentives plan

Also, at the General Shareholders Meeting held on 26 April 2017, the shareholders approved a remuneration

plan for the management team and other important members of the Group’s workforce, the measurement

period of which was from 1 January 2017 to 31 December 2019 (the “2017-19 Incentive Plan”). Based on the

plan, the members of the management team could be entitled to receive: (i) a certain monetary amount in

accordance with the increase of the share price and (ii) shares of the Parent, if certain objectives linked to the

EPRA NAV are met.

In this regard, in 2022, the Company recorded an expense of EUR 1,210 thousand corresponding to the last

tranche accrued under the 2017-2019 Incentive Plan, with a charge to reserves, ending it and its registration.

2022-24 Incentive Plan

The General Meeting on 4 May 2022 approved a long-term incentive plan consisting of the delivery of a

maximum number of ordinary shares of MERLIN Properties SOCIMI, S.A. equal to 3,491,767 shares

(representing 0.74% of the share capital), aimed at the members of the MERLIN Group's executive and

management team, including the Company's executive directors (“2022-24 LTIP”).

The LTIP will be implemented through a single-cycle performance share plan with a target measurement period

of 3 years, beginning on 1 January 2022 and ending on 31 December 2024, and it will be payable by the

31

delivery of Company shares in 2025, once (i) compliance with the specific targets established for 2022-2024 has

been verified and (ii) the beneficiary has remained in the MERLIN Group.

In relation to the targets or metrics to which the plan is linked (see Note 17), it includes market and non-market

conditions.

In relation to the “Total Shareholder Profitability” market condition, the Group applied a valuation

methodology for the underlying assets at the delivery date of the incentive associated with the Monte Carlo

simulation method. The Monte Carlo simulation is a statistical method applied to the financial modelling of the

probability of different results where a random or independent variable is involved. In this regard, the Monte

Carlo simulation method applied by the Group was based on a Brownian geometric model, which makes it

possible to simulate the possible paths that the underlying asset can follow (price of Merlin's share and of the

EPRA Nareit Development Europe index) based on the repetition of random samples to obtain different

numerical results. For the development of the simulation, the generation of the random variable was carried

out by applying standard normal distribution N (0.1). The average or expected value corresponding to the spot

price of the Merlin share at the reporting date of the incentive and a standard deviation to describe the change

with regard to the average, based on the volatility of the share, were established.

In relation to non-market conditions: (i) EPRA NTA, (ii) net carbon emissions and environment and (iii)

environment and society, the Group gives its estimate of compliance with them at each measurement date

over the duration of the plan with the best information available.

4.11 Income tax

4.11.1 General regime

Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense

(deferred tax income).

Current tax expense is the tax payable by the Company on its taxable income for a given year. Tax credits and

other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years

effectively offset in the current year reduce the current income tax expense.

The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and

liabilities. These include temporary differences measured at the amount expected to be payable or recoverable

on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax

credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period

when the asset is realised or the liability is settled.

Deferred tax liabilities are recognised for all taxable temporary differences, unless the temporary difference

arises from the initial recognition of goodwill, goodwill for which amortisation is not deductible for tax

purposes or the initial recognition of other assets and liabilities in a transaction that affects neither accounting

profit (loss) nor taxable profit (tax loss).

Deferred tax assets are recognised for temporary differences to the extent that it is considered probable that

the consolidated companies will have sufficient taxable profits in the future against which the deferred tax

asset can be utilised, and the deferred tax assets do not arise from the initial recognition of other assets and

liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). The other

deferred tax assets (tax loss, temporary differences and tax credit carryforwards) are only recognised if it is

considered probable that the Company will have sufficient future taxable profits against which they can be

utilised.

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The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate

adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognised

deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it

has become probable that they will be recovered through future taxable profits.

4.11.2 REIT regime

The REIT special tax regime, as amended by Law 16/2012 of 27 December, is based on a 0% corporation tax

rate, provided certain requirements are met. Particularly noteworthy among those conditions is that at least

80% of income must come from urban property used for leasing purposes and acquired in full ownership or

through holdings in Spanish or foreign companies, regardless of whether or not they are listed on organised

markets, that meet the same investment and profit distribution requirements. Likewise, the main sources of

income for these entities must come from the property market, either through leasing the properties, their

subsequent sale after a minimum lease period, or the income generated from holdings in entities with similar

characteristics. Nevertheless, tax is accrued in proportion to dividend distributions. Dividends received by the

shareholders are exempt, unless the recipient is a legal person subject to corporation tax or a permanent

establishment of a foreign entity, in which case a deduction in the tax liability is established, so that these

earnings are taxed at the shareholder’s rate. However, the remaining earnings will not be taxed so long as they

are not distributed to shareholders.

As established in Transitional Provision Nine of Law 11/2009, of 26 October, amended by Law 16/2012, of 27

December, regulating listed companies investing in the property market (REITs), the entity will be subject to a

special tax rate of 19% on the total dividends or profit shares distributed to shareholders with a shareholding in

the entity of 5% or more, when these dividends are exempt or taxed at a rate below 10% in the shareholders.

The Company has therefore established the procedure guaranteeing confirmation by shareholders of their tax

rate, proceeding where applicable, to withhold 19% of the dividend distributed to shareholders that do not

meet the aforementioned tax requirements.

With effect for years beginning on or after 1 January 2021, Law 11/2021, of 9 July, on measures to prevent and

combat tax fraud amended section 9.4 of Spanish Law 11/2009, of 26 October, regulating listed companies

investing in the property market (REITs). Specifically, a special tax of 15% was introduced on the amount of

profit obtained in the year that is not distributed, in the part that comes from: a) income that has not been

taxed at the general tax rate of income tax and, b) income that does not stem from the transfer of eligible

assets, once the three-year maintenance period has elapsed, which has been included in the three-year

reinvestment period stipulated in section 6.1.b) of Law 16/2012, of 27 December. This special tax will be

considered a tax liability under corporation tax and will accrue on the day of the resolution applying the profit

for the year by the shareholders at the General Meeting or equivalent body. The tax must be self-assessed and

deposited within two months of the accrual.

4.12 Revenue and expenses

Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and

services occurs, regardless of when the resulting monetary or financial flow arises. Revenue is measured at the

fair value of the consideration received, net of discounts and taxes.

Interest and dividends received from financial assets

The Company’s income that relates to dividends received from investees, in accordance with Ruling no. 2 of the

Official ICAC Gazette no. 79/2009, on the classification for accounting purposes in separate financial

statements of income and expenses of holding companies, is recognised as revenue, as the Company’s ordinary

business activities include the management and administration of investments in other companies.

33

Interest and dividends from financial assets accrued after the date of acquisition are recognised as income in

the income statement. Interest is recognised using the effective interest method and dividends are recognised

when the right to receive them is declared.

Upon initial measurement of financial assets, accrued explicit interest receivable at the measurement date is

recognised separately, based on maturity. Dividends declared by the pertinent body at the acquisition date are

also accounted for separately. Explicit interest is the interest obtained by applying the financial instrument’s

contractual interest rate.

If distributed dividends are clearly derived from profits generated before the acquisition date because amounts

have been distributed which are higher than the profits generated by the investee since acquisition, the

difference is accounted for as a reduction in the carrying amount of the investment and not recognised as

income.

Revenue from sales and services

Revenue from sales is recognised when the significant risks and rewards of ownership of the goods sold have

been transferred to the buyer, and the Company retains neither continuing managerial involvement to the

degree usually associated with ownership nor effective control over the goods sold.

Rental income is recognised on an accrual basis and incentives and the initial costs of the lease agreements are

allocated to income on a straight-line basis.

Revenue arising from variable rental income, which is calculated based on the sales of the tenants at the leased

premises, is accrued on a regular basis by virtue of the most recent known sales data, given that the income

can be reliably measured at this time, and is invoiced once the final sales data for the year is available.

Interest income from financial assets is recognised using the effective interest method and dividend income is

recognised when the shareholder’s right to receive payment is established. In any case, interest and dividends

from financial assets accrued after the date of acquisition are recognised as income in the income statement.

4.13 Classification of assets and liabilities as current and non-current

Assets and liabilities are classified in the balance sheet as current and non-current. For this purpose, assets and

liabilities are classified as current when they are associated with the Company’s normal operating cycle and

when they will foreseeably be sold, used, realised or settled within a maximum of one year; non-current assets

and liabilities are different from the foregoing and will foreseeably mature, be sold or realised within a period

of more than one year

4.14 Transactions with related parties

The Company carries out all its transactions with related parties at market values and in accordance with the

agreements. The Company’s directors consider that there are no material risks in this connection that might

give rise to significant liabilities in the future.

4.15 Environmental assets and liabilities

Environmental assets are considered to be assets used on a lasting basis in the Company’s operations whose

main purpose is to minimise environmental impact and protect and improve the environment, including the

reduction or elimination of future pollution.

Because of their nature, the Company’s business activities do not have a significant environmental impact.

34

4.16 Business combinations

Business combinations are accounted for using the acquisition method, to which end the acquisition date and

cost of the business combination are determined, measuring the identifiable assets acquired and liabilities

assumed at their acquisition-date fair value.

Goodwill or the negative goodwill on the combination is the difference between the fair values of the assets

acquired and liabilities assumed that are recognised and the cost of the business combination all at the

aforementioned acquisition date.

The cost of the business combination is the sum of:

–The acquisition-date fair values of the assets transferred, liabilities incurred or assumed and equity

instruments issued.

–The fair value of any contingent consideration that depends on future events or on the fulfilment of certain

pre-defined conditions.

The cost of the business combination does not include expenses relating to the issuance of equity instruments

offered or financial liabilities delivered in exchange for the items acquired.

Also, the cost of a business combination does not include the fees paid to legal advisers and other professionals

involved in the combination, or any costs incurred internally in this connection. These amounts are taken

directly to profit or loss.

In the exceptional case in which negative goodwill arises on the combination, it is recognised as income in the

income statement.

If at the end of the year in which a combination occurs it has not been possible to complete the valuation work

needed to apply the acquisition method outlined above, the combination is accounted for provisionally. These

provisional amounts can be adjusted during the period necessary to obtain the required information, which in

no case may exceed one year. The effects of any adjustments made during this period are accounted for

retroactively, and the comparative information is modified if necessary.

Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss, unless the

consideration was classified as equity, in which case subsequent changes in its fair value are not recognised.

4.17 Foreign currency transactions

The Company’s functional currency is the euro. Therefore, transactions in currencies other than the euro are

considered to be foreign currency transactions and are recognised by applying the exchange rates prevailing at

the date of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in

foreign currencies are translated to euros at the rates then prevailing. Any resulting gains or losses are

recognised directly in the income statement in the period in which they arise.

4.18 Statement of cash flows

The following terms are used in the statement of cash flows, which was prepared using the indirect method,

with the meanings specified:

–Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid

investments that are subject to an insignificant risk of changes in value.

–Operating activities: the principal revenue-producing activities of the Company and other activities that are

not investing or financing activities.

35

–Investing activities: the acquisition and disposal of long-term assets and other investments not included in

cash and cash equivalents.

–Financing activities: activities that result in changes in the size and composition of the equity and liabilities

that are not operating activities.

5. Goodwill

The goodwill recognised at 31 December for 2022 arose from the merger by absorption with Testa Inmuebles

en Renta, SOCIMI, S.A. in 2016. The changes in this heading in 2022 and 2021 were as follows:

2022

	Thousands of euros
	Balance at 31/12/21	Additions	Depreciation and amortisation	Balance at 31/12/22
Cost	92,641	-	(23,160)	69,481
	92,641	-	(23,160)	69,481

2021

	Thousands of euros
	Balance at 31-12-20	Additions	Depreciation and amortisation	Balance at 31/12/21
Cost	115,801	-	(23,160)	92,641
	115,801	-	(23,160)	92,641

The Company amortises goodwill over a period of 10 years and, therefore, recognised the related depreciation

for the year under “Depreciation of property, plant and equipment” in the accompanying income statement for

2022 at EUR 23,160 thousand (EUR 23,160 thousand at 31 December 2021).

The Company's directors, in accordance with their expectations of the evolution of the property market, as well

as the market values of the acquired assets, have not identified any signs of impairment in their recoverable

value. In this regard, at 31 December 2022 the existing gains in the property assets from Testa Inmuebles en

Renta SOCIMI, S.A. amounted to EUR 869,185 thousand (EUR 925,374 thousand in 2021), as detailed as

follows:

	Thousands of euros
	2022	2021
Carrying amount of the investment property from Testa Inmuebles en Renta SOCIMI, S.A.	2,307,447	2,325,487
Fair value of the investment property from Testa Inmuebles en Renta SOCIMI, S.A.	3,176,632	3,250,861
Unrealised gains	869,185	925,374

The fair value indicated above was obtained from the valuations performed by independent experts, applying

the methodology described in Note 6 below.

36

6. Investment property

The breakdown of and changes in this heading in 2022 and 2021 are as follows:

2022

	Thousands of euros
	Initial balance 31/12/2021	Entries, Additions and Allocations	Removals, Disposals and Reversals	Closing balance at 31/12/2022
Cost:
Land	2,385,796	3,154	(47,354)	2,341,596
Buildings	2,393,121	52,879	(47,414)	2,398,586
Property, plant and equipment in the course of construction and advances	72,967	47,036	-	120,003
	4,851,884	103,069	(94,768)	4,860,185
Accumulated depreciation:
Buildings	(202,162)	(40,181)	3,660	(238,683)
	(202,162)	(40,181)	3,660	(238,683)
Impairment:
Land	(183,044)	(21,052)	786	(203,310)
Buildings	(11,393)	(12,517)	752	(23,158)
Property, plant and equipment in the course of construction and advances	(338)	(1,328)	-	(1,666)
	(194,775)	(34,898)	1,538	(228,134)
Investment property	4,454,947	27,990	(89,570)	4,393,368

37

2021

	Thousands of euros
	Initial balance 31/12/2020	Entries, Additions and Allocations	Removals, Disposals and Reversals	Transfers	Closing balance at 31/12/2021
Cost:
Land	2,328,947	3,896	(14,030)	66,983	2,385,796
Buildings	2,352,538	57,368	(30,619)	13,834	2,393,121
Property, plant and equipment in the course of construction and advances	150,189	10,093	-	(87,315)	72,967
	4,831,674	71,357	(44,649)	(6,498)	4,851,884
Accumulated depreciation:
Buildings	(171,993)	(39,837)	3,170	6,498	(202,162)
	(171,993)	(39,837)	3,170	6,498	(202,162)
Impairment:
Land	(175,203)	(8,931)	1,090	-	(183,044)
Buildings	(10,190)	(1,862)	659	-	(11,393)
Property, plant and equipment in the course of construction and advances	(136)	(202)	-	-	(338)
	(185,529)	(10,995)	1,749	-	(194,775)
Investment property	4,474,152	20,525	(39,730)	-	4,454,947

The “Land and buildings” heading includes operational property assets. In addition, undeveloped land

amounting to EUR 80,816 thousand (EUR 89,948 thousand in 2021) is also included.

The “Property, plant and equipment in the course of construction and advances” heading corresponds to

developing assets and assets that are being overhauled.

Buildings for lease

2022

Improvements to buildings in use and in progress

The additions for 2022 corresponded to the improvement and adaptation works carried out on certain

properties owned by the Company, in particular, among others, the Plaza Ruiz Picasso building, corresponding

to the office segment, the development of a data centre in Madrid, as well as the Porto Pi shopping centre in

Palma de Mallorca.

Disposals

In 2022 the Company sold two business parks and non-strategic premises in Madrid, as well as an office

building in Zaragoza. Result of these divestments: the Company obtained a profit of EUR 17,216 thousand

recognised under “Gains or losses on disposals” in the accompanying income statement.

38

2021

Additions

The main acquisition of assets carried out in 2021 related to the purchase of an air right over an office site in

Madrid, known as Ática XIX D, for EUR 1,903 thousand.

Improvements to buildings in use and in progress

The main additions to “Land and Buildings” corresponded to the improvement and adaptation works that have

been carried out on certain properties owned by the Company, notably including the Saler Shopping Centre in

Valencia and the Porto Pi Shopping Centre in Palma de Mallorca, as well as the Castellana 85, Torre Gloriés and

Plaza Ruiz Picasso buildings, corresponding to the office segment.

Disposals

The disposals in 2021 corresponded to the sale of the Ulises 16-18 building, the San Francisco de Sales

commercial premises and a logistics warehouse in Guadalajara-Azuqueca, having obtained a profit of EUR

10,469 thousand, recognised under “Impairment and gains or losses on disposals of property, plant and

equipment” in the accompanying income statement.

Transfers

The main changes to be highlighted were the transfer to operation of the office building at Castellana, 85, as

well as the completion of the works carried out at the Porto Pi and Saler shopping centres and in the Arturo

Soria, 343 office building. Also, in 2021, the net cost associated with the Plaza Ruiz Picasso and Ática 1 office

buildings was transferred to buildings under construction out to execute a comprehensive refurbishment of

these buildings.

The Company takes out the insurance policies it considers necessary to cover the risks that might affect its

investment property. At 31 December 2022, the Company’s directors considered that the property, plant and

equipment were fully insured against these risks.

At 31 December 2022, the Company had no firm purchase commitments for investment property, without

considering the investments committed in buildings and improvements.

In 2022, no significant finance costs were capitalised in the construction costs or as a result or improvements to

or refurbishments of the properties.

At 31 December 2022, the Company did not have any investment property that was fully depreciated.

At 31 December 2022, the Company does not hold any property assets as collateral for loans and derivative

financial instruments. The Company holds no rights of use, seizure or similar situations with regard to its

investment property.

At 31 December 2022 and 2021, the gross surface areas and occupancy rates of the assets by line of business

were as follows:

39

2022

	GLA	Occupancy rate (%)
Offices	812,632	92%
Shopping centres	168,875	93%
Logistics	166,710	100%
Others*	58,629	97%
Total surface area	1,206,846	93%
* Not including projects under way or land

2021

	GLA	Occupancy rate (%)
Offices	849,689	91%
Shopping centres	168,901	93%
Logistics	166,710	99%
Others*	58,941	97%
Total surface area	1,244,241	92%
* Not including projects under way or land

All of the Company’s investment property is used for its own business activities and is located in Spain.

Impairment losses

The fair value of the property assets was determined by independent experts in accordance with the Appraisal

and Valuation Standards issued by the Royal Institution of Chartered Surveyors (RICS) of the United Kingdom

and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee

(IVSC).

The method used to calculate the market value of the property assets involves drawing up ten-year projections

of income and expenses for each asset, adjusted at the reporting date using a market discount rate. The

residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income

projections for year 11. The market values obtained are analysed by calculating and assessing the capitalisation

of the returns implicit in these values. The projections are designed to reflect the best estimate of future

income and expenses from the investment properties. Both the exit yield and discount rate are determined

taking into account the national market and institutional market conditions.

The recoverable amount of the Company’s investment property at 31 December 2022, calculated based on the

appraisals carried out by Jones Lang LaSalle, S.A., Savills Consultores Inmobiliarios, S.A. and CB Richard Ellis,

which are not related to the Company, amount to EUR 5,927,303 thousand at 31 December 2022 (EUR

6,140,769 thousand at 31 December 2021). Based on this appraisal, the Company’s directors have identified

several individual assets whose recoverable amount is less than their carrying amount and, therefore, an

impairment loss of EUR 34,898 thousand (EUR 10,995 thousand at 31 December 2021) was recognised under

“Impairment and gains or losses on disposals of property, plant and equipment” in the income statement for

2022. At 31 December 2022, the valuations performed by CBRE Valuation Advisory, S.A., Jones Lang LaSalle,

S.A. and Savills Consultores Inmobiliarios, S.A. did not indicate any type of uncertainty regarding the market

value of the Company's investment property.

Income and related expenses

40

In 2022 the rental income from the investment property owned by the Company amounted to EUR 224,118

thousand (EUR 203,334 thousand at 31 December 2021) and the operating expenses of all kinds relating

thereto totalled EUR 78,925 thousand (EUR 70,284 thousand at 31 December 2021).

At the end of 2022 there were no restrictions on making new investment property investments, on the

collection of rental income from them or in connection with the proceeds to be obtained from a potential

disposal of them.

a.Operating leases as lessee

At the end of 2022 and 2021 the Company had contracted with lessors for the following minimum

lease payments, based on the leases currently in force, without taking into account the charging of

common expenses, future increases in the CPI or future contractual lease payment revisions:

	Thousands of euros
	Nominal value
	2022	2021
Operating leases
Minimum lease payments
Within one year	832	832
1 to 5 years	69	901
	901	1,733

The main expense relating to operating leases corresponds to the lease agreement that the Company

entered into to rent out its offices. On 27 February 2017, the Company changed its registered office

from Paseo de la Castellana 42 to Paseo de la Castellana 257, Madrid. This lease was novated in 2021

and extended until January 2024.

The total lease expense accrued in 2022 amounted to EUR 730 thousand (EUR 757 thousand in 2021).

The income for subleases in 2022 and 2021 from Magic Real Estate, S.L.U. and Testa Home, S.L.

totalled EUR 19 thousand and EUR 18 thousand, respectively, and is recognised under “Other

operating income” in the income statement for 2022.

b.Operating leases as lessor

At the end of 2022 the Company had contracted with tenants for the following minimum lease

payments, based on the leases currently in force, without taking into account the charging of common

expenses, future increases in the CPI or future contractual lease payment revisions (in thousands of

euros).

	Thousands of euros
	2022	2021
Minimum lease payments:
Within one year	209,099	208,265
1 to 5 years	436,950	421,664
Over 5 years	120,032	73,567
	766,081	703,496

41

The detail of the operating lease and sublease payments recognised as an expense and as income,

respectively, in 2022 is as follows:

	Thousands of euros
	2022	2021
Minimum lease payments	224,118	203,334
Transfer of common expenses	49,106	43,553
	273,224	246,887

The expenses passed on to the tenants recognised in the income statement for 2022 decreased the

balance of “Other operating expenses” (Note 18.3).

7. Financial assets

The detail of “Current and non-current financial investments” at 31 December 2022 and 2021 is as follows:

	Thousands of euros
	31/12/2022	31/12/2021
Non-current financial investments:
Equity instruments	9,191	6,796
Derivatives	12,798	-
Guarantees given and prepayments	31,154	31,600
Loans to Group companies	555,525	506,516
Loans to third parties	105,705	100,791
	714,373	645,703
Current financial investments:
Equity instruments	18	18
Financial assets at fair value through profit or loss	-	80,964
Loans to Group companies	653,400	736,342
Loans to third parties	236	236
Trade and other receivables	27,744	13,011
Debt securities and other financial assets	40	57
	681,438	830,628
	1,395,811	1,476,331

7.1 Guarantees given and prepayments

“Guarantees given and prepayments” includes mainly the guarantees arranged for lease agreements as

collateral that the Company has deposited in the Housing Institute of each region, the balance of which at 31

December 2022 amounted to EUR 30,440 thousand (EUR 31,003 thousand at 31 December 2021), as well as

the deposits amounting to EUR 307 thousand at that date (EUR 307 thousand at 31 December 2021).

7.2 Other financial assets at fair value through profit or loss

At the end of 2020, this heading included 15.29% in Silicius Real Estate, SOCIMI, S.A. for EUR 86,521 thousand,

acquired by the Company through an asset contribution. In the first half of 2021, the Company sold 353,966

shares for EUR 5,418 thousand, which did not have a significant impact on results. The amount of the share

after the sale fell to EUR 80,964 thousand, which the Company reclassified to “Current financial assets”,

classified as Financial assets at fair value through profit and loss in the accompanying balance sheet. On 27 July

42

2022, the Company sold 14.28% of the shares of Silicius Real Estate SOCIMI, S.A. for EUR 80,964 thousand,

collecting the full sum in cash.

