Informe primer semestre 2015 UK (2) - Merlin Properties

Merlin Properties SOCIMI, S.A. and Subsidiaries

Interim condensed consolidated financial statements for the six months ended 30 June 2015 prepared in accordance with the International Financial Reporting Standards adopted by the European Union (EU-IFRS) Translation of interim condensed consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group in Spain (see Notes 2 and 16). In the event of a discrepancy, the Spanish-language version prevails.

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Translation of interim condensed consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group in Spain (see Notes 2 and 16). In the event of a discrepancy, the Spanish-language version prevails.

MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2015 (Thousands of euros)

ASSETS Notes 30/06/2015

31/12/2014

NON-CURRENT ASSETS:

Intangible assets 137 149

Property, plant and equipment 961 894

Investment property 5 2,187,001 1,969,934

Investments accounted for using the equity method 6 425,065 -

Non-current financial assets- 7 268,060 281,192

Derivatives 249,206 261,689

Other financial assets 18,854 19,503

Deferred tax assets 7,347 9,369

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

CURRENT ASSETS:

Trade and other receivables 7 5,439 3,340

Other current financial assets 7 56,944 125,791

Other current assets 76 122

Cash and cash equivalents 343,236 26,050

Total current assets 405,695 155,303 TOTAL ASSETS 3,294,266 2,416,841

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated balance sheet at 30 June 2015.

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INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2015 (Thousands of euros)

EQUITY AND LIABILITIES Notes 30/06/2015

31/12/2014

EQUITY:

Subscribed capital 193,818 129,212

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

Reserves 1,631 (30,475)

Other equity holder contributions 540 540

Valuation adjustments 14,833 (2,636)

Profit for the period 119,582 49,670

Equity attributable to equity holders of the Parent 8 2,041,923 1,308,679

NON-CURRENT LIABILITIES:

Non-current bank borrowings 9 1,177,102 1,027,342

Other financial liabilities 7 and 10 22,128 21,498

Deferred tax liabilities 10 22,626 24,432

Provisions 10 841 476

Non-current accruals and deferred income 10 125 -

Total non-current liabilities 1,222,822 1.073.748

CURRENT LIABILITIES:

Bank borrowings 9 14,750 10,809

Other current financial liabilities - 190

Trade and other payables 11 12,916 23,302

Current tax liabilities 11 292 75

Other current liabilities 10 1,563 38

Total current liabilities 29,521 34,414 TOTAL EQUITY AND LIABILITIES 3,294,266 2,416,841

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated balance sheet at 30 June 2015.

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INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2015 (Thousands of euros)

30/06/2015 30/06/2014

Notes (a)

CONTINUING OPERATIONS:

Revenue 12.a and 4 65,097 -

Other operating income 1,939 -

Employee benefits expense 12.c (5,063) (1)

Other operating expenses 12.b (4,678) (34)

Gains/(losses) on disposal of assets 12 -

Depreciation and amortization (51) -

Provision surpluses 476 -

Negative goodwill on business combinations 3 (42) -

OPERATING PROFIT/(LOSS) 57,690 (35)

Finance income 845 -

Finance costs (14,979) -

Change in fair value of financial instruments 7 (12,836) -

Change in fair value of investment properties 5 94,954 -

PROFIT/(LOSS) BEFORE TAX 125,674 (35)

Income tax (6,092) -

PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS 119,582 (35)

PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO THE PA RENT 119,582 (35)

BASIC EARNINGS PER SHARE (in euros): 8.5 0.81 -

DILUTED EARNINGS PER SHARE (in euros): 8.5 0.81 -

The accompanying Notes 1 to 16 to the consolidated financial statements and Appendix I are an integral part of the interim condensed consolidated income statement for the six months ended 30 June 2015.

(a) These figures are not comparable as the Parent was incorporated on 25 March 2014 and at 30 June 2014 did not control any company, the Group not having been formed.

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INTERIM CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENT FOR THE SIX MONTHS TO 30 JUNE 2015

(Thousands of euros)

Notes 30/06/2015

30/06/2014

(a)

PROFIT/(LOSS) FOR THE YEAR (I) 119,582 (35)

OTHER COMPREHENSIVE INCOME:

Income and expenses recognized directly in equity

From cash flow hedges 8.6 17,469 -

OTHER COMPREHENSIVE INCOME RECOGNIZED DIRECTLY IN EQUITY (II) 17,469 -

Amounts transferred to income statement (58)

TOTAL AMOUNTS TRANSFERRED TO INCOME STATEMENT (III) (58) -

TOTAL COMPREHENSIVE INCOME (I+II+III) 136,993 (35)

Attributable to equity holders of the Parent 136,993 (35)

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated comprehensive income statement for the six months to 30 June 2015. (a) These figures are not comparable as the Parent was incorporated on 25 March 2014 and at 30 June 2014 did not control any company, the Group not having been formed.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR

AT 30 JUNE 2015 (Thousands of euros)

Share capital

Share premium

Other reserves

Shareholder contributions

Profit for the year

Valuation adjustments

Total equity

Balances at 31 December 2014 129,212 1,162,368 (30,475) 540 49,670 (2,636) 1,308,679

Total recognized income and expense for the period - - (58) - 119,582 17,469 136,993

Distribution of profit - - 49,670 - (49,670) - -

Transactions with shareholders 64,606 549,151 (17,506) - - - 596,251

Rights issue 64,606 549,151 (17,506) - - - 596,251

Balances at 30 June 2015 193,818 1,711,519 1,631 540 119,582 14,833 2,041,923

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated statement of changes in equity for the six months to 30 June 2015.

Share capital

Share premium Reserves

Other equity holder

contributions

Profit/ (Loss) for the year

Total equity

Incorporation of the Parent (25 March 2014) 60 - - - - 60

Total recognized income and expense for the period - (35) (35)

Transactions with shareholders 125,000 1,125,000 (28,961) 540 1,221,579

Rights issue 125,000 1,125,000 (28,961) - - 1,221,039

Other transactions with equity holders - - - 540 - 540

Balances at 30 June 2014 (a) 125,060 1,125,000 (28,961) 540 (35) 1,221,604

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated statement of changes in equity for the six months to 30 June 2015. (a) These figures are not comparable as the Parent was incorporated on 25 March 2014 and at 30 June 2014 did not control any company, the Group not having been formed.

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS

TO 30 JUNE 2015 (Thousands of euros)

30/06/2015 30/06/2014 (a)

CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES: 23,293 28,882 Profit/(Loss) before tax 125,674 (35) Adjustments for- (68,002) - Depreciation and amortization 51 - Change in fair value of investment properties (94,954) - Change in provisions (111) - Negative goodwill on business combinations 42 - Finance income (845) - Finance costs 14,979 - Change in fair value of financial instruments 12,836

Changes in working capital- (9,713) 28,917 Trade and other receivables (2,099) (81) Other current assets 46 - Trade and other payables (10,386) 28,998 Other assets and liabilities 2,726 -

Other cash flows from/(used in) operating activities- (24,666) - Interest paid (20,154) - Interest received 1,336 -

Income tax paid (5,848) - CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES: (441,191) (2) Payments on investments- (515,812) - Net cash outflow from business acquisition (8,375) - Investment property (76,442) - Property, plant and equipment (106) (2) Contributions from group companies and associates (430,889) - Proceeds from disposals- 74,621 - Financial assets 74,621 -

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES: 735,084 1,221,639 Proceeds from and payments for equity instruments- 596,251 1,221,639 Issue of equity instruments 596,251 1,221,099 Equity holder contributions - 540

Proceeds from and payments for financial liabilities- 138,833 -

Bank borrowings 151,954 - Repayment of bank borrowings (7,534) - Other payments for financing arrangements (5,587) -

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 317,186 1,250,519 Cash and cash equivalents at beginning of period 26,050 - Cash and cash equivalents at end of period 343,236 1,250,519

The accompanying Notes 1 to 16 to the financial statements and Appendix I are an integral part of the interim condensed consolidated statement of cash flows for the six months to 30 June 2015. (a) These figures are not comparable as the Parent was incorporated on 25 March 2014 and at 30 June 2014 did not control any company, the Group not having been formed.

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Merlin Properties SOCIMI, S.A. and Subsidiaries

Notes to the interim condensed consolidated financial statements for the six months to 30 June 2015

1. Nature, activity and composition of the Group

Merlin Properties SOCIMI, S.A. (hereinafter, the Parent) was incorporated in Spain on 25 March 2014 under the Spanish Corporate Enterprises Act (Ley de Sociedades de Capital). On 22 May 2014, the Parent requested to be included in the tax regime for listed real estate investment companies (sociedades cotizadas de inversión en el mercado inmobiliario, hereinafter SOCIMIs), effective from 1 January 2014.

Its registered office is located at Paseo de la Castellana, 42, Madrid.

The Parent’s corporate purpose, as set out in its bylaws, is as follows:

• The acquisition and development of urban real estate for subsequent leasing, including the refurbishment of buildings as per the Value Added Tax Act 37/1992, of 28 December;

• The holding of equity stakes in other SOCIMIs or in other non-resident entities in Spain with the same corporate purpose as the aforesaid and that operate under a similar regime as that established for SOCIMIs vis-à-vis the mandatory, legal or bylaw policy on the appropriation of results;

• The holding of equity stakes in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban real estate for subsequent leasing, and which operate under the same regime as that established for SOCIMIs vis-à-vis the mandatory, legal or bylaw policy on the appropriation of results, and which fulfill the investment requirements stipulated for these companies; and

• the holding of shares or equity stakes in collective real estate investment institutions (Instituciones de Inversión Colectiva Inmobiliaria) regulated by the Collective Investment Institution Act 35/2003, of 4 November, or any law that may replace this in the future.

In addition to the economic activity deriving from the principal corporate purpose, the Parent may also carry on any other complementary activities; these being any that generate income representing less than 20%, taken as a whole, of the Parent’s income in each tax period, or any that can be classified as complementary as per prevailing legislation.

The activities included in the Parent’s corporate purpose may be indirectly carried on, either wholly or in part, through the ownership of shares or equity stakes in companies with similar or identical corporate purposes.

None of the activities reserved for other entities under special legislation not be directly (or where applicable, indirectly) performed. If the law prescribes the need for a professional qualification, administrative authorization, 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 principal activities of Merlin Properties SOCIMI, S.A. and Subsidiaries (hereinafter, the Group) are to acquire and manage (through leasing to third parties) offices, industrial units and retail premises, primarily. They may also invest to a lesser extent in other assets for lease.

On 30 June 2014, the Company was floated on the Spanish stock market through a capital increase of €125,000 thousand, with a share premium of €1,125,000 thousand. Merlin Properties SOCIMI, S.A.’s shares/securities have been listed on the electronic trading system of the Spanish stock exchanges since 30 June 2014.

The tax regime of the Parent and its subsidiaries are governed by Act 11/2009, of 26 October, as amended by Act 16/2012, of 27 December, regulating SOCIMIs. Article 3 of said Act sets out the investment requirements for this kind of company:

1. At least 80% of a SOCIMI’s assets must be invested in urban real estate for leasing purposes and/or in land to be developed for leasing purposes provided such development starts within three years of

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acquisition, along with investments in the capital or equity of other entities referred to in Section 1, Article 2 of the Act.

The asset’s value will be determined on the basis of the individual quarterly balances sheet averages in the year of reference. The SOCIMI may opt to calculate such value by taking into account the assets’ market value instead of their carrying amount, in which case that value would apply to every balance sheet in the financial year. For this purpose, the cash or receivables from transfer of investment property or equity investments carried out during the same year or earlier shall not be taken into account, provided, in the latter case, that the reinvestment period of Article 6 of said Act has not elapsed.

2. Furthermore, at least 80% of the income for the tax periods for each year, excluding income from transfer of equity investments and real estate that are earmarked for pursuit of the principal corporate purpose, once the holding period referred to in the following paragraph has elapsed, must arise from lease of investment property and from dividends or profit shares obtained from those holdings.

This percentage will be calculated on the basis of the consolidated profit or loss if the company is the parent of a group as per the criteria of Article 42 of the Code of Commerce, irrespective of residence and of the obligation to draw up consolidated financial statements. Said group will be exclusively composed of the SOCIMI and all the other entities referred to in Section 1, Article 2 of said Act.

3. The SOCIMI’s real estate assets must be leased for at least three years. Computation of that period will also include the time during which the properties have been offered for lease, up to a maximum of one year.