7.3 Balances with Group companies (current and non-current)

The Company has the following long-term and short-term balances with its subsidiaries at 31 December 2022

and 2021:

43

31/12/2022

	Thousands of euros
	Long-term loans	Short-term loans	Current accounts - receivables	Trade receivables	Non- current payables	Current payables	Payable to suppliers
Group companies:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	-	-	-	-	-	-	-
Merlin Retail, S.L.U.	-	45,904	-	317	-	-	-
Merlin Oficinas, S.L.U.	-	13,941	-	217	-	-	-
Merlin Logística, S.L.U.	-	235,029	120	3,138	-	-	-
Sevisur Logistica, S.A.	-	18,317	-	41	-	-	-
Parc Logistic de la Zona Franca, S.A.	-	-	-	2,463	(8,771)	(5,522)	-
Slack Tailwind Systems, S.L.U.	-	1,050	-	-	-	-	-
Slow Rise Spain, S.L.U.	-	7,850	-	2	-	-	-
Innovación Colaborativa, S.L.U.	-	2,946	-	802	-	-	(174)
Exhibitions Company, S.A.U.	-	-	-	-	-	(1,868)	-
Gescentesta, S.L.U.	-	-	-	-	-	(1,013)	-
Metroparque, S.A.U.	-	-	-	143	-	(31,178)	-
La Vital Centro Comercial y de Ocio, S.L.U.	-	-	-	71	-	(6,550)	-
Desarrollo Urbano de Patraix, S.A.U.	-	7,027	-	-	-	-	(32,006)
Sadorma 2003, S.L.U.	-	-	-	-	-	(21,191)	-
Global Murex Iberia, S.L.U.	2,576	-	-	-	-	(2,483)	-
Varitelia Distribuciones, S.L.U	-	188,108	-	122	-	-	-
Global Carihuela Patrimonio Comercial, S.L.U	-	50,401	-	95	-	-	-
MPCVI – Compra e Venda Imobiliária, S.A.	15,690	-	-	16	-	-	-
MPEP – Properties Escritórios Portugal, S.A.	21,561	-	-	7	-	-	-
MP Monumental, S.A.	79,411	-	-	42	-	-	-
MP Torre A, S.A.	31,361	-	-	14	-	-	-
VFX Logística, S.A.	28,171	-	-	23	-	-	-
Promosete, Invest Inmobiliaria	22,376	-	-	17	-	-	-
Praça do Marqués – Serviços Auxiliares, S.A.	-	-	-	20	-	-	-
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	17,512	-	-	13	-	-	-
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	276,708	70,987	-	146	-	-	-
Forum Almada II, S.A.	-	-	-	86	-	-	-
Torre Arts – Investimentos Imobiliarios, S.A.	-	-	-	27	-	-	-
Torre Fernao Magalhaes – Investimentos Imobiliarios, S.A.	-	-	-	11	-	-	-
Milos Asset Development, S.A.	-	8,889	-	-	-	-	-
Generous Profile Unipessoal, LDA	56,891	-	-	25	-	-	-
Associates:
Provitae Centros Asistenciales, S.L.	-	1,131	-	-	-	-	-
Pazo de Congresos de Vigo, S.A.	-	-	-	340	-	-	-
Paseo Comercial Carlos III, S.A.	2,590	-	-	10	-	-	-
Centro Intermodal de Logística, S.A.	-	-	-	1	-	-	-
Edged Spain, S.L.	-	-	1,700	116	-	-	-
Silicius Real Estate SOCIMI, S.A.	-	-	-	59	(2,250)	-	(1,800)
Other shares:
Renazca, S.A.	678	-	-	4	-	-	-
	555,525	651,580	1,820	8,388	(11,021)	(69,805)	(33,980)

44

31/12/2021

	Thousands of euros
	Long-term loans	Short-term loans	Current accounts - receivables	Trade receivables	Non- current payables	Current payables	Current accounts - payables	Payable to suppliers
Group companies:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	-	-	-	-	-	(31,142)	-	-
Merlin Retail, S.L.U.	-	148,614	-	142	-	-	-	-
Merlin Oficinas, S.L.U.	-	12,510	-	186	-	-	(2)	-
Merlin Logística, S.L.U.	-	178,579	-	202	-	-	-	-
Sevisur Logistica, S.A.	-	21,273	-	40	-	-	-	-
Parc Logistic de la Zona Franca, S.A.	-	-	-	66	(8,771)	(18,578)	-	-
Innovación Colaborativa, S.L.U.	-	2,588	-	430	-	-	-	(2)
Exhibitions Company, S.A.U.	-	-	-	-	-	(3,346)	-	-
Gescentesta, S.L.U.	-	37	-	-	-	(1)	-	-
Metroparque, S.A.U.	-	-	-	54	-	(28,629)	-	-
La Vital Centro Comercial y de Ocio, S.L.U.	-	-	-	21	-	(4,495)	-	-
Desarrollo Urbano de Patraix, S.A.U.	-	6,937	-	-	-	-	-	(32,007)
Sadorma 2003, S.L.U.	-	51	-	-	-	(19,932)	-	-
Global Murex Iberia, S.L.U.	2,555	-	-	-	-	(2,483)	-	-
Varitelia Distribuciones, S.L.U	-	195,156	-	60	-	-	-	-
Global Carihuela Patrimonio Comercial, S.L.U	-	50,968	-	20	-	-	-	-
MPCVI - Compra e Venda Imobiliária, S.A.	15,099	-	-	8	-	-	-	-
MPEP - Properties Escritórios Portugal, S.A.	21,889	-	-	14	-	-	-	-
MP Monumental, S.A.	79,292	-	-	83	-	-	(22)	-
MP Torre A, S.A.	38,251	-	-	14	-	-	-	-
VFX Logística, S.A.	27,381	-	-	30	-	-	-	-
Promosete, Invest Inmobiliaria	22,064	-	-	34	-	-	-	-
Praça do Marqués - Serviços Auxiliares, S.A.	—	-	-	19	-	-	-	-
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	20,504	-	-	23	-	-	-	-
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	276,708	103,178	-	133	-	-	-	-
Forum Almada II, S.A.	-	-	-	86	-	-	-	-
Torre Arts - Investimentos Imobiliarios, S.A.	-	-	-	48	-	-	-	-
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	-	-	-	34	-	-	-	-
Milos Asset Development, S.A.	-	14,883	-	-	-	-	-	-
Associates:	-
Provitae Centros Asistenciales, S.L.	-	1,106	-	-	-	-	-	-
Pazo de Congresos de Vigo, S.A.	-	-	-	340	-	-	-	-
Paseo Comercial Carlos III, S.A.	2,561	-	-	-	-	-	-	-
PK Hoteles 22, S.L.	-	-	-	2	-	-	-	-
G36, Development, S.A.	212	12	-	-	-	-	-	-
Edged Spain, S.L.	-	-	100	49	-	-	-	-
Silicius Real Estate SOCIMI, S.A.	-	-	-	54	(4,050)	-	-	(1,800)
Other shares:	-	-
Renazca, S.A.	-	-	350	80	-	-	-	-
	506,516	735,892	450	2,272	(12,821)	(108,606)	(24)	(33,809)

45

Long-term loans to Group companies and associates

The main long-term loans granted by the Company to Group companies and associates recognised under

“Loans to Group companies” were as follows:

–In 2018, as a result of the purchase of Forum Almada-Gestao de Centro Comercial, Sociedade

Uniperssoal, Lda, the Company subrogated to three primary loans that the subsidiary had with the

previous shareholder for a total amount of EUR 276,708 thousand with initial maturity set for 31

January 2022. Those loans accrue interest at a mean annual rate of 2.71%. At 31 December 2022, the

accrued and unpaid interest amounted to EUR 4,738 thousand (EUR 36,930 thousand in 2021) and is

recognised under the heading “Long-term loans” on the accompanying balance sheet. These loans

were extended for 7 years, at a new rate of 4.75%.

–In 2019, as a result of the purchase of the asset owned by MPEP- Properties Escritórios Portugal, S.A.,

the Company granted a loan amounting to EUR 13,330 thousand, accruing fixed interest of 5% and

maturing on 2 September 2029.  In June 2022, interest was capitalised, increasing the Company's

share in that subsidiary by EUR 917 thousand as higher supplementary provisions. The outstanding

balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 14,508

thousand.

–In 2016, as a result of the purchase of MPCVI-Compra e venda Imobiliária, S.A., the Company

subrogated to a primary loan that the subsidiary had with the previous owner for an amount of EUR

11,800 thousand with maturity set for 1 June 2025. That loan accrues interest at a fixed annual rate of

5.98%. In 2022, interest was capitalised in the amount of EUR 3,654 thousand, leaving a balance of

principal plus accrued interest of EUR 15,690 thousand outstanding at the end of 2022.

–In 2018, as a result of the purchase of Torre Dos Oceanus Investimentos Imobiliários, S.A., the

Company subrogated to the primary loan that the subsidiary had with the previous owner for an

amount of EUR 17,294 thousand with maturity set for 17 April 2022. That loan accrues interest at a

fixed annual rate of 5%. In 2022, interest was paid in the amount of EUR 3,857 thousand. The

outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to

EUR 17,512 (EUR 20,504 thousand at 31 December 2021). This loan is scheduled to mature on April 17,

2030.

–In 2017, as a result of the purchase of Promosete Investimentos Inmobiliarios, S.A., the Company

subrogated to two primary loans that the subsidiary had with the previous owner for an amount of

EUR 17,833 thousand with maturity set for 31 January 2022. That loan accrues interest at a fixed rate

of 1.93%. In 2022 interest was capitalised in the amount of EUR 968 thousand. The outstanding

principal balance at the end of 2022 and 2021 was EUR 22,267 thousand and EUR 21,300 thousand,

respectively, and the accrued and unpaid interest was EUR 109 thousand at 31 December 2022 (EUR

764 thousand in 2021). This loan was extended with maturity set for 31 December 2029.

–In 2016, as a result of the purchase of MP Monumental, S.A., the Company subrogated to two primary

loans that the subsidiary had with the previous shareholder for an amount of EUR 38,040 thousand.

Those loans accrue interest at a mean annual rate of 3%. In 2022, interest was paid in the amount of

EUR 2 million. The outstanding principal balance at the 2022 year-end was EUR 38,000 thousand, and

the accrued and unpaid interest was EUR 9,355 thousand. This loan matures on 31 January 2030,

accruing interest at a rate of 4.75%.

–In 2016, as a result of the purchase of MP Torre, S.A., the Company subrogated to a primary loan that

the subsidiary had with the previous shareholder for an amount of EUR 31,122 thousand. That loan

accrues interest at a mean annual rate of 3%. In 2022, interest was capitalised in the amount of EUR

500 thousand, through the increase of the Company's share in the subsidiary, as higher supplementary

provisions, as well as the payment of interest in the amount of EUR 7,383 thousand. The outstanding

46

principal balance at the 2022 year-end was EUR 31,122 thousand, and the accrued and unpaid interest

was EUR 239 thousand. This loan matures on 31 January 2030, accruing interest at a rate of 4.75%.

–The Company holds a participation loan with Global Murex Iberia, S.L.U. amounting to EUR 18,000

thousand. This loan matured in 2019, at which time an addendum was signed extending the maturity

of the agreement until 1 September 2024. At 31 December 2022, the outstanding balance of the loan

is impaired in an amount of EUR 15,424 thousand (EUR 15,445 thousand in 2021).

–In 2020, the Company signed a CAPEX line of credit with VFX Logistics, S.A., MP Monumental, S.A. and

MPEP Properties Escritórios Portugal for maximum amounts of EUR 26,360, 30,250 and 7,000

thousand respectively. The maturity of these agreements is 31 December 2025, with an interest rate

of 3%. The outstanding balance at 31 December 2022, including principal and interest, is EUR 28,171,

EUR 32,056 and EUR 7,053 thousand respectively.

–On 3 August 2022, the Company acquired 100% of the shares of Generous Profile Unipessoal Lda.

Subsequently, on 12 August 2022, Generous Profile Unipessoal Lda acquired the Liberdade 195

building, through a loan granted by the Company for EUR 56,500 thousand, accruing interest at a rate

of 3%, with an outstanding balance of EUR 391 thousand at 31 December 2022.

–In 2018, the Company acquired from its investee Merlin Parques Logísticos, S.A.U. (merged with Parc

Logistic de la Zona Franca, S.A.U) its share in VFX Logística, S.A., executing a loan for the deferred

amount (EUR 8,771 thousand).

Short-term loans and debts to Group companies and associates

–As a result of the purchase of Forum Almada-Gestao de Centro Comercial, Sociedade Uniperssoal, Lda,

the Company subrogated to a primary loan that the subsidiary had with the previous shareholder for a

total current amount of EUR 98,410 thousand. That loan does not accrue interest. The main

outstanding balance at the end of 2022 amounted to EUR 66,249 thousand.

–Loan agreement between Group companies with Merlin Logistics, S.L.U. with a term of one year,

maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an

interest rate of 1.15% per year. The outstanding balance of principal at the 2022 year-end amounts to

EUR 235,029 thousand.

–Loan with Global Carihuela Patrimonio Comercial, S.L.U., whose balance comes from the financing

from the business combination with Metrovacesa executed in 2016 through current accounts with

Group companies. That loan has a term of one year and matures on 31 December 2023, with

subsequent renewals permitted for similar periods, accruing an annual interest rate of 1.15%. The

outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to

EUR 50,401 thousand.

–Inter-Group loan agreement with Varitelia Distribuciones, S.L.U. with a term of one year, maturing on

31 December 2023, with subsequent renewals permitted for similar periods, at an interest rate of

1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2022

year-end amounts to EUR 188,108 thousand.

–Inter-Group loan agreement with Sevisur Logistics, S.A. with a term of one year, maturing on 31

December 2023, with subsequent renewals permitted for similar periods, at an interest rate of 1.15%

per year. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end

amounts to EUR 18,317 thousand.

–Loan agreement with Metroparque, S.A. whose balance comes from the financing from the business

combination with Metrovacesa executed in 2016 through current accounts with Group companies.

That loan has a term of one year and matures on 31 December 2023, with subsequent renewals

47

permitted for similar periods, accruing an annual interest rate of 1.15%. The outstanding balance of

principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 31,178 thousand.

–Loan agreement with Sadorma, S.A. whose balance comes from the financing from the business

combination with Metrovacesa executed in 2016 through current accounts with Group companies.

That loan has a term of one year and matures on 31 December 2023, with subsequent renewals

permitted for similar periods, accruing an annual interest rate of 1.15%. The outstanding balance of

principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 21,191 thousand.

–Loan agreement with Parc Logisctic, Zona Franca, S.A. This agreement has a term of one year,

maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an

interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest

at the 2022 year-end amounts to EUR 5,522 thousand.

–In 2022 the Company recognised an impairment loss on the short-term loan with Innovación

Collaborativa, S.L.U. for EUR 1,072 thousand.  The outstanding balance of principal plus accrued and

unpaid interest at the 2022 year-end was EUR 4,019 thousand.

At 31 December 2022, the Company had no recorded impairment losses on the loans granted to Group

companies and associates except that held with the investee Global Murex Iberia, S.L., Innovación de, S.L.U.

and Slack Tailwind Systems, S.L.U.

7.4 Third-party loans (current and non-current)

The loan granted to Desarrollos Urbanísticos Udra, S.A.U. amounting to EUR 86,397 thousand is recorded under

the heading “Third-Party Loans” under non-current assets, with a market interest rate. In 2020, the first

capitalisation of interest took place, amounting to EUR 1,423 thousand. In 2021 and 2022, further

capitalisations took place for EUR 1,442 thousand and EUR 1,466 thousand, respectively, with the resulting

principal balance of the loan at 31 December 2022 of EUR 90,728 thousand (EUR 89,262 thousand at the end of

2021). The outstanding interest amounted to EUR 313 thousand and EUR 307 thousand at 31 December 2022

and 2021, respectively. In relation to the aforementioned loan, the Company has guarantees from the creditor

associated with 10% of the shares it holds in Crea Madrid Nuevo Norte, S.A.

In addition, under this heading, rent linearisation and tenant installation costs amounting to EUR 14,607

thousand are recorded.

7.5 Trade and other receivables

At 31 December 2022, the heading “Trade and other receivables” includes the following items:

	Thousands of euros
	31/12/2022	31/12/2021
Current assets:
Trade and notes receivable	9,533	4,156
Group companies and associates	8,388	2,272
Sundry accounts receivable	1,268	587
Employee receivables	184	184
Other receivables from public authorities (Note 14)	8,371	5,812
	27,744	13,011

48

“Trade and notes receivable” in the balance sheet at 31 December 2022 mainly included the balances

receivable from leasing investment property. In general these receivables are interest free and the terms of

collection range from immediate payment on billing to payment at 30 days, while the average collection period

is approximately 5 days (5 days in 2021).

The Company periodically analyses the risk of insolvency of its accounts receivable by updating the related

provision for impairment losses. The Company’s directors consider that the amount of trade and other

receivables approximates their fair value.

Movement in the provision for impairment and bad debt in 2022 was as follows:

	Thousands of euros
	2022	2021
Initial balance	(7,996)	(7,854)
Charges for the year	(581)	(818)
Reversals/amounts used	697	652
Other	59	24
Closing balance	(7,821)	(7,996)

In 2022, losses on bad debts amounted to EUR 373 thousand (EUR 273 thousand in 2021).

The majority of impaired receivables are overdue by more than six months.

8. Cash and cash equivalents

“Cash and cash equivalents” includes the Company’s cash and short-term bank deposits with an original

maturity of three months or less. The carrying amount of these assets approximates their fair value. The

balance of this heading of the accompanying balance sheet comprises mainly the current accounts in euros

held by the Company at various financial institutions, which accrue interest at market rates, amounting to EUR

343,081 thousand (EUR 570,725 thousand in 2021).

At 31 December 2022, there were no balances pledged to secure the Company's obligations.

The interest earned in this regard in 2022 amounted to EUR 1,737 thousand and is recognised under “Finance

Income” in the accompanying income statement (EUR 363 thousand in 2021).

9. Non-current investments in Group companies and associates

The breakdown of and changes in the balance of “Equity instruments” at 2022 and 2021 year-end is as follows:

49

2022

	In thousands of euros
	Balance at 31/12/21	Additions	Disposals	Impairment	Balance at 31/12/22
Group companies:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	657,984	619,726	(1,277,710)	-	-
Merlin Retail, S.L.U.	251,408	-	-	-	251,408
Merlin Oficinas, S.L.U.	771,345	-	-	-	771,345
Merlin Logística, S.L.U.	292,304	-	-	-	292,304
Sevisur Logistica, S.A.	37,629	-	-	-	37,629
Parc Logistic de la Zona Franca, S.A.	118,310	-	-	-	118,310
Slack Tailwind Systems, S.L.U.	-	3	-	(3)	-
Slow Rise Spain, S.L.U.		3	-	-	3
Innovación Colaborativa, S.L.U.	2,020	-	-	(2,020)	-
Exhibitions Company, S.A.U.	3,654	-	-	(1,430)	2,224
Gescentesta, S.L.U.	3	-	-	-	3
Metroparque, S.A.U.	231,557	-	-	-	231,557
La Vital Centro Comercial y de Ocio, S.L.U.	56,788	-	-	-	56,788
Desarrollo Urbano de Patraix, S.A.U.	25,060	-	-	(83)	24,977
Sadorma 2003, S.L.U.	18,857	-	-	232	19,089
Varitelia Distribuciones, S.L.U	21,885	-	-	817	22,702
Global Carihuela Patrimonio Comercial, S.L.U	7,661	-	-	1,579	9,240
MPCVI - Compra e Venda Imobiliária, S.A.	6,418	-	-	-	6,418
MPEP - Properties Escritórios Portugal, S.A.	85	1,000	-	-	1,085
MP Monumental, S.A.	21,548	1,100	-	-	22,648
MP Torre A, S.A.	10,186	500	-	-	10,686
VFX Logística, S.A.	12,310	3,800	-	6,626	22,736
Promosete, Invest Inmobiliaria	10,386	-	-	-	10,386
Praça do Marqués - Serviços Auxiliares, S.A.	56,359	-	-	-	56,359
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	15,912	-	-	-	15,912
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	32,574	-	-	-	32,574
Torre Arts - Investimentos Imobiliarios, S.A.	85,781	-	(5,500)	-	80,281
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	27,555	-	(1,500)	-	26,055
Milos Asset Development, S.A.	2	-	-	-	2
Generous Profile Unipessoal, LDA		56,808	-	(556)	56,252
Associates:
Provitae Centros Asistenciales, S.L.	3,514	-	-	(198)	3,316
Paseo Comercial Carlos III, S.A.	25,668	-	-	-	25,668
Centro Intermodal de Logística, S.A.	95,688	-	-	-	95,688
Parking del Palau, S.A.II., S.L.U.	1,217	-	-	(133)	1,084
PK Hoteles 22, S.L.	2,184	-	(2,468)	284	-
Crea Madrid Nuevo Norte, S.A.	171,898	1,511	-	(616)	172,793
G36, Development, S.A.	2,027	-	(2,024)	-	3
Edged Spain, S.L.	—	-	-	-	-
Silicius Real Estate SOCIMI, S.A.	87,018	-	-	-	87,018
Total net value of the investment	3,164,795	684,451	(1,289,202)	4,499	2,564,543

50

2021

		In thousands of euros
	Balance at 31/12/20	Additions	Disposals	Impairment	Other	Balance at 31/12/21
Group companies:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	657,984	-	-	-	-	657,984
Merlin Retail, S.L.U.	251,408	-	-	-	-	251,408
Merlin Oficinas, S.L.U.	771,345	-	-	-	-	771,345
Merlin Logística, S.L.U.	292,304	-	-	-	-	292,304
Sevisur Logistica, S.A.	37,629	-	-	-	-	37,629
Parc Logistic de la Zona Franca, S.A.	118,310	-	-	-	-	118,310
Innovación Colaborativa, S.L.U.	-	12,000	-	(4,534)	(5,446)	2,020
Exhibitions Company, S.A.U.	4,287	-	-	(633)	-	3,654
Gescentesta, S.L.U.	3	-	-	-	-	3
Metroparque, S.A.U.	231,557	-	-	-	-	231,557
La Vital Centro Comercial y de Ocio, S.L.U.	56,788	-	-	-	-	56,788
Desarrollo Urbano de Patraix, S.A.U.	25,090	-	-	(30)	-	25,060
Sadorma 2003, S.L.U.	18,603	-	-	254	-	18,857
Varitelia Distribuciones, S.L.U	21,552	-	-	333	-	21,885
Global Carihuela Patrimonio Comercial, S.L.U	13,125	-	-	(5,464)	-	7,661
MPCVI - Compra e Venda Imobiliária, S.A.	6,418	-	-	-	-	6,418
MPEP - Properties Escritórios Portugal, S.A.	85	-	-	-	-	85
MP Monumental, S.A.	20,348	1,200	-	-	-	21,548
MP Torre A, S.A.	10,186	-	-	-	-	10,186
VFX Logística, S.A.	18,363	440	-	(6,493)	-	12,310
Promosete, Invest Inmobiliaria	10,386	-	-	-	-	10,386
Praça do Marqués - Serviços Auxiliares, S.A.	56,359	-	-	-	-	56,359
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	15,912	-	-	-	-	15,912
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	33,774	-	-	-	(1,200)	32,574
Torre Arts - Investimentos Imobiliarios, S.A.	85,781	-	-	-	-	85,781
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	27,555	-	-	-	-	27,555
Milos Asset Development, S.A.	-	-	-	2	-	2
Associates:
Provitae Centros Asistenciales, S.L.	3,509	-	-	5	-	3,514
Paseo Comercial Carlos III, S.A.	25,668	-	-	-	-	25,668
Centro Intermodal de Logística, S.A.	95,688	-	-	-	-	95,688
Parking del Palau, S.A.II., S.L.U.	1,357	-	-	(140)	-	1,217
PK Hoteles 22, S.L.	2,467	-	-	(283)	-	2,184
Crea Madrid Nuevo Norte, S.A.	169,386	2,922	-	(410)	-	171,898
G36, Development, S.A.	2,027	-	-	-	-	2,027
Edged Spain, S.L.	-	2	-	(2)	-	-
Silicius Real Estate SOCIMI, S.A.	70,543	-	(4,003)	1,828	18,650	87,018
Total net value of the investment	3,155,797	16,564	(4,003)	(15,567)	12,004	3,164,795

In compliance with section 155 of the Corporate Enterprises Act, the Company reported the holdings that

exceed 10% of share capital in the companies described in the table above.

51

The most significant transactions executed in 2022 are as follows:

-On 1 February 2022, the Company sent BBVA a communication that included, among other points, a

proposed sale of 100% of the shares of Tree Inversiones Inmobiliarias Socimi, S.A. in accordance with

right of first refusal held by BBVA. On 1 April 2022, the Company received a communication from

BBVA on its acceptance of the proposed sale of Tree, which was subject, among others, to the

approval of the Spanish National Markets and Competition Commission (CNMC). On 1 June 2022, the

CNMC authorised the transaction and the sale was concluded on 15 June 2022. Prior to the sale, a

contribution of funds was made in order to cancel the financing held by the investee company.  (see

note 1.2).

-On 27 July 2022, 100% of the shares of Slack Tailwind Systems, S.L.U and Slow Rise Spain, S.L.U. were

acquired for EUR 3 thousand each. At 31 December 2022, the share in Slack Tailwind Systems, S.L.U

was fully provisioned.

-On 3 August 2022, the Company acquired 100% of the shares Generous Profile Unipessoal Lda. for

EUR 9 thousand. Subsequently, a capital increase of EUR 56,800 thousand took place. (See note 1.2)

-In 2022 the General Meeting of PK Hoteles 22, S.L. unanimously resolved to liquidate the company,

32.50% of which was owned by the Company.

-In the first quarter of 2022, the Company's share in the Portuguese subsidiary MP Monumental, S.A.

increased be means of a contribution of EUR 1,100 thousand, as supplementary contributions.

-In 2022, the Company increased the share in the Portuguese subsidiary MPEP- Properties Esctitórios

Portugal, S.A. by capitalising interest on the loan granted to it in the amount of EUR 1,000 thousand,

as supplementary contributions.