The period shall be calculated:

a) For real estate in the SOCIMI’s asset base before the SOCIMI becomes subject to the regime: from the beginning of the first tax period during which the special tax regime applies as regulated by the Act, provided that at the time the asset was leased or on lease. Otherwise, the paragraph below will apply.

b) For real estate subsequently developed or acquired by the SOCIMI: from the date on which it was leased or offered for lease for the first time.

c) Shares or equity investments in entities referred to in Section 1, Article 2 of the Act must be kept in the SOCIMI’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 the Act applies.

As provided by the First Transitional Provision of Act 11/2009 of 26 October, as amended by Act 16/2012 of 27 December, regulating SOCIMIs, the companies may opt to be subject to the special tax regime as provided by Article 8 of the mentioned Act, even when the legal requirements at the date of inclusion in that regime are not fulfilled, provided said requirements are met within two years of the date application of the SOCIMI tax regime is sought.

Failure to fulfill said condition will render the SOCIMI subject to the general corporate income tax rules, starting in the tax period in which the non-fulfilment is detected, unless it is remedied within the following tax period. In addition, the SOCIMI will have to settle the amount payable for the corresponding tax period, along with the difference between the amount resulting from application of the general regime and the amount paid pursuant to the special regime in the previous tax periods, without prejudice to such default interest, surcharges or penalties as may be deemed applicable.

SOCIMIs are taxed at a 0% corporate income tax. However, where dividends distributed to an equity holder owning at least 5% of the SOCIMI’s share capital are exempt from taxation or taxed below 10%, such SOCIMI will be subject to a special charge of 19% of the dividends distributed to the said equity holder, in respect of corporate income tax. If deemed applicable, this special charge shall be paid by the SOCIMI within two months after the dividend distribution date.

The companies comprising the Group at 30 June 2015 and the consolidation method used in the interim condensed consolidated financial statements are:

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Company Activity Reason for

inclusion in scope of consolidation

Ownership interest

Consolidation method

Tree Inversiones Inmobiliarias, SOCIMI, S.A.U.

Acquisition and development of property assets for subsequent leasing

Acquisition 100% Full consolidation

Merlin Oficinas, S.L.U. Acquisition and development of property assets for subsequent leasing

Incorporation 100% Full consolidation

Merlin Logística, S.L.U. Acquisition and development of property assets for subsequent leasing


Merlin Retail, S.L.U. Acquisition and development of property assets for subsequent leasing


Merlin Logística II, S.L.U. Acquisition and development of property assets for subsequent leasing


MPCVI – Compra e Venda Imobiliária, S.A.

Acquisition and development of property assets


Testa Inmuebles en Renta, S.A. Acquisition and development of property assets

Acquisition 25% Equity accounted

At 30 June 2015, all the Parent’s subsidiaries are controlled by it and have therefore been fully consolidated, except for Testa, which is equity accounted as control is not exercised over it. Appendix I of these notes gives details and information about the subsidiaries.

In addition, during March 2015 the Parent made the following investment in Portugal:

On 6 March 2015 the company MPEP - Properties Escritórios Portugal, S.A. was incorporated with share capital of €50,000 represented by 50,000 ordinary shares of €1 par value each. The shares were fully subscribed by Merlin Properties SOCIMI, S.A. which therefore holds 100% of the share capital.

At 30 June 2015 the company MPEP - Properties Escritórios Portugal, S.A. was not included in the scope of consolidation as the amounts were not material to the Group, since the company had virtually no net assets and was inactive in the six months to 30 June 2015.

2. Basis of presentation of the interim condensed c onsolidated financial statements and consolidation principles

2.1 Regulatory framework

The regulatory framework for financial information applicable to the Group is laid down in:

- The Spanish Code of Commerce and other corporate law;

- International Financial Reporting Standards (IFRS) as adopted by the European Union pursuant to Regulation (EC) No 1606/2002 of the European Parliament and Law 62/2003, of 30 December, on tax, administration and social security measures, as well as applicable rules and circulars of the Spanish securities market regulator (Comisión Nacional del Mercado de Valores, CNMV); and

- Act 11/2009, of 26 October, amended by Act 16/2012, of 27 December, regulating SOCIMIs and other corporate law; and

- Other applicable Spanish accounting standards.

The consolidated financial statements for 2014 were prepared in accordance with the regulatory framework for financial information described in the paragraph above to provide a true and fair view of the Group’s consolidated equity and consolidated financial position at 31 December 2014 and the consolidated results of its operations, changes in consolidated equity, and consolidated cash flows during the reporting period ended 31 December 2014.

Merlin Properties, SOCIMI, S.A.’s separate and consolidated financial statements for 2014 were authorized for issue by its directors and approved by the shareholders at the Annual General Meeting held on 1 April 2015.

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The separate financial statements of the Group’s constituent companies for 2014, authorized for issue by their respective boards of directors, were approved by the sole shareholder on 30 April 2015.

In view of the business activities currently carried on by the Group, it does not have any environmental liabilities, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific environmental disclosures have been included in these notes to the interim condensed consolidated financial statements for the six months to 30 June 2015.

The accompanying interim condensed consolidated financial statements are presented in accordance with International Financial Reporting Standard (IAS) 34 Interim Financial Reporting and were authorized for issue by the Group’s directors on 31 August 2015, in accordance with article 12 of Royal Decree 1362/2007.

In accordance with IAS 34, interim financial information is prepared solely for the purpose of updating the content of the last consolidated annual financial statements prepared by the Group, highlighting new activities, events and circumstances arising in the period, without duplicating information already published in the consolidated annual financial statements. The interim condensed consolidated financial statements for the three months to 30 June 2015 do not therefore include all the information that must be disclosed in full consolidated financial statements prepared in accordance with International Financial Reporting Standards adopted in the European Union. The accompanying interim condensed consolidated financial statements must accordingly be read together with the Group’s consolidated annual financial statements for the year ended 31 December 2014.

The calculation of consolidated results and the measurement of consolidated net equity is sensitive to the accounting principles and policies, measurement criteria and estimates used by the Parent’s directors in the preparation of these interim condensed consolidated financial statements. The main accounting principles and policies and measurement criteria used are the same as those applied in the preparation of the consolidated annual financial statements for 2014, with the exception of the standards and interpretations that came into force in the first six months of 2015.

2.2 Basis of presentation of the interim condensed consolidated financial statements

The interim condensed consolidated financial statements were prepared from the accounting records and financial statements of the Parent and consolidated companies, and have been presented in accordance with the regulatory framework for financial information described in Note 2.1 above to provide a true and fair view of the Group’s consolidated equity and consolidated financial position at 30 June 2015 and the consolidated results of its operations, changes in consolidated equity, and consolidated cash flows during the six months to 30 June 2015. Since the accounting policies and measurement bases used in preparing the Group’s interim condensed consolidated financial statements for the six months to 30 June 2015 may differ from those used by certain Group companies, the required adjustments and reclassifications were made on consolidation to unify such policies and bases and to make them compliant with the IFRS adopted by the European Union.

In order to ensure the uniform presentation of the various items composing the interim condensed consolidated financial statements, the accounting policies and measurement bases used by the Parent were applied to all the companies included in the scope of consolidation.

These interim condensed financial statements for 30 June 2015 have been submitted for a limited review by the auditor. The 30 June 2014 figures (not submitted for audit or review) and 31 December 2014 (audited) figures are presented for comparison purposes only.

2.2.1 Adoption of International Financial Reporting Standards effective as from 1 January 2015

The following mandatory standards, amendments and interpretations became effective in the first half of 2015 and, where applicable, were used by the Group in the preparation of these interim condensed consolidated financial statements:

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Standards, amendments and interpretations

Description Mandatory application for financial years beginning on or after :

Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions (published in November 2013)

Amendments clarifying the accounting treatment for contributions from employees or third parties that are linked to service

Annual reporting periods beginning on or after 1 February 2015

IFRIC 21 – Levies (published in May 2013) Guidance on when to recognize a liability for levies charged for participation by the entity in an activity on a specified date

Annual reporting periods beginning on or after 1 January 2014 (2)

(2) The European Union endorsed IFRIC 21 (EU Bulletin 14 June 2014), replacing the original effective date established by the

IASB (1 January 2014) with that of 17 June 2014.

Given the high occupancy rates and the Group’s ability to pass levies (property tax) on to tenants, the impact of IFRIC 21 at 30 June 2015 is not material. The impact of the remaining standards was not material, either.

No accounting principle or valuation rule that might have a material impact on these interim condensed consolidated financial statements has been omitted in their preparation.

2.2.2 Standards not in force in 2015

The following standards and interpretations had not become effective in the first six months of 2015, either because they came into effect after the date of the consolidated financial statements or because they had yet to be endorsed by the European Union:

Standards, amendments and interpretations

Description Mandatory application for financial years beginning on or after :

IFRS 9 – Financial Instruments: Classification and Measurement (published in November 2009 and October 2010) and subsequent amendments to IFRS 9 and IFRS 7 on effective date and transition disclosures (published in December 2011) and hedge accounting and other amendments (published in November 2013)

Replaces the requirements for the classification, measurement and derecognition of financial assets and financial liabilities under IAS 39

Annual reporting periods beginning on or after 1 January 2018

IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Amendments to treatment of a sale or contribution of assets between an investor and its associate or joint venture


IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations (published in May 2014)

Specifies how to account for acquisitions of interests in joint operations whose activity constitutes a business


IFRS 14 – Regulatory Deferral Accounts Specifies the reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation

Annual reporting periods beginning on or after 1 January 2016

IFRS 15 – Revenue from Contracts with Customers (published in May 2014)

New revenue recognition standard. Replaces IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC-31. The new IFRS 15 model is far more restrictive and principles-based, and also has a very different contractual approach. Application of the new requirements could therefore give rise to changes in the revenue profile


IAS 16 and IAS 38 – Acceptable Methods of Depreciation and Amortization (published in May 2014)

Provides clarification of acceptable methods of depreciation and amortization

Annual reporting periods beginning on or after 1 January 2016, applied prospectively (1)

IAS 27 – Amendments to prescribe the application of the equity method of accounting in separate financial statements

Amendments to prescribe application of the equity method of accounting in separate financial statements


(1) Pending adoption by the European Union

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The Group is currently assessing the impact that the future application of these standards might have on the financial statements once they enter into force. The Group’s preliminary assessment is that the impact of the application of these standards will not be significant.

2.3 Functional currency

The presentation currency of the interim condensed consolidated financial statements is the euro, which is the Group’s functional currency.

2.4 Comparison of information

In compliance with the international financial reporting standards adopted by the European Union, the information contained in these interim condensed consolidated financial statements for the six months to 30 June 2015 is presented for the purposes of comparison with the information for the period of three months and seven days to 30 June 2014 for the condensed consolidated income statement, condensed consolidated comprehensive income statement and condensed consolidated statement of changes in equity and with that for the year ended 31 December 2014 for the condensed consolidated balance sheet.

The information contained in these condensed interim consolidated financial statements for the three months and seven days to 30 June 2014 was authorized for publication by the Parent’s directors in accordance with the regulatory financial reporting framework then applicable, producing no differences in the Parent’s net equity or income statement compared with that established in the international financial reporting standards adopted by the European Union. At said date, the Group had not been constituted as the Parent did not then hold shares in any of the subsidiaries.

2.5 Responsibility for the information and estimate s made

The information contained in these interim condensed consolidated financial statements is the responsibility of the Parent’s directors.

In the Group’s interim condensed consolidated financial statements for the six months ended 30 June 2015, estimates were occasionally made by the senior executives of the Group and of the consolidated companies, later ratified by the directors, in order to quantify certain assets, liabilities, income, expenses and commitments reported therein. These estimates essentially relate to the following:

1. The market value of the Group’s property assets.

2. The fair value of certain financial instruments.

3. Measurement of provisions and contingencies.

4. Management of financial risk and, in particular, of liquidity risk.

5. The recovery of deferred tax assets and the tax rate applicable to temporary differences.

Changes in estimates:

Although these estimates were made on the basis of the best information available at 30 June 2015, future events may require these estimates to be modified prospectively (upwards or downwards), in accordance with IAS 8. The effects of any change would be recognized in the corresponding consolidated income statement.

2.6 Contingent assets and liabilities

There were no material changes in the Group’s main contingent assets and liabilities in the first six months of 2015.

2.7 Correction of accounting errors

In preparing the interim condensed consolidated financial statements for the six months to 30 June 2015, no significant errors were detected that would have made it necessary to restate the amounts included in the consolidated financial statements for 2014.

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2.8 Seasonal nature of the Group’s transactions

Given the nature of the Group’s activities, its transactions are not subject to any notable seasonal or cyclical fluctuations. Therefore, no specific disclosures to this effect have been included in these notes to the interim condensed consolidated financial statements for the six months to 30 June 2015.