-In 2022, the Company increased the share in the Portuguese subsidiary MP Torre A, S.A. by capitalising

interest on the loan granted to it in the amount of EUR 500 thousand, as supplementary contributions.

-In 2022, the Company's share in the Portuguese subsidiary MP Logística, S.A. increased be means of a

contribution of EUR 3,800 thousand, as supplementary contributions. In 2022, the Company

recognised a reversal of the impairment in the share in the amount of EUR 6,626 thousand.

-In 2022, the Company made a capital contribution to Crea Madrid Nuevo Norte, S.A. as a result of the

capital increase carried out in the year, in the amount of EUR 1,511 thousand.

-In 2022, the Company recorded a reduction in its share in G36 Developments, S.L. in the amount of

EUR 2,024 thousand, as a result of capital reduction and return of share premium.

-In October 2022, the Company's share in Torre Arts - Investimentos Imobiliarios, S.A. was reduced by

the reimbursement of supplementary provisions in the amount of EUR 5,500 thousand.

-In October 2022, the Company's share in Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.

was reduced by a reimbursement of supplementary provisions in the amount of EUR 1,500 thousand.

The most significant transactions executed in 2021 are as follows:

-Capital increase of Innovación Collaborativa, S.L.U. in the amount of EUR 12,000 thousand, through

the partial offsetting of the loan.

52

-On 27 January 2021, the Company acquired 100% of the shares of Edged Spain, S.L.U. and

subsequently sold 50% to Edged Global Services Iberia, S.L.U. on 30 March 2021. Edged Spain, S.L.U. is

engaged in providing data processing centre services. At 31 December 2021, this share was fully

provisioned.

-In 2021, the Company increased the share in the Portuguese subsidiary MP Monumental, S.A. by

capitalising the loan granted to it in the amount of EUR 1.2 million, as supplementary contributions

-In 2021, the Company increased the share in the Portuguese subsidiary VFX Logística, S.A. by

capitalising the loan granted to it in the amount of EUR 440 thousand, as supplementary contributions

-Changes in the purchase value of the shares of the Portuguese company Forum Almada Gestão Centro

Comercial Sociedade Unipessoal, Lda., due to tax contingencies included in the purchase agreement,

which result in a negative adjustment in the price for EUR 1,200 thousand.

-In relation to the shares in associates, the main change corresponded to the sale of 353,966 shares of

Silicius Real Estate SOCIMI, S.A. for EUR 5,418 thousand, and the result was recognised in the income

statement. In addition, amounts were received as premium reimbursements amounting to EUR 4,003

thousand. In relation to the aforementioned share, the Company had liabilities associated with

ensuring the profitability of the assets contributed to cover the capital increase with non-monetary

contributions amounting to EUR 5,850 thousand, recognised under “Other financial liabilities”.

-During 2021, the Company increased its capital in the Spanish company Crea Madrid Nuevo Norte,

S.A. by EUR 2,922 thousand.

As of December 31, 2022, the Company holds a stake in Silicius Real Estate SOCIMI, S,A, equivalent to 17.80%

of the share capital. As part of the terms and conditions agreed with Silicius Real Estate SOCIMI, S,A at the time

of entry into the Company's capital, certain conditions were included in relation to the shares received:

On the fifth anniversary of the asset contribution:

•Silicius Real Estate SOCIMI, S.A. has the option to proceed with the purchase of the shares at a price

per share equivalent to the net asset value (NAV) per share available at the aforementioned date

increased by 30%.

•If Silicius Real Estate SOCIMI, S.A. does not exercise the purchase option, Merlin will have the right to

request the redemption of the interest through the return in kind of certain pre-selected assets.

•If the Board of Silicius Real Estate SOCIMI, S.A. is not satisfied with the selection of assets made by

Merlin, it will be obliged to purchase or redeem in cash from Merlin the Liquid B shares at the issue

price (including par value and premium) at which they were admitted.

The aforementioned option is valued by Merlin on a periodic basis and is presented as a liability derivative, in

case it could result in a negative adjustment to the recoverable value of the aforementioned shareholding (See

Note 12).

The directors annually assess the existence of signs of impairment on the holdings above and concluded that

there are no further impairments at 31 December 2022.

To determine whether or not the shares in Group companies and associates have become impaired, the

proportional part of equity of the investees, adjusted by any unrealised gains and goodwill at the valuation

date, was considered to be the best evidence of the recoverable amount, which were mainly identified based

on third-party valuations of those assets. In 2022, impairment was identified for a total of EUR 5,039 thousand,

mainly related to the shares held in Innovación Collaborativa, S.L.U and Exhibitions Company, S.A.U. Similarly,

53

recorded impairments amounting to EUR 9,538 thousand were reversed, mainly related to the shares held in

VFX Logística, S.A. and Global Carihuela Patrimonio Comercial, S.L.U.

The most significant information in relation to investments in Group companies and associates at 2022 and

2021 year-end is detailed in Appendix I.

10. Equity and shareholder’s equity

10.1 Share capital and share premium

The detail of and changes in equity are presented in the statement of changes in equity.

Share capital

At 31 December 2022, the share capital of Merlin Properties SOCIMI, S.A., amounted to EUR 469,771 thousand,

represented by 469,770,750 fully subscribed and paid shares of EUR 1 par value each, all of which are of the

same class and confer the holders the same rights.

All the Company's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia

and Lisbon Stock Exchanges. The market price of the Parent’s shares at 31 December 2022 and the average

market price for the fourth quarter amounted to EUR 8.78 and EUR 8.65 per share, respectively.

At 31 December 2022, based on information extracted from the CNMV, in relation to the provisions of Royal

Decree 1362/2007, of 19 October and Circular 2/2007, of 19 December, the shareholders with significant

holdings in the share capital of Merlin Properties SOCIMI, S.A., both direct and indirect, in excess of 3% of the

share capital, are the following based on public information:

	Shares			% of share capital
	Direct	Indirect	Total
Banco Santander, S.A.	89,311,859	26,072,123	115,383,982	24.562%
Nortia Capital Investment Holding, S.L.	38,371,083	-	38,371,083	8.168%
BlackRock, INC	-	23,528,172	23,528,172	5.008%

The information on Banco Santander and Manual Lao Hernández (Nortia Capital Investment Holding, S.L.) was

obtained from the Company's Register of Members at the end of 2022.

Share premium

The Consolidated Text of the Corporate Enterprises Act expressly permits the use of the share premium to

increase capital and establishes no specific restrictions as to its use.

This reserve is unrestricted so long as its allocation does not lower equity to below the amount of share capital.

On 4 May 2022, the General Meeting approved the distribution of an interim dividend charged to the “share

premium” reserve in the amount of EUR 106,497 thousand.

10.2. Reserves

Legal reserve

54

The legal reserve will be established in accordance with section 274 of the Consolidated Text of the Corporate

Enterprises Act, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the

legal reserve until the balance of this reserve reaches at least 20% of the share capital.

This reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available

for this purpose, it must be restored with future profits.

At 31 December 2022, the Company had not yet reached the legally required minimum established in the

revised text of the Corporate Enterprises Act.

The legal reserve of companies which have chosen to avail themselves of the special tax regime established in

Law 11/2009, of 26 October, regulating listed companies investing in the property market (REITs), must not

exceed 20% of share capital. The articles of association of these companies may not establish any other type of

restricted reserves.

Merger reserves

The mergers carried out in 2017 generated positive merger reserves of EUR 1,629 thousand. As a result of the

merger by absorption of Testa Inmuebles en Renta SOCIMI, S.A. with the Company in 2016, this transaction

generated negative merger reserves in the amount of EUR 308,131 thousand.

10.3 Treasury shares

At 31 December 2022, the Company held treasury shares amounting to EUR 17,166 thousand.

The changes in 2022 were as follows:

	Number of Shares	Thousands of euros
Balance at 1 January 2021	4,836,503	54,149
Additions	374	3
Disposals	(1,951,386)	(21,847)
Balance at 31 December 2021	2,885,491	32,305
Additions	6,625	122
Disposals	(1,355,932)	(15,261)
Balance at 31 December 2022	1,536,184	17,166

The shareholders at the Annual General Meeting held on 10 April 2019 revoked the unused portion of the

authorisation granted by the shareholders at the General Meeting of April 2018 and authorised the acquisition

of treasury shares by the Company itself or by Group companies pursuant to section 146 et seq. of the

Corporate Enterprises Act, complying with the requirements and restrictions established in current law during

the five-year period. 

The disposals of treasury shares, amounting to EUR 15,261 thousand (average cost of EUR 11.20 per share),

relate mainly to the second and last delivery of shares under the 2017-19 Incentive Plan (see Note 17) in the

amount of EUR 14,133 thousand and to the delivery of shares to employees as part of the flexible

remuneration plan in the amount of EUR 864 thousand.

The Company has a liquidity agreement for securities listed on the Lisbon Stock Exchange, having made net

sales of 9,740 shares (EUR 142 thousand) in 2022.

At 31 December 2022, the Company held treasury shares representing 0.327% of its share capital.

55

10.4 Valuation adjustments

This heading of the statement of financial position includes changes in the value of financial derivatives

designated as cash flow hedges, as well as that corresponding to financial assets through profit and loss.

Movement in this heading in 2022 was as follows

:

	Thousands of euros
Balance at 31 December 2020	(5,613)
Changes in the fair value of hedges in 2021	625
Changes in the fair value of “Financial assets through profit and loss”	4,988
Balance at 31 December 2021	-
Changes in the fair value of hedges in 2022	12,798
Changes in the fair value of “Financial assets through profit and loss”	-
Balance at 31 December 2022	12,798

The change in the fair value of the hedging instruments corresponds to the value recorded at the time of the

rupture of the efficiency that will be accrued over the life of the derivative and that has been recognised as the

largest financial expense in the attached income statement.

The balance at year-end 2022 relates to the assessment of the new interest rate hedges that the Group has

taken out to cover the new syndicated financing and the bilateral loan with Banco Sabadell, for April 2023 to

April 2028 (see Note 11).

11. Current and non-current financial liabilities

The detail of current and non-current liabilities at 31 December 2022 and 2021 is as follows (in thousands of

euros):

56

	Thousands of euros
	2022	2021
Non-current:
Measured at amortised cost
Syndicated loan	-	850,000
Syndicated loan arrangement expenses	-	(3,545)
Total syndicated loan	-	846,455
Revolving credit facility	-	-
Non-mortgage loan	111,000	29,000
Arrangement costs of the revolving loan facility and unsecured loan	(2,757)	(3,097)
Total other loans	108,243	25,903
Debentures and bonds	3,300,000	4,042,786
Debenture issue expenses	(20,666)	(25,216)
Total debentures and bonds	3,279,334	4,017,570
Total amortised cost	3,387,577	4,889,928
Measured at fair value
(*) Interest rate derivative financial instruments	-	6,169
Total at fair value	-	6,169
Total non-current	3,387,577	4,896,097
Current:
Measured at amortised cost
Syndicated loan	195	644
Debentures and bonds	775,152	588,622
Non-mortgage loan	346	123
Revolving credit facility	410	410
Loan arrangement expenses	(116)	(467)
Total amortised cost	775,987	589,332
Measured at fair value
(*) Interest rate derivative financial instruments	18	320
Total at fair value	18	320
Total current	776,005	589,652

There is no material difference between the carrying amount and the fair value of financial liabilities at

amortised cost.

On 20 April 2016, the Company was given a credit rating of “BBB” with stable outlook by Standard & Poor’s

Rating Credit Market Services Europe Limited. On 02 May 2018, Standard & Poor's updated this rating to “BBB”

with a positive outlook, changing it to stable outlook due to the COVID-19 pandemic on 27 March 2020. On 12

April 2022, following the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A., Standard & Poor's updated this

outlook to positive.

Additionally, on 17 October 2016, the Company was given a credit rating of investment grade “Baa2” by

Moody's. On 27 May 2020, Moody's updated this rating to “Baa2” with a negative outlook due to the COVID-19

pandemic. On 02 May 2022, following the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A., Moody's updated

this outlook to positive.

11.1 Loans

The detail of loans at 31 December 2022 and 2021 is as follows (in thousands of euros):

57

31/12/2022

	Initial loan / Limit	Debt arrangement expenses	Long term	Short term	Short-term interest
Syndicated loan	600,000	-	-	-	195
Revolving credit facilities	700,000	(2,486)	-	-	410
Non-mortgage loan	220,225	(271)	111,000	-	346
Total	1,520,225	(2,757)	111,000	-	951

31/12/2021

	Initial loan / Limit	Debt arrangement expenses	Long term	Short term	Short-term interest
Syndicated loan	850,000	(3,545)	850,000	-	644
Revolving credit facilities	700,000	(3,055)	-	-	410
Non-mortgage loan	160,225	(42)	29,000	-	123
Total	1,710,225	(6,642)	879,000	-	1,177

Syndicated loans and revolving credit facilities

On 25 April 2019, the Company arranged a senior syndicated loan amounting to EUR 1,550 million, including

two tranches, a corporate loan of EUR 850 million and a corporate credit facility of EUR 700 million due in

2024.

The initial maturity date for this revolving credit facility was 2024, with the possibility of two optional one-year

extensions. The second one-year extension was approved on 30 June 2021, and the new maturity date is 9 May

2026.

The corporate loan of EUR 850 million accrued an interest rate of the one-month EURIBOR + 120 basis points,

while the revolving credit facility accrued an interest rate of the one-month EURIBOR + 90 basis points, and it

incorporates a cost adjustment mechanism based on four sustainability criteria.

On 21 June 2022, the Company early cancelled the corporate loan of EUR 850 million.

On 18 November 2022, the Company arranged a new senior syndicated loan for EUR 600 million with the

possibility of being drawn down before 24 April 2023 for the redemption of the bond maturing in 2023. This

facility will have a maturity of 5 years from its drawdown date and will accrue a market rate of interest if

EURIBOR plus 130 basis points. Until the facility is drawn down, a fee of 26 basis points will be applied for the

undrawn balance. At the 2022 year-end, the loan was not drawn down.

These facilities maintain the commitments to maintain certain coverage ratios, existing in the previous facility,

in the Group bonds and in the Banco Sabadell facility described below. These ratios are defined as the ratio

between the value of the assets and the outstanding debt (“Loan to Value”), the ratio between the Group's

revenue and the debt service (“ICR”) and the ratio between assets and debt, both without mortgage guarantee

(“Unencumbered Ratio”). They also include certain conditions linked to compliance with factors associated

with the environment and sustainability that may entail certain savings in their financial burden. The

Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that

they will not be fulfilled in the coming years.

Unsecured loans:

58

Banco Sabadell loan

On 18 November 2022, the Company arranged a loan without mortgage security with Banco Sabadell for EUR

60 million, maturing in January 2028 and accruing a market rate of interest of EURIBOR + 120 basis points.

This facility includes commitments to maintain certain coverage ratios described in the previous point. The

Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that

they will not be fulfilled in the coming years.

European Investment Bank loans

On 20 December 2018, the Company formalised a loan without mortgage security with the European

Investment Bank in an amount of EUR 51 million. On 4 November 2019, the Company formalised the second

tranche of the loan without mortgage security with the European Investment Bank amounting to EUR 64

million, making EUR 115 million in total over the two tranches. This facility can be drawn down through several

loans with a maturity of 10 years for each drawdown. This facility must be allocated to the development of

logistics assets in the Castilla–La Mancha region.

On 10 March 2020 and 26 October 2020, the Company drew down EUR 23.4 million and EUR 5.6 million

corresponding to the first tranche of the facility. This facility accrues fixed interest at a rate of 60 basis points.

On 20 December 2022, the Company had EUR 22 million and 370 basis points. These three loans complete the

drawdown of the first tranche of EUR 51 million.

On 16 December 2021, the Company arranged a loan without mortgage security with the European Investment

Bank in an amount of EUR 45,225 thousand and with 10-year maturity. This facility will be used to make

investments in energy efficiency. At the year-end, this loan was not drawn down.

These facilities maintain the commitments to maintain certain coverage ratios, existing in the previous facility,

in the Company's bonds and in the syndicated loan. These ratios are defined as the ratio between the value of

the assets and the outstanding debt (“Loan to Value”), the ratio between the revenue of the Merlin Group, of

which it is the Parent, and the debt service (“ICR”) and the ratio between assets and debt, both without

mortgage guarantee (“Unencumbered Ratio”). The Company’s directors have confirmed that these ratios were

met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years.

Maturity of debt

The details on the maturity of the amounts provided in these loans is as follows (in thousands of euros):

	Syndicated loan	Revolving credit facility	Total
2023	-	-	-
2024	-	-	-
2025	-	-	-
Over 3 years	111,000	-	111,000
	111,000	-	111,000

None of the Company’s debt was denominated in non-euro currencies at 31 December 2022.

The Company had undrawn credits and loans at 31 December 2022 with a number of financial institutions

totalling EUR 1,409 million (EUR 831 million at 31 December 2021).

There are no significant differences between the fair values and carrying amounts of the Company’s financial

liabilities.

59

The finance cost for interest on the loans and the revolving lines of credit totalled EUR 7,618 thousand in 2022

(EUR 12,677 thousand in 2021) and is recognised in the accompanying income statement for 2022.

At 31 December 2022, the loan arrangement costs were recognised as a reduction in “Bank borrowings”. In

2022, the Company recognised EUR 4,125 thousand (EUR 2,151 thousand in 2021) associated with the debt

under “Finance costs” in the accompanying income statement for 2022, having capitalised EUR 240 thousand in

2022.

11.2 Debenture issues

On 12 May 2017, the Company subscribed a Euro Medium Term Notes (EMTN) issue programme of up to EUR

4,000 million, which will replace the original bond issue programme and its supplement subscribed on 06 April

2016 and 14 October 2016, respectively, for an overall maximum amount of EUR 2,700 million.

On 18 May 2018, the Company extended that bond-issue scheme (Euro Medium Term Notes – EMTN) up to an

amount of EUR 5,000 million.

On 17 June 2020, the General Shareholders' Meeting approved the extension of this bond issuance program up

to an amount of EUR 6,000 million, and the extension took place on 21 March 2021. On 4 August 2022, the

scheme was renewed for another year.

On 30 June 2021, the Company issued a bond of EUR 500 million at 9 years at 99.196% of the nominal value

and a coupon of 1.375%. These funds were used to pay the bond maturing in May 2022 early on 23 February

2022. 

On 1 June 2022, the Company converted all its bonds into green bonds under the Green Financing Framework

published on 25 April 2022. The reclassification of the bonds to green bonds does not entail changes to any

other features of the bonds, such as their terms and conditions, interest or maturity.

The terms of the bonds issued by the Company abide by UK laws and are traded on the Luxembourg Stock

Exchange. The bond issue scheme has the same guarantees and ratio compliance obligations as the new

syndicated loan and the revolving credit facility. At year-end 2022, the Company is compliant with the

covenants in this agreement and the directors believe they will be met in 2023.

The detail at 31 December 2022 of the bonds issued by Company is as follows:

Maturity	Nominal value (Millions of euros)	Coupon	Listed price	Return	Market
April 2023	743	2.225%	MS + 98 b.p.	3.32%	Luxembourg
May 2025	600	1.750%	MS + +115 b.p.	4.44%	Luxembourg
November 2026	800	1.875%	MS + +168 b.p.	4.88%	Luxembourg
July 2027	500	2.375%	MS + +183 b.p.	5.01%	Luxembourg
September 2029	300	2.375%	MS + +210 b.p.	5.24%	Luxembourg
June 2030	500	1.375%	MS + +205 b.p.	5.18%	Luxembourg
December 2034	600	1.875%	MS + +232 b.p.	5.46%	Luxembourg
	4,043	1.958%

2021

60

Maturity	Nominal value (Millions of euros)	Coupon	Listed price	Return	Market
May 2022	548	2.375%	MS + 53 b.p.	-0.01%	Ireland (a)
April 2023	743	2.225%	MS + 65 b.p.	0.169%	Luxembourg
May 2025	600	1.750%	MS + 55 b.p.	0.405%	Luxembourg
November 2026	800	1.875%	MS + 73 b.p.	0.708%	Luxembourg
July 2027	500	2.375%	MS + 87 b.p.	0.897%	Luxembourg
September 2029	300	2.375%	MS + 117 b.p.	1.319%	Luxembourg
June 2030	500	1.375%	MS + 139 b.p.	1.603%	Luxembourg
December 2034	600	1.875	MS + 165 b.p.	2.058%	Luxembourg
	4,591	2.008%

(a) Due to the business combination with Metrovacesa carried out in 2016, the Company recognised a bond issue launched by

Metrovacesa for EUR 700 million. The terms and conditions of the bonds were governed and interpreted in accordance with UK laws and

were listed on the Irish Stock Exchange. This issue also included a series of compliance obligations and guarantees, which is common in

these types of transactions. The bond was paid early on 23 February 2022.

These bond issues include commitments to maintain certain coverage ratios. These ratios are defined as the

ratio between the value of the assets and the outstanding debt (“Loan to Value”), the ratio between the

Group's revenue and the debt service (“ICR”) and the ratio between assets and debt, both without mortgage

guarantee (“Unencumbered Ratio”). The Company’s directors have confirmed that these ratios were met at 31

December 2022 and do not expect that they will not be fulfilled in the coming years.

The finance cost for interest on the debenture issues amounted to EUR 81,040 thousand (EUR 89,330 thousand

in 2021) and is recognised in the accompanying income statement for 2022. The accrued interest payable at 31

December 2022 amounted to EUR 32,366 thousand (EUR 40,322 thousand in 2021). Debt arrangement

expenses taken to the income statement in 2022 amounted to EUR 4,901 thousand (EUR 5,370 thousand in

2021).

11.3 Interest rate derivatives

In 2022 the Company took out new interest rate hedges to cover the new syndicated facility for April 2023 to

April 2028. The notional amount contracted was EUR 500 million at a cost of 2.574%. In addition, an interest

rate hedge was contracted to cover Sabadell's mortgage loan until its maturity in January 2028 for a notional

amount of EUR 60 million and a fixed cost of 2.512%.

The detail of the financial instruments as of 31 December 2022 is as follows (in thousands of euros):

2022

		Thousands of euros
			Outstanding notional amount at each date
Interest rate	Interest contracted	Fair Value					Subsequent years
			2022	2023	2024	2025
Syndicated (start 2023)	2,574%	(11,394)	-	500,000	500,000	500,000	500,000
Unsecured	2.512%	(1,386)	60,000	60,000	60,000	60,000	60,000
		(12,780)	60,000	560,000	560,000	560,000	560,000

61

2021

		Thousands of euros
			Outstanding notional amount at each date
Interest rate	Interest contracted	Fair Value					Subsequent years
			2021	2022	2023	2024
Syndicated (start 2021)	0.0154%	(6,488)	850,000	850,000	850,000	-	-
		(6,488)	850,000	850,000	850,000	-	-

	Thousands of euros
Non-current
Interest rate derivatives	(12,798)
Total non-current	(12,798)
Current
Interest rate derivatives	18
Total current	18

At 31 December 2022, the impact for interest rate derivatives on liabilities and profit before tax of a 5%

fluctuation in the estimated credit risk rate would be as follows:

	Thousands of euros
Scenario	Liabilities	Equity	Consolidated profit/(loss) before tax
5% rise in credit risk rate	(12,130)	12,130	-
5% reduction in credit risk rate	12,524	(12,524)	-

At 31 December 2021, the effect of the Company's interest rate derivatives, in the event of changes of 5% in

the credit risk rate, was not significant.

62

12. Other current and non-current liabilities

The detail of non-current and current liabilities at 31 December 2022 and 2021 is as follows:

	Thousands of euros
	31/12/2022	31/12/2021
Non-current:
Provisions	11,558	10,184
Other non-current liabilities	3,420	11,972
Guarantees and deposits received	51,287	46,762
	66,265	68,918
Current:
Other payables	121	132
Other current liabilities	5,157	3,139
	5,278	3,271
	71,543	72,189

“Non-current provisions” includes provisions for the risk assessment associated with a series of legal

proceedings and third-party claims arising from the Company's activity, which have been recognised in

accordance with the best existing estimates, as well as the provision corresponding to the variable

remuneration that will be paid in the long term amounting to EUR 4,619 thousand (EUR 3,338 thousand in

2021).

“Guarantees and deposits received” primarily comprise the amounts deposited by lessees to secure leases,

which will be reimbursed at the end of the lease term.

The amount included under “Other non-current liabilities” relates to the estimated value of the resulting put

option on the share in Silicius for EUR 420 thousand (EUR 8,971 thousand at 31 December 2021) (see Note 9).

13. Trade and other payables

The detail of trade and other payables is as follows:

	Thousands of euros
	31/12/2022	31/12/2021
Trade and other payables:
Accounts Payables	44,410	25,087
Payable to suppliers, Group companies and associates	33,980	33,809
Sundry accounts payable	1,037	1,199
Remuneration payable	15,025	20,767
Other accounts payable to public authorities (see Note 14)	22,700	18,969
Advances from customers	447
	117,599	99,831

The directors consider that the carrying amount of trade payables approximates their fair value.