2.9 Condensed consolidated cash flow statements

The condensed consolidated statements of cash flow are prepared using the direct method and the terms used are defined as below:

1. Cash flows: Inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to insignificant risk of changes in value.

2. Operating activities: Ordinary activities undertaken by companies making up the consolidated group, and all other activities that cannot be classified as investing or financing activities.

3. Investing activities: The acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

4. Financing activities: Activities that result in changes in the size and composition of the equity and borrowings of the Group that are not operating activities.

2.10 Relative importance

In accordance with IAS 34, the relative importance of items with respect to the interim condensed consolidated financial statements for the six months to 30 June 2015 is taken into account by the Group when determining what information to disclose in the notes to the condensed consolidated financial statements and other matters.

3. Changes in the scope of consolidation

The most significant changes in the scope of consolidation in the first six months of 2015 were as follows:

• On 8 June, the Parent fully subscribed the capital increase and share premium of Testa Inmuebles en Renta, S.A. The consideration paid totaled €430,839 thousand, with the Parent acquiring a 25% stake.

Pursuant to the contract signed on 8 June by the Parent and Testa, at the June 2015 close, the Parent exercises significant influence over Testa but not control. Consequently, IAS 28 is applicable to this company (see Note 6).

This holding was equity accounted in the consolidated financial statements at 30 June 2015.

• In 2015, the company Bosque Portfolio Management, S.L. was removed from the scope of consolidation, having been wound up in the period.

Business combination:

On 18 March 2015, the Parent, Merlin Properties SOCIMI, S.A., acquired 100% of the share capital of the company MPCVI – Compra e Venda Imobiliária, S.A., with fully paid in share capital of €50,000 represented by 10,000 shares of €5 par value each.

On 17 April 2015, the Parent, Merlin Properties SOCIMI, S.A., acquired 100% of the capital of the company Bintan Directorship, S.L. for €8,671 thousand. Bintan’s capital amounts to €100,000, which is fully paid in and represented by 100,000 equity stakes of €1 par value each. These equity stakes are encumbered by a first lien pledge securing fulfilment of the obligations deriving from the agreement for finance granted to the company by CaixaBank on 3 November 2014.

Companies acquired and consideration transferred-

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Principal activity Acquisition date

Percentage ownership (voting rights) acquired

Consideration transferred

(thousands of euros)

MPCVI – Compra e Venda Imobiliária, S.A. Acquisition and

development of property assets

18/03/2015 100% 74

Merlin Logística II, S.L.U. (formerly Bintan Directorship, S.L.)

Acquisition and development of property

assets for subsequent leasing

17/04/2015 100% 8,671

8,745

- MPCVI – Compra e Venda Imobiliária, S.A.

Thousands of euros

Carrying Valuation Fair value

amount adjustments adjustments

Current assets 7 - 7

Current liabilities (26) - (26)

Total net assets (19) - (19)

Consideration transferred 74

Loss incurred from

business combination (93)

- Merlin Logística II, S.L.U.

Thousands of euros

Carrying Valuation Fair value

amount adjustments adjustments

Investment property 15,787 6,423 22,210

Other financial assets 230 - 230

Current assets 403 - 403

Non-current liabilities (13,158) (191) (13,349)

Current liabilities (772) - (772)

Total net assets 2,490 6,232 8,722

Consideration transferred 8,671

Gain generated from

business combination 51

Investment property has been measured at fair value. The only asset of the company acquired is a logistics unit on the Meco industrial estate (Madrid), which was valued at €22,210 thousand by an independent appraiser at the date of acquisition. This asset is leased to Transportes Azkar, S.A. under a lease agreement entered into on18 August 2014 and renewed on 1 September 2014. This leasing constitutes the activity of the acquired company and is its only source of revenue.

15

The €191 thousand valuation adjustment to non-current liabilities is for the deferred tax liability associated with the valuation adjustment to investment properties. In order to estimate this amount, the Parent takes into account the fact the company acquired is a listed real estate investment company (SOCIMI), estimating the rate of tax to be charged on the gain on the estimated date the gain will be generated through the sale of the company.

The net profits and revenues generated by the businesses incorporated in 2015 and included in the 2015 consolidated income statement amount to €139 thousand and €116 thousand for MPCVI – Compra e Venda Imobiliária, S.A., and €406 thousand and €319 thousand for Merlin Logística II, S.L.U..

If the businesses had been acquired on 1 January 2015, the net profit would have been approximately €12 thousand higher and the revenues contributed to the Group, €615 thousand higher than the figures reported in the accompanying interim financial statements. The directors calculated these amounts considering the income and expenses accrued from 1 January 2015 to the acquisition date, and the acquisition costs, which remain unchanged.

Net cash flow from acquisition-

Thousands of euros

Cash paid 8,745 Less: cash and cash equivalents (370)

Total 8,375

4. Segment reporting

a) Basis of segmentation

The Group’s management has segmented its activity into four lines of business according to the type of assets acquired and managed:

• Shopping malls;

• Tertiary office buildings;

• Tertiary industrial and/or logistics units; and

• Properties leased to BBVA.

Income and expenses that cannot be specifically attributed to any business segment or that affect the Group as a whole are attributed to a “Corporate unit/Other”, as are the reconciling items arising from the reconciliation between the result of integrating the financial statements of the various lines of business (prepared using a management approach) and the Group’s consolidated financial statements.

The profits of each segment, and each asset within each segment, are used to measure performance as the Group considers this information to be the most relevant when evaluating the segments’ results compared to other groups operating in the same businesses.

The Group only operated in Spain and Portugal during the six months ended 30 June 2015.

b) Basis and methodology of business segment report ing

The segment information below is based on monthly reports prepared by Group management, generated using the same computer application that prepares all of the Group’s accounting data. Each segment’s result is presented before any adjustment for non-controlling interests.

Segment revenue relates to ordinary revenue directly attributable to the segment plus the proportion of the general revenue of the Group that may be reasonably allocable to it. Segment revenue does not include interest or dividend income or gains on redemption or extinguishment of debt.

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Segment expenses are calculated as the directly attributable expenses incurred in the operating activities, plus the corresponding proportion of the expenses that are reasonably allocable to the segment.

Each segment’s result is presented before any adjustment for non-controlling interests.

Segment assets and liabilities are those directly related to the operation of the segment plus those that are directly attributable to the segment based on the same criteria as indicated above. Segment assets and liabilities include the share of joint ventures. Segment liabilities do not include income tax payable.

Segment information about these businesses at 30 June 2015 and the corresponding period last year (30 June 2014 for income and expenses and 31 December 2014 for assets and liabilities) is presented below:

a) Segment reporting

Thousands of euros

At 30 June 2015 Office BBVA Shopping Corporate Total buildings branches malls Logistics unit Group

Revenue from non-Group customers: Rental income 8,078 44,531 8,858 3,630 - 65,097

Total ordinary income 8,078 44,531 8,858 3,630 - 65,097

Other income 1,271 - 654 - 14 1,939 Employee benefits expense - (24) - - (5,039) (5,063) Operating expenses (444) (465) (1,545) (183) (2,041) (4,678) Gains/(losses) on disposal of assets - 12 - - - 12

Depreciation and amortization - (14) (17) - (20) (51) Excess of provisions - - - - 476 476 Negative goodwill arising from business combinations (93) - - 51 - (42)

Operating profit/(loss) 8,812 44,040 7,950 3,498 (6,610) 57,690

Change in fair value

of investment property 6,389 69,769 14,071 4,725 - 94,954

Net finance income/(expense) (1,197) (12,343) (1,359) (25) 790 (14,134) Changes in the value of derivative financial instruments (37) (12,825) - 26 - (12,836)

Profit/(loss) before tax 13,967 88,641 20,662 8,224 (5,820) 125,674

Income tax (68) (6,020) - (4) - (6,092)

Profit/(loss) for the period 13,899 82,621 20,662 8,220 (5,820) 119,582

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Thousands of euros


Revenue from non-Group customers: - - - - - -

Rental income - - - - - -

Total ordinary income - - - - - -

Other income - - - - - - Employee benefits expense - - - - (1) (1) Operating expenses - - - - (34) (34) Gains/(losses) on disposal of assets - - - - - - Depreciation and amortization - - - - - -

Operating profit/(loss) - - - - (35) (35)

Change in fair value - - - - - - of investment property - - - - - - Net finance income/(expense) - - - - - -

Profit/(loss) before tax - - - - (35) (35)

Income tax - - - - - -

Profit/(loss) for the period - - - - (35) (35) The Group had no rental income and 30 June 2014.

Thousands of euros


Investment property 279,530 1,477,588 304,071 125,812 - 2,187,001 Non-current financial assets- 2,151 262,249 2,555 1,017 425,153 693,125 Derivatives - 249,206 - - - 249,206 Other financial assets 2,151 13,043 2,555 1,017 38 18,804

Other financial investments - - - - - 425,115 425,115 Deferred tax assets - 7,347 - - - 7,347 Other non-current assets - 52 750 - 296 1,098

Non-current assets 281,681 1,747,236 307,376 126,829 425,449 2,888,571 Trade and other receivables 1,205 534 595 2,506 599 5,439 Other current financial assets 1,795 - - - 55,149 56,944 Other current assets 18,564 19,058 567 4,763 300,360 343,312

Current assets 21,564 19,592 1,162 7,269 356,108 405,695

Total assets 303,245 1,766,828 308,538 134,098 781,557 3,294,266

Non-current bank borrowings 110,649 928,537 130,156 7,760 - 1,177,102 Other financial liabilities 2,155 14,507 3,774 1,692 - 22,128 Deferred tax liabilities 68 22,363 - 195 - 22,626

Other non-current liabilities - - 125 - 841 966

Non-current liabilities 112,872 965,407 134,055 9,647 841 1,222,822

Current liabilities 5,002 14,836 3,515 1,337 4,831 29,521

Total liabilities 117,874 980,243 137,570 10,984 5,672 1,252,343

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Thousands of euros

At 31 December 2014 Office BBVA Shopping Corporate Total buildings branches malls Logistics unit Group

Investment property 215,990 1,407,820 281,054 65,070 - 1,969,934

Non-current financial assets- 3,981 274,249 2,578 346 38 281,192 Derivatives - 261,689 - - - 261,689

Other financial assets 3,981 12,560 2,578 346 38 19,503

Deferred tax assets - 9,369 - - - 9,369 Other non-current assets - 66 767 - 210 1,043

Non-current assets 219,971 1,691,504 284,399 65,416 248 2,261,538 Trade and other receivables 171 658 1,711 127 673 3,340

Other current financial assets 757 31 - 3 125,000 125,791 Other current assets 2,826 16,505 4,049 1,765 1,027 26,172

Current assets 3,754 17,194 5,760 1,895 126,700 155,303

Total assets 223,725 1,708,698 290,159 67,311 126,948 2,416,841 Non-current bank borrowings 69,167 958,175 - - - 1,027,342

Other non-current liabilities 2,185 38,656 3,890 1,199 476 46,406

Non-current liabilities 71,352 996,831 3,890 1,199 476 1,073,748

Current liabilities 5,104 23,504 1,992 1,409 2,405 34,414

Total liabilities 76,456 1,020,335 5,882 2,608 2,881 1,108,162

b) Geographical segment reporting

For the purposes of geographical segment reporting, segment revenues are grouped according to the geographical location of the assets. Segment assets are also grouped according to their geographical location.

The following tables summarizes ordinary income and non-current investment property for each of the assets held by the Group by geographical area:

Thousands of euros

Ordinary Investment

income % properties %

Madrid 17,161 26.4 621,486 28.4 Galicia 11,755 18.1 380,647 17.4 Catalonia 8,056 12.4 289,850 13.3 Basque Country 6,304 9.7 180,084 8.2 Valencia 4,559 7.0 141,021 6.5

Castile-Leon 3,725 5.7 119,703 5.5 Andalusia 3,147 4.8 94,363 4.3 Rest of Spain 10,274 15.8 341,427 15.6 Portugal 116 0.2 18,420 0.8

Total 65,097 100.0 2,187,001 100.0

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c) Main customers

The table below lists the lessees from which the most rental has been received at 30 June 2015, and the primary characteristics of each of them:

Position Name Building type

% of total rental

income % accum. Maturity Segment

1 BBVA Branch offices 66.15 66.15 2039 / 2040 BBVA branches

2 VESTAS Offices 3.12 69.27 2016 Office buildings

3 BBVA Flagship buildings 2.77 72.04 2029

BBVA branches

4 PHILIPS Offices 2.42 74.46 2018 / 2023 Office buildings

5 ND LOGISTICS

Logistics 2.12 76.58 2024 Logistics units

6 AXA Offices 1.98 78.56 2025 Office

buildings

7 BRICOR Store 1.20 79.76 2016 Shopping mall

8 DECATHLON Store 0.85 80.61 2019 Shopping mall

5. Investment property

At 30 June 2015, the details of and movements in items included in this account in the interim condensed consolidated balance sheet are as follows:

Thousands of euros Fair value at 31 December 2014 1,969,934 Additions during the period 191,196 Derecognized in the period (69,083) Change in fair value 94,954

Balances at 30 June 2015 2,187,001

Investment property is recognized at fair value.

At 30 June 2015 investment properties comprised 883 branches and five buildings leased in their entirety to BBVA, seven office buildings, one shopping mall, one hotel, six logistics units, one plot of land and two buildings under construction.

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Additions and assets acquired through business combinations during the six months ended 30 June 2015 are as follows:

Thousands of euros

Type of asset Name Acquisition

cost Fair value

Additions: 45 offices BBVA branches 68,925 68,925 Office building Alcala 38-40 38,990 39,540 Logistics units Coslada logistics unit 20,400 21,700 Office building Lisbon 18,148 18,420 Logistics units Meco logistics unit 22,210 22,350 Land Zaragoza land 1,852 1,831

Work in progress 20,671 20,671

191,196 193,437

A first instalment of €20,671 thousand was also paid for two buildings under construction.

Items derecognized during the six-month period ended 30 June 2015 were as follows:

Thousands of euros

Type of asset Name Acquisition

cost Fair value

Derecognized: 42 offices BBVA branches 69,083 68,925

69,083 68,925

On 3 February 2015, the Group acted on its building replacement commitment corresponding to the BBVA project, as per clause 20 of the general terms and conditions of the lease agreement. Under this commitment, 42 of BBVA’s branches were replaces with another 45 branches belonging to BBVA. This replacement process is based on the principle of maintaining the lease terms, including the returns thereon, and ensuring the market valuation, which must be performed by an independent valuer, is unchanged.

On 26 March 2015 the Group acquired an office building in Calle Alcalá in central Madrid. The gross leasable area of the asset is 9,315 m2 and it is leased entirely to the Ministry of the Interior until 31 December 2016. On 27 March 2015, the Group also acquired a logistics unit located in Coslada. The gross leasable area of the asset is 28,490 m2 and it is leased entirely to Azkar (a subsidiary of Dachser, one of Europe’s leading logistics providers) until 27 March 2020.

On 9 April, the Group acquired a plot of land adjacent to the unit in the Zaragoza Pla-Za logistics park for €1,831 thousand. The plot has an area of 20,000 m2 and a slightly higher number of buildable square meters.

As disclosed in Note 3, the Parent acquired Bintan Directorship, S.L. (currently Merlin Logística II, S.L.U.) on 17 April 2015. This company owns a logistics unit in Meco with a gross leasable area of 35,285 m2 which is leased entirely to Azkar (a subsidiary of Dachser, one of Europe’s leading logistics providers).

On 6 June 2015, the Group acquired an office building located in the Parque das Naçoes (Expo zone), in Lisbon, for €18 million, financed entirely from the Group’s own funds. The gross leasable area of the building is 6,740 m2.

With regard the Group’s purchase commitments at 30 June 2015, the Group signed a down-payment agreement on 18 June 2015 to acquire 33 properties in the autonomous community of Catalonia in September 2015. On 19 June 2015, the Group also signed a future purchase agreement for a logistics unit in Guadalajara province, which is expected to be handed over at the end of 2016. The Group paid out €20,671 thousand for these down payments.

At 30 June 2015, the Group had pledged property assets totaling €2,264,836 thousand (including the value of the derivative embedded in the income of the lease agreement with BBVA of €249,206 thousand) to secure various loans and derivative financial instruments, the balances of which were €1,189,854 thousand and €28,375

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thousand, respectively (see Note 9). The Group holds no rights of use, seizure or similar situations with regard to its investment property.

At 30 June 2015, all properties included in “Investment property” are insured and the directors consider that these policies provide sufficient cover.

At 30 June 2015, the gross surface areas and occupancy rates of the assets by line of business were as follows:

Square meters

At 30 June 2015 Gross leasable area

La Coruña Madrid Álava Barcelona Other Total Occupancy rate (%)

BBVA branches 11,828 65,680 2,809 35,894 256,946 373,157 100.00

Offices - 43,490 - 29,078 6,740 79,308 78.80

Shopping malls 106,276 - - - - 106,276 89.20

Industrial units - 80,017 72,717 - 47,377 200,111 98.00

Total surface area 118,104 189,187 75,526 64,972 311,063 758,852 95.80

% weight 15.56 24.93 9.95 8.56 40.99 100.00

The market value of the Group’s investment property at 30 June 2015 was assessed by an independent external valuer with a proven track record and recent experience of the location and type of property.

Fair value measurement and sensitivity

All investment property under lease or earmarked for lease through operating leases (leased asset business segment) are classified as investment property.

In accordance with IAS 40, the Group periodically determines the fair value of its investment property so that the fair value reflects the actual market conditions of the investment property at that date. The fair value is determined by reference to the appraisals carried out each year by independent valuers.

The market value of the Group’s investment properties, calculated according to the valuations of the independent appraiser Savills Consultores Inmobiliarios, S.A. (not related to the Group) totaled €2,415,537 thousand at 30 June 2015. This valuation includes the derivative embedded in the income from the lease agreement with BBVA of €249,206 thousand. 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).

The method used to calculate the market value of investment property, except the BBVA portfolio, 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 analyzed by calculating and considering the capitalization of the returns implicit in these values. The projections are intended 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 method used by Savills to value the BBVA portfolio analyzes each property individually, without making any adjustments for inclusion in a large portfolio of properties. For each property, a capitalization rate has been assumed for the estimated market rent and subsequently adjusted on the basis of the following parameters:

• Term of the lease agreement and creditworthiness of the lessee;

• Location of the premises within the city (downtown, metropolitan area or suburbs);

• Immediate vicinity of the property;

• Level of upkeep of the property (outside and inside);

• Above and below-ground distribution of the floor area;

• Façade on one street or more than one (corner, three-sided); and

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• Lease situation with respect to current market rent.

In any event, the situation of the rental property market could lead to material differences between the fair value of the Group’s investment property and their effective realizable values.

Breakdown of fair value of investment properties

Details of the assets measured at fair value and the classification thereof are as follows:

Thousands of euros

30 June 2015

Total Level 1 Level 2 Level 3

Recurring fair value measurement 2,166,330 2,166,330

Investment property

BBVA branches - Land 505,137 505,137 - Buildings 972,451 972,451 Shopping malls - Land 15,336 15,336 - Buildings 279,635 279,635 Office buildings - Land 133,408 133,408 - Buildings 146,122 146,122 Industrial units - Land 30,997 30,997 - Buildings 83,244 83,244 Total assets measured at fair value on a recurrent basis 2,166,330 2,166,330

Work in progress totaling €20,671 thousand is recognized at cost of acquisition, which the directors consider is equal to fair value.

Thousands of euros

31 December 2014

Total Level 1 Level 2 Level 3

Recurring fair value measurement 1,969,934 1,969,934

Investment property

BBVA branches - Land 481,285 481,285 - Buildings 926,535 926,535 Shopping malls - Land 14,396 14,396 - Buildings 266,658 266,658 Office buildings - Land 103,264 103,264 - Buildings 112,726 112,726 Industrial units - Land 16,353 16,353 - Buildings 48,717 48,717 Total assets measured at fair value on a recurrent basis 1,969,934 1,969,934

No assets were reclassified from one level to another during the period.

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The main assumptions used to calculate the fair value of investment property were as follows:

Net initial yield Discount rate

BBVA branches 5.16% (*)

Office buildings 3.34%-7.68% 7.5%-8.75%

Shopping mall 5.52% 7%

Hotel 6.69% 9%

Industrial units 5.86%-8.90% 10%-10.5%

(*) Not applicable, performed by direct capitalization of earnings

6. Investments accounted for using the equity metho d

The breakdown of the balance in this account in the interim condensed consolidated balance sheet is as follows:

Thousands of

euros Testa Inmuebles en Renta, S.A. 425,065

425,065

On 8 June 2015, the Parent and the majority shareholder of Testa Inmuebles en Renta, S.A. (Sacyr) entered into a binding agreement under which the Parent would acquire a majority stake (99.6%) in the share capital of Testa Inmuebles en Renta, S.A. by way of the following:

1. Subscription of the new shares issued by Testa Inmuebles en Renta, S.A. in June 2015. This operation sees the Parent acquiring 25% of the share capital of Testa Inmuebles en Renta, S.A. for €430,839 thousand.

2. Acquisition of the remaining Testa Inmuebles en Renta, S.A. shares held by the majority shareholder as per the following schedule:

a. Before the end of July 2015: acquisition of a further stake representing 25.1% of the share capital of Testa Inmuebles en Renta, S.A. for €861 million.

b. Before 30 June 2016 (and after 30 September 2015): acquisition of the remaining shares held by Sacyr (taking the total acquired to 99.6% of the share capital of Testa Inmuebles en Renta, S.A.) for €694 million.

Moreover, the Parent submitted notice to the CNMV on 23 July 2015 prior to requesting authorization for the takeover bid for Testa Inmuebles en Renta, S.A. through the acquisition of the remaining 0.4% of the share capital held by minority shareholders. The price offered per share is €13.54.

At 30 June 2015, the Group had subscribed the new shares issued in the capital increase by Testa Inmuebles en Renta, S.A., whereby it held 25% of the share capital at that date. On 23 July 2015, the Group acquired the aforementioned 25.1% stake, taking over control of Testa Inmuebles en Renta, S.A. as of that date (See note 15).

On 12 August 2015, the Group acquired the additional 26.913% of the share capital of Testa Inmuebles en Renta, S.A.

The difference between the price paid for the holding and its carrying amount totals €5,774 thousand, which corresponds to the ordinary dividend approved by Testa’s shareholders at the annual general meeting on 29 June 2015 and paid on 10 July 2015.

Testa Inmuebles en Renta, S.A. is principally active in the real estate sector, primarily through the management of properties for rent, although it also promotes and conducts urban development projects, buys, sells, leases and operates all kinds of properties and carries out all types of real estate transactions either directly or through its subsidiaries.

24

The accompanying interim condensed income statement at 30 June 2015 does not include the result of entities accounted for using the equity method because said result is not material since the acquisition of Testa Inmuebles en Renta, S.A. was only completed in June 2015.

The main figures for Testa Inmuebles en Renta, S.A. at 30 June 2015 are as follows: (at amortized cost)

Testa Inmuebles en

Renta, S.A.

30 June 2015

Thousands of euros Non-current assets 2,148,507

Current assets 233,022

Non-current liabilities 1,533,617

Current liabilities 225,298

Revenue 92,143

Profit/(loss) for the period 34,142

On 30 June 2015, the EPRA NAV value of Testa Inmuebles en Renta, S.A. amounted to 1,737 million euros.

7. Current and non-current financial assets

The breakdown of the balance in this account in the interim condensed consolidated balance sheet is as follows:

Classification of financial assets by category: (thousands of euros)

30/06/2015 31/12/2014

Non-current: At fair value- Derivative embedded in BBVA lease agreement 249,206 261,689 At amortized cost- Deposits and guarantees 18,804 19,503 Other financial investments - 50 - 268,060 281,192 Current: At amortized cost- Other financial assets 56,944 125,791 Trade and other receivables 5,439 3,340

62,383 129,131

The carrying amount of financial assets recognized at cost or amortized cost does not differ significantly from their fair value.

“Derivatives” includes the value of the embedded derivative corresponding to the inflation multiplier included in the lease agreement with BBVA to revise rents annually (see Note 5). The variation in the value of this derivative during the six-month period ended 30 June 2015 totals €(12,483) thousand, recognized under “Changes in fair value of financial instruments” in the accompanying consolidated income statement. The measurement approach used is described in Note 9.2 and is applicable to Level two of the fair value measurement hierarchy established in IFRS 7, as observable inputs but not quoted prices are reflected.

The results of the analysis of sensitivity to 50 basis-point fluctuations in interest rates are as follows:

25

Thousands of euros

Scenario Assets Consolidated profit

before tax

+50 bps 67,599 67,599

-50 bps (44,156) (44,156)

“Deposits and guarantees” primarily includes the rent deposits of lessees which the Group has deposited with the housing authority (Instituto de la Vivienda) in each autonomous community, totaling €18,804 thousand. The balance of guarantees received from lessees at 30 June 2015 was €22,128 thousand and was recognized under “Other financial liabilities – Non-current” under liabilities in the accompanying consolidated balance sheet.

“Other financial assets” primarily comprises a deposit opened with a financial institution on 30 December 2014, the balance of which was €49,375 thousand at 30 June 2014. This deposit accrues interest at a rate of 1.15%. Although the deposit matures in 2019, the conditions thereof stipulate that the Parent can close it early.