63

Information on the average period of payment to suppliers. Final Provision Two of Law 31/2014, of 3

December

The information required by additional provision three of Spanish Law 18/2022, of 28 September, on creating

and growing companies [Ley 18/2022, de 28 de septiembre, de creación y crecimiento de empresas] and

Spanish Law 15/2010, of 5 July (amended by final provision two of Spanish Law 31/2014, of 3 December),

prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 January 2016

on the disclosures to be included in the notes to financial statements in relation to the average period of

payment to suppliers in commercial transactions, is detailed below.

	Days
	2022	2021
Average period of payment to suppliers	23.1	34
Ratio of transactions settled	20.8	33.9
Ratio of transactions not yet settled	33.1	37.7

	Thousands of euros
	2022	2021
Total payments made	194,123	109,838
Total payments outstanding	44,574	2,216

In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by

taking into account the commercial transactions relating to the supply of goods or services for which

payment has accrued in each year.

For the sole purpose of the disclosures provided for in the Resolution, suppliers are considered to be the

trade creditors for the supply of goods or services included in “Payable to suppliers” and “Sundry accounts

payable” under current liabilities in the balance sheet and regardless of any financing due to the early

collection of the supplier.

“Average period of payment to suppliers” is taken to be the period that elapses from the delivery of the

goods or the provision of the services by the supplier to the effective payment of the transaction.

The monetary volume and number of invoices paid within the established legal period are detailed below.

	2022
Monetary volume (thousands of euros)	193,802
Percentage of total payments made	99.8%
Number of invoices	19,752
Percentage of total invoices	99.9%

The maximum legal payment period applicable to the Company in 2022 in accordance with Law 3/2004 of

29 December, establishing the measures to fight against default in commercial transactions is 60 days.

64

14. Tax situation

The breakdown of the tax receivables and payables at 31 December 2022 and 2021 is as follows:

	Thousands of euros
	31/12/2022	31/12/2021
Tax receivables:
Non-current-
Deferred tax assets	74,080	75,367
Current-
VAT refundable	1,814	1,345
Deferred input VAT	-	3,379
Other tax receivables	6,557	1,088
	82,451	81,179
Tax payables:
Non-current-
Deferred tax liabilities	389,102	391,103
Current-
VAT payable	4,025	4,730
Personal income tax withholdings payable	18,330	13,873
Payable to the Social Security	221	240
Deferred output VAT	124	126
	411,802	410,072

14.1 Reconciliation of accounting profit, taxable profit and tax expense

At 31 December 2022, the taxable profit was calculated as the accounting profit for the year. The reconciliation

of the accounting profit, the taxable profit from corporation tax, the corporation tax payable or refundable,

and the corporation tax expenses at 31 December 2022 and 2021 is as follows:

65

	Thousands of euros
	2022	2021
Accounting profit before tax	910,286	90,418
Temporary differences	45,493	23,326
Permanent differences	10,189	19,666
Taxable profit prior to offsetting tax losses	965,968	133,410
Offset of tax losses	(1,469)	(4,126)
Tax base	964,499	129,284
Tax base under the REIT regime	960,093	116,905
Tax base at the general tax rate	4,407	12,379
Tax charge under the REIT regime (0%)	-	-
Tax charge under the standard regime (25%)	1,102	3,095
Adjustments to the tax charge	-	-
Tax credit for reinvestment	(275)	(774)
Tax credit for temporary measures	(157)	(157)
Prepayments	(2,029)	(3,252)
Corporation tax payable / (receivable)	(1,360)	(1,088)
Tax base under the REIT regime	960,093	116,905
Tax base at the general tax rate	4,407	12,379
Tax charge under the REIT regime (0%)	-	-
Tax charge under the standard regime (25%)	1,102	3,095
Activated deductions	(433)	(931)
Special charge	(385)
Total current income tax expense	284	2,164
Tax bases	367	1,032
Deductions offset	1,219	1,717
Offset of prior years’ corporation tax	-	-
Other corporation tax adjustments	-	(39)
Deferred tax asset adjustments	-	-
Deferred tax liability adjustments	(2,301)	(4,064)
Total deferred tax expense	(714)	(1,354)
Total corporation tax expense	(430)	810

The current tax expense recognised in 2022 relates mainly to the tax impact due to the sale of investment

property whose portion of the margin has been taxed under the general regime.

The permanent differences in 2022 mainly correspond to the amortisation of goodwill arising from the merger

by absorption of Testa Inmobilia en Renta, SOCIMI, S.A., as well as various expenses and provisions not tax

deductible in 2022.

The temporary differences in 2022 correspond mainly to adjustments for differences between accounting and

tax depreciation of the assets of Testa and Metrovacesa.

The detail of the corporation tax (expense)/income at year-end 2022 and 2021 is as follows:

	Thousands of euros
	2022	2021
Current tax:
Continuing operations	284	2,164
Deferred tax:
Continuing operations	(714)	(1,354)
Total tax (income)/expense	(430)	810

66

14.2 Deferred tax assets recognised

The changes in 2022 and 2021 in the deferred tax assets recognised are as follows:

	Thousands of euros
Total deferred tax assets at 31 December 2021	75,367
Offset of tax losses	(196)
Offset of deductions	(1,091)
Total deferred tax assets at 31 December 2022	74,080
	Thousands of euros
Total deferred tax assets at 31 December 2020	78,116
Offset of tax losses	(1,032)
Offset of deductions	(1,717)
Total deferred tax assets at 31 December 2021	75,367

The detail of the tax loss carryforwards at 31 December 2022 is as follows:

	Thousands of euros
	Recognised	Tax credit
	Tax base
Tax loss carryforwards:
2009	134,928	33,732
2010	1,650	413
2011	86,402	21,600
2019	1,201	-
2020	8,306	-
Total tax loss carryforwards	232,487	55,745
Other deferred taxes recognised	73,340	18,335
Total capitalised deferred tax assets	305,827	74,080

The “Other deferred taxes recognised” heading mainly includes the timing differences caused by the limitation

of the depreciation of the assets generated by the acquisition of the Testa subgroup and Metrovacesa and the

tax deductions pending application mainly due to reinvestment.

The deferred tax assets indicated above were recognised in the accompanying balance sheet because the

Company’s directors considered that, based on their best estimate of the Company’s future earnings, including

certain tax planning measures, it is probable that these assets will be recovered.

As a result of the merger of Testa Inmuebles en Renta SOCIMI, S.A. and the property business of Metrovacesa,

S.A., tax gains were generated arising from the difference between the values at which the assets were

included in the financial statements and their tax bases. In accordance with the REIT regime, the Company will

pay tax on these gains when the property asset is sold. The directors estimate that the deferred tax assets

detailed in the table above will be recovered when the property assets are sold, thus offsetting the

aforementioned gains.

The Company had unused tax deductions and credits at 31 December 2022 amounting to EUR 16,857 thousand

(EUR 17,004 thousand in 2021), mainly due to the tax credits for reinvestment.

67

At the 2022 year-end, the Company does not have unrecognised tax loss carryforwards.

14.3 Deferred tax liabilities

The deferred tax liabilities mainly arose from the merger and the business combination executed in 2016 with

Testa Inmuebles en Renta, SOCIMI, S.A. and the property business of Metrovacesa, S.A. and were caused by the

differences existing between the book values and the tax values of the assets received in those transactions.

The changes in “Deferred tax liabilities” at 31 December 2022 and 2021 were as follows:

	Thousands of euros
Total deferred tax liabilities at 31 December 2021	391,103
Sale of property assets	(2,001)
Total deferred tax liabilities at 31 December 2022	389,102

	Thousands of euros
Total deferred tax liabilities at 31 December 2020	395,167
Sale of property assets	(4,064)
Total deferred tax liabilities at 31 December 2021	391,103

As a result of the merger of Testa Inmuebles en Renta SOCIMI, S.A. and the property business of Metrovacesa,

S.A., tax gains were generated arising from the difference between the values at which the assets were

included in the financial statements and their tax bases. In accordance with the REIT regime, the Company will

pay tax on these gains when the property asset is sold.

14.4 Years open for review and tax audits

Under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed

have been reviewed by the tax authorities or until the four-year statute of limitations has expired.

At year-end 2022, the Company had open for review the 2018 to 2021 financial years for corporation tax, the

2019 to 2022 financial years for VAT and personal income tax and non-resident income tax withholdings, and

the 2020 to 2023 financial years for the economic activities tax and property tax. In accordance with the

provisions of Additional Provision Nine of Royal Decree Law 11/2020 of 31 March and Additional Provision One

of Royal Decree Law 15/2020 of 21 April, the period between 14 March and 30 May 2020 will not count for the

purposes of the limitation periods established in Law 58/2003 of 17 December, on General Taxation, so that

the usual deadlines are extended by 78 additional days.

The Company’s managing body considers that the tax returns for the aforementioned taxes have been filed

correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in

relation to the tax treatment afforded to certain transactions, the possible liabilities as might arise would not

have a material effect on the accompanying financial statements.

Also, Law 34/2015, of 21 September, partially amending Law 58/2003, of 17 December, on General Taxation

establishes the right of the tax authorities to initiate a review and investigation procedure of the tax losses

offset or carried forward or tax credits taken or carried forward, which will become statute barred after ten

years from the day on which the regulatory period established for filing the tax return or self-assessment

relating to the year or the tax period in which the right to offset the tax loss or to apply the tax credits arose.

68

On 10 February 2022, the tax authority notified the Company that verification and investigation proceedings

were being opened in relation to corporation tax for 2016 to 2019, and value added tax and withholdings for

2018 to 2019. At the date of authorisation for issue of these financial statements, the Company was in the

process of collecting the information requested by the tax authority although no proceedings had taken place

to date questioning the returns filed in the years under verification.

15. Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012 and Law

11/2021

a.Reserves arising from the years prior to applying the tax regime established in Law 11/2009, as

amended by Law 16/2012, of 27 December.

There are no reserves from years prior to the Company’s adherence to the REIT regime, taking into

consideration the Company was incorporated in 2014, the year in which it requested to apply the

aforementioned tax regime.

b.Reserves arising from the years in which the tax regime established in this Act was applied,

distinguishing between the portion that comes from income subject to a 0%, 15% and 19% tax rate

and that which is taxed at the general tax rate, where applicable.

The following changes in reserves occurred in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and

2014:

	Thousands of euros
	Subject to a 0% tax rate	Subject to a 19% tax rate	Subject to a 15% tax rate	Subject to the general tax rate	Not Subject
2022	8,961	-	-	-	-
2021	(25,467)	-	-	-	-
2020	17,940	-	-	-	-
2019	20,857	-	-	-	-
2018	11,453	-	-	-	(38)
2017	11,897	-	-	-	1,628
2016	2,986	-	-	-	(532,767)
2015	(54,543)	-	-	-	-
2014	(30,475)	-	-	-	-

c.Dividends distributed charged to profit for each year in which the tax regime established in this Act

was applied, distinguishing between the portion that comes from income subject to a 0%, 15% or 19%

tax rate and that which is taxed at the general tax rate, where applicable.

69

	Thousands of euros
	Subject to a 0% tax rate	Subject to a 19% tax rate	Subject to a 15% tax rate	Subject to the general tax rate
2022	444,815	-	-	-
2021	70,033	-	-	-
2020	68,519	-	-	-
2019	185,857	-	-	1,275
2018	16,235	-	-	86,911
2017	102,687	-	-	38,081
2016	3,789	-	-	57,808
2015	25,035	-	-	-
2014	-	-	-	-

d.In the case of dividends distributed charged to reserves, indicate the year relating to the reserves

applied and whether they were taxed at a rate of 0%, 15%, 19% or at the general tax rate.

No dividends were distributed charged to reserves in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015

and 2014.

e.Date of the resolution to distribute dividends referred to in letters c) and d) above.

On 10 November 2022, the Company’s Board approved the distribution of a dividend of EUR 93,646

thousand charged to profit for 2022.

On 28 July 2022, the Company’s Board of Directors approved the distribution of an interim dividend

charged to profit for 2022 in the amount of EUR 351,169 thousand.

On 4 May 2022, the General Shareholders Meeting approved the distribution of a dividend charged to

the “share premium” reserve in the amount of EUR 106,497 thousand, and the distribution of a

dividend charged to profit for 2021 for EUR 10,614 thousand.

On 11 November 2021, the General Shareholders Meeting approved the distribution of a dividend of

EUR 70,033 thousand charged to the profit for 2021.

On 17 June 2020, the Company’s General Shareholders Meeting approved the distribution of an

interim dividend charged to profit for 2019 in the amount of EUR 68,518 thousand. That dividend was

paid on 8 July 2020.

On 10 October 2019, the Company’s Board of Directors resolved to distribute of an interim dividend

charged to profit for 2019 in the amount of EUR 92,939 thousand. This interim dividend was paid to

shareholders on 28 October 2019.

On 10 April 2019, the Company’s General Shareholders Meeting approved the distribution of an

interim dividend charged to profit for 2018 in the amount of EUR 94,193 thousand. That dividend was

paid on 7 May 2019.

On 9 October 2018, the Company’s Board of Directors resolved to distribute of an interim dividend

charged to profit for 2018 in the amount of EUR 93,522 thousand. This interim dividend was paid to

shareholders on 25 October 2018.

70

On 7 May 2018, the Company’s General Shareholders Meeting approved the distribution of an interim

dividend charged to profit for 2017 in the amount of EUR 9,624 thousand. That dividend was paid on

25 May 2018.

On 9 October 2017, the Company’s Board of Directors resolved to distribute a dividend in the amount

of EUR 93,457 thousand as an interim dividend charged to profit for 2017. This interim dividend was

paid to shareholders on 25 October 2017.

The General Shareholders’ Meeting held on 26 April 2017 approved the distribution of a dividend out

of 2016 profit of EUR 47,311 thousand, which was paid to shareholders on 18 May 2017.

On 19 October 2016, the Company’s Board of Directors resolved to distribute EUR 59,759 thousand as

an interim dividend with a charge to profit for 2016. This interim dividend was paid to shareholders on

25 October 2016.

The General Shareholders’ Meeting held on 6 April 2016 approved the distribution of a dividend out of

2015 profit of EUR 1,838 thousand, which was paid to shareholders on 27 April 2016.

On 14 October 2015, the Company’s Board of Directors resolved to distribute EUR 25,035 thousand as

an interim dividend with a charge to profit for 2015. This interim dividend was paid to shareholders on

28 October 2015.

f.Acquisition date of the properties intended for lease and the shares in the share capital of companies

referred to in section 2.1 of this Act.

Detail in Appendix II

g.Identify the assets included in the calculation of the 80% referred to in section 3.1 of this Law.

100% of the Company’s investment property is made up of urban properties intended for lease, as

well as land intended for property development and subsequent lease. Accordingly, the majority of

the shares in companies complies with the requirements of section 2.1 of Law 11/2009. These assets

are identified in Appendix II, which is an integral part of these financial statements.

The Company’s consolidated balance sheet of the Merlin Group for REIT purposes complies with the

minimum investment requirement of 80%.

h.Reserves arising from the years in which the special tax regime established in this Act was applied,

that were drawn down in the tax period, that were not used for distribution or to offset losses,

identifying the year relating to these reserves.

No reserves were provisioned in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014.

71

16. Balances and transactions with related parties

16.1 Transactions with Group companies and associates

The detail of the transactions with Group companies and associates in 2022 and 2021 is as follows:

	Thousands of euros
	2022	2021
Services rendered:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	762	1,577
Merlin Retail, S.L.U.	479	592
Merlin Oficinas, S.L.U.	803	694
Merlin Logística, S.L.U.	888	795
Sevisur Logística, S.L.U.	164	155
Parc Logistic de la Zona Franca, S.A.	236	248
Metroparque, S.A.U.	221	215
La Vital Centro Comercial y de Ocio, S.L.U.	86	85
Varitelia Distribuciones, S.L.U.	229	218
Global Carihuela Patrimonio Comercial, S.L.U.	92	78
MPCVI - Compra e Venda Imobiliária, S.A.	32	31
MPEP - Properties Escritórios Portugal, S.A.	28	28
MP Monumental, S.A.	142	78
MP Torre A, S.A.	57	56
VFX Logística, S.A.	44	20
Promosete, Invest Inmobiliaria	69	66
Praça do Marqués - Serviços Auxiliares, S.A.	78	78
Torre Dos Oceanus Investimentos Inmobiliarios, S.A.	51	47
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	545	504
Forum Almada II, S.A.	346	346
Torre Arts - Investimentos Imobiliarios, S.A.	97	95
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	54	64
PK Hoteles 22, S.L.	12	26
Renazca, S.A.	35	66
Edged Spain, S.L.	66	50
Paseo Comercial Carlos III, S.A.	58	42
Slow Rise Spain	2	-
Generous Profile	25	-
	5,701	6,252
Dividends:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	53,908	51,559
Merlin Retail, S.L.U.	42,922	2,667
Merlin Oficinas, S.L.U.	16,130	15,155
Merlin Logística, S.L.U.	31,543	15,905
Sevisur Logística, S.A.	3,455	3,174
Metroparque, S.A.U.	8,186	6,354
La Vital Centro Comercial y de Ocio, S.L.U.	2,245	1,397
Varitelia Distribuciones, S.L.U.	333	-
Parc Logistic de la Zona Franca, S.A.	5,903	4,939

72

	Thousands of euros
	2022	2021
Torre Arts - Investimentos Imobiliarios, S.A.	2,177	2,030
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	995	557
MPCVI - Compra e Venda Imobiliária, S.A.	277	261
Centro Intermodal de Logística, S.A.	2,556	1,788
Silicius Real Estate SOCIMI, S.A.	307	-
G36, Development, S.A.	1,040
MPEP - Properties Escritórios Portugal, S.A.		69
Promosete, Invest Inmobiliaria	1,323	444
Praça do Marqués - Serviços Auxiliares, S.A.	2,008	2,094
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	593	521
PK Hoteles 22, S.L.	260	1,780
	176,161	110,694
Loan income:
Merlin Retail, S.L.U.	581	1,711
Merlin Oficinas, S.L.U.	107	22
Merlin Logística, S.L.U.	2,275	1,890
Sevisur Logística, S.A.	190	226
Innovación Colaborativa, S.L.U.	42	71
Desarrollo Urbano de Patraix, S.A.U.	80	79
Varitelia Distribuciones, S.L.U.	2,190	2,253
Global Carihuela Patrimonio Comercial, S.L.U.	581	575
MPCVI - Compra e Venda Imobiliária, S.A.	828	715
MPEP - Properties Escritórios Portugal, S.A.	909	826
MP Monumental, S.A.	2,119	2,930
MP Torre A, S.A.	993	1,780
VFX Logística, S.A.	791	778
Promosete, Invest Inmobiliaria, S.A.	421	411
Torre Dos Oceanus Investimentos Inmobiliarios, S.A.	865	865
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	7,542	7,542
Milos Asset Development, S.A.	132	234
G36 Development, S.A.	1	4
Generous Profile	391	-
Paseo Comercial Carlos III, S.A.	29	16
	21,067	22,929
Revenue from rental activity:
Innovación Colaborativa, S.L.U.	2,692	2,308
Parking del Palau, S.A.II., S.L.U.	24	17
	2,716	2,324
Revenue from rebilling of expenses:
Innovación Colaborativa, S.L.U.	839	691
	839	691
Other operating income:
Merlin Retail, S.L.U.		4
Centro Intermodal de Logística, S.A.	5	5

73

	Thousands of euros
	2022	2021
Innovación Colaborativa, S.L.U.	20	2
Renazca, S.A.		2
Silicius Real Estate SOCIMI, S.A.		8
	25	21
Other operating expenses:
Exhibitions Company, S.A.U.	(3)
Varitelia Distribuciones, S.L.U.	(80)	(80)
Innovación Colaborativa, S.L.U.	(224)	(18)
Parking del Palau, S.A.II., S.L.U.	(13)	(12)
	(320)	(110)
Taxes other than income tax
Varitelia Distribuciones, S.L.U	(5)	-
	(5)	-
Finance costs:
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	(158)	(419)
Merlin Retail, S.L.U.	-	-
Merlin Oficinas, S.L.U.	-	(106)
Parc Logistic de la Zona Franca, S.A.	(187)	(223)
Exhibitions Company, S.A.U.	(29)	(46)
Gescentesta, S.L.U.	(3)	(1)
Metroparque, S.A.U.	(355)	(333)
La Vital Centro Comercial y de Ocio, S.L.U.	(68)	(49)
Sadorma 2003, S.L.U.	(239)	(227)
Global Murex Iberia, S.L.U.	(28)	(28)
	(1,067)	(1,433)

At 31 December 2022 and 2021, the Company had entered into services agreements with some companies of

its Group, by virtue of which it earned income for the provision of services amounting to EUR 5,701 thousand

and EUR 6,252 thousand, respectively. These services were recognised under “Revenue” in the accompanying

income statement.

16.2 Balances with Group companies and associates

The amount of the balances in the balance sheet at 31 December 2022 detailed in Note 7 is as follows:

	Thousands of euros
	31/12/2022	31/12/2021
Long-term loans to Group companies and associates	555,525	506,516
Current loans to Group companies and associates	651,580	735,892
Other current financial assets	1,820	450
Non-current payables to Group companies and associates	(11,021)	(12,821)
Current payables to Group companies and associates	(69,805)	(108,630)
Receivable from Group companies and associates	8,388	2,272
Payable to suppliers, Group companies and associates	(33,980)	(33,809)

74

16.3 Balances and transactions with related parties

The detail of the balances and transactions with related parties is as follows:

	Thousands of euros
	2022		2021
	Assets	Liabilities	Assets	Liabilities
Balances:
Banco Santander, S.A. (a)	147,274	-	288,710	65,806
Banco Santander, S.A. (a)	-	-	-	65,806 (*)
Banco Santander, S.A. (a)	-	389	-	127
Pº Comer. Carlos III	2,590	-	2,561	-
Provitae Centros Asistenciales, S.L.	1,131	-	1,106	-
Silicius Real Estate SOCIMI, S.A.	-	4,050	80,964	5,850
G36 Developments S.L.	-	-	224	-
Total	150,995	4,439	373,565	137,589

(*) This amount does not represent the recognition of a liability

	2022		2021
	Income	Expenses	Income	Expenses
Transactions:
Banco Santander, S.A.	2,921	849	552	1,366
Pº Comer. Carlos III	29	-	16	-
Provitae Centros Asistenciales, S.L.	-	-	-	-
G36 Developments S.L.	-	-	4	-
Total	2,950	849	572	1,366

During 2022, only the shareholder Banco Santander, S.A. held the status of significant shareholder pursuant to

the regulations in force.

(a) Balances with Banco Santander Group

At 31 December 2022, the Company had bank balances deposited at Banco Santander, S.A. in the amount of

EUR 147,274 thousand.

At 31 December 2022, the Company had no loans contracted with shareholders except for a corporate line of

credit in the amount of EUR 700 million, which was undrawn at 31 December 2022, in which Banco Santander,

S.A. participated with EUR 54.2 million.

In 2022, the finance costs incurred in transactions with Santander, S.A. amounted to EUR 849 thousand, which

included EUR 25 thousand in guarantee fees and EUR 210 thousand in current account management costs.

The Company also has guarantee lines granted by the shareholder Banco Santander, S.A. in the amount of EUR

3,940 thousand.

(b) Transactions with Banco Santander Group

In 2022, the derivatives associated with financing the corporate syndicated loan were cancelled early,

generating income of EUR 1,870 thousand.

Moreover, the Company received financial income of EUR 383 thousand as remuneration for current accounts.

75

In 2022, the Company had 4 leases with Banco Santander Group in different buildings. The duration of the

leases covers a period of up to 5 years, and in 2022 they generated of EUR 668 thousand, including income

from leasing, as well as parking spaces and transfers of ATM space in shopping centres. The securities

deposited by the tenants amounted to EUR 389 thousand.

In addition, the Company has contracted General Shareholders Meeting and shareholder registration

organisation services amounting to EUR 64 thousand, in addition to listing agent services on the Euronext

Lisboa stock exchange and dividend agent services for EUR 11 thousand.

(c) Paseo Comercial Carlos III, S.A.

At 31 December 2022, the Company, together with the other shareholder of the associate and as a condition of

the bank facility, had a loan of EUR 2,590 thousand in force, which included EUR 51 thousand of accrued

interest (EUR 29 thousand in 2021), granted on 27 July 2020 to the associate Paseo Comercial Carlos III, S.A.

that manages a shopping centre in Madrid.

(d) Provitae Centros Asistenciales, S.L.

At 31 December 2022, the Company had a loan in force in the amount of EUR 1,131 thousand (EUR 962

thousand at 31 December 2021), which included EUR 144 thousand of interest accrued (EUR 144 thousand and

2021), granted on 10 January 2002 to the associate Provitae Centro Asistenciales, S.L., which holds land in

Villajoyosa.

(e) Silicius Real Estate SOCIMI, S.A.

At 31 December 2021, the Company had a “financial asset at fair value through profit and loss” of EUR 80,964

thousand corresponding to the value of the shares associated with the liquidity mechanism maturing in

February 2022, agreed in the non-monetary contribution made by the Company on 27 February 2020.

On 27 July 2022, the Company exercised the put option on 14.28% of the shares of Silicius Real Estate SOCIMI,

S.A. for EUR 80,964 thousand, collecting the full sum in cash (see note 9).

The Company also had outstanding payment obligations of EUR 4,050 thousand, recognised as “Other current

and non-current financial liabilities”.

(f) G36 Developments, S.L.

At 31 December 2022, the Company had no loan with this company in force. In the first quarter of 2022, the

Company cancelled the outstanding part (EUR 212 thousand) of the loan of EUR 625 thousand granted on 1

October 2018 to the associate G36 Developments, S.L., which holds an asset that will be used for the

management of flexible office spaces. In February 2022, G36 Developments, S.L. sold the asset it held.

In 2022, G36 Developments, S.L. returned the contributions made in the 2018 capital increase, i.e., the share

premium amounting to EUR 1,823 thousand and a capital reduction of EUR 202 thousand, and so the value of

the share in the Company is EUR 2 thousand.

76

Dividends and other profits distributed to related parties (thousands of euros)

	2022	2021
Significant shareholders	136,701	51,209
Banco Santander, S.A.	136,701	51,209
Directors and executives	8,245	1,780
Directors	4,806	1,551
Executives	3,439	229
Total	144,946	52,989

17. Information relating to the Company’s Board of Directors and senior executives

The Company's directors and the parties related to them did not have any conflicts of interest that had to be

reported in accordance with section 229 of the revised text of the Corporate Enterprises Act.

Directors' compensation and other benefits

At 31 December 2022 and 2021, salaries, per diem attendance fees and any other type of compensation paid to

members of the Parent’s Management Bodies totalled EUR 8,151 thousand and EUR 6,523 thousand, as

detailed below:

	Thousands of euros
	2022	2021
Fixed and variable remuneration	7,907	6,259
Statutory compensation	-	-
Compensation	-	-
Per diems	234	250
Life and health insurance	10	14
	8,151	6,523

In addition to the above amounts and in relation to the variable remuneration for executive directors

corresponding to the prior years' bonuses, EUR 3,250 thousand was paid in 2022 related to the deferred

amounts of the variable objectives for 2016 and 2019 in accordance with the terms set out in the

aforementioned plans.

At the end of 2022, outstanding accrued amounts associated with the variable remuneration for 2021,

amounting to EUR 1,350 thousand, were maintained, of which EUR 675 thousand were recognised under “Non-

current provisions” and EUR 675 thousand under “Trade and other accounts payable” in the accompanying

balance sheet.

Accordingly, outstanding accrued amounts associated with the variable remuneration for 2022, amounting to

EUR 4,186 thousand, were maintained, of which EUR 1,243 thousand were recognised under “Non-current

provisions” and EUR 2,943 thousand under “Trade and other accounts payable” in the accompanying balance

sheet.

Also, in accordance with the 2017-19 Incentive Plan, described in this Note, in 2022, the executive directors

received 538,460 net shares corresponding to the second half of the incentive linked to the EPRA NAV, and the

2017-19 Incentive Plan was settled.

77

In April 2022, the executive directors received a total of EUR 750 thousand for the 2021 Extraordinary

Incentive.

In accordance with the Extraordinary Incentive due to the sale of the BBVA portfolio, defined below, the

executive directors accrued EUR 1,700 thousand.

With regard to the ‘golden parachute’ clauses for executive directors of the Parent in the event of dismissal or

takeover, these clauses provide for compensation that represented a total commitment of EUR 8,971 thousand

as of 31 December 2022.

The breakdown, by board member, of the amounts disclosed above is as follows:

		Thousands of euros
		2022	2021
Director:
Remuneration of board members
Javier García Carranza Benjumea	Chairman - Nominee director	-	-
Ismael Clemente Orrego	CEO	3,507	2,800
Miguel Ollero Barrera	Executive director	2,679	1,900
María Luisa Jordá Castro	Independent director	189	172
Ana García Fau	Independent director	207	172
George Donald Johnston	Independent director	172	134
Fernando Ortiz Vaamonde	Independent director	142	136
Juan María Aguirre Gonzalo	Independent director	182	176
Pilar Cavero Mestre	Independent director	152	159
Francisca Ortega Hernández Agero	Nominee director	169	129
Emilio Novela Berlín	Independent director	187	168
María Ana Forner Beltrán	Nominee director	177	161
Ignacio Gil Casares Satrústegui	Nominee director	144	146
John Gómez Hall	Independent director	-	6
		7,907	6,259

The Company has granted no advances, loans or guarantees to any of its directors.

The Company's directors are covered by the “Corporate Third-Party Liability Insurance Policies for Directors

and Executives” taken out by the Company to cover possible damages that may be claimed, and that are

evidenced as a result of a management error committed by its directors or executives, as well as those of its

subsidiaries, in discharging their duties. The premium amounted to an annual total of EUR 400 thousand (EUR

493 thousand in 2021).

Remuneration and other benefits for senior management

The remuneration of the Company's senior management, including the Head of Internal Audit, excluding those

who are simultaneously members of the Board of Directors (whose remuneration is disclosed above) in 2022

and 2021, is summarised as follows:

78

2022

	Thousands of euros
Number of employees	Fixed and variable remuneration	Other remuneration	Total
9	7,324	31	7,355

2021

	Thousands of euros
Number of employees	Fixed and variable remuneration	Other remuneration	Total
8	5,525	36	5,561

In addition to the above amounts and in relation to the variable remuneration for senior management

corresponding to the prior years' bonuses, EUR 4,373 thousand was paid related to the deferred amounts of

the variable objectives for 2016 and 2019 in accordance with the terms set out in the aforementioned plans.

At the end of 2022, outstanding accrued amounts associated with the variable remuneration for 2021,

amounting to EUR 1,988 thousand, were maintained, of which EUR 994 thousand were recognised under “Non-

current provisions” and EUR 994 thousand under “Trade and other accounts payable” in the accompanying

balance sheet.

Accordingly, outstanding accrued amounts associated with the variable remuneration for 2022, amounting to

EUR 5,229 thousand, were maintained, of which EUR 1,707 thousand were recognised under “Non-current

provisions” and EUR 3,522 thousand under “Trade and other accounts payable” in the accompanying balance

sheet.

Also, in accordance with the 2017-19 Incentive Plan, described in this Note, in 2022, senior management

received 444,950 net shares corresponding to the second half of the incentive linked to the EPRA NAV, and the

2017-19 Incentive Plan was settled.

In 2021, two senior management members left the company. In 2021, they received fixed and variable

remuneration of EUR 242 thousand, as well as other remuneration amounting to EUR 3 thousand. They were

also paid EUR 3,870 thousand corresponding to the deferred amounts of the variable targets for 2015, 2016,

2018 and 2019. There are no outstanding accrued amounts. In addition, in relation to the remuneration plan

for 2017-2019, they received 591,766 net shares arising from the entire amount corresponding to compliance

with the incentive linked to the increase in the EPRA NAV in the period.

In April 2022, senior management received a total of EUR 540 thousand for the 2021 Extraordinary Incentive.

In accordance with the Special Incentive due to the sale of the BBVA portfolio, defined below, senior

management accrued EUR 1,709 thousand.

Special Incentive corresponding to the sale of TREE

In application of the Remuneration Policy in force, approved at the 2022 General Shareholders' Meeting, the

Board of Directors has decided to make use of the power to grant a special incentive (hereinafter "Special

79

Incentive") to the Executive Directors upon the success of extraordinary corporate transactions that generate

significant added value for the Company's shareholders and/or generate an economic benefit or a significant

increase in the Company's net worth.

In this regard, in fiscal year 2022, the sale of BBVA's branch portfolio through Tree Inversiones Inmobiliarias

SOCIMI, S.A. (100% subsidiary of MERLIN) was carried out for 1,987 million euros (sale of TREE).  This

transaction resulted in a premium of 17.1% over the last valuation and reduced the Group's net debt by 1,636

million euros, while simultaneously distributing an extraordinary dividend of 351 million euros (0.75 euros per

share).

The Special Incentive has been extended to Senior Management and the rest of the beneficiaries of the

2022-24 Long-Term Incentive Plan for a total amount of 4,450 thousand euros. The incentive will be paid in the

first quarter of 2023.

2021 extraordinary incentive

On 27 April 2021, the Parent's Annual General Meeting approved the implementation of an exceptional

variable remuneration scheme payable in cash for 2021 (the “Extraordinary Incentive") for members of the

Company's executive and management team.

The right to receive the “Extraordinary incentive” would be accrued if, at the end of the period from 1 January

2021 to 31 December 2021, the level of compliance with the targets to which the receipt of the “Extraordinary

incentive” was linked had been reached.

In this regard, at 31 December 2021, the Company recognised an expense in the amount of EUR 2,643

thousand, corresponding to the accrued portion of the 2021 Extraordinary Incentive.

That Extraordinary Incentive was paid to its beneficiaries in April 2022.

2017-19 incentive plan

Also, at the General Shareholders Meeting held on 26 April 2017, the shareholders approved a new

remuneration plan for the management team and other important members of the Group’s workforce, the

measurement period of which is from 1 January 2017 to 31 December 2019 (the “2017-19 Incentive Plan”).

Based on the plan, the members of the management team could be entitled to receive: (i) a certain monetary

amount in accordance with the increase of the share price and (ii) shares of the Parent, if certain objectives are

met.

In this regard, as of 31 December 2022, the Company recognised the expense in the amount of EUR 1,210

thousand, corresponding to the accrued portion of the 2017-2019 Incentive Plan, with a balancing entry in

reserves.

In 2022, a total of 1,262,398 net shares were paid corresponding to the second payment of the incentive linked

to the EPRA NAV. With this payment, the 2017-19 Incentive Plan was fully settled and paid.

2022-24 Incentive Plan

80

The General Meeting held on 4 May 2022 approved a long-term remuneration plan consisting in the delivery of

3,491,767 shares ordinary shares of the Company (representing 0.74% of the share capital), aimed at the

management team and other important members of the Group's workforce (the 2022-24 Incentive Plan).

The 2022-24 Incentive Plan consists in a single cycle with a target measurement period of 3 years, beginning on

1 January 2022 and ending on 31 December 2024. If the targets are met, the shares will be delivered in 2025,

once the corresponding financial statements for 2024 have been prepared and audited. All shares delivered

under the 2022-24 Incentive Plan to executive directors will be subject to a retention period of 2 years. The

maximum number of shares assigned to the executive directors is 1,088,082 shares.

The specific number of shares of the Company that, within the maximum established, will be delivered to the

Beneficiaries of the 2022-24 Incentive Plan at the end of the Plan will be conditional on the compliance with

the following objectives related to the creation of value for shareholders and sustainability:

Metrics	Definition	Weighting
Absolute TSR Relative TSR	Absolute Total Shareholder Return (TSR) is the return on the share taking into account the cumulative change in the Company’s listed share price, including dividends and other similar items received by shareholders in 2022-2024. The Relative TSR measures the evolution of the TSR of the Company's share in 2022-2024, in relation to the TSR experienced in the FTSE EPRA Nareit Developed Europe Index during the same period.	50%
EPRA NTA 31/12/24 + Dividends (2022-2024) / share	The EPRA NTA is calculated based on the Company's consolidated equity and by adjusting certain items following the recommendations of the EPRA. Moreover, the dividends paid and other similar items received by the shareholder during the targets measurement period (2022, 2023 and 2024) are taken into account.	35%
Net carbon emissions	Level of reduction of the Company's CO2 emissions at 31 December 2024, compared with 31 December 2021, calculated for the comparable asset portfolio over which the Company has operational control (perimeter of the Company's pathway to net zero).	10%
Environment and society	Progress on initiatives linked to improving the environment and society. The economic and social impact of the Company's assets on local communities in which these assets are based and the various stakeholders will be assessed.	5%

At 31 December 2022, the Company recognised an expense in the amount of EUR 2,804 thousand,

corresponding to the accrued portion of the 2022-24 Incentive Plan, with a balancing entry in reserves.

Transactions outside the normal course of business or not on an arm’s length basis performed by the

managing body

Apart from the transactions with related parties described in Note 17, the Company’s managing body did not

carry out any transactions with the Company or Group companies outside the normal course of business or

were not on an arm’s length basis in 2022.

Stakes held by directors and their affiliates in other companies

The Company's directors and the parties related to them did not have any conflicts of interest that had to be

reported in accordance with section 229 of the revised text of the Corporate Enterprises Act.

81

18. Revenue and expenses

18.1 Ordinary revenue

The distribution of revenue is as follows:

	Thousands of euros
	2022	2021
Lease income	224,118	203,334
Revenue from services provided	6,729	7,045
Dividend income	176,161	110,693
Interest income	21,067	22,929
Total revenue	428,075	344,001

The breakdown, by type of activity and geographical market, of rental income for 2022 is as follows:

	Thousands of euros
	2022	%
Segment
Offices	162,063	72%
Shopping centres	41,955	19%
Logistics	8,120	4%
Other	11,980	5%
	224,118	100%
	Thousands of euros
	2022	%
Autonomous regions:
Madrid	150,132	67%
Catalonia	38,768	17%
Andalusia	12,160	6%
Valencia	9,636	4%
Castilla-La Mancha	4,762	2%
Rest of Spain	8,660	4%
	224,118	100%

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18.2 Staff costs

The detail of the remuneration expenses for employees at 31 December 2022 and 2021 is as follows:

	Thousands of euros
	2022	2021
Wages, salaries and similar expenses	28,895	23,561
Compensation	-	152
Other employee benefit costs and taxes	2,886	2,831
Long-term and extraordinary incentive plan	4,014	11,401
	35,795	37,945

18.3 Other operating expenses

The detail of this heading of the accompanying 2022 and 2021 income statements is as follows:

	Thousands of euros
	2022	2021
Non-recoverable expenses of leased properties	29,819	26,732
Outside services -
Professional services	11,395	9,691
Insurance	764	613
Costs associated with asset acquisitions and sales, financial investments and financing	2,098	1,430
Utilities and other outside services	2,587	2,623
Taxes other than income tax	48	47
Losses on, impairment of and change in allowances for trade receivables	257	587
Total other operating expenses	46,968	41,724

18.4 Finance income and finance costs

The detail of the balances of these headings in the income statement is as follows:

83

	Thousands of euros
	2022	2021
Interest on deposits and current accounts	3,795	3,457
From investments in equity instruments of Group companies and associates	-	1,145
Finance income	3,795	4,602
Interest on loans and other credits	(99,391)	(112,424)
Finance expenses	(99,391)	(112,424)
Changes in fair value of financial instruments	36,934	14,792
Impairment and other losses	3,424	(16,323)
Gains/(losses) on disposals	(612)	(5,188)
Gains/(losses) on disposals of financial instruments	2,812	(21,511)
Net finance expense	(55,850)	(114,541)

“Interest on loans and other credits” includes the repayment of the debt arrangement expenses in the amount

of EUR 9,026 thousand for 2022 (EUR 7,521 thousand for 2021), applying the effective interest method to the

financial debt.

19. Information on employees

The average number of employees in the Company, by professional category, in 2022 and 2021 was as follows:

	Average number of employees
	2022	2021
Professional category:
Management	27	26
Middle management	64	59
Other professionals	86	80
	177	165

The distribution, by gender, of the Company’s workforce at the end of 2022 and 2021 was as follows:

	2022		2021
	Women	Men	Women	Men
Management	1	26	1	25
Middle management	20	44	19	42
Other professionals	49	41	47	40
	70	111	67	107

84

The average number of employees at the Group in 2022 and 2021 with a disability equal to or greater than

33%, by category, was as follows:

	Average number of employees
	2022	2021
Professional category:
Management	-	-
Middle management	-	-
Other professionals	6	5
	6	5

85

20. Fees paid to auditors

In 2022 the fees for financial audit and other services provided by the auditor of the Company’s financial

statements, Deloitte, S.L., or by companies related to these auditors as a result of control, common ownership

or common management, were as follows:

	Thousands of euros
	2022	2021
Audit services	406	353
Non-audit services:	138	328
Services required under applicable regulations	-	-
Other verification services	138	126
Tax advisory services	-	-
Other services	-	202
	544	681

“Other audit-related services” includes the verification services performed by the auditor in the bond issue

process, as well as certain agreed procedures related to the performance of covenants. “Other services”

includes technical and urban development advisory services, as well as other advisory services.

For its part, the audit services include, in addition to the statutory annual audit, services from revisions of

intermediate periods.

21. Information on financial risk management

Financial risk factors

The Company’s activities are exposed to various financial risks: market risk, credit risk, liquidity risk and cash

flow interest rate risk. The Company’s global risk management programme focuses on the uncertainty of the

financial markets and aims to minimise the potential adverse effects on the Company’s financial returns.

Risk management is undertaken by the Company’s senior management in accordance with the policies

approved by the Board of Directors. Senior management identifies, assesses and hedges financial risks in close

cooperation with the Company’s operating units. The Board of Directors issues the written global risk

management policies and the policies for specific areas, including those for covering market risk, interest rate

risk and liquidity risk and investing cash surpluses.

Market risk

Given the current status of the real-estate sector and in order to mitigate its effects, the Group has specific

measures in place to minimise that impact on its financial position.

These measures are applied pursuant to the results of sensitivity analyses carried out by the Company on a

regular basis. These analyses involve:

–The economic environment in which it operates: Designing different economic scenarios and

modifying the key variables potentially affecting the Group. Identifying interdependent variables and

the extent of their relationship; and

86

–The time scale in which the assessment is being carried out: The time frame of the analysis and its

possible deviations will be taken into account.

The Company is exposed to market risk from possible vacancies or renegotiations of leases when the leases

expire. This risk could have a direct negative impact on the valuation of the Company's assets.

However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease

terms negotiated with customers. Therefore, at 31 December 2022, the average occupancy rate of the Group’s

asset portfolio was 95.1%, with a weighted average unexpired lease term of 3.2 years (weighted by GRI).

Credit risk

Credit risk is defined as the risk of financial loss to which the Company is exposed if a customer or counterparty

does not comply with its contractual obligations.

In general, the Company holds its cash and cash equivalents at banks with high credit ratings.

The Group does not have any material credit risk concentration and has policies in place to limit the volume of

risks posed by customers. Exposure to the risk of being unable to recover receivables is mitigated in the normal

course of business through funds or guarantees deposited as collateral.

The Company has formal procedures to identify any impairment of trade receivables. Delays in payment are

detected through these procedures and individual analysis by business area and methods are established to

estimate impairment loss.

Cash and cash equivalents

The Company has cash and cash equivalents of EUR 343,081 thousand, which represents its maximum

exposure to the risk posed by these assets.

Cash and cash equivalents are deposited with banks and financial institutions.

Liquidity risk

Liquidity risk is defined as the risk of the Company encountering difficulties meeting its obligations regarding

financial liabilities settled in cash or with other financial assets.

At 31 December 2022, the Company’s working capital amounted to EUR 64,478 thousand.

The Company conducts prudent management of liquidity risk by maintaining sufficient cash to meet its

payment obligations when they fall due, both in normal and stressed conditions, without incurring

unacceptable losses or risking the Company’s reputation.

In addition, liquidity risk has the following mitigating factors, which should be highlighted: (i) the generation of

recurrent cash from the businesses in which the Company conducts its activity; and (ii) the credit facilities

available in the amount of EUR 1,409 and (iii) the capacity to renegotiate and obtain new financing facilities

based on the Company's long-term business plans and the quality of its assets.

At the date the financial statements were authorised for issue, taking into account the foregoing, the Company

had covered all its funding requirements to fully meet its commitments to suppliers, funders, employees and

the authorities based on the cash flow forecast for 2023. Likewise, the type of sector in which the Company

operates, the investments it makes, the financing it obtains to make such investments, the EBITDA they

generate and the occupancy rates of the properties, enables the liquidity risk to be mitigated and excess cash

to be produced.

87

Any cash surpluses are used to make short-term investments in highly liquid deposits with no risk. The

acquisition of share options or futures, or any other high-risk deposits as a method of investing cash surpluses,

is not among the possibilities considered by the Company for investing cash surpluses.

Interest rate risk in cash flows

The Company manages its interest rate risk by borrowing at fixed and floating rates of interest. The Company’s

policy is to ensure non-current net financing from third parties is at a fixed rate.

Exchange rate risk

The Company's policy is to borrow in the same currency as that of the cash flows of each business.

Consequently, currently there is no foreign currency risk. The Company is not exposed to exchange rate

fluctuations as all its operations are in its functional currency.

Tax risk

As mentioned in Note 1, the Parent and part of its subsidiaries are subject to the special tax regime for listed

companies investing in the property market (REITs). The transitional period of the Parent ended in 2017 and,

therefore, compliance with all requirements established by the regime (see Notes 1 and 4.11) became

mandatory. Some of the more formal obligations that the Parent must meet involve the inclusion of the term

SOCIMI (REIT) in its company name, the inclusion of certain information in the notes to its separate financial

statements, the share price on the stock market, etc., and other obligations that require estimates to be made

and judgements to be applied by management that may become fairly complex, especially considering that the

REIT regime is relatively recent and was developed by the Directorate-General of Taxes mainly in response to

the queries posed by various companies. Group management, based on the opinion of its tax advisers, assessed

compliance with the requirements of the regime, concluding that such requirements were met at 31 December

2022.

Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should be

noted that, as established in section 6 of Law 11/2009, of 26 October, amended by Law 16/2012, of 27

December, on REITs, and in the percentages established in it, companies that have opted for the special tax

regime are required to distribute the profit generated during the year to their shareholders in the form of

dividends, once the related corporate obligations have been met. This distribution must be approved within six

months from each year-end, and the dividends paid in the month following the date on which the pay-out is

agreed (see Note 4.11).

If the Parent does not comply with the requirements established in the regime or if the shareholders at the

General Meetings of these companies do not approve the dividend distribution proposed by the Board of

Directors, calculated in accordance with the requirements of this Act, it would not be complying therewith and,

accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs.

Risk in climate change management

Within the framework of the European Green Pact and the UN's Sustainable Development Goals, the Group is

carrying out various sustainability actions.

First, in 2021, the Company formed a Sustainability and Innovation Committee reporting to the Board whose

main functions are advising the Board, among other aspects, on environmental and sustainability issues;

developing the Company's sustainability strategy in its relationships with stakeholders and publishing and

communicating it to the public; and supervising the reporting and communication to the market of any

information that refers to sustainability issues and non-financial information; and keeping the ESG

(Environmental, Social and Governance) risk map updated.

88

The Company included criteria in relation to non-financial KPIs in its investment and financing policies. Along

these lines, the investment studies of property acquisitions and investments in the repositioning of the

Company's assets consider, among other factors, elements such as obtaining energy efficiency certificates with

the highest rating (see Note 6), air conditioning, lighting, solar power, irrigation of green areas, accessibility,

etc.

When certifying assets, the Company selects the most appropriate framework and modality based on the

asset’s phase, as well as the characteristics of the building, its occupancy rate at the time of certification or the

tenants who occupy it.

We are continuing the process of certifying the portfolio under the standards of the leaders in this market,

BREEAM and LEED. In 2022 the Group achieved the certification or renewal in 33 assets. The Group considers

the certification process of its assets as an anticipated response to the demands that the market will require

from property lessors in the medium term and that will allow it to maintain its current competitive position.

Additionally, the Group obtained a rating of 79% in the 2022 edition of GRESB, a platform that makes it

possible to harmonise and compare information related to sustainability criteria (environmental, social and

corporate governance - ESG) in property investments.

The Group has an Environmental Management System (EMS) certified in accordance with ISO 14001, which is

the umbrella under which it manages its portfolios and that incorporates new properties into its scope every

year.

Since 2015, the Group has carried out a plan for ISO 14001 (environmental management) and ISO 50001

(energy management) certifications to maintain and expand the number of property assets that have at least

ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a

natural step to obtain ISO 14001 certification before aspiring to ISO 50001). This plan includes office buildings,

shopping centres and logistics warehouses. With regard to ISO 14001, in 2022, 88 buildings comprising a

surface area of 1,214,796 sqm were certified, 4 more buildings than in 2021.

Since the Fiscal Year 2017, the Group has been carrying out a process of implementing an Energy Management

System under the ISO 50001 standard initiated in 2017, being currently certified 84 buildings, which have a

surface area of 1,153,701 sqm, 3 buildings more with respect to 2021. In the assets included in said System,

there is a target of reducing total energy consumption by 8% in 2026, measured in kilowatt hours of the square

meters occupied, with respect to 2021, based on the implementation of MAEs (energy saving measures).

In 2022, the Group carried out an analysis of the entire portfolio to determine the carbon footprint of each of

its assets, as well as the measures necessary to reduce that carbon footprint.

The Group’s progress in 2022 has enabled the Company to comply with its emissions reduction objective and

“Pathway to Net Zero” for 2030, thus getting a head start on the European strategy for decarbonisation of the

economy and ensuring the present and future survival of the Company and its assets.