The entire balance of the deposit was withdrawn on 1 July, whereby the directors classified it as a current asset in the accompanying consolidated balance sheet at 30 June 2015.

Classification of financial assets by maturity:

The classification of the main financial assets by maturity is as follows:

At 30 June 2015

Thousands of euros

Less than 1

year Over 5 years Undetermined Total

Derivative embedded in BBVA lease agreement - 249,206 - 249,206 Deposits and guarantees - - 18,804 18,804 Other financial investments - - - 50 50 Other financial assets 56,944 - - 56,944 Trade and other receivables 5,439 - - 5,439

Total financial assets 62,383 249,206 18,854 330,443

At 31 December 2014

Thousands of euros

Less than 1

year Over 5 years Undetermined Total

Derivative embedded in BBVA lease agreement - 261,689 - 261,689 Deposits and guarantees - - 19,503 19,503 Other financial assets 125,791 - - 125,791 Trade and other receivables 3,340 - - 3,340

Total financial assets 129,131 261,689 19,503 410,323

8. Equity

8.1 Share capital

On 15 April 2015, a capital increase of €613,756,990 was effected by means of the issue of 64,605,999 new ordinary shares of €1 par value each and a share premium of €8.5 per share, of the same class and series as the shares already outstanding. The shares were fully subscribed and paid in.

26

At 30 June 2015, the share capital of Merlin Properties SOCIMI, S.A., amounted to €193,818 thousand, represented by 193,818,000 shares of €1 par value each, fully subscribed and paid. All shares are of the same class and confer the holders thereof the same rights. All the Company’s shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia stock exchanges.

At 30 June 2015, the significant shareholders of Merlin Properties SOCIMI, S.A. with direct or indirect ownership interests exceeding 3% of share capital, are as follows:

Shares

% of capital Direct Indirect Total

Mainstay Marketfield Fund 12,895,055 - 12,895,055 6.65% Marketfield Asset Management LLC - 12,761,227 12,761,227 6.58% EJF Capital LLC - 9,764,559 9,764,559 5.04%

Friedman, Emanuel J. - 9,764,559 9,764,559 5.04%

UBS Group AG - 9,135,573 9,135,573 4.71%

On 7 August 2015, a capital increase of €1,033,696,000 was effected by means of the issue of 129,212,000 new ordinary shares of €1 par value each and a share premium of €7 per share, of the same class and series as the shares already outstanding. The shares were fully subscribed and paid in.

8.2 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 freely distributable provided that the Company’s capital does not fall below share capital as a result of it being distributed.

8.3 Other reserves

Legal reserve

The legal reserve will be set up in accordance with Article 274 of the Consolidated Text of the Corporate Enterprises Act, which states that an amount equal to 10% of profit for the year shall be transferred to the legal reserve until this reserve reaches at least 20% of capital.

At 30 June 2015, the Group had not appropriated to this reserve the minimum established in the Consolidated Text of the Corporate Enterprises Act because 2014 was the first year of activity of Merlin Properties SOCIMI, S.A. and it posted a loss in 2014.

Other reserves

This reserve primarily corresponds to the costs of incorporating the Parent and the capital increases in 2014 and April 2015, which total €47,992 thousand.

Appropriation of the Parent’s results

The allocation of losses proposed by the Parent’s directors and approved by its shareholders at the Annual General Meeting on 1 April 2015, was as follows:

Thousands of euros

Loss for the period (3,053) Appropriation: Prior years’ losses (3,053)

27

8.4 Capital management

The Group’s aim vis-à-vis capital management is to ensure it is able to continue operating as a going concern in such a way as to safeguard returns for shareholders and benefit other stakeholders, while maintaining an optimal capital structure to reduce the cost of capital.

In line with the practice of other companies in the sector, the Group controls its capital structure through the leverage ratio, which is calculated as net financial debt over equity. Net debt is determined as the sum of financial liabilities, less cash and cash equivalents. Total capital is determined as the sum of equity plus net financial debt.

Thousands of euros 30/06/2015 31/12/2014

Total financial debt 1,220,157 1,063,574 Less – Cash and cash equivalents and Other current financial assets (400,180) (151,841) Net debt 819,977 911,733 Equity 2,041,923 1,308,679

Total capital 2,861,900 2,220,412 Debt-to-equity ratio 28.65% 41.06%

8.5 Earnings per share

Earnings per share

Earnings per share are calculated by dividing net profit attributable to common equity holders of the Parent by the number of outstanding shares during the period, excluding treasury stock.

Details of the calculation of earnings/(losses) per share are as follows:

Basic

Basic earnings per share are calculated by dividing net profit attributable to common equity holders of the Parent by the weighted average number of outstanding shares during the period, excluding treasury stock.

Details of the calculation of basic earnings per share are as follows:

30/06/2015 31/12/2014 Net profit for the period attributable to equity holders of the Parent 119,582 49,670 (thousands of euros) Weighted average number of shares outstanding (thousands) 148,487 85,564

Basic earnings per share (euros) 0.81 0.58

The average number of ordinary shares outstanding is calculated as follows:

Number of shares 30/06/2015 31/12/2014 Ordinary shares 193,818,000 129,212,001 Weighted average number of ordinary shares outstanding (45,331,281) (43,648,340) Weighted average number of shares outstanding 148,486,719 85,563,661

On 7 August 2015, a capital increase of €1,033,696,000 was effected by means of the issue of 129,212,000 new ordinary shares of €1 par value each and a share premium of €7 per share, of the same class and series as the shares already outstanding. The shares were fully subscribed and paid in. Had these new shares been taken into account, the basic earnings per share would have been lower.

28

At the Annual General Meeting held on 1 April 2015 the shareholders authorized the buyback of treasury stock by the Parent or subsidiaries of the Group.

On 30 June 2015, the Parent Company does not hold any own shares.

Diluted

Diluted earnings per share are calculated by adjusting the profit attributable to equity holders of the Parent by the weighted average common stock outstanding in respect of all dilutive effects of potential ordinary shares, i.e., as if all potentially dilutive ordinary shares had been converted.

The Parent does not have different classes of potentially dilutive ordinary shares.

8.6 Valuation adjustments

This heading of the consolidated balance sheet includes changes in the value of financial derivatives designated as cash flow hedges.

9. Current and non-current financial liabilities

The breakdown of current and non-current liabilities is as follows (in thousands of euros):

30/06/2015 31/12/2014

Non-current:

At amortized cost

Senior syndicated mortgage loans 925,659 930,358

Syndicated loan arrangement costs (23,018) (24,323)

Total, syndicated mortgage loan 902,641 906,035

Other mortgage loans 253,563 69,000

Other mortgage loan arrangement costs (5,287) (1,100)

Total, mortgage loans 248,276 67,900

Total amortized cost 1,150,917 973,935

At fair value

Derivative financial instruments 26,185 53,407

Total at fair value 26,185 53,407

Total, non-current 1,177,102 1,027,342

Current:

At amortized cost

Senior syndicated mortgage loans 10,887 9,491

Other mortgage loans 1,673 1,318

At fair value

Derivative financial instruments 2,190 -

Total, current 14,750 10,809

There is no material difference between the carrying amount and fair value of financial liabilities at amortized cost.

9.1 Mortgage loans

The breakdown of mortgage loans at 30 June 2015 is as follows:

29

Thousands of euros

Bank borrowings

Limit Loan

arrangement costs

Drawn down

Long term Short term Current interest

Senior syndicated

mortgage loan 935,057 (23,018) 925,659 9,398 1,489 Other mortgage loans 254,797 (5,287) 253,563 1,234 439

Total payables 1,189,854 (28,305) 1,179,222 10,632 1,928

The breakdown of mortgage loans at 31 December 2014 was as follows:

Thousands of euros

Bank borrowings

Limit Loan

arrangement costs

Drawn down

Long term Short term Current interest

Senior syndicated

mortgage loan 939,756 (24,323) 930,358 9,398 93 Other mortgage loans 70,000 (1,100) 69,000 1,000 318

Total payables 1,009,756 (25,423) 999,358 10,398 411

Mortgage loans

On 19 February 2015 the Group, through its subsidiary MERLIN Retail, took out a mortgage with Allianz Real Estate using the Marineda shopping mall as collateral. The loan principal amounts to €133,600 thousand and bears interest at a fixed rate of 2.66% over 10 years, with full repayment of the principal falling due on maturity.

On 13 March 2015 the Group, through its subsidiary MERLIN Oficinas, took out a mortgage with Deutsche Pfandbriefbank using the office building at World Trade Center Almeda Park 6 as collateral. The loan principal amounts to €22,845 thousand and bears interest at a fixed rate of 2.41% over nine years, with 0.5% of the principal repayable annually and the balance of 95.5% falling due on maturity.

On 26 March 2015 the Group, through its subsidiary MERLIN Oficinas, agreed to the subrogation and amendment of the terms of a mortgage loan with Caixabank, S.A. using the office building at Alcalá 38-40 as collateral. The principal of the loan to which MERLIN Oficinas was subrogated amounts to €21,000 thousand and bears interest at a the three-month Euribor rate plus a spread of 150 basis points over 15 years, with a four-year period of grace on the repayment of the principal and full repayment in equal instalments over the remaining 11 years.

On 17 April 2015, the Parent, Merlin Properties SOCIMI, S.A., acquired 100% of the capital of the company Bintan Directorship, S.L. (currently Merlin Logística II, S.L.U.) (see Note 3). The company acquired has a loan from Caixabank, S.A. secured by a first lien mortgage over the logistics platform, which was arranged on 3 November 2014 for €8 million. The equity stakes of the company acquired are also encumbered having been pledged to secure fulfilment of the obligations deriving from the finance agreement. The outstanding balance of the loan amounts to €7,880 thousand and bears interest at the six-month Euribor rate plus a spread of 250 basis points over 10 years, with a three-month period of grace on the repayment of the principal, and repayment of the principal and interest in quarterly instalments.

On 20 June 2015, the Group also obtained a €50-million bridging loan from Morgan Stanley, J.P. Morgan and Goldman Sachs to fund part of the Testa acquisition (see Note 6). None of this loan was drawn down at 30 June 2015.

Further details of the mortgage loans taken out by the Group are disclosed in Note 13.1 to the consolidated annual financial statements for 2014.

30

9.2 Derivatives

Details of derivative financial instruments are as follows (in thousands of euros):

30/06/2015 31/12/2014

Non-current Interest rate derivatives (35,897) (62,546) Inflation derivatives 7,522 9,139

(28,375) (53,407)

To measure the fair value of the interest rate and inflation derivatives, the Company discounts cash flows based on the underlyings determined by the euro interest rate curve as per market conditions on the measurement date.

Financial instruments measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

- Level 1: Measurements derived from (unadjusted) quoted prices in active markets for identical assets or liabilities.

- Level 2: Measurements derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

- Level 3: Measurements derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (non-observable inputs).

The Group’s financial assets and liabilities measured at fair value were as follows at 30 June 2015:

Thousands of euros Level 1 Level 2 Level 3 Total

Liability derivative financial instruments - (28,375) - (28,375) Embedded derivatives (Note 7) - 249,206 - 249,206

- 220,831 - 220,831

The Group’s financial assets and liabilities measured at fair value were as follows at 31 December 2014:

Thousands of euros Level 1 Level 2 Level 3 Total

Liability derivative financial instruments - (53,407) - (53,407) Embedded derivative - 261,689 - 261,689

- 208,282 - 208,282

These financial instruments are classified as Level 2 as per IFRS 7.

31

The derivatives held by the Group at 30 June 2015 and the fair values thereof at that date are as follows (in thousands of euros):

Thousands of euros Contractual Fair Fair Notional amount interest value value Subsequent

years

rate at 30/06/2015

at 31/12/2014

2015 2016 2017 2018

Interest rate derivatives

3.46%-0.65% (35,897) (62,546) 993,358 983,961 974,563 964,578 826,985

Inflation derivative 3.14% 7,522 9,139 79,834 82,500 - - - (28,375) (53,407) 1,073,192 1,066,461 974,563 964,578 826,985

The Group has opted for hedge accounting, suitably designating the hedging relationships in which these financial instruments are hedging instruments of the financing used by the Group. In this manner, the Group has neutralized flow variations stemming from interest payments and fixed the rate to be paid for said financing. These hedging relationships are, cumulatively, highly effective prospectively and retrospectively, starting at their designation date for certain derivatives. The method for measuring derivative financial instruments is described in the notes to the 2014 consolidated financial statements.

The impact on liabilities and profit before tax of a 50 basis-point fluctuation in the estimated credit risk rate would be as follows:

Thousands of euros

Scenario Liabilities Equity Consolidated profit

before tax

5% rise in credit risk rate (37,500) (37,500) - 5% reduction in credit risk rate 40,859 40,859 -

10. Other current and non-current liabilities

Details of this heading at 30 June 2015 are as follows:

Thousands of euros Non-current Current

Guarantees and deposits received 22,128 - Deferred tax liabilities 22,626 - Other provisions 841 - Other liabilities 125 1,563

Total 45,720 1,563

Details of this heading at 31 December 2014 are as follows:

Thousands of euros Non-current Current

Guarantees and deposits received 21,498 - Deferred tax liabilities 24,432 - Other provisions 476 - Other current financial liabilities - 190 Other current liabilities - 38

Total 46,406 228

“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.

32

11. Trade and other payables

Details of this heading are as follows (in thousands of euros):

30/06/2015 31/12/2014

Current Payable to suppliers 7,733 19,058 Remuneration payable 3,688 1,869 Current tax liabilities 292 75 Other payables to public authorities 852 1,740 Advances from customers 643 635

Total 13,208 23,377

The carrying amount of the trade payables is similar to their fair value.

12. Revenue and expenses

a) Revenues

Details of ordinary revenues are provided in Note 4 alongside the segment information.

b) Other operating expenses

The breakdown of this item of the consolidated income statement is as follows:

Thousands of euros

Unrecoverable expenses related to leased properties 1,556 General expenses 1,121 Independent professional services 1,080 Insurance 36 Banking services 4 Taxes other than income tax 1 Costs associated with the acquisition and financing of assets 1,216 Other professional services 359 Losses, impairment and changes in trade provisions 426

Total 4,678

c) Employee benefits expense and average headcount

The breakdown of employee benefits expense is as follows:

Thousands of

euros Wages, salaries and similar expenses 4,908 Social security costs 155

Total 5,063

The average headcount at the various Group companies in the six-month period ended 30 June 2015 was 23, all of which were employed by the Parent (20 in 2014, of which 19 were employed by the Parent).

33

13. Related party transactions

In addition to subsidiaries, associates and joint ventures, the Group’s “related parties” are considered to be the Company’s shareholders, “key management personnel” (members of the Board of Directors and executives, along with their close relatives), and the entities over which key management personnel may exercise significant influence or control.

The breakdown of material transactions entailing a transfer of funds or obligations between the Parent or Group companies and the Company’s directors or executives is as follows:

Name or corporate name of director or

executive Name or corporate name of

related party Nature of the relationship

Amount (thousands of

euros)

30/06/2015

Magic Real Estate, SL Merlin Properties Socimi, S.A.

Magic Real Estate S.L. sublets half a floor of offices to Merlin Properties Socimi S.A. This sublease was signed in 2013 between Magic Real Estate SL, Tree Inversiones Inmobiliarias S.A. and Bosque Portfolio Management.

44

14. Stakes and posts held by directors and their af filiates in other companies

The directors of the Parent and their affiliates have not been in a position involving a conflict of interests that required reporting under Article 229 of the Consolidated Text of the Corporate Enterprises Act, except where indicated below:

Directors’ compensation and other benefits

At 30 June 2015 and 31 December 2014 the salaries, per diem attendance fees and compensation of other kinds earned by members of the Parent’s governing bodies totaled €486 thousand and €1,030 thousand, respectively, as detailed below:

Thousands of euros 30/06/2015 31/12/2014

Fixed and variable remuneration 465 1,030 Statutory compensation - - Termination benefits - - Per diem allowances 3 - Other 18 -

Total 486 1,030

34

The breakdown, by board member, of the amounts disclosed above is as follows:

Director Type

Thousands of euros

30/06/2015 31/12/2014

Directors’ remuneration

Ismael Clemente Orrego Executive chairman 152 442 Miguel Ollero Barrera Executive director 151 438 Donald Johnston Independent director 30 30 Maria Luisa Jordá Castro Independent director 31 30 Ana García Fau Independent director 31 30 Alfredo Fernández Agras Independent director 31 30

Fernando Ortiz Vaamonde Independent director 30 30 Ana de Pro Independent director 30 - Matthew Globawsky Independent director - - José García Cedrún Independent director - -

Total 486 1,030

The Parent has no pension obligations with members of the Board of Directors beyond those applicable to other employees.

The Company has granted no advances, loans or guarantees to any of its directors.

Senior executives’ compensation and other benefits

The remuneration of the Parent’s senior executives and persons discharging similar duties, excluding those who are simultaneously members of the Board of Directors (whose remuneration is disclosed above), in the six months ended 30 June 2015 is summarized as follows:

Thousands of euros

Number of employees

Compensation Other

fixed and remunera-

variable tion Total

7 570 6 576

At 31 December 2014:

Thousands of euros

Number of employees

Compensation Other

fixed and remunera-

variable tion Total

7 1,671 - 1,671

15. Events after the reporting period

As described in Note 6 to the accompanying interim condensed consolidated financial statements, on 8 June 2015 the Parent signed a binding agreement to acquire 99.6% of the share capital of Testa Inmuebles en Renta, S.A. (“Testa”). This company is principally active in the real estate sector, primarily through the management of properties for rent, although it also promotes and conducts urban development projects, buys, sells, leases and operates all kinds of properties and carries out all types of real estate transactions either directly or through its subsidiaries. This agreement stipulates that the transaction will be completed in three stages for a total of €1,986 thousand.

On 23 July 2015, Merlin acquired a further 25.1% stake from Sacyr for €861 million, taking over control of the Testa Group with a 50.1% stake.

The Parent’s directors have carried out a provisional allocation of the cost of the business combination (using financial information from Testa Inmuebles en Renta, S.A. at 31 March 2015), provisionally estimating that the

35

difference between the cost of the business combination and the fair value of the net assets acquired is €295 million.

The Parent estimated the fair value of Testa’s net assets using the appraisals made by an independent expert at 31 March 2015, taking these to be the best information available at the estimation date. As a result of these appraisals, the provisional valuation adjustment to Testa’s assets is an increase of €1,083 million. The tax effect estimated by the Parent’s directors associated with recognizing this valuation adjustment is approximately €271 million, which would entail increasing the goodwill described in the previous paragraph by said amount. With regard to the provisional estimate of the business combination and based on the current outlook for the property market and the business plans prepared for the Testa acquisition, the Group does expect that this additional goodwill (€271 million) will be recovered. Following prudent criteria, the Group expects to adjust this amount in the business combination.

In any event and pursuant to IFRS 3, these initial estimates are provisional and the Group has a year to adjust them based on the most relevant and complete subsequent information that it has been able to procure.

On 7 August 2015, a capital increase paid up in cash of €1,033,696,000 was effected by means of the issue of 129,212,000 new ordinary shares of €1 par value each and a share premium of €7 per share, of the same class and series as the shares already outstanding.

On 12 August 2015, the Group acquired the additional 26.913% of the share capital of Testa Inmuebles en Renta, S.A.

16. Explanation added for translation to English

These interim condensed/complete consolidated financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Group in Spain (see Note 2.2). Certain accounting practices applied by the Group that conform with that regulatory framework may not conform with other generally accepted accounting principles and rules.

36

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INTERIM

FINANCIAL

STATEMENTS

for the period ended

on June 30 2015

INDEX

1. Key aspects 5

2. Consolidated profit and loss account 11

3. Consolidated balance sheet 13

4. Valuation and EPRA metrics 18

5. Investment and leasing activity 22

6. Stock price evolution 29

7. Events post-closing 30

Interim financial statements ı 5

1. KEY ASPECTS

In addition, MERLIN has signed a forward

purchase agreement for the development of

three logistics warehouses in Guadalajara-

Cabanillas, having disbursed 25% of the

price upon signature (€ 11,571 thousand),

and has entered into a deposit contract

(€ 9,100 thousand including transaction

costs) for the future acquisition of 33

supermarkets long-term leased to Caprabo

(equivalent to 10% of total price).

3. Commercial portfolio

After the recent acquisitions, and

excluding Testa, MERLIN Properties owns

a commercial real estate comprising 906

assets, with a gross lettable area (“G.L.A.”)

of 758,851 sqm. The acquisition price

(including transaction costs) is € 2,229,454

thousand. The portfolio gross asset

value (“GAV”) in accordance with Savills

valuation as of 30 June 2015 amounts to €

2,415,537 thousand (€ 2,413,706 thousand

excluding the logistics land plot). Adding the

investments accounted for using the equity

method (Testa and a company in Portugal,

€ 425,115 thousand) and the Cabanillas

forward purchase advance payment and

Caprabo deposit payment (totaling € 20,671

thousand), MERLIN total GAV amounts to

€ 2,861,323 thousand. The net asset value,

following EPRA recommendations (“EPRA

Net Asset Value” or “EPRA NAV”), amounts

to € 2,061,947 thousand (€ 10.64 per share).

4. Results

In the first semester, MERLIN recorded

revenues of € 67,036 thousand, EBITDA

of € 55,354 thousand, a recurring FFO of

€ 42,414 thousand (€ 0.22 per share), a

FFO of € 41,198 thousand (€ 0.21 per share)

and a net consolidated result of € 119,582

thousand (€ 0.62 per share).

1. Capital structure

On 11 May 2015 a capital increase

of MERLIN Properties Socimi, S.A.

(hereinafter, MERLIN, MERLIN Properties

or the Company) took place for an amount

of € 613,756 thousand.

2. Investment activity

MERLIN Properties signed on 8 June 2015

with Sacyr, S.A. a binding agreement

for the acquisition by MERLIN, in

different phases, of a majority stake

(99.6%) of Testa Inmuebles en Renta,

S.A. (hereinafter, Testa). During the first

semester, according to the terms of

the agreement, MERLIN has acquired

a 25% stake of Testa, by means of the

subscription to a capital increase of newly

issued shares for an amount of € 430,839

thousand. As of 30 June 2015, the stake

has been accounted for using the equity

method (capital increase amount less

a dividend received from Testa for an

amount of € 5,774 thousand).

MERLIN has acquired two office buildings,

two logistics warehouses and a logistics land

plot for an aggregate amount of € 101,605

thousand, of which € 99,997 thousand

correspond to the acquisition price of the

assets and € 1,608 thousand to transaction

costs.

The acquisitions of the 25% stake of

Testa and the five assets resulted in the

disbursement of € 503,504 thousand of

MERLIN’s equity. The remaining € 28,940

thousand corresponds to the existing

financing in two of the acquired assets.

MERLIN Properties has assumed these

financings.

6 ı

Number of ordinary shares 193,818,000

Weighted number of ordinary shares

148,486,719

Total Equity 2,027,090

GAV 2,861,323

Net Debt 791,602

Net Debt / Net Debt + Equity

28.1%

Net Debt / GAV 27.7%

CAPITAL STRUCTURE KEY DATA

Free Float 83.6%

Marketfield 6.7%

EJF 5.0%

UBS 4.7%

(€ thousand) 30/06/2015

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

GAV of the land plot 1,831

Investments accounted for using the equity method 425,115

Forward purchase & deposit payments 20,671

Total GAV 2,861,323

Gross financial debt (1,191,782)

Cash, cash equivalents and short term financial investments 394,405

Net financial debt (2) (797,377)

Working capital (2,001)

EPRA NAV 2,061,945

Number of ordinary shares 193,818,000

Weighted number of ordinary shares 148,486,718

EPRA NAV per share (€) 10.64

Share Price 30/06/2015 9.65

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

PORTFOLIO VALUATION

(1) In accordance with Savills valuation as of 30 June 2015(2) Net financial debt excludes the dividend received from Testa (€ 5,774 thousand)


30/06/2015

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

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

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

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

EPRA gross yield(4) 5.58%

EPRA topped-up Initial yield(5) 5.40%

Total GLA (sqm) 758,851

Occupancy rate 95.8%

WAULT by rents (years)(6) 16.8

KEY ASPECTS OF THE COMMERCIAL PORTFOLIO

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

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

8 ı

Valencia

Almussafes

Madrid

Meco

WTC Almeda

Park, Building 8

Alcalá

Zaragoza

Plaza

Madrid

Getafe

Vitoria

A1 Madrid

Building 5

Marineda

A1 Madrid

Buildings

1, 2 and 3

Lisbon -Expo

A1 Madrid

Building 4

# Retail/branches Shopping center Office Logistics

7131 6

96

10

610

22

63

1534

9124

9312

40

161

109

LOCATION OF THE PORTFOLIO

WTC Almeda Park, Building 6

Madrid Coslada


GLA PER ASSET CLASS GROSS ANNUALIZED RENTS PER ASSET CLASS

49%

26%

11%

14%

6%

14%

66%

7%

13%

14%

GROSS YIELD PER ASSET CLASS

8.05%

LogisticsTree

Inversiones

5.16%

Office

6.34%

Retail

6.36%

5.58%

Av. MERLIN

WAULT by rents (years) Occupancy per asset category

7.3

22.8

100%

89%

79%

98%

3.23.1

OCCUPANCY AND WAULT PER ASSET CLASS

Tree Inversiones

Office LogisticsRetail

95.8%

Av. MERLIN

16.8Av. MERLIN

Tree Inversiones Retail Office Logistics

10 ı

(€ thousand) 30/06/2015

Gross rents 65,444

Net rents before incentives and collection loss 63,886

Net rents after incentives and collection loss 63,113

Personnel expenses (5,063)

Other operating expenses (2,696) Per share

EBITDA (1) 55,354 0.29

EPRA Net Income 44,718 0.23

FFO recurring (2) 42,414 0.22

FFO (3) 41,198 0.21

Net income for the period 119,582 0.62

KEY CONSOLIDATED FINANCIAL AND ECONOMIC INDICATORS (IFRS)

(1) EBITDA has been calculated as the operating profit (€ 57,690 thousand) less other operating income (€ 1,939 thousand) less other adjustments (€ 397 thousand)

(2) Recurring Funds from Operations. Recurring funds generated by the business after deducting operating expenses and deducting net finance costs. Recurring FFO excludes other operating income (€ 1,939 thousand) and the non-recurring costs related to acquisition of companies and one-off financing costs (€ 1,216 thousand)

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


2.