The Group’s Pathway to Net Zero is a roadmap that outlines the way to improve not only the performance of

the Company and its assets under operational control, but also the behaviour of the key agents responsible for

the Group’s emissions along its value chain, including suppliers and tenants.

The Company's financing policies are also aligned with the Group's sustainability objectives through the Green

Financing Programme published in April 2022 and the conversion of 100% of its bonds in circulation into green

bonds.

Currently, 98% of the Company's debt with credit institutions and bondholders is linked to the Green Financing

Programme or ESG criteria (see Note 11).

The Green Financing Programme, in line with best market practices, includes the following eligibility criteria:

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1.Green assets with the best LEED/BREEAM rating levels or energy efficiency certificates and/or

minimum carbon emission levels

2.Investments in energy efficiency

3.Investments in renewable energy

4.Investments in pollution control and prevention mechanisms

5.Investments in transport mechanisms with low carbon emissions

Financing linked to ESG targets includes a cost adjustment mechanism linked, in the Company's opinion, to own

credit risk, based on management indicators calculated based on four sustainability criteria of which at least 3

must be met annually and cumulatively over the 2019-2025 period. 

At year-end 2022, the four indicators were met and the directors believe they will be met in 2023.

The indicators for 2019-2022 were:

1.Cumulative investment of at least EUR 10.2 million in energy efficiency improvements across the

portfolio

2.Cumulative obtainment of at least 31 LEED and BREEAM external energy certifications with a

minimum rating of LEED Silver and BREEAM Good.

3.Cumulative obtainment of at least 38 AIS/DIGA certifications for disability access for all tenants and

consumers

4.Cumulative electricity consumption of at least 150 GW from renewable energy sources

In addition, in its commitment to climate responsibility, the Group has incorporated qualitative factors related

to the Group's sustainability strategy into the measurement targets for short-term variable compensation for

its staff and management team. These initiatives, while increasing the group's operating costs, are aimed at

anticipating regulatory developments and building customer loyalty.

In addition, in 2022 the Company joined SBTi1, aligning its targets to achieve carbon neutrality with the

Science-Based Targets. It also agreed to report in accordance with the recommendations of the TCFD.2.

Finally, the Group has also made progress in publishing its Pathway to Net Zero. MERLIN’s Pathway to Net Zero

is a roadmap that outlines the way to improve not only the performance of the Company and its assets under

operational control, but also the behaviour of the key agents responsible for MERLIN’s emissions along its value

chain, including suppliers and tenants. This strategy has 5 main lines of action:

1.Operational carbon reduction: 85% of operational carbon reduction from the baseline (2018) to the

target (2028)

2.Reduction of embodied carbon: Embodied carbon footprint calculated in all new developments and

repositioning actions

3.Offset of residual emissions: The unavoidable footprint will be mostly offset by duly certified own

initiatives

4.Reduction in tenant emissions: Green clauses in all new leases and reduction in rental price, linked to

their own credit risk, for net zero tenants

5.Renewable energy: Acquisition of 100% renewable energy and on-site generation of energy through

solar panels (Sun Project)

All the above is part of the Company's pathway to net zero or commitment to combating climate change.

90

1 SBTi: Science Based Target Initiative

2 Task Force on Climate-Related Financial Disclosures

22. Securities issued to third parties and other contingent liabilities

At 31 December 2022 and 2021, the Company had granted bank guarantees amounting to EUR 24,275

thousand and EUR 24,724 thousand, respectively.

23. Events after the reporting period

No significant events took place between 31 December 2022 and the date on which these financial statements

were authorised for issue.

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APPENDIX I - Group companies and associates 2022

Company	Line of business/Location	Ownership interest	Thousands of euros								Consolidation method	Auditor
			Share capital	Profit/(Loss)		Other	Total	Dividends	Carrying amount
				From operations	Net	Shareholders' Equity	Equity	Received	Cost	Impairment
Merlin Retail, S.L.U.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	17.963	13.998	13.33	236.491	267.785	42.922	251.408	—	Global Integration	Deloitte
Merlin Oficinas, S.L.U.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	29.674	22.934	22.377	718.601	770.651	16.13	771.345	—	Global Integration	Deloitte
Merlin Logística, S.L.U.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	28.166	29.978	33.842	274.082	336.091	31.544	292.304	—	Global Integration	Deloitte
Sevisur Logística	Urban development, construction and operation of logistics and common services buildings. Ctra. de la Esclusa, 15. 41011, Seville.	100%	17.22	4.438	4.249	9.91	31.379	3.455	37.629	—	Global Integration	Deloitte
Parques Logísticos de la Zona Franca, S.A.	Real estate acquisition and development for leasing, Avda. 3 del Parc Logístic, nº 26, Barcelona	100%	15.701	(1.253)	(1.172)	107.017	121.546	5.903	118.31	—	Global Integration	Deloitte
The Exhibitions Company , S.A.U.	Provision of all kinds of technical, commercial or economic services/ Paseo de la Castellana 257, Madrid	100%	180	(1.452)	(1.43)	3.474	2.224	—	4.287	(2.063)	Global Integration	N/A
Gescentesta, S.L.U.	Provision of Services / Paseo de la Castellana 257, Madrid	100%	3	177	121	933	1.057	—	3	—	Global Integration	N/A
Metroparque, S.A.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	56.194	8.477	8.808	33.086	98.087	8.186	231.557	—	Global Integration	Deloitte
La Vital Centro Comercial y de Ocio, S.L.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	14.846	3.152	3.218	18.98	37.044	2.245	56.788	—	Global Integration	Deloitte
Desarrollo Urbano de Patraix, S.A.	Land management / Avda. Barón de Carcer, 50, Valencia	100%	2.79	(3)	(83)	22.27	24.976	—	25.09	(114)	Global Integration	N/A
Sadorma 2003, S.L.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	73	(2)	231	18.785	19.089	—	25.485	(6.396)	Global Integration	N/A
Global Murex Iberia, S.L.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	14	—	21	(15.459)	(15.424)	—	—	—	Global Integration	N/A
Varitelia Distribuciones, S.L.U.	Real estate acquisition and development for leasing /  Paseo de la Castellana 257, Madrid	100%	15.443	3.344	1.15	6.11	22.703	333	172.979	(150.277)	Global Integration	Deloitte
Global Carihuela, Patrimonio Comercial S.L.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	3.303	2.123	1.578	4.358	9.239	—	34.102	(24.863)	Global Integration	Deloitte

Innovación Colaborativa, S.L.	Selection, contracting, fitting out, organization and management of coworking spaces / Paseo de la Castellana 257, Madrid	100%	15	(3.049)	(3.092)	2.005	(1.072)	—	15.868	(15.868)	Global Integration	N/A
Milos Asset Development,	Acquisition, ownership, administration, disposal and development of land located within the "Distrito Castellana Norte" project / Paseo de la Castellana 257, Madrid	100%	3	—	(114)	250	139	—	3	—	Global Integration	N/A
Slack Tailwind Systems, S.L.U	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	3	(10)	(10)	—	(7)	—	3	(3)	Global Integration	Deloitte
Slow Rise Spain, S.L.U.	Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid	100%	3	82	82	—	85	—	3	—	Global Integration	Deloitte
MPCVI – Compra e Venda Imobiliária, S.A.	Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	1.05	1.095	208	5.969	7.227	277	6.418	—	Global Integration	Deloitte Portugal
MPEP – Properties Escritórios Portugal, S.A.	Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	50	677	(241)	903	712	—	1.085	—	Global Integration	Deloitte Portugal
MP Monumental, S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	50	2.502	214	6.632	6.896	—	22.648	—	Global Integration	Deloitte Portugal
MP Torre A, S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	50	1.538	414	73	537	—	10.686	—	Global Integration	Deloitte Portugal
VFX Logística, S.A.	Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	5.05	6.406	5.614	11.06	21.723	—	25.153	(2.417)	Global Integration	Deloitte Portugal
Promosete, Invest. Inmobil. SA.	Real estate acquisition and development for leasing.  Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	200	1.554	837	7.385	8.422	1.323	10.384	—	Global Integration	Deloitte Portugal
Praça Do Marquês serviços Auxiliares, SA	Real estate acquisition and development for leasing.  Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	15.893	3.178	2.086	61.169	79.148	2.008	56.361	—	Global Integration	Deloitte Portugal
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	50	1.933	827	3.319	4.196	593	15.912	—	Global Integration	Deloitte Portugal
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. (*)	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	5	16.556	10.013	16.908	26.926	—	32.573	—	Global Integration	Deloitte Portugal
Forum Almada II, S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	10	13.028	9.153	66.132	85.284	—	325.66	—	Global Integration	Deloitte Portugal
Torre Arts  Investimentos Imobiliarios, S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	100	2.755	2.097	78.153	80.35	2.177	80.281	—	Global Integration	Deloitte Portugal

Torre Fernao Magalhaes  Investimentos Imobiliarios, S.A.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	100	869	673	25.37	26.143	995	26.055	—	Global Integration	Deloitte Portugal
Generous Profile , Unipessoal LDA.	Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon	100%	2	(27)	(547)	54.799	56.252	—	56.808	(556)	Global Integration	Deloitte Portugal
Paseo Comercial Carlos III, S.A.	Real estate acquisition and development for leasing / Avda. San Martín Valdeiglesias, 20  28922 Madrid	50%	8.698	2.864	3.978	21.915	34.591	—	25.668	—	Equity method	Deloitte
Provitae Centros Asistenciales, S.L.	Real estate acquisition and development for leasing / C. Fuencarral, 123. Madrid	50%	6.314	944	944	(1.202)	6.056	—	5.061	(1.746)	Equity method	Deloitte
G36 Development, S.L.	Real estate acquisition and development for leasing / Paseo de la Castellana, 93 Madrid	50%	3	21	21	8	32	1.04	2	—	Equity method	N/A
Centro Intermodal de Logística S.A. (CILSA)	Development, management and implementation of logistics activities in the port system / Avenida Ports d’Europa 100, Barcelona	49%	18.92	25.289	17.079	123.701	159.7	2.556	95.688	—	Equity method	EY
Pazo de Congresos de Vigo, S.A.	Execution project, construction and operation of the Vigo Conference Center / Avda. García Barbón, I. Vigo	44%	n.d	n.d	n.d.	n.d.	n.d	—	3.6	(3.6)	Equity method	n.d
Parking del Palau, S.A.	Real estate acquisition and development for leasing / Paseo de la Alameda, s/n. Valencia	33%	1.698	42	40	459	2.197	—	2.137	(1.052)	Equity method	BDO
Araba Logística, S.A.	Real estate acquisition and development for leasing / Avda. Álava s/n Rivabellosa (Álava)	25%	1.75	911	391	2.925	5.066	—	2.257	(2.257)	Equity method	Mazars
Crea Madrid Nuevo Norte, S.A.	Performing all types of real estate activities / Paseo de la Castellana 216, Madrid	14%	206.509	(6.081)	(4.058)	(36.574)	165.877	—	174.445	(1.651)	Equity method	KPMG
Silicius Real Estate, SOCIMI, S.A.	Performing all types of real estate activities / Calle de Velázquez, 123, Madrid	18%	30.955	13.299	15.017	341.871	387.843	307	87.018	—	Equity method	PWC
Edged Spain, S.L.U	Provision of Data Center services / Paseo de la Castellana 257, Madrid	50%	3	96	88	(211)	(120)	—	2	(2)	Equity method	Deloitte

(*) Indirect

APPENDIX I - Group companies and associates 2021

			Thousands of euros
Company	Line of business / Location	Ownership interest	Share capital	Profit/(loss)		Remaining shareholders’ equity	Total	Dividends received	Carrying amount		Consolidation method	Auditor
				From operations	Net		Equity		Cost	Impairment
Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	9,323	66,293	53,908	91,189	87,001	51,559	657,984	—	Full consolidation	Deloitte
Merlin Retail, S.L.U.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	17,963	44,643	42,923	236,491	297,378	2,667	251,408	—	Full consolidation	Deloitte
Merlin Oficinas, S.L.U.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	29,674	16,334	16,130	718,601	764,405	15,155	771,345	—	Full consolidation	Deloitte
Merlin Logística, S.L.U.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	28,166	32,863	31,544	274,082	333,792	15,905	292,304	—	Full consolidation	Deloitte
Sevisur Logística	Urban development, construction and operation of buildings for logistics activities and common services. Ctra. de la Esclusa, 15. 41011, Seville.	100%	17,220	3,834	3,839	9,526	30,584	3,174	37,629	—	Full consolidation	Deloitte
Parques Logísticos de la Zona Franca, S.A.	Acquisition and development of property assets for lease, Avda. 3 del Parc Logístic, nº 26, Barcelona	100%	15,701	4,957	5,230	107,017	127,948	4,939	118,310	—	Full consolidation	Deloitte
Exhibitions Company, S.A.U.	Provision of services of all kinds: technical, commercial or economic services/Paseo de la Castellana 257, Madrid	100%	180	(787)	(741)	4,215	3,654	—	4,287	(633)	Full consolidation	N/A
Gescentesta, S.L.U.	Provision of services / Paseo de la Castellana 257, Madrid	100%	3	197	151	782	936	—	3	—	Full consolidation	N/A
Metroparque, S.A.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	56,194	7,881	8,186	33,086	97,465	6,354	231,557	—	Full consolidation	Deloitte
La Vital Centro Comercial y de Ocio, S.L.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	14,846	2,446	2,495	18,731	36,071	1,397	56,788	—	Full consolidation	Deloitte

			Thousands of euros
Company	Line of business / Location	Ownership interest	Share capital	Profit/(loss)		Remaining shareholders’ equity	Total	Dividends received	Carrying amount		Consolidation method	Auditor
				From operations	Net		Equity		Cost	Impairment
Desarrollo Urbano de Patraix, S.A.	Land management / Avda. Barón de Carcer, 50, Valencia	100%	2,790	(2)	(81)	22,351	25,060	—	25,090	(30)	Full consolidation	N/A
Sadorma 2003, S.L.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	73	(3)	254	18,531	18,857	—	25,485	(6,628)	Full consolidation	N/A
Global Murex Iberia, S.L.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	14	(1)	21	(15,480)	(15,445)	—	—	—	Full consolidation	N/A
Varitelia Distribuciones, S.L.U.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	15,443	2,586	333	6,110	21,886	—	172,979	(151,094)	Full consolidation	Deloitte
Global Carihuela, Patrimonio Comercial, S.L.	Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid	100%	3,303	(4,214)	(4,757)	9,115	7,661	—	34,102	(26,441)	Full consolidation	Deloitte
MPCVI – Compra e Venda Imobiliária, S.A.	Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	1,050	1,092	292	5,955	7,296	261	6,418	—	Full consolidation	Deloitte Portugal
MPEP – Properties Escritórios Portugal, S.A.	Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	50	700	(123)	26	(47)	69	85	—	Full consolidation	Deloitte Portugal
MP Monumental, S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	50	1,525	(1,630)	7,162	5,582	—	21,548	—	Full consolidation	Deloitte Portugal
MP Torre A, S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	50	1,534	(367)	(60)	(377)	—	10,186	—	Full consolidation	Deloitte Portugal
VFX Logística, S.A.	Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	5,050	(5,997)	(6,500)	13,760	12,310	—	21,353	(9,043)	Full consolidation	Deloitte Portugal
Promosete, Invest. Inmobil. SA.	Acquisition and development of property assets for lease.  Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	200	2,173	1,323	7,372	8,895	444	10,386	—	Full consolidation	Deloitte Portugal
Praça Do Marquês serviços Auxiliares, SA	Acquisition and development of property assets for lease.  Av. Fontes Pereira de Melo, Nº 51, Lisbon	100%	15,893	2,846	2,128	61,049	79,070	2,094	56,359	—	Full consolidation	Deloitte Portugal

			Thousands of euros
Company	Line of business / Location	Ownership interest	Share capital	Profit/(loss)		Remaining shareholders’ equity	Total	Dividends received	Carrying amount		Consolidation method	Auditor
				From operations	Net		Equity		Cost	Impairment
Torre Dos Oceanus Investimentos Inmobiliarios,S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	50	1,643	593	3,319	3,962	521	15,912	—	Full consolidation	Deloitte Portugal
Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	5	(1,284)	(7,137)	15,053	7,921	—	32,574	—	Full consolidation	Deloitte Portugal
Forum Almada II, S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	10,000	12,852	8,977	57,136	76,113	—	307,512	—	Full consolidation	Deloitte Portugal
Torre Arts - Investimentos Imobiliarios, S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	100	2,861	2,177	83,653	85,930	2,030	85,781	—	Full consolidation	Deloitte Portugal
Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A.	Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon	100%	100	1,302	995	26,870	27,965	557	27,555	—	Full consolidation	Deloitte Portugal
Innovación Colaborativa, S.L.	Selection, contracting, fitting out, organisation and management of coworking-type collaborative work spaces/Paseo de la Castellana 257, Madrid	100%	15	(4,462)	(4,534)	6,539	2,020	—	15,868	(13,848)	Full consolidation	N/A
Milos Asset Development, S.A.	Acquisition, holding, administration, disposal and development of land located within the “Distrito Castellana Norte”project/Paseo de la Castellana 257, Madrid	100%	3	(3)	374	(124)	253	—	2	—	Full consolidation	N/A
Paseo Comercial Carlos III, S.A.	Acquisition and development of property assets for lease / Avda. San Martín Valdeiglesias, 20 - 28922 Madrid	50%	8,698	1,160	116	21,800	30,614	—	25,668	—	Equity method	Deloitte
Provitae Centros Asistenciales, S.L.	Acquisition and development of property assets for lease / C. Fuencarral, 123. Madrid	50%	6,314	(42)	(42)	(1,160)	5,112	—	5,061	(1,547)	Equity method	N/A
G36 Development, S.L.	Acquisition and development of property assets for lease / Paseo de la Castellana 93, Madrid	50%	4,053	(21)	(21)	—	4,032	—	2,027	—	Equity method	N/A
Centro Intermodal de Logística, S.A. (CILSA)	Development, management and performance of logistics activities in a port system / Avenida Ports d’Europa 100, Barcelona	49%	18,920	15,744	10,401	118,936	148,257	1,788	95,688	—	Equity method	EY
Pazo de Congresos de Vigo, S.A.	Project for the execution, construction and operation of the Vigo Convention Centre / Avda. García Barbón, I, Vigo	44%	N/A	N/A	N/A	N/A	N/A	—	3,600	(3,600)	Equity method	N/A

			Thousands of euros
Company	Line of business / Location	Ownership interest	Share capital	Profit/(loss)		Remaining shareholders’ equity	Total	Dividends received	Carrying amount		Consolidation method	Auditor
				From operations	Net		Equity		Cost	Impairment
PK Hoteles 22, S.L.	Acquisition and development of property assets for lease / C. Príncipe de Vergara, 15. Madrid	33 %	5,801	8,387	6,215	(5,298)	6,718	1,780	2,467	(283)	Equity method	CROWE, S.L.P.
Parking del Palau, S.A.	Acquisition and development of property assets for lease / Paseo de la Alameda, s/n. Valencia	33 %	1,698	(10)	(12)	458	2,144	—	2,137	(920)	Equity method	BDO
Araba Logística, S.A.	Acquisition and development of property for lease/ Avda. Álava s/n Rivabellosa (Álava)	25 %	1,750	911	391	2,925	5,066	—	2,257	(2,257)	Equity method	Mazars
Crea Madrid Nuevo Norte, S.A.	Carrying out all types of property activity/Paseo de la Castellana 216, Madrid	14 %	196,060	(6,274)	(2,833)	(27,350)	165,877	—	172,934	(1,036)	Equity method	KPMG
Silicius Real Estate SOCIMI, S.A.	Carrying out all types of property activity/Calle de Velázquez, 123, Madrid	15 %	36,112	58,541	52,369	306,816	395,297	—	87,018	—	Equity method	PwC
Edged Spain, S.L.U	Services provided by data processing centres/Paseo de la Castellana 257, Madrid	50 %	3	(191)	(191)	(1)	(189)	—	2	(2)	Equity method	N/A

APPENDIX II - List of the properties intended for lease and the holding in the share capital of companies

referred to in section 2.1 of Law 11/2009, amended by Law 16/2012

	ACQ. DATE	REIT DATE	ASSET NAME	ADDRESS	TOWN	ASSET TYPE	USE
1	1 Jan 15	1 Jan 15	Av. de Bruselas, 24	AV Bruselas 24	Alcobendas	Invest. Prop.	Offices
2	1 Jan 15	1 Jan 15	Av. de Bruselas, 26	AV Bruselas 26	Alcobendas	Invest. Prop.	Offices
3	1 Jan 15	1 Jan 15	Av. de Bruselas, 33	AV Bruselas 33	Alcobendas	Invest. Prop.	Offices
4	14 Sep 16	14 Sep 16	Encinar	CL Manuel Pombo Angulo 20	Alcobendas	Invest. Prop.	Offices
5	14 Sep 16	14 Sep 16	Av. Europa, 1 - Edificio A-B	AV Europa 1	Alcobendas	Invest. Prop.	Offices
6	14 Sep 16	14 Sep 16	Factory Bonaire	CA A3 Km 345	Aldaya	Invest. Prop.	Shopping centre
7	1 Jan 15	1 Jan 15	Alovera I-II-III buildings	CL Rio Henares 1	Alovera	Invest. Prop.	Logistics
8	1 Jan 15	1 Jan 15	Azuqueca II and III buildings	CL Milan 8 y 12	Azuqueca de Henares	Invest. Prop.	Logistics
9	1 Jan 15	1 Jan 15	Vilanova, 12-14	AV Vilanova 12	Barcelona	Invest. Prop.	Offices
10	14 Sep 16	14 Sep 16	Diagonal 199	AV Diagonal 199	Barcelona	Invest. Prop.	Offices/Hotel
11	14 Sep 16	14 Sep 16	Diagonal 458	AV Diagonal 458	Barcelona	Invest. Prop.	Offices
12	1 Jan 15	1 Jan 15	Diagonal, 514	AV Diagonal 514	Barcelona	Invest. Prop.	Offices
13	1 Jan 15	1 Jan 15	Diagonal, 605	AV Diagonal 605	Barcelona	Invest. Prop.	Offices
14	14 Sep 16	14 Sep 16	Balmes	CL Balmes 236-238	Barcelona	Invest. Prop.	Offices
15	14 Sep 16	14 Sep 16	P.E. Poble Nou 22@ Ed. A-C-D	CL Bac de roda 52	Barcelona	Invest. Prop.	Offices
16	14 Sep 16	14 Sep 16	P.E. Poble Nou 22@ Ed. B	CL Fluviá 65	Barcelona	Invest. Prop.	Offices
17	14 Sep 16	14 Sep 16	Bizcargi 1 1D	CL Bizcargi 1 1D	Bilbao	Invest. Prop.	Other
18	1 Jan 15	1 Jan 15	Cabanillas I buildings	CL Castilla la Mancha P. I. Cabanillas	Cabanillas del Campo	Invest. Prop.	Logistics
19	1 Jan 15	1 Jan 15	Coslada I buildings	AV de la Cañada 64	Coslada	Invest. Prop.	Logistics
20	1 Jan 15	1 Jan 15	Coslada III buildings	CL Torres Quevedo 1	Coslada	Invest. Prop.	Logistics
21	14 Sep 16	14 Sep 16	A4-Getafe (Data Centre)	CA Polig. Industrial Los Ángles P-33	Getafe	Invest. Prop.	Other
22	1 Jan 15	1 Jan 15	Escudo del Carmen	CL Escudo del Carmen 31	Granada	Invest. Prop.	Offices
23	14 Sep 16	14 Sep 16	P.E. Alvia Ed. 1-2-3	CL Jose Echegaray 8	Las Rozas	Invest. Prop.	Offices
24	14 Sep 16	14 Sep 16	P.I. Európolis	CL Londres S/N	Las Rozas	Invest. Prop.	Other
25	1 Jan 15	1 Jan 15	Mangraners	CL Els Mangraners N-240 Km.88	Lerida	Invest. Prop.	Offices
26	14 Sep 16	14 Sep 16	Torre De Madrid	PL De España 18	Madrid	Invest. Prop.	High Street retail
27	14 Sep 16	14 Sep 16	Torre de Madrid (Housing)	PL de España 18	Madrid	Invest. Prop.	Other
28	1 Jan 15	1 Jan 15	Plaza de los Cubos	CL Princesa 3	Madrid	Invest. Prop.	High Street retail
29	1 Jan 15	1 Jan 15	Princesa, 3	CL Princesa 3	Madrid	Invest. Prop.	Offices
30	1 Jan 15	1 Jan 15	Princesa, 5	CL Princesa 5	Madrid	Invest. Prop.	Offices
31	1 Jan 15	1 Jan 15	Princesa car park	CL Princesa 5	Madrid	Invest. Prop.	Car park
32	1 Jan 15	1 Jan 15	Ventura Rodríguez, 7	CL Ventura Rodriguez 7	Madrid	Invest. Prop.	Offices