CONSOLIDATED INCOME

STATEMENT FOR THE SIX

MONTHS TO 30 JUNE 2015

(IFRS)

(€ thousand)ACCUMULATED

up until 30/06/2015

Gross rents 65,444

Tree Inversiones Inmobiliarias 44,531

Retail 9,205

Oficinas 8,078

Logistica 3,630

Other operating income 1,939

Total operating income 67,383

Incentives and collection loss (772)

Total operating expenses (9,316)

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

Personnel expenses (5,063)

General expenses (2,695)

EBITDA 57,295

Depreciation (51)

Gains / (losses) on disposal of assets 12

Provision surpluses 476

Negative goodwill on business combinations (42)

EBIT 57,690

Net interest expense (14,134)

Change in fair value of investment properties 94,954

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

PROFIT BEFORE TAX 125,674

Income taxes (6,092)

PROFIT (LOSS) FOR THE PERIOD 119,582

12 ı

2.1 Notes to the consolidated income statement

Gross rents (€ 65,444 thousand)

less portfolio operating expenses not

rechargeable to tenants (€ 1,558 thousand)

equals to net rents before incentives and

collection loss of € 63,886 thousand. After

deducting incentives and collection loss

(€ 772 thousand), the resulting amount is

€ 63,113 thousand of net rents after

incentives and collection loss.

Other operating income includes penalties

to tenants for early lease cancellations.

Total operating expenses of the Company

for this semester were € 9,316 thousand, of

which € 3,133 thousand are excluded from

the overheads limitation, corresponding

to portfolio operating expenses non-

recoverable from tenants (€ 1,558 thousand)

and € 1,575 thousand mainly to costs

associated with the acquisition of companies

and one-off financing costs. Out of the total

amount of the costs included within the limit

of the annual overheads (€ 6,184 thousand),

€ 5,063 thousand correspond to personnel

costs and € 1,121 thousand to running costs

of the Company. Personnel costs include

an estimate of the variable remuneration

component.

The negative goodwill on business

combinations corresponds to the difference

between the purchase price of 100% of the

equity of MPVCI (Portuguese company

holding the office asset in Lisbon) and of

MERLIN Logistica II, S.L.U., holding company

of the logistics asset named Madrid-Meco,

and the book value of each company as at

the acquisition date, adjusted by the fair

market value of the assets acquired net of

its tax impact.

Income taxes correspond to the taxation

arising as a result of the capital gain

produced by the substitution of branches

exercised by virtue of the master lease

agreement by BBVA, which was signed on

3 February 2015 (45 entry branches and 42

exiting branches). Exiting branches were

sold at a price equivalent to the Savills

valuation giving rise to a capital gain for the

difference between the sales value and the

book value of the referred 42 branches sold.

2.2 Reconciliation Gross rents - FFO

The reconciliation between the gross rents

of the period and FFO is as follows:

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Gro

ss

rent

s

65,443.963,886.4

-1,557.5

Proper

ty exp

. not

rech

argea

ble

Net

rent

s bef

ore in

cent

ives

and c

ollect

ion

loss

-346.9

Ren

ts

ince

ntives

63,113.9

Net

rent

s

-2,696.1

Gen

eral

expen

ses

-5,063.4

Perso

nnel

55,354.4

EBIT

DA

845.5

Fina

ncial

inco

me

-15,002.2

Fina

ncial

expen

ses

41,197.7

FFO

1,216.4

Non

recu

rring

expen

ses

42,414.1

Rec

urrin

g FFO

-425.6

Col

lect

ion

loss


3.

CONSOLIDATED BALANCE

SHEET AS OF JUNE 30 2015

(IFRS)

ASSETS 30-06-2015 31-12-2014

� �

NON-CURRENT ASSETS � �

Intangible assets 137 149

Property, plant and equipment 961 894

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

Investments accounted for using the equity method 425,065 -

Non-current financial assets 268,060 281,192

Derivatives 249,206 261,689

Other financial assets 18,854 19,503

Deferred tax assets 7,347 9,369

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

� �

CURRENT ASSETS � �

Trade and other receivables 5,439 3,340

Other current financial assets 56,944 125,791

Other current assets 76 122

Cash and cash equivalents 343,236 26,050

Total current assets 405,695 155,303

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

14 ı

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

� �

EQUITY � �

Subscribed capital 193,818 129,212

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

Reserves 1,631 (30,475)

Other equity holder contributions 540 540

Valuation adjustments 14,833 (2,636)

Profit for the period 119,582 49,670

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

� �

NON-CURRENT LIABILITIES � �

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

Other financial liabilities 22,128 21,498

Deferred tax liabilities 22,626 24,432

Provisions 841 476

Non-current accruals and deferred income 125 -

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

� �

CURRENT LIABILITIES � �

Bank borrowings 14,750 10,809

Other current financial liabilities - 190

Trade and other payables 12,916 23,302

Current tax liabilities 292 75

Other current liabilities 1,563 38

Total current liabilities 29,521 34,414

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


3.1 Notes to the consolidated balance

sheet

The fair value of property investments

corresponds to the Savills valuation as of 30

June 2015, except for the assets not included

in the perimeter of the valuation: (i) the 25%

stake in Testa, which has been valued at

acquisition cost (less the dividend received

from Testa), and (ii) two assets for which

a deposit (Caprabo) or a partial payment

of the price (Guadalajara-Cabanillas) has

been paid, both of which have been valued

at acquisition cost. Investment property

includes the fair value of the investments

completed by 30 June 2015, minus the fair

value of the embedded inflation derivative.

Long term financial investments include the

fair value of the embedded inflation derivative,

for an amount of € 249,206 thousand. This

adjustment corresponds to the annual rent

update component included in the BBVA

lease agreement. This item has been valued

separately from the main contract as a

financial derivative. For the valuation of the

embedded derivative the Company has based

its estimation on the future total revenue

derived from the contract adjusted by the

credit risk of the counterparty.

The breakdown of the fair value of the

assets in MERLIN’s portfolio, as of 30 June

2015, is as follows:

(€ thousand)

Tree Inversiones Inmobiliarias

Investment property 1,477,589

Financial investments (embedded derivative) 249,206

Subtotal Tree Inversiones Inmobiliarias 1,726,795

Retail assets in Investment property 294,971

Office assets in Investment property 279,530

Logistics assets in Investment property 114,241

Subtotal other assets 688,742

Forward purchase and deposit payments 20,671

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

Total fair value of the Portfolio 2,861,323

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

16 ı

The balance of deferred tax liabilities,

which amounted to € 22,626 thousand,

corresponded to the estimate of the tax

impact of the implicit capital gain when

valuing the assets of Tree Inversiones

Inmobiliarias at their fair value.

3.2 Capital structure evolution

3.2.1 Equity

On 15 April 2015 a capital increase was

executed for € 613,756,990, by means

of the issue and placing in circulation of

64,605,999 new ordinary shares, of 1 euro

nominal value and a share premium of 8.5

euros per share, of the same class and series

as those currently in circulation. The shares

were fully subscribed and disbursed. After

the capital increase, the equity balance of

the Company as of 30 June 2015 amounts to

€ 2,027,090 thousand.

Long term Short term Total

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

Accrued interest 0 1,928 4,118

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

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

Total net financial debt 791,602

Cash and short-term financial investments 400,180

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

Market value of interest-rate and inflation hedging

contracts26,185 2,190 74,661

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

3.2.2 Financing

On 19 February 2015, MERLIN Retail signed

the financing of Marineda, a loan facility

agreement signed with Allianz group, with

mortgage security on Marineda shopping

centre. The loan has a principal amount of

€ 133,600 thousand, a term of ten years and

accrues a fixed interest rate of 2.66% with no

annual principal repayment requirement and

full repayment of principal upon maturity.

On 13 March 2015, MERLIN Oficinas signed

the financing of World Trade Centar Almeda

Park building 6, a loan facility agreement

signed with Deutsche Pfandbriefbank,

with mortgage security on WTCAP 6. The

loan has a principal amount of € 22,845

thousand, a term of nine years and accrues

a fixed interest rate of 2.41%, with annual

principal repayment of 0.5% per annum

and repayment of 95.5% of principal upon

maturity.

On 26 March 2015, MERLIN Oficinas

renegotiated and assumed the existing

financing on Alcala 38-40, a loan with

Caixabank, with mortgage security over the

The balance of LT debt and ST debt includes

Company’s outstanding financial debt, and

the mark-to-market of interest-rate and

inflation hedging contracts:


asset. The loan has a principal amount of €

21,000 thousand, a term of fifteen years and

accrues a variable interest rate of 3-months

Euribor plus a margin of 150 basis points.

The loan has a grace period of 4 years over

principal repayment and full repayment of

principal from year 5 until maturity.

On 17 April 2015, the Company, through its

subsidiary MERLIN Logistica II, S.L.U., upon

acquisition of the company holding the

asset Madrid-Meco, assumed the financing

with Caixabank, with mortgage guarantee

over the asset. The loan has an outstanding

balance as at the date of the acquisition of €

7,940 thousand and a variable interest rate

of Euribor 6 month plus a 250bps margin.

On 21 June 2015, the Company signed a

bridge financing facility for € 500 million

with Morgan Stanley, JP Morgan and

Goldman Sachs for the financing of the

acquisition of Testa. As at 30 June 2015 no

amount of the loan facility had been drawn

down.

(€ thousand) 30/06/2015

Outstanding amount 1,189,854

Average maturity 9.0 años

Average cost until 31/12/2017

3.8%

Average cost from 31/12/2017 until maturity

2.7%

% of the debt with interest rate hedging

95.5%

KEY FEATURES OF THE GROSS FINANCIAL DEBT

Main features of the outstanding debt are as

follows:

18 ı

4. VALUATION AND EPRA METRICS

GROSS ASSET VALUE RECONCILIATION (€ THOUSAND)

4.1 Portfolio valuation

The GAV of MERLIN as of 30 June 2015

amounts to € 2,861.3 million. The like-for-like

increase from 31 December 2014 is +3.6%,

due to a yield compression of approximately

20 basis points. The breakdown is as follows:

• Savills has valued all the assets of MERLIN

portfolio, with the exception of the stake

in Testa and the forward purchase and

deposit payments, for a total amount of

€ 2,415.5 million.

• Testa stake. It has been considered as

additional GAV for an amount equivalent

to the acquisition cost (€ 430.8 million)

less the ordinary dividend received from

Testa, paid on 10 July 2015 (€ 5.7 million).

• Forward purchase and deposit payments.

It has been considered as additional GAV

for the amount disbursed as deposit

(Caprabo) and 25% of price (Guadalajara-

Cabanillas), for a total amount of€ 20.6

million.

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

2,231,623.0

GAV 31/12/2014

80,073.0

LfL Increase

103,841.0

1S 2015 Acquisitions

425,114.9

TestaStake

20,671.5

Advance payments and

deposits

2,861,323.4

GAV 30/06/2015


4.2 EPRA Net Asset Value

EPRA NAV as of 30 June 2015 of MERLIN

amounts to € 2,061.9 million, equivalent to

€ 10.64 per share (+1.5% versus 31 December

2014) or €13.89 per weighted number of

ordinary shares.

EPRA NNNAV as of 30 June 2015 of MERLIN

amounts to € 2,018.3 million, equivalent to

€ 10.41 per share (+4.6% versus 31 December

2014) or €13.59 per average weighted share.

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

GAV PER ASSET CATEGORY LIKE FOR LIKE GAV INCREASE

PER ASSET CATEGORY

Tree Inversiones Retail Office Logistics

70.9%12.5%

5.2%

11.5%5%

5.1%

3.4%

2.6%

5.0%

NET ASSET VALUE RECONCILIATION (€ THOUSAND)

EPRA NAV 31/12/2014

1,354,970.4

Change in debt net

59,946.1

EPRA NAV 30/06/2015

2,061,946.9

Testa 25% stake

425,114.9

lfl

Increase

80,073.0

GAV

Acquisitions

124,512.5

Change in

working

capital

17,329.9

Av. MERLIN

3.6%

20 ı

Performance

MeasureDefinition 30/06/2015 31/12/2014

€ MillionPer

share€ Million

Per

share

EPRA

Earnings

Recurring earnings from core

operational activities44.7 0.23 20.4 0.16

EPRA NAV

Net Asset Value adjusted to

include properties and other

investment interests at fair value

and to exclude certain items

not expected to crystalise in a

long-term investment property

business model

2,061.9 10.64 1,354.9 10.49

EPRA

NNNAV

EPRA NAV adjusted to include

the fair value of financial instruments, debt and deferred taxes

2,018.3 10.41 1,286.5 9.96

EPRA Net Initial Yield

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

5.40% 5.86%

EPRA “topped-up”

NIY

Adjustment to the EPRA Net

Initial Yield in respect of the

expiration of rent-free periods

(or other unexpired lease

incentives such as discounted

rent periods and step rents)

5.46% 5.93%

EPRA

Vacancy

Rate

Estimated Market Rental Value

(ERV) of vacant space divided

by ERV of the whole portfolio

4.2% 3.4%

EPRA Metrics


EPRA earnings have been calculated as follows:

(€ thousand) 30/06/2015

Consolidated net profit in accordance with IFRS 119,582

(i) changes in value of investment properties -94,997

(ii) profits or losses on disposal of investment properties -11

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

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

+1,216

(iii) deferred tax in respect of adjustments +6,092

EPRA Earnings for the period 44,718

EPRA Earnings for the period per share (€) 0.23

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

RECONCILIATION OF IFRS NET INCOME WITH EPRA EARNINGS

22 ı

5. INVESTMENT AND LEASING ACTIVITY

5.1 Investments

Investment activity in the first half of 2015

has been as follows:

Alcalá 38-40 acquisition

On 26 March 2015, the Group acquired,

through MERLIN Oficinas, an office building

located in the heart of Madrid,at Alcalá

38-40, for a purchase price of € 38,128

thousand.

ALCALÁ 38-40

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

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

Equity disbursement (€ thousand) 17,128

Debt to acquisition price of asset 55.1%

Annualized gross rent 2015 (€ thousand) 1,985

Annualized net rent 2015 (€ thousand) 1,901

EPRA Gross Yield (1) 5.21%

EPRA Topped-up Initial Yield (2) 4.99%

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

Occupancy rate 100%

WAULT by rents (years) (3) 1.5

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

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

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

The building is located at the junction

of the streets of Alcalá and Gran Vía, in

an area known for its high density and

retail concentration. This area is currently

undergoing a redevelopment alongside

the Canalejas project, which is taking place

at the site of the former Banco Santander

headquarters. The building has a GLA of

9,315 sqm, and is fully let to the Home Office,

until 31 December 2016.


Madrid-Coslada logistics warehouse

acquisition

On 27 March 2015, the Group acquired,

through MERLIN Logistica, a logistics

warehouse located in Madrid, in the

Logistics Transport Centre in Coslada, for a

purchase price of € 19,807 thousand.

The asset is located in Coslada (Madrid),

a consolidated logistics area, known for

its good connection to the A-2 highway

and proximity to Madrid (18 kms.) and the

airport (7 kms.). The acquired asset has a

GLA of 28,490 sqm and is fully let to Azkar

(a subsidiary of Dachser, one of the leading

logistics operators in Europe).

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



MADRID-COSLADA


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


Debt to acquisition price of asset 0%






Occupancy rate 100%


24 ı

Madrid-Meco logistics warehouse

acquisition

On 17 April 2015, the Group acquired,

through MERLIN Logistica II, S.L.U., a

logistics warehouse located in Meco, for a

purchase price of € 22,210 thousand.

The asset is located in the consolidated

industrial area of Meco, Madrid, in the A-2

corridor connecting Madrid with Barcelona

and Zaragoza. The acquired asset has a

GLA of 35,285 sqm and is fully let to Azkar

(a subsidiary of Dachser, one of the leading

logistics operators in Europe).

MADRID-MECO


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


Debt to acquisition price of asset 35.7%






Occupancy rate 100.0%






Lisbon- Expo office building acquisition

On 5 June 2015, the Group acquired,

through MPCVI, a grade-A office building

located in Avenida Dom Joao II, in Parque

das Nações (Expo discrict), for a purchase

price of €18,000 thousand.

The building commands excellent visibility

given its privileged location next to

Vodafone headquarters, Lisbon Casino,

Vasco da Gama shopping center and other

prestigious buildings. The area features

first-class communication infrastructure,

less than 200 meters away from one of the

main intermodal transport hubs in Lisbon,

only 5 minute-drive from Lisbon airport and

10 minute-drive from the city center. The

property, that was designed by Broadway

Malyan and built in 2007, has a GLA of 6,740

sqm. The buildings if fully let to Novabase, a

leading Portuguese IT company.

LISBOA – EXPO










Occupancy rate 100%





26 ı

Portfolio of 33 Caprabo supermarkets acquisition

On 18 June 2015, the Group, through

MERLIN Retail, signed a €9,000 thousand

deposit contract for the acquisition in

September 2015 of 33 supermarkets fully let

on a long-term basis to Caprabo, all of them

located in Cataluña.

The portfolio, that has a GLA of 64,252 sqm,

consists of 19 urban supermarkets and 14 “big

boxes”. By rents, 71% of the supermarkets are

located in Barcelona region, the remaining

29% located in Tarragona, Lérida and Gerona

regions. The properties are well consolidated,

with Caprabo operating them since, on

average, 1993.

CAPRABO





Annualized gross Rent 2015 (€ thousand) 6,957

Annualized net Rent 2015 (€ thousand) 6,927




Occupancy rate 100%






Forward purchase of 3 logistics warehouses in Cabanillas

On 19 June 2015, the Group, through

MERLIN Logistica, signed a forward

purchase agreement to acquire a plot

zoned for the construction of 3 logistics

warehouses located in Cabanillas

(Guadalajara), Upon signature of the forward

purchase agreement, MERLIN disbursed

€11,571 thousand, 25% of the total purchase

price. The delivery of the finished assets is

expected to occur by the end of 2016.

Cabanillas del Campo is located in the third

ring of Madrid (50 kms), in the province of

Guadalajara, with direct access to the A-2

and R-2 motorways, in the largest logistics

hub in Spain, the so called “Corredor de

Henares”. The land plot allows for the

construction of 3 logistics warehouses, with

a total GLA of 103,519 sqm. The agreement

establishes the delivery of the 3 finished

warehouses no later than December 2016.

GUADALAJARA - CABANILLAS





Annualized Gross Rent 2015 (€ thousand) 3,896

Annualized Net Rent 2015 (€ thousand) 3,679




Occupancy rate (forecast) 100%

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

to tenant, divided by the acquisition price of the asset

The purchase price of € 46,6 million (€ 11,6

million already disbursed), can be increased

if an incentive granted to the seller is

achieved, dependent upon the their ability

to sign leases with a minimum mandatory

term of 5 years and a minimum rent of

€ 3.2 /sqm / month.

The main economic data on the assets once

leased-up is as follows:

28 ı

Zaragoza-Plaza logistics land plot acquisition

On 9 April 2015, the Group acquired,

through MERLIN Logistica, a logistics land

plot adjacent to the warehouse already

owned in Zaragoza Plaza, for a purchase

price of € 1,852 thousand. The land plot

has a total surface of 20,347 sqm and

buildability for 24,417 sqm.

Leasing activity

During the first semester of 2015, MERLIN

has signed lease agreements amounting

to 20,679 sqm, out of which 11,524 sqm

correspond to renewals and 9,155 sqm to

new leases.

The breakdown by asset category is as

follows:

By asset category, the main achievements

have been as follows:

Retail. Marineda is undergoing a strong

letting activity, in line with the business plan

laid out for the property. Since acquisition,

asset management has been focused on

three fronts:

• The exit of those tenants with poor sales

performance, low footfall and a profile

below the standards.

7,613

20,679

150

12,917

Retail Office Logistics TOTAL

MERLIN

• The enhancement of the food court

area, removing the kiosks from the mall

and increasing the terrace areas of the

restaurants tenants, improving their

visibility and sales area. Two kiosks have

already exited (291 sqm) and negotiations

continue to remove those left, while in

parallel negotiations with restaurant

operators continue to increase their terrace

areas.

• The creation of a sports themed area

aimed at revitalizing the area where most

of the vacancy is concentrated, with the

exit of the few tenants left, relocation of

existing sports-related tenants to this area,

and new leases with operators related to

the concept. During the period, two lease

contracts have been cancelled with tenants

in this area (120 sqm).

Total take-up has been 12,916 sqm, of which

11,524 sqm are renewals and 1,392 sqm are

new leases. Exits amounted to 850 sqm, and

therefore the net take up is +542 sqm. During

the month of July, three new leases have been

signed for a total of 1,075 sqm, which raised

the occupancy to 90.2% (vs. 89.2% as of 31

March)

Footfall performance continues upwards

with total visitors in the period of 7.6 million

(+8.7% vs. 1H 2014)

Office. Exits were 4,711 sqm and new leases

150 sqm. The exits are concentrated in

buildings 6 and 8 of World Trade Center

Almeda Park.

Logistics. New leases for 7,612 sqm and exits

for 11,559 sqm. All the flow was in Valencia-

Almussafes warehouse, where Johnson

Controls exited and most of the space has

been taken up by the existing tenants (Ford

and Truck & Wheel).


6. STOCK PRICE EVOLUTION

MERLIN shares closed on 30 June 2015

at € 9.657, an increase of 20.6% versus 31

December 2015 closing price. The share has

outperformed in the same period the IBEX-

35 (+4.8%) and the sectorial EPRA reference

index (+9.0%)

Average daily trading volume during the

period has been € 14.7 million, representing

0.8% of the market cap of the company.

With respect to the second half of 2014 (€

6.5 million), the average daily trading volume

has more than doubled.

MERLIN Properties is a member of the Euro STOXX 600, IBEX 35 Medium Cap, FTSE

EPRA/NAREIT Global Real Estate, GPR Global Index, and MSCI Small Cap indexes.

Source: Bloomberg

MERLIN SHARE PRICE PERFORMANCE VS IBEX 35 / EPRA INDEX

DAILY TRADED VOLUME

11

10

9

8

7

€

March 2015February 2015 May 2015 June 2015January 2015

MERLIN +20.6%

EPRA +9.0%

IBEX 35 +4.8%

0

20

40

60

80

€M M

March 2015February 2015 May 2015 June 2015January 2015

Media MERLIN € 14.7 MM

30 ı

7. POST-CLOSING EVENTS

Capital increase

On 7 August 2015, a capital increase

was executed for a total amount of

1,033,696,000 euros by means of the issue

and placing in circulation of 129,212,000 new

ordinary shares, of 1 euro nominal value and

a share premium of 7 euros per share, of the

same class and series as those currently in

circulation.

Testa

On 23 July 2015, MERLIN has acquired

an additional stake of 25.1% from Sacyr

for € 861 million, thus becoming majority

shareholder of the company, with 50.1% of

the equity.

Additionally, on 23 July 2015, MERLIN

has registered with the CNMV the

previous announcement of the request

for authorization to launch a tender offer

for 0.4% of Testa owned by minority

shareholders. The offered price per share is

13.54 euros.

On 12 August 2015, MERLIN has acquired

an additional stake in Testa of 26.913% from

Sacyr, thus totaling a stake of 77.1%.

Other

In July, private contracts have been signed

for the acquisition of 100% of a logistics

asset located in Getafe-Madrid, with a

GLA of 11,487 sqm, and 50% of a retail

asset located in Madrid, with a GLA of

5,981 sqm. In both cases, it is envisaged to

sign the public deeds during the month of

September.


32 ı

PASEO DE LA CASTELLANA, 42

28046 MADRID

+34 91 787 55 30

[email protected]

www.merlinproperties.com

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Informe primer semestre 2015 UK (2) - Merlin Properties

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