	ACQ. DATE	REIT DATE	ASSET NAME	ADDRESS	TOWN	ASSET TYPE	USE
33	14 Sep 16	14 Sep 16	Callao	PL Callao 5	Madrid	Invest. Prop.	High Street retail
34	1 Jan 15	1 Jan 15	Partenón, 12-14	AV Partenon 12	Madrid	Invest. Prop.	Offices
35	1 Jan 15	1 Jan 15	Partenón, 16-18	AV Partenon 16	Madrid	Invest. Prop.	Offices
36	1 Jan 15	1 Jan 15	Eucalipto, 25	CL Eucalipto 25	Madrid	Invest. Prop.	Offices
37	1 Jan 15	1 Jan 15	Eucalipto, 33	CL Eucalipto 33	Madrid	Invest. Prop.	Offices
38	1 Jan 15	1 Jan 15	Josefa Valcárcel, 48	CL Josefa Valcarcel 48	Madrid	Invest. Prop.	Offices
39	1 Jan 15	1 Jan 15	Pedro de Valdivia, 10	CL Pedro de Valdivia 10	Madrid	Invest. Prop.	Offices
40	1 Jan 15	1 Jan 15	Juan Esplandiú, 11-13	CL Juan Esplandiu 11-13	Madrid	Invest. Prop.	Offices
41	1 Jan 15	1 Jan 15	Príncipe de Vergara, 187	CL Principe de Vergara 187	Madrid	Invest. Prop.	Offices
42	1 Jan 15	1 Jan 15	Ribera del Loira, 60	CL Ribera del Loira 60	Madrid	Invest. Prop.	Offices
43	14 Sep 16	14 Sep 16	P.E. Puerta de las Naciones Ed. 1 a 4	CL Ribera del Loira 38-50	Madrid	Invest. Prop.	Offices
44	1 Jan 15	1 Jan 15	Castellana, 83-85	PS de la Castellana 83	Madrid	Invest. Prop.	Offices
45	14 Sep 16	14 Sep 16	Cadagua	PS de la Castellana 93	Madrid	Invest. Prop.	Offices
46	1 Jan 15	1 Jan 15	Local Castellana 191	PS de la Castellana 191	Madrid	Invest. Prop.	Other
47	14 Sep 16	14 Sep 16	Castellana 278	PS de la Castellana 278	Madrid	Invest. Prop.	Offices
48	1 Jan 15	1 Jan 15	Torre Castellana 259	PS de la Castellana 259	Madrid	Invest. Prop.	Offices/Hotel
49	14 Sep 16	14 Sep 16	Plaza Ruiz Picasso	PL Carlos Trías Bertrán 7	Madrid	Invest. Prop.	Offices
50	14 Sep 16	14 Sep 16	Santiago de Compostela, 94	CL Santiago de Compostela 94	Madrid	Invest. Prop.	Offices
51	14 Sep 16	14 Sep 16	Jose María Churruca Ed. I-II	CL Almansa 101-105	Madrid	Invest. Prop.	Offices
52	14 Sep 16	14 Sep 16	Jose María Churruca Ed. III-IV	CL Beatriz de Bobadilla 14-18	Madrid	Invest. Prop.	Offices
53	14 Sep 16	14 Sep 16	Fuente De La Mora	CM Fuente de la Mora 9	Madrid	Invest. Prop.	Offices
54	14 Sep 16	14 Sep 16	P.E. Vía Norte Ed. 1 a 6	CL Quintanavides 11 a 21	Madrid	Invest. Prop.	Offices
55	14 Sep 16	14 Sep 16	P.E. Alvento A-B-C-D	VI de los Poblados 1	Madrid	Invest. Prop.	Offices
56	14 Sep 16	14 Sep 16	Cristalia	VI de los Poblados 3	Madrid	Invest. Prop.	Offices
57	14 Sep 16	14 Sep 16	P.E. Sanchinarro Ed. I-II	CL María de Portugal 9-11	Madrid	Invest. Prop.	Offices
58	14 Sep 16	14 Sep 16	P.E. Las Tablas Ed. 1-2-3	CL Federico Mompou 5	Madrid	Invest. Prop.	Offices
59	14 Sep 16	14 Sep 16	Elipse	AV Manoteras 18	Madrid	Invest. Prop.	Offices
60	14 Sep 16	14 Sep 16	Arturo Soria, 343	CL Arturo soria 343	Madrid	Invest. Prop.	Offices
61	14 Sep 16	14 Sep 16	G. Ampudia 12	CL General Ampudia 12	Madrid	Invest. Prop.	Other
62	1 Jan 15	1 Jan 15	Centro Oeste	CL El Carralero. Las Moreras	Majadahonda	Invest. Prop.	Shopping centre
63	1 Jan 15	1 Jan 15	C.C. Larios	AV de la Aurora 21	Málaga	Invest. Prop.	Shopping centre
64	1 Jan 15	1 Jan 15	C.C. Porto Pi	AV de Gabriel Roca 54	Palma de Mallorca	Invest. Prop.	Shopping centre
65	1 Jan 15	1 Jan 15	Pedrola building	CL General Motors 1. P.I. El Pradillo	Pedrola	Invest. Prop.	Logistics

	ACQ. DATE	REIT DATE	ASSET NAME	ADDRESS	TOWN	ASSET TYPE	USE
66	1 Jan 15	1 Jan 15	Ática II, A-B-C	AV de Europa 19	Pozuelo de Alarcón	Invest. Prop.	Offices
67	1 Jan 15	1 Jan 15	Ática 1	AV de Europa 26	Pozuelo de Alarcón	Invest. Prop.	Offices
68	1 Jan 15	1 Jan 15	Ática 2	CL Inglaterra 2	Pozuelo de Alarcón	Invest. Prop.	Offices
69	1 Jan 15	1 Jan 15	Ática 3 y 4	VI Dos Castillas 33 Edf. 3 y 4	Pozuelo de Alarcón	Invest. Prop.	Offices
70	14 Sep 16	14 Sep 16	Ática Ed. 6	VI Dos Castillas 33 Edf.6	Pozuelo de Alarcón	Invest. Prop.	Offices
71	14 Sep 16	14 Sep 16	Cerro Gamos I-II-III-V-VI	CL Cerro de los Gamos 1	Pozuelo de Alarcón	Invest. Prop.	Offices
72	1 Jan 15	1 Jan 15	Sant Cugat I	CL Alcalde Barnils 64	San Cugat del Valles	Invest. Prop.	Offices
73	1 Jan 15	1 Jan 15	Sant Cugat II	AV Via Augusta 71	San Cugat del Valles	Invest. Prop.	Offices
74	14 Sep 16	14 Sep 16	Jovellanos 91	CL Jovellanos 91	Sant Adriá del Besos	Invest. Prop.	Other
75	1 Jan 15	1 Jan 15	Borbolla	AV Borbolla 5	Seville	Invest. Prop.	Offices
76	14 Sep 16	14 Sep 16	El Saler shopping centre	CA Autovía De El Saler 16	Valencia	Invest. Prop.	Shopping centre
77	1 Jan 15	1 Jan 15	Palau car park	PS de la Alameda 34	Valencia	Invest. Prop.	Other
78	14 Sep 16	14 Sep 16	C.C. Vilamarina	AV Segle XXI 6	Viladecans	Invest. Prop.	Shopping centre
79	14 Sep 16	14 Sep 16	Rambla Salvador Sama	CL Rambla Salvador Samà 45/49	Vilanova I La Geltrù	Invest. Prop.	Other
80	12 Jan 17	12 Jan 17	Torre Glories	Av. Diagonal, 211	Barcelona	Invest. Prop.	Offices
81	21 Jan 20	21 Jan 20	Plaza Cataluña, 9	Plaza Cataluña, 9	Barcelona	Invest. Prop.	Offices
82	30 Dec 21	30 Dec 21	PE Atica XIX D	Pozuelo De Alarcón, 19	Pozuelo de Alarcón	Invest. Prop.	Offices
83	30 Jul 14	01-Jan-14	Merlin Retail, S.L.	PS Castellana 257	Madrid	Ownership interest
84	04 Aug 14	01-Jan-14	Merlin Oficinas, S.L.	PS Castellana 257	Madrid	Ownership interest
85	30 Jul 14	01 Jan 14	Merlin Logística, S.L.	PS Castellana 257	Madrid	Ownership interest
86	14 Sep 16	01 Jan 17	La Vital Centro Comercial y de Ocio, S.L.	PS Castellana 257	Madrid	Ownership interest
87	14 Sep 16	01 Jan 17	Varitelia Distribuciones, S.L.	PS Castellana 257	Madrid	Ownership interest
88	14 Sep 16	01 Jan 17	Metroparque, S.A.	PS Castellana 257	Madrid	Ownership interest
89	14 Sep 16	01 Jan 18	Global Carihuela Patrimonio Comercial, S.L.	PS Castellana 257	Madrid	Ownership interest
90	28 Jul 17	01 Jan 17	Sevisur, S.A.	PS Castellana 257	Madrid	Ownership interest
91	17 Oct. 16	01 Jan 19	PLZF	Avda. 3 del Parc Logístic, nº 26	Madrid	Ownership interest
92	17 Oct 16	27 Dec 19	VFX Logística, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
93	18 Mar 15	05 Oct 18	MPEP - Properties Escritórios Portugal, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
94	18 Mar 15	05 Oct 18	MP Compra e Venda Inmobiliária, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
95	31 Mar 16	05 Oct 18	MP Monumental, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
96	31 Mar 16	05 Oct 18	MP Torre A S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
97	07 Apr 17	07 Apr 17	Promosete Investimentos Inmobiliarios, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
98	28 Sep 17	05 Oct 18	Praça do Marques - serviços auxiliares, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest

	ACQ. DATE	REIT DATE	ASSET NAME	ADDRESS	TOWN	ASSET TYPE	USE
99	30 Apr 18	05 Oct 18	Torre Dos Oceanus Investimentos Inmobiliarios, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
100	17 Jan 19	13 Mar 19	Torre Arts Investimentos Inmobiliarios, S.A.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
101	17 Jan 19	13 Mar 19	Torre Fernão Magalhães Investimentos inmobiliàrios, S.A..	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
102	03 Aug 22	03 Aug 22	Generous Profile Unipessoal Lda.	Av. D. João II, 45, 5ºC	Lisbon (Portugal)	Ownership interest
103	27 Jul 22	27 Jul 22	Slack Tailwind Systems, S.L.U	PS Castellana 257	Madrid	Ownership interest
104	27 Jul 22	27 Jul 22	Slow Rise Systems, S.L.U.	PS Castellana 257	Madrid	Ownership interest
105	43888	01 Jan 19	Silicius Real Estate SOCIMI, S.A.	Velázquez, 123	Madrid	Ownership interest

MERLIN PROPERTIES, SOCIMI, S.A.

Individual Directors’ Report for the year ended 31 December 2022

1.  Company description

Economic Situation

The markets in which MERLIN operates are benefiting from the gradual economic recovery following the

devastating effect of the pandemic in 2020.

This economic environment has led to significant increases in trading volumes, which results in higher

occupancy in the three asset classes in which we operate.

Moreover, the investment volume overall for all asset classes in Spain has increased exponentially, reaching

€15,400 million in 2022 compared to €11,700 million of direct investment in Spain in 2021.

1.1. Situation of the rental market by geographical area

Madrid

Madrid is both the largest metropolitan area and the main real estate market on the Iberian Peninsula. In

general, the rental market has benefited from the economic recovery. The absorption of office space has

reached around 543,000 sqm, up 30% versus 2021, prime rents have increased by +4% to reach €36.50/sqm/

month, and availability has increased slightly to 9.75%. As regards with the logistics market, it has been a

record year in terms of take-up with 1,328,500 sqm contracted, up 32% compared to the previous year. Lastly,

shopping centers have practically recovered in terms of sales with footfall still below pre-covid levels.

Barcelona

In the office market, take-up has amounted to 328,000 sqm and prime rents have remained at €27.50/sqm/

month. It should also be noted that more than 180,000 sqm were delivered during the period, causing the

vacancy rate to rise to 10.1%. On the other hand, the logistics market is suffering from a lack of both available

land and quality product for e-commerce operators. With regards to shopping centers, the performance in

both sales and foot traffic is still slightly below that of Madrid.

Lisbon

The performance of the office rental market has been very positive, with 272,000 sqm absorbed (+68%) and a

vacancy rate that stands at 7%. Prime rents remained stable during the year, reaching €25/sqm/month. In

relation to logistics, rents have increased and stand at €5/sqm/month, on the Alverca/Azambuja axis. In

addition, take-up in the period has been 250,000 sqm. Lastly, shopping centers have recovered relatively well

with sales and footfall at pre-covid levels.

1.2. Situation of the rental market by business segment

Offices

The Spanish office market recorded an increase in activity in 2022 compared to 2021 although Madrid

performed better than Barcelona (30% vs +0.2%). In addition, the vacancy rate rose in both markets to 9.75% in

Madrid and 10.1% in Barcelona, although the vacancy rate in the more central submarkets remains low at 5%

and 4%, respectively. Prime rents have risen slightly in both markets, although there have been slight declines

in more peripheral locations. Similar performance has been observed in Portugal.

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Logistics

The upward trend in the logistics sector continues to be favoured by consumer habits acquired during the

pandemic that are part of the new reality and that are expected to continue to consolidate in the coming

quarters. Record year for logistics take-up in Madrid and, to a lesser extent, in Barcelona.

The volume reached by turnkey projects and pre-leases is of particular note given the lack of available logistics

platforms that meet current demand requirements. This shortage of quality product has had an impact on the

rents of logistics assets.

Shopping centers

The gradual recovery in the activity of shopping centers after the pandemic has been reflected in the high

levels of sales and footfall in 2022. Although it is true that footfall is still below pre-covid levels due to the fact

that there have been few box office releases in cinemas. 

Data centers

Booming market driven by product scarcity, the arrival of submarine cables and the exponential increase in

data traffic. In addition, the strategic geographical position (port of entry for submarine cables connecting to

other continents, installed capacity and renewable energy development) of the Iberian Peninsula makes it an

attractive location for the development of data centers.

1.3. Organisational and operational structure

The MERLIN Group’s main objective is to generate sustainable shareholder return through the acquisition,

focused management and selective rotation of property assets in segments with a moderate risk profile

(“Core” and “Core Plus”).

Its strategy and operations are characterised by the following:

1. Focusing on Core and Core Plus assets in Spain and Portugal

2.An investment grade capital structure

3.Distribution, through dividends or return of premium, of 80% of the AFFO generated in the year.

4.Being one of the most efficient REITs in Europe

5.Implementing best practices in corporate governance

Its internal organisational structure can be summarised as follows:

–A Board of Directors composed of 13 directors and advised by the Audit and Control Committee

(ACC), the Appointments and Remuneration Committee (ARC) and the Sustainability and Innovation

Committee (SIC). MERLIN’s Board of Directors is composed of a majority of independent directors

and its activities are focused on defining, supervising and monitoring the policies, strategies and

general guidelines to be followed by the Group. The Board is responsible for long-term strategy and

for monitoring its implementation.

–A Chief Executive Officer reports directly to the Board and sits on it.

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–An Investment Committee  is formed by the management team.

2.  Business evolution and results

2.1. Business performance and results in 2022

The Company’s business performed excellently during the year, with growth in comparable rents and release

spread in all asset categories.

Merlin Properties closed the year with lease income of EUR 224.1 million, 10.2% more than in 2021 and an

operating profit of EUR 966.1 million.

2.2. Outlook for the Company in 2022

In the absence of externalities, the three main asset classes (offices, logistics and shopping centers) are

expected to maintain occupancy levels, while rents will continue to benefit from rising inflation as leases are

indexed to the CPI.

3.  Capital and Liquidity Resources

3.1. Debt

The Group’s strategy is to actively manage both the Group’s assets and the liabilities. In relation to liabilities,

the goal is to extend the average maturity of the debt and to try to maintain borrowing costs and eliminate

the risk arising from interest rate fluctuations. Currently, 100% of the Company’s debt accrues interest at a

fixed rate or is subject to interest rate hedges.

MERLIN carried out several transactions involving its financial liabilities in 2022.

The transactions carried out were:

a.On 23 February 2022, the Group repaid its first bond maturing on 23 May amounting to € 548 million

with the funds obtained from a € 500 million bond issue on 21 June 2021.

b.On 1 June 2022, the Group converted all its bonds into green bonds under the Green Financing

Framework published on 25 April 2022. The reclassification of the bonds to green bonds does not

entail changes to any other features of the bonds, such as their terms and conditions, interest or

maturity.

c.On 18 November 2022, the Group entered into two 5-year corporate green financing facilities for an

aggregate amount of € 660 million. The financing consists of a syndicated loan of € 600 million with 5

banks (undrawn at year end) and a bilateral loan for € 60 million. 

d.On 20 December 2022, the Group drew down € 22 million corresponding to the first tranche of non-

mortgage financing from the European Investment Bank for the logistics developments in Castilla La

Mancha maturing on 20 December 2032.

e.At year end, the Group had € 109.2 million not yet drawn down corresponding to tranche 2 of the

logistics financing and the green loan signed with the European Investment Bank.

3

f.The new financing will be used to repay the € 743 million bond maturing on 25 April 2023.

At the end of 2022, the Group’s financial debt amounted to € 4,154 million, made up of corporate financing

without mortgage collateral (loans and bonds) and mortgages.

MERLIN's cash position at December 31, 2022 amounted to €343 million, including €17 million of treasury

shares.This liquidity is increased by €1,409 million through the revolving credit line, undrawn at year-end 2022,

and undrawn financing from the European Investment Bank and the syndicated loan.

Additionally, the Group has the ability to access the capital markets through the Euro medium-term note

(EMTN) programme, which has a limit of € 6,000 million. At 2022 year end, € 1,957 million was available

through this programme.

4.  Environmental matters

MERLIN manages its activity responsibly, ensuring the achievement of sustainable objectives over time and the

creation of shared value for its stakeholders. All this while guaranteeing strict compliance with legislation, as

well as with the international reference standards to which the Group adheres.

In this context, MERLIN's commitment can only be to achieve sustainable profitability that guarantees the

success of its business project and takes into account the expectations of its stakeholders. In addition, this

growth must be achieved without detriment to the organization's environmental performance, minimizing the

impact on the environment and focusing on the integration of sustainability in the development and

repositioning of assets

Green financing and ESG

On 25 April 2022, the Group published its Green Financing Framework. This programme bring its financing

strategy into line with its sustainability objectives. The Group therefore requested the conversion of its

outstanding senior bonds into green bonds and is committed to linking its future financing to this programme.

The Green Financing Framework is in line with the Green Bond Principles 2021 (GBP) and the Green Lending

Principles 2021 (GLP) published respectively by the International Capital Markets Association (ICMA) and the

Loan Market Association (LMA), and its four components are as follows:

•Use of proceeds

Allocate the use of the proceeds to a number of eligible project categories in accordance with the eligibility

criteria set out in the Green Financing Framework.

•Process for project evaluation and selection

In line with the approach of integrating Corporate Social Responsibility (CSR), the MERLIN Working Group will

oversee the allocation of the amounts and their CSR performance based on selecting projects under the criteria

described above, the monitoring of the financing instruments issued under the Green Financing Framework

and the management of future updates to the framework.

The Working Group will consist of representatives from the Finance, Treasury, CSR and Investor Relations

departments, and from other technical departments when necessary, and will meet at least on a monthly basis

or as needed.

4

The responsibilities of the Working Group will include:

–Monitor the eligibility criteria in accordance with the eligible project categories during the lifetime of

the transactions.

–Manage any identified potential ESG risks associated with the eligible project categories:

–Under the control of the Board of Directors and the Audit and Control Committee, MERLIN

oversees the effectiveness, adequacy and integrity of the Group’s internal control and risk

management systems. ESG risk management is part of the first line of defense in MERLIN’s

risk management plan.

–MERLIN has also established a certified Environmental Management System based on ISO

14001 and ISO 50001 standards.

–Furthermore, as part of the Group’s vision and values, MERLIN is committed to long-term

value creation in a context of transparency, ethics and responsibility in business and society.

–In particular, when any eligible sustainable building leaves MERLIN’s portfolio or when the ESG

Committee decides to remove an eligible sustainable building from the portfolio of eligible sustainable

buildings, the ESG Committee will make every effort to replace these assets as soon as possible, once

a suitable eligible sustainable building has been identified for replacement.

•Management of proceeds

MERLIN will allocate the equivalent amount of all the Group’s outstanding green financing to the eligible

project categories set out above.

The Working Group will allocate any future financing by verifying on an annual basis the adequacy of the pre-

selected eligible project categories with the total amount of funds obtained through green financing. In

addition, the Working Group will establish a process in its Internal Reporting System to follow up on the use of

the proceeds from the outstanding green financing.

•Reporting

MERLIN, in its commitment to transparency and sustainable engagement, will publish on an annual basis a

report on the allocation of the proceeds and an impact report on the main indicators set out in the Green

Financing Framework:

–An audited report of the allocation of the proceeds detailing the different green financing or financial

instruments and the amount allocated to each eligible project category divided up by each eligibility

criteria.

–A report that will include a quantitative and qualitative measurement of the main CSR indicators for

the eligible project categories selected for allocation of the proceeds.

5

Eligible project category	Example of impact indicators
Sustainable buildings	- Breakdown of external certification by asset type (shopping centres, offices and logistics centres) - Average energy intensity of buildings included in the portfolio of eligible sustainable buildings (in kWh/sqm/year) by asset type (shopping centres, offices and logistics centres) - Average greenhouse gas emissions intensity of buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/sqm) by asset type (shopping centres, offices and logistics centres) - CO2 emissions avoided by buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/year) by asset type (shopping centres, offices and logistics centres)
Renewable energy	- Installed capacity (MW) - Expected renewable energy generation (MWh/year) - CO2 emissions avoided (in tCO2e/year)
Energy efficiency	- Expected energy savings (MWh/year)
Clean transport	- Number of electric chargers - CO2 emissions avoided (in tCO2e/year)
Pollution prevention and control	- Estimated CO2 emissions offset (in tCO2e/year)

Indicator3	Offices	Shopping Centers	Logistics
Energy intensity (in kWh/sqm/year)	75.71	63.32	48.83
GHG Intensity (in tCO2eq/sqm) Market-base	0.002	0.003	0
Avoided CO2 emissions (in tCO2e/year)	6,646	3,811	75

3

In addition to the above, the Group has a corporate revolving credit facility in the amount of € 700 million,

signed in April 2019, and a mortgage loan in the amount of € 70 million, signed in May 2019, which are labelled

as sustainable financing and are linked to the fulfillment of at least three of the following KPIs:

•Make sustainable investments in the portfolio

•Obtain LEED/BREEAM asset certifications

•Obtain AIS accessibility certifications

•Ensure a certain amount of energy consumption is from renewable energy sources

The Group has met the target set for 2022 in all four categories.

These operations underscore the Company's ongoing efforts to integrate the principles of Corporate Social

Responsibility, incorporating sustainability criteria not only in the investments of its asset portfolio, but also in

the management of the liabilities side of its balance sheet.

6

3 Information regarding assets under operational control within the Sustainable Buildings portfolio. In those business parks

comprised of sustainable and non-sustainable buildings, for the purposes of the Green Financing Program, and a single

supply point, total consumption has been considered.

5.    Staff management

a.Composition of the workforce

MERLIN’s staff are the Group’s main asset. At 2022 year end, the MERLIN Group’s workforce was composed of

a total of 260 employees, divided into 3 categories in keeping with MERLIN’s strategy of maintaining a

horizontal structure.

Total number of employees at 2021 year end. Country, Sex, Professional Category and Age

Professional category	Women	Men	Overall total
Executive directors	1	26	27
Middle management	20	44	64
Other staff	49	41	90
Total employees	70	111	181

Spain	Women	Men	Overall Total
30-50 años	1	13	14
>50 años	0	13	13
Executive Directors	1	26	27
<30 años	2	7	9
30-50 años	10	21	31
>50 años	8	16	24
Middle management	20	44	64
<30 años	5	1	6
30-50 años	32	24	56
>50 años	12	16	28
Other staff	49	41	90
MRL	70	111	181

Total number of employees at 2022 year-end by type of employment contract

The Company has a team of professionals with permanent contracts and an average age of 43. Throughout

2021, to promote the employability of young people, it implemented a first job plan for those who, having just

finished their compulsory education, wanted to continue training and combine their studies with employment

on some weekends.

From the moment they join the Company, it offers its employees stable contracts to ensure their loyalty and

improve its ability to attract talent to the organisation. At the end of 2022, 99% of the Company's employees

had an indefinite contract.

Contract term	Time	Total
Open-ended	Full-time	172
	Part-time	8
Total open-ended		180
Temporary	Full-time	1
Total temporary		1
Overall total		181

7

6.  Dividends policy

The Company’s dividend policy takes into account sustainable levels of distribution and reflects the Company’s

expectation of obtaining recurring profits. The Company does not intend to create reserves that cannot be

distributed to Shareholders, except as required by law.

Under the REIT regime, after complying with any relevant requirement of the Corporate Enterprises Act, the

Company will be required to pass resolutions to distribute the profit obtained in the year to shareholders in

the form of dividends and this distribution must be approved within six months of the end of each year, as

follows: (i) at least 50% of the profit from the transfer of properties and shares in qualified subsidiaries,

provided that the remaining profit is reinvested in other property assets within no more than three years of

the date of the transfer, otherwise, 100% of the profit must be distributed as dividends after such period has

elapsed; (ii) 100% of the profit obtained from receiving the dividends paid by qualified subsidiaries; (iii) at least

80% of the remaining profit obtained.

If the resolution to distribute dividends is not passed within the legally established period, the Company will

lose its REIT status for the financial year to which the dividends refer. As established in the Company’s IPO

Prospectus, Merlin Properties, SOCIMI, S.A. has set itself the target of distributing an annual dividend of

between 4% and 6% of the IPO value.

The Company’s dividend policy establishes a minimum distribution of 80% of the AFFO (“Adjusted FFO”),

understood as the cash flow from operations less interest paid and less ordinary maintenance expenses for

the assets.

On May 4, 2022, the General Shareholders' Meeting approved the distribution of a dividend with a charge to

additional paid-in capital in the amount of EUR 106,497 thousand, as well as the distribution of a dividend with

a charge to the profit for 2021 in the amount of EUR 10,614 thousand , both dividends having been paid on

May 27, 2022.

On July 28, 2022, the Company's Board of Directors approved the distribution of an interim dividend out of

2022 profit amounting to EUR 351,169 thousand.

On November 10, 2022, the Company's Board of Directors approved the distribution of an interim dividend of

EUR 93,646 thousand out of the profit for 2022

7.  Main risks and uncertainties

The Company has a Risk Management System based on the principles, key elements and methodology

established in the COSO Framework (“Committee of Sponsoring Organisations of the Treadway Commission”),

which aims to minimise the volatility of results (profitability) and, therefore, maximise the Group’s economic

value, incorporating risk and uncertainty into the decision-making process to provide reasonable assurance of

achieving the strategic objectives established, providing shareholders, other stakeholders and the market in

general with an adequate level of guarantees to ensure that the value generated is protected.

Based on a comprehensive view of risk management, the Company has adopted a methodological approach

based on the Enterprise Risk Management Framework - Integrating with Strategy and Performance (COSO

ERM 2017), which emphasises the importance of enterprise risk management in strategic planning and

incorporates it throughout the organisation, since risk influences strategy and performance in all areas,

departments and functions.

8

The Risk Management and Control Policy (https://www.merlinproperties.com/en/corporate-governance/

corporate-governance-normative/) was initially approved by the Board of Directors in February 2016, then in

its second version in April 2018 and finally, in its current wording, in March 2021.

This policy establishes the general guiding principles, rooted in the perception that risk management is an

ongoing process based on the identification and assessment of the Company’s potential risks based on its

strategic and business objectives, the determination of action plans and controls for critical risks, the

supervision of the effectiveness of the controls designed and the evolution of residual risk to be reported to

the Company’s governing bodies.

Risk management is a process driven by the Board of Directors and senior management, and each and every

member of the organisation is responsible for it within their own purview. Risk management, which is

supervised by the Audit and Control Committee, allows Management to effectively manage uncertainty and its

associated risks, thus improving the ability to generate value.

A central element of the Risk Management System is the Risk Map, which was drawn up for the first time in

2015, and is updated every six months by the Audit and Control Committee and approved by the Board of

Directors. It reflects and assesses the risks that could potentially impact its ability to meet the Company’s

strategic objectives.

7.1. Description of the Company’s risks

The Company is exposed to a variety of risks inherent to the various segments of the property business in

which it operates and in the leasing and/or development activities it carries on in each of these segments, as

well as in the geographical areas in which it is established and in the evolution of external factors, both

political and economic.

To implement risk management and control, the Board of Directors is assisted by the Audit and Control

Committee, which supervises and reports on the adequacy and effectiveness of the risk management and

control system.

The Audit and Control Committee is responsible for supervising the Company's risk management and control

system (including internal controls) and verifying its suitability and integrity. The Audit and Control Committee

carries out this supervisory function through the Internal Audit Department, which verifies the suitability and

integrity of the Risk Management System implemented by management on an annual basis.

Based on the analysis of the Company's strategic vision, values and strategy, the various components are

periodically analysed in accordance with the grouping of the different strategic objectives included in these

elements (being the benchmark REIT, creation of long-term value, generation of sustainable and growing

dividends, values of transparency, ethics and responsibility).

In 2022, the Company’s Risk Map was regularly updated to reflect every six months the perception of the

Company’s main executives and governing bodies of the risks faced. The Company’s Risk Map has the key

risks, as shown below:

Financial Risk Factors

The Company’s activities are exposed to various financial risks: market risk, credit risk, liquidity risk and cash

flow interest rate risk. The Company's global risk management programme focuses on the uncertainty of the

financial markets and aims to minimise the potential adverse effects on the Company's financial returns.

9

Risk management is undertaken by the Company's Senior Management in accordance with the policies

approved by the Board of Directors. Senior Management identifies, assesses and hedges financial risks in close

cooperation with the Company’s operating units. The Board of Directors issues the written global risk

management policies and the policies for specific areas, including those for covering market risk, interest rate

risk and liquidity risk and investing cash surpluses.

Market risk

Given the current situation of the property sector and in order to mitigate its effects, the Company has specific

measures in place to minimise that impact on its financial position. These measures are applied pursuant to the

results of sensitivity analyses carried out by the Company on a regular basis.

These analyses involve:

– The economic environment in which the Group operates: Designing different economic scenarios and

modifying the key variables potentially affecting the Group (interest rates, share price, investment

property occupancy rates, etc.). Identifying interdependent variables and the extent of their relationship.

– The time scale in which the assessment is being carried out: The time frame of the analysis and its

possible deviations will be taken into account.

MERLIN Properties is exposed to market risk from possible vacancies or renegotiations of leases when the

leases expire. This risk could have a direct negative impact on the valuation of the Company's assets.

However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease

terms negotiated with customers. Therefore, at 31 December 2022, the average occupancy rate of the asset

portfolio was 95.1%, with a weighted average unexpired lease term of 3.2 years (weighted by GRI).

Credit risk

Credit risk is defined as the risk of financial loss to which the Company is exposed if a customer or counterparty

does not comply with its contractual obligations.

In general, the Company holds its cash and cash equivalents at banks with high credit ratings.

The Company has policies in place to limit the volume of risks posed by customers. Exposure to the risk of

being unable to recover receivables is mitigated in the normal course of business through funds or guarantees

deposited as collateral.

The Company has formal procedures to identify any impairment of trade receivables. Delays in payment are

detected through these procedures and individual analysis by business area and methods are established to

estimate impairment loss.

Liquidity risk

Liquidity risk is defined as the risk of the Company encountering difficulties meeting its obligations regarding

financial liabilities settled in cash or with other financial assets.

The Company conducts prudent management of liquidity risk by maintaining sufficient cash to meet its

payment obligations when they fall due, both in normal and stressed conditions, without incurring

unacceptable losses or risking the Company’s reputation.

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As of the date of preparation of the financial statements, the Company has covered all its cash requirements to

fully meet its commitments with suppliers, financiers, employees and government agencies, in accordance with

the cash flow forecast for the year 2023, taking into account the aforementioned. Likewise, given the type of

sector in which the Company operates, the investments it makes, the financing it obtains to make such

investments, the EBITDA they generate and the occupancy rates of the properties, the liquidity risk is mitigated

and excess cash may occur.

In the event of such excesses, temporary financial investments will be made in maximum liquidity and risk-free

deposits. The Company does not consider the acquisition of stock options or futures, or any other high-risk

deposit as a method of investing cash surpluses.

Interest rate risk in cash flows

The Company manages its interest rate risk by borrowing at fixed and floating rates of interest. The Company’s

policy is to ensure non-current net financing from third parties is at a fixed rate. To achieve this objective, the

Company enters into interest rate swaps that are designated as hedging transactions for the related loans. At

December 31, 2022, the percentage of debt whose interest rate is hedged by the aforementioned financial

instruments is 99.6%. The effect of changes in interest rates is detailed in Note 14.3.

Exchange rate risk

The Company’s policy is to ensure non-current net financing from third parties is at a fixed rate. Consequently,

currently there is no foreign currency risk. The Company is not exposed to exchange rate fluctuations as all its

operations are in its functional currency. Within this type of risk, it is worth noting the exchange rate

fluctuation in the translation of the financial statements of foreign companies whose functional currency is

other than the euro. As of December 31, 2022, all MERLIN Group subsidiaries and associates have the euro as

their functional currency.

Tax risk

The Company is subject to the special tax regime for Real Estate Investment Trusts (REITs). The transitional

period of the Parent ended in 2017 and, therefore, compliance with all requirements established by the regime

(see Notes 1 and 5.13) became mandatory. Some of the more formal obligations that the Parent must meet

involve the inclusion of the term REIT in its company name, the inclusion of certain information in the notes to

its separate financial statements, the share price on the stock market, etc., and other obligations that require

estimates to be made and judgements to be applied by management that may become fairly complex,

especially considering that the REIT regime is relatively recent and was developed by the Directorate-General

of Taxes mainly in response to the queries posed by various companies. The Group’s Management, based on

the opinion of its tax advisors, assessed compliance with the requirements of the regime, concluding that all

those requirements were met at 31 December 2022.

Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should

be noted that, as established in article 6 of Law 11/2009, of 26 October, amended by Law 16/2012 of 27

December, governing REITs, and in the percentages established in this Law, companies that have opted for the

special tax regime are required to distribute the profit generated during the year to their shareholders in the

form of dividends, once the related corporate obligations have been met. This distribution must be approved

within six months from each year-end, and the dividends paid in the month following the date on which the

pay-out is agreed (see Note 5.13).

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If the Company does not comply with the requirements established in the regime or if the shareholders at the

General Meetings of these companies do not approve the dividend distribution proposed by the Board of

Directors, calculated in accordance with the requirements of this Law, it would not be complying therewith

and, accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs.

Climate change management

Within the framework of the European Green Pact and the UN's Sustainable Development Goals, the Merlin

Group is carrying out various sustainability actions.

First, in 2021, the Company and the Group to which it belongs created a Sustainability and Innovation

Committee reporting to the Board whose main functions are advising the Board, among other aspects, on

environmental and sustainability issues; advising the Board on formulating the Group’s strategy on

sustainability in its relationships with stakeholders and publishing and communicating it to the public; and

supervising the reporting and communication to the market of any information that refers to sustainability

issues and non-financial information; and keeping the ESG (Environmental, Social and Governance) risk map

updated.

The Company included criteria in relation to non-financial KPIs in its investment and financing policies. Along

these lines, the investment studies of property acquisitions and investments in the repositioning of the Group's

assets consider, among other factors, elements such as obtaining energy efficiency certificates with the highest

rating (see Note X), air conditioning, lighting, solar power, irrigation of green areas, etc.

When certifying assets, the Merlin Group selects the most appropriate framework and modality based on the

asset’s phase, as well as the characteristics of the building, its occupancy rate at the time of certification or the

tenants who occupy it.

We are continuing the process of certifying the portfolio under the standards of the leaders in this market,

BREEAM and LEED.. In 2022 the Group achieved the certification or renewal in 33 assets.

Additionally, the Group obtained a rating of 79% in the 2022 edition of GRESB, a platform that makes it

possible to harmonise and compare information related to sustainability criteria (environmental, social and

corporate governance - ESG) in property investments.

The Group has an Environmental Management System (EMS) certified in accordance with ISO 14001, which is

the umbrella under which it manages its portfolios and that incorporates new properties into its scope every

year.

In 2015 the Group began a plan for ISO 14001 (environmental management) and ISO 50001 (energy

management) certifications to maintain and expand the number of property assets that have at least ISO 14001

certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to

obtain ISO 14001 certification before aspiring to ISO 50001)This plan includes office buildings, shopping centres

and logistics warehouses. In 2022, 89 buildings composing a surface area of 1,211,745 sqm were certified

under ISO 14001,  6 more building than in 2021.

Since 2017, the Company has been carrying out a process of implementation of an Energy Management System

under the ISO 50001 standard initiated in 2017, being currently certified 84 buildings, which have a surface

area of 1,151,751 sqm, 5 buildings more with respect to 2021. In the assets included in said System, there is a

target of reducing total energy consumption by 8% in 2026, measured in kilowatt hours of the square meters

occupied, with respect to 2021, based on the implementation of MAEs (energy saving measures).

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During the 2022 fiscal year, the Company conducted an analysis of the entire portfolio to determine the carbon

footprint of each of its assets, as well as the measures necessary to reduce the aforementioned carbon

footprint. The path taken by the Company in 2022 enables the Company to meet its emissions reduction target

and its "path to net zero" by 2030, thus anticipating the European strategy of decarbonization of the economy

and ensuring the present and future survival of the Company and its assets.

The Company's path to net zero is a roadmap that includes improving the performance not only of the

Company itself and those assets over which it has operational control, but also of the main agents responsible

for the Company's emissions throughout its value chain, including suppliers and tenants.

In addition, the Company's financing policies are aligned with the Company's sustainability objectives through

the Green Financing Program published in April 2022 and the conversion of 100% of its outstanding bonds into

green bonds.

Currently 98% of the Company's debt with credit institutions and bondholders is linked to the Green Financing

Program or ESG criteria (see Note 14).

The Green Financing Program, aligned with best market practices, includes the following eligibility criteria:

1. Green Assets with the best LEED/BREEAM rating levels or energy efficiency certificates and/or minimum

carbon emission levels.

2. Energy Efficiency Investments

3. Renewable Energy Investments

4. Investments in pollution prevention and control mechanisms.

5. Investments in low-carbon transportation mechanisms.

The financing linked to ESG objectives includes a cost adjustment mechanism linked, in the Company's opinion,

to its own credit risk, based on management indicators calculated according to four sustainability criteria of

which at least three must be met annually and cumulatively during the period 2019-2025. 

At the end of 2022, all four indicators were met and the directors estimate that they will also be met in 2023.

The indicators for the fiscal year 2019-2022 were:

1. cumulative investment of at least €10.2 million in energy efficiency improvements across the portfolio.

2. Cumulative achievement of at least 31 LEED and BREEAM external energy certifications with a minimum

rating of Silver LEED and Good BREEAM, respectively.

3. Cumulative achievement of at least 38 AIS/DIGA certifications for disabled access for all tenants and

consumers.

4. Cumulative electricity consumption of at least 150 GW from renewable energy sources.

Additionally, the Company in its commitment to climate responsibility has incorporated qualitative factors

related to the Company's sustainability strategy into the short-term variable compensation measurement

targets for its staff and management team (see Note 20).

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In addition, during 2022, the Company has adhered to SBTi4, aligning its objectives to achieve carbon neutrality

with the Science-Based Targets. It has also committed to reporting in the Statement of Non-Financial

Information (SNFI) in accordance with TCFD5 recommendations.

Finally, the Company has also made progress in publishing its Path to Net Zero. The Company's Road to Net

Zero is a roadmap that includes improving the performance not only of the Company itself and those assets

over which it has operational control, but also of the main agents responsible for the Company's emissions

throughout its value chain, including suppliers and tenants. This strategy has 5 main lines of action:

1. Reduction of operational carbon: 85% reduction of operational carbon from baseline (2018) to target

(2028).

2. Embedded carbon reduction: Embedded carbon footprint calculated in all new developments and

repositioning.

3. Offsetting residual emissions: The unavoidable footprint will be mostly offset with own initiatives duly

certified.

4. Tenant emissions reduction: Green clauses in all new leases and rent price reduction linked to own credit

risk for net zero tenants.

5. Renewable energy: Procurement of 100% renewable energy and on-site generation of energy through

photovoltaic panels (Project Sun).

All of the above is part of the Company's net zero path or commitment to the fight against climate change.

8.  Acquisition and disposal of treasury shares

At 31 December 2022, the Company held treasury shares amounting to EUR 17,166 thousand.

The changes in 2022 were as follows:

	Number of Shares	Thousands of euros
Balance at 1 January 2021	4,836,503	54,149
Additions	374	3
Disposals	(1,951,386)	(21,847)
Balance at 31 December 2021	2,885,491	32,305
Additions	6,625	122
Disposals	(1,355,932)	(15,261)
Balance at 31 December 2022	1,536,184	17,166

The shareholders at the Annual General Meeting held on 10 April 2019 revoked the unused portion of the

authorisation granted by the shareholders at the General Meeting of April 2018 and authorised the acquisition

of treasury shares by the Parent itself or by Group companies pursuant to section 146 et seq. of the Corporate

Enterprises Act, complying with the requirements and restrictions established in current law during the five-

year period. 

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4 SBTi: Science Based Target Initiative

5 Taskforce on Climate related Financial Disclosure

The disposals of treasury shares, amounting to EUR 15,261 thousand (average cost of EUR 11.20 per share),

relate mainly to the second and last delivery of shares under the 2017-19 Incentive Plan (see Note 15) in the

amount of EUR 14,133 thousand and to the delivery of shares to employees as part of the flexible

remuneration plan in the amount of EUR 864 thousand.

The Company has a liquidity agreement for securities listed on the Lisbon Stock Exchange, having made net

sales of 9,740 shares (EUR 142 thousand) in 2022.

At 31 December 2022, the Company held treasury shares representing 0.327% of its share capital.

9. Other relevant information

9.1. Stock market information

On 31 December 2022, MERLIN shares closed at a price of EUR 8.78, representing a 8.25% fall in their price

compared with the closing price on 31 December 2021 (EUR 9.57).

9.2. Average period of payment to suppliers

The information required by additional provision three of Law 18/2022, of 28 September, on creating and

growing companies and Spanish Law 15/2010, of 5 July (amended by final provision two of Law 31/2014, of 3

December), prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29

January 2016 on the disclosures to be included in the notes to financial statements in relation to the average

period of payment to suppliers in commercial transactions, is detailed below.

	Days
	2022	2021
Average period of payment to suppliers	23.1	34
Ratio of transactions settled	20.8	33.9
Ratio of transactions not yet settled	33.1	37.7

	Thousands of euros
	2022	2021
Total payments made	194,123	109,838
Total payments outstanding	44,574	2,216

In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by

taking into account the commercial transactions relating to the supply of goods or services for which

payment has accrued in each year.

For the sole purpose of the disclosures provided for in the Resolution, suppliers are considered to be the

trade creditors for the supply of goods or services included in “Payable to suppliers” and “Sundry accounts

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payable” under current liabilities in the balance sheet and regardless of any financing due to the early

collection of the supplier.

“Average period of payment to suppliers” is taken to be the period that elapses from the delivery of the

goods or the provision of the services by the supplier to the effective payment of the transaction.

The monetary volume and number of invoices paid within the established legal period are detailed below.

	2022
Monetary volume (thousands of euros)	193,802
Percentage of total payments made	99.8%
Number of invoices	19,752
Percentage of total invoices	99.9%

The maximum legal payment period applicable to the Company in 2022 in accordance with Law 3/2004 of 29

December, establishing the measures to fight against default in commercial transactions is 60 days.

9.3. R&D&I activities

In relation to R&D&I activities and other innovative initiatives, MERLIN is committed to offering its tenants and

users the highest quality comprehensive service, beyond the asset management itself, integrating the most

innovative solutions in its assets to maximize the user experience. In line with this philosophy, during the last

year MERLIN has continued to focus on improving the quality of life of users in its assets. Thus, it has continued

to implement Mayordomo Smart Points, consisting of a system of smart lockers that allow users to

conveniently receive packages and the provision of various services that help to achieve a work-life balance. By

the end of 2022, 33 MERLIN assets had such points, an increase of 18% compared to 2021.

In addition, MERLIN remains committed to LOOM flexible workspaces as a solution to the hybrid work model. 

During the year, MERLIN has continued to promote numerous technological projects to place MERLIN at the

forefront of solutions for its customers and internal management. These include the office building

sensorization program, the energy consumption reading project, the photovoltaic self-consumption project and

the development of different user experience apps.

10.  Events after the reporting period

No significant events have occurred between December 31, 2022 and the date of preparation of these

financial statements

11.  Alternative Performance Measures

See the definitions of the APMs, as well as their reconciliation with MERLIN’ financial statements, in the

consolidated directors’ report accompanying the 2021 consolidated financial statements.

12.  Annual Corporate Governance Report

The Annual Corporate Governance Report is available in its entirety on the website of the National Securities

Market Commission (www.cnmv.es) and on the Company's website (www.merlinproperties.com).

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The Annual Corporate Governance Report has also been filed as Other Relevant Information (OIR) with the

CNMV.

13.  Annual Board Remuneration Report

The Annual Board Remuneration Report is available in its entirety on the website of the CNMV (www.cnmv.es)

and on the Company's website (www.merlinproperties.com).

In addition, the Annual Board Remuneration Report has been reported as Other Relevant Information (OIR) to

the CNMV.

MERLIN PROPERTIES, SOCIMI, S.A.

Preparation (formulación) of the Individual Financial Statements and individual Directors’ Report relating to

the fiscal year ended December 31, 2022.

In accordance with articles 365 and 366 of the Companies Registry Regulations, in relation to subarticle one of

article 253 of the Capital Companies Law in force, the Board of Directors of MERLIN Properties, SOCIMI, S.A. (the

“Company”) has prepared (formulado) (in English) the individual financial statements and the individual directors’

report (which has attached, as a separate section, the Annual Corporate Governance Report and the Annual

Director Remuneration Report), relating to the year ended December 31, 2022, in single electronic format

according with the Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 and included in the

electronic file/s with the following hash code/s

Number: ___________________________________________________________________

(The “Individual Financial Statements File”).

The Statement of Non-Financial Information is included in the consolidated directors' report.

In addition, through the execution and signature of this signature page, and pursuant to subarticle two of said article

253, the members forming the Company’s Board of Directors declare that they have signed, in their own

handwriting, the entire contents of the Individual Financial Statements File.

_______________________________________ Mr. Javier Garcia-Carranza Benjumea (Chairman)	_______________________________________ Mr. Ismael Clemente Orrego (Deputy Chairman)
_______________________________________ Ms. Francisca Ortega Hernández-Agero (Member)	_______________________________________ Ms. Ana Forner Beltran (Member)
_______________________________________ Ms. María Luisa Jorda Castro (Member)	_______________________________________ Ms. Pilar Cavero Mestre (Member)
_______________________________________ Mr. Juan María Aguirre Gonzalo (Member)	_______________________________________ Mr. Miguel Ollero Barrera (Member)
________________________________________ Mr. Fernando Javier Ortiz Vaamonde (Member)	______________________________________ Ms. Ana María García Fau (Member)
_______________________________________ Mr. Emilio Novela Berlin (Member)	_____________________________________ Mr. George Donald Johnston (Member)
________________________________________ Mr. Ignacio Gil-Casares Satrústegui (Member)

Madrid, February 27, 2023

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MERLIN Properties, SOCIMI, S.A.

DECLARATION OF RESPONSIBILITY FOR THE 2022 FINANCIAL STATEMENTS

The members of the Board of Directors of Merlin Properties, SOCIMI, S.A. declare that, to the best of their

knowledge, the individual financial statements of Merlin Properties, SOCIMI, S.A. and the consolidated financial

statements with its subsidiaries, for the year ended December 31, 2022, prepared (formuladas) (in English) by

the Board of Directors at the meeting held on February 27, 2023, in accordance with the applicable accounting

principles and in single electronic format, offer a true and fair view of the net worth, financial situation and results

of Merlin Properties, SOCIMI, S.A. and of the subsidiaries included in the consolidated group, taken as a whole,

and that the directors’ reports accompanying the individual and consolidated financial statements (along with their

attachments and supplementary documentation including the Statement of Non-Financial Information as part of

the Consolidated Directors' Report) include a true analysis of the business performance, results and position of

Merlin Properties, SOCIMI, S.A. and of the subsidiaries included in the consolidated group, taken as a whole, and

a description of the main risks and uncertainties they face.

________________________________________ Mr. Javier Garcia-Carranza Benjumea (Chairman)	________________________________________ Mr. Ismael Clemente Orrego (Deputy Chairman)
________________________________________ Ms. Francisca Ortega Hernández-Agero (Member)	________________________________________ Ms. Ana Forner Beltran (Member)
________________________________________ Ms. María Luisa Jorda Castro (Member)	________________________________________ Ms. Pilar Cavero Mestre (Member)
________________________________________ Mr. Juan María Aguirre Gonzalo (Member)	________________________________________ Mr. Miguel Ollero Barrera (Member)
________________________________________ Mr. Fernando Javier Ortiz Vaamonde (Member)	________________________________________ Ms. Ana María García Fau (Member)
________________________________________ Mr. Emilio Novela Berlin (Member)	________________________________________ Mr. George Donald Johnston (Member)
________________________________________ Mr. Ignacio Gil-Casares Satrústegui (Member)

In Madrid, on February 27, 2